Exam 2: Unit 11-20

ISA 230 'Audit documentation states: 'The objective of the auditor is to prepare documentation that provides: (a) A sufficient and appropriate record of the basis for the auditor's report; and (b) Evidence that the audit was planned and performed in accordance with ISAs (UK and Ireland) and applicable legal and regulatory requirements.' Briefly indicate what should be included as part of audit documentation and outline the implications for the audit team as to what to include and what to exclude

The external auditor may seek to place reliance on internal controls in order to restrict substantive testing. In each of the following circumstances, select whether the external auditor is likely to place reliance or place no reliance on internal controls. a. A company with an independent internal audit department b. A family company where the financial director is related to the chief executive c. A company where a fraud committed by the purchasing manager has been uncovered State the main ways in which auditors can gather the evidence they need and provide an example of each method

Explain what is meant by the following terms: (i) Audit risk (ii) Inherent risk (iii) Control risk (iv) Detection risk

Set out the audit objectives for the audit of a purchases and expenses system including the relevant assertions

State whether the following are true or false in relation to computer assisted audit techniques a. The use of CAAT's enables auditors to examine large populations of data b. Auditors use test data to test controls within the client's computer system c. Modern software makes the use of CAATs cheap and easy to do so audit staff don't need any special training d. Embedded software can provide continuous monitoring of client data

You are the audit senior of Wellington Ltd for the year end 31 December 201X, in charge of trade receivables. You are about to start your yearend work and have been given the following extracts by your audit manager for you to consider as part of your planning and analytical review stage. Receivables ledger (ageing extract)

	Current 0-30 days £’000	30-60 days £’000	60-90 days £’000	>90 days	Total £’000
2X11	2,671	1,068	1,068	535	5,342
2X10	1,984	1,190	595	198	3,967

Income statement (extract)

	2X11 £’000	2X10 £’000
Turnover	35,451	36,200
Cost of sales	(28,715)	(27,874)
Gross profit	6,736	8,326

(a) Calculate ratios or percentages that will help your analysis of the sales and trade receivables position for the two years. (b) Explain some of the concerns you have following your initial analysis (in part a) and the resulting potential implications for your audit. (c) You sent out a receivables circularization on the year end balances. Describe the process you would have gone through to do this. (d) Some of the debtors have not responded to your circularization. List the procedures you would now follow for these balances

In relation to selecting customers in a circularisation of receivables: (i) explain how you would use monetary unit sampling to select the customers to circularise (ii) consider the criteria you would use to select individual customers for circularisation using judgement (iii) discuss the advantages and disadvantages of using monetary unit sampling (in (i) above) as compared with judgement (in (ii) above) to select the customers to circularise. Your answer should consider the reasons why it is undesirable only to use judgement to select the customers for circularisation.