Paper T8 (INT) Implementing Audit Procedures (International Stream) Monday 14 December 2009

Transcription

1 ertifi ed ccounting Technician Examination dvanced Level Implementing udit Procedures (International Stream) Monday 14 ecember 2009 Time allowed Reading and planning: Writing: 15 minutes 3 hours This paper is divided into two sections: Section LL TEN questions are compulsory and MUST be attempted Section LL FOUR questions are compulsory and MUST be attempted o NOT open this paper until instructed by the supervisor. uring reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall. Paper T8 (INT) The ssociation of hartered ertified ccountants

2 Section LL TEN questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the andidate nswer ooklet to indicate your chosen answer to each multiple choice question. Each question in this section is worth two marks. 1 Which of the following statements correctly describes the principal purpose of an external audit of a limited liability company? To assist in the preparation of the company s fi nancial statements. To prevent fraud within the company. To examine and express an opinion on the company s fi nancial statements. To assist the directors in improving the company s fi nancial reporting process. 2 Which of the following is the key characteristic of a systems-based audit? The auditor ascertains and records the client s accounting system. The auditor makes use of computer assisted audit techniques. The client has a computer-based accounting system. The auditor seeks to rely on internal controls. 3 Which of the following papers would normally be retained on the permanent file maintained for a limited liability company audit client? ompleted checklist of statutory disclosure provisions. Extracts of minutes of meetings of the directors. Letter of representation. opy of the company s legal constitution. 4 Which of the following are management controls? 1 The separation of authorisation, execution, custody and recording functions. 2 Monthly reporting to the directors of inventory levels. 3 Review of management accounts and comparison to budgets. 4 The internal audit function. 1, 2 and 3 2, 3 and 4 1, 2 and 4 1, 3 and 4 5 Which of the following controls would provide the most positive assurance as to the completeness of the sales figure recorded in the financial statements of a manufacturing company? Segregation of sales between the preparation of goods despatched notes and the preparation of the sales invoices. The issue of pre-numbered sales invoices for every sales transaction and internal checking for completion of processing. The use of a pre-numbered goods despatched note for every sales transaction and internal checking for completeness of processing. uthorisation of all sales invoices by the sales manager prior to processing. 2

3 6 What primary audit objective is an auditor seeking to confirm when carrying out a physical inspection of the plant and equipment of a company? Ownership of the assets. Existence of the assets. Ownership and existence of the assets. Valuation of the assets. 7 Which of the following procedures carried out at an inventory count by an auditor is a test primarily for overstatement of inventory? Ensure completeness of sequence of pre-numbered inventory sheets at the conclusion of the count. heck valuation of slow-moving or obsolete inventory lines. heck that inventory held at third party locations are included in the count. gree items that have been counted (including items of high value) to inventory sheets. 8 Which of the following data should NOT be held on a wages master file of a company for an individual employee of a company? uthorised rate of pay. Employees identifi cation number. umulative statutory deductions to date. ate of commencement of employment. 9 Which of the following elements, relating to a company s operations, should an internal audit department review? 1 Reliability and integrity of fi nancial and operational information. 2 Effectiveness and effi ciency of operations. 3 Safeguarding of assets. 4 ompliance with laws, regulations and contracts. 1 and 4 only 2 and 3 only 2, 3 and 4 1, 2, 3 and 4 10 Which of the following is NOT a necessary component of a standard audit report for a limited liability company? title identifying to whom the report is addressed. Identifi cation of the fi nancial statements audited. onfi rmation of the accounting convention used in preparing the fi nancial statements. onfi rmation of the directors responsibility in connection with the preparation of the fi nancial statements. (20 marks) 3 [P.T.O.

4 Section LL FOUR questions are compulsory and MUST be attempted 1 ountry o is a long-standing audit client of your fi rm, and it has a good control environment. The company manufactures photocopying machines at a large production site which houses both factory and warehouse premises and also a large offi ce administration block. Its directors are all located on site as are the company s purchasing, sales, accounting, personnel and general administration functions. The company operates a batch control system over the posting of invoices and credit notes to its accounting ledgers. s a member of the team to be involved in the audit of ountry o s fi nancial statements for the year ending 31 March 2010 you will assist Jenni oe, an audit senior, in the audit of purchases. s such you will have involvement in ascertaining, recording and evaluating the purchases and trade payables system and you will have to carry out walk-through tests. (a) State FOUR objectives of the internal controls that should be exercised over the purchases and trade payables system of ountry o. (b) Identify and explain the THREE methods by which you should ascertain the purchases and trade payables system of ountry o. (6 marks) (c) Explain the purpose and nature of a walk-through test from an audit perspective. (d) escribe SIX internal controls that should exist over the procurement of manufacturing components by ountry o from the ordering of components through to the authorisation of purchase invoices/credit notes prior to the batching of these for posting to the company s general and trade payables ledgers. For each stage of the procurement process you should identify the documentation that should exist and the controls that should be exercised over it. (12 marks) (25 marks) 4

5 2 Skiffl e o is a large company and a leading single site manufacturer of go-karts and quad bikes. Owing to increasing demand for its products, the company has signifi cantly increased its scale of operations over the last 12 months. This has resulted in a bigger workforce and the carrying out of substantial repairs, renovations and extension programme to its factory and administration buildings. Using various fi nancing methods, since January 2009 Skiffl e o has also invested heavily in replacement and additional plant and machinery. s a part of the audit team engaged on the audit of the company s fi nancial statements for the year ended 30 November 2009, you recently attended an audit planning briefi ng meeting. t the meeting, your audit manager confi rmed that your fi rm would adopt a risk-based approach to the audit of the fi nancial statements and stated that the area of tangible non-current assets is of high inherent risk. Your manager also acknowledged that in arriving at a conclusion for certain areas of the fi nancial statements your fi rm may need to rely on evidence provided by experts. (a) State the objective of a risk-based approach to the audit of financial statements and explain how it is used to direct audit resources to areas of high financial statement risk. (10 marks) (b) Identify and explain FOUR inherent risk factors that you would associate with the non-current assets area of the financial statements of Skiffle o. (10 marks) (c) State TWO of the three factors that your manager should consider at the planning stage of the audit when deciding whether expert evidence will be required in arriving at an audit opinion. (2 marks) (d) State THREE matters that auditors should consider in evaluating whether a specified expert has the necessary competence, capabilities and objectivity for the purpose of providing reliable audit evidence. (25 marks) 3 Rock o is an engineering company with a good control environment and well documented procedures. s part of the team engaged in the audit of the company s fi nancial statements for the year ended 30 September 2009, you are aware that various members of the team have carried out detailed audit procedures. For each procedure listed below, explain the purpose of carrying it out: (a) Forwarding of a bank confirmation request letter to Rock o s bankers. (b) Examination of supplier statement balances as at 30 September (c) ut-off tests on inventory, purchases and sales. (d) nalytical procedures at the final review stage of the audit. (15 marks) 5 [P.T.O.

6 4 Three employees of your fi rm lan me, Steve Sim and Vicki Ven recently attended an auditing seminar. lan is an associate member of, and Steve is a student member. Vicki has a university degree in accountancy, has been with the fi rm for several years but has no desire to become an member. Therefore, she has not registered as a student of. t the seminar, the speaker explained s ode of Ethics and onduct providing detailed coverage of the ode s fundamental principles comprising integrity, objectivity, professional competence and due care, confi dentiality, and professional behaviour. He also covered the conceptual framework for applying the fundamental principles and identifi ed circumstances which may give rise to specifi c threats to compliance with the principles. fter the seminar, in conversation with Steve, Vicki expressed her concern that she had previously been unaware of the ode of Ethics and onduct but would endeavour to comply with it in future. Steve had understood that the ode applied only to fully qualifi ed members and that compliance was voluntary for student members of. He therefore advised Vicki that neither of them need have any concerns about complying with the ode. (a) omment on the accuracy of the advice given to Vicki Ven by Steve Sim. (b) escribe the obligation that any TWO of the following fundamental principles of s ode of Ethics and onduct places upon members: (1) Integrity (2) Objectivity (3) Professional behaviour. (c) ompliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Such threats may fall into the following categories: (1) Self-review (2) Familiarity (3) Intimidation. For each of the above categories of threat: (i) escribe the circumstances in which the threat may arise; (ii) Identify TWO specific circumstances in an audit situation which give rise to the threat to an auditor. (6 marks) (15 marks) End of Question Paper 6