KTBCTCNC1 - Chap 7 - others

According to ISA 701, which of the following should be included in the ‘Key Audit Matters’ paragraph in the auditor’s report?

• Matters which required significant auditor attention

• Matters which result in a modification to the audit opinion

• All matters which were communicated to those charged with governance

• All matters which are considered to be material to the financial statements

At the completion stage of the audit, the client is required to sign a letter of representation (management’s representation letter). If management outright refuse to produce a written representation or they do not provide representation on one or more areas requested by the auditor, which of the following is appropriate action for auditor?

(1) The auditor should discuss the matters with management

(2) Re-consider the integrity of the company management – this may have an impact on the reliability of other audit evidence given

(3) The auditor may consider the impact on the auditor report, for example, modify the audit opinion due to an inability to obtain sufficient appropriate evidence

• Statement (1) and (2) are appropriate

• Statement (2) and (3) are appropriate

• Statement (1) and (3) are appropriate

• All of the three above statement are appropriate

“A report to those charge with governance and management which normally include the observations of auditor which identifies the weakness point of internal control, the possible consequences which could result from those weakness and the auditor’s recommendation for improvement. A report to management generally includes a covering letter and an appendix showing the control deficiencies, implication, and recommendation. This is a by-product of the audit and may not be a comprehensive list of deficiencies”

The above statement are describing which of the following report?

• Management letter

• Management representation letter

• Audit report on financial stattement

At the completion stage of the audit, the client is required to sign a letter of representation (management’s representation letter). Which of the following could be included in management representation letter?

• Confirmation of management about fulfilled responsibility for preparation of financial statements in accordance with Financial Reporting framework

• Confirmation of auditor about their independence during carryingout the audit

• Observations of auditor which identifies the weakness point of internal control, the possible consequences which could result from those weakness and the auditor’s recommendation for improvement

At the completion stage of the audit, the client is required to sign a letter of representation (management’s representation letter). Which of the following statements correctly describes the nature of management representation letter?

• A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence

• A report to management would generally include: a covering letter, Appendices showing, typically in tabular format, the control deficiencies, implications and recommendations for improvement

• This report is prepared by auditor and send to management as a by-product of the audit and may not be a comprehensive list of deficiencies

At the completion stage of the audit, the client is required to sign a letter of representation (management’s representation letter). Which of the following statements NOT correctly describes the nature of management representation letter?

• Representations from management are a source of audit evidence but they cannot be used instead of other (better) evidence which the auditor expect to exist

• Representations from management are relatively unreliable as evidence (client generated) therefore corroborative evidence will always be sought

• Representations from management are the most reliable audit evidence and they can be used instead of other evidence which the auditor expect to exist

You are auditing Plastics Co and the overall materiality threshold has been set at $150,000. You are in the phase of an overall review of the financial statements for the year ended 31 December 20X1 prior to the issue of the auditor’s report. The following is included in your assessment of uncorrected misstatement: “Missing invoice in purchases $60,000”. Which of the following action is appropriate if the auditor is to issue an unmodified audit opinion?

• No action is required because this misstatement is below materiality threshold

• No misstatement is required because this misstatement is below materiality threshold. However, this would still be added to the schedule of unadjusted errors as it could end up being material in aggregate

• Adjustment is required. If the management refuse to make audjustment, the auditor have to modify audit opinion

You are auditing Plastics Co and the overall materiality threshold has been set at $150,000. You are in the phase of an overall review of the financial statements for the year ended 31 December 20X1 prior to the issue of the auditor’s report. The following is included in your assessment of uncorrected misstatement: “Revenue relating to next year included in current year, amount of $230,000”. Which of the following action is appropriate for the auditor?

• This misstatement must be discussed with client and an adjustment is proposed. If the management agree to adjust this misstatement, auditor can issue an unmodified audit opinion

• The auditor will issue a qualified (“except for”) opinion without any discussion with management

• No adjustment is required. However, this should be added to the schedule of unadjusted errors as it could end up being material in aggregate

At the completion stage of the audit, the client is required to sign a letter of representation (management’s representation letter). Which of the following could be included in management representation letter?

• Confirmation of management that all relevant information has been provided to auditor

• Confirmation of auditor about their independence during carryingout the audit

• Observations of auditor which identifies the weakness point of internal control, the possible consequences which could result from those weakness and the auditor’s recommendation for improvement

Maison's computerised wages program is backed up daily, however for a period of two months the wages records and back-ups have been corrupted, and therefore cannot be accessed. Wages and salaries for these two months are $1.1m. Profit before tax is $10m. Based on the above information Which of the following correctly summarises the effect of the issue relating to the wages balance in the financial statements of Maison?

• Material misstatement related to “proper accounting records have not been kept”

• Material misstatement related to “Liabilities to tax authorities may be understated”

• Material misstatement related to “Profit may be overstated”

• Immaterial misstatement related to wages and salaries