AA Chap 11,12,13

As part of the audit testing to satisfy the audit objective “Receivables are not overstated”, the audit senior of a manufacturing company plans a receivables confirmation.

Which of the following approaches would be the most appropriate in these circumstances?

• A random sample selected from the population of individual customers for the year

• A sample selected from the population of individual customers for the year, with a bias towards those having the highest value of transactions in the year

• A random sample selected from the population of customers’ year-end balances

• A sample selected from the population of customers’ year-end balances, with a bias towards large balances

Which of the following statements are NOT true?

1. 1. The higher the inherent risk the greater the sample size

2. 2. The bigger the population the bigger the sample size

3. 3. The lower the acceptable detection risk the lower the sample size

4. 4. The higher the tolerable misstatement the lower the sample size

5. 5. The higher the expected error the lower the sample size

6. 6. The more the population is stratified the lower the sample size

• 2, 3, 5 and 6

• 2 and 5 only

• 1, 4 and 6

• 2, 3 and 5 only

An auditor selects a sample using the total value of trade receivables as the population. The sample is selected as follows:

• - one dollar is selected at random and deemed as the first dollar;

• - individual dollars are then selected at consecutive fixed intervals of $10,000.

Which of the following statements, in respect of this form of sample selection, is the most accurate?

• The basis of sample selection is more suited to the detection of understatement errors than overstatement errors

• The basis of selection would be ineffective where errors occur in the population on a systematic basis

• The basis of selection may be preferred when the book population under examination has a highly skewed value distribution

• The basis of selection ensures that all errors in excess of $10,000 will be detected

What is sampling risk?

• The risk that a sample is not random due to unintentional bias

• The risk that the conclusion based on a sample may differ from the conclusion on the entire population

• The risk that a misstatement due to fraud is not detected in a sample

• The risk that the conclusion based on a sample is incorrect due to the misinterpretation of the results

Which of the following could confirm the existence assertion for a non-current asset?

• Agree the physical asset to the non-current asset register

• Agree the physical asset to the financial statements

• Agree an entry in the non-current asset register to the physical asset

• Agree an authorised capital expenditure requisition to the physical asset

Which of the following audit procedures provides the most relevant evidence to verify the carrying amount of a company’s fleet of cars?

• Checking depreciation rates and calculations for the vehicles

• 1. Examination of the vehicle registration documents

• 1. Inspection of the cars’ insurance certificates

• Physical inspection of the cars

Which of the following would confirm an audit client’s right to use software that is owned by the software developer?

• Inspect the end-user license agreement

• Confirm authentic user log-ins are set up to facilitate access to the software

• 1. Agree an entry in the non-current asset register to the physical item of software installed on the entity’s hardware

• 1. Agree value, treatment of sales tax, description and account allocation to the purchase invoice

Which TWO of the following audit procedures would test for OVERSTATEMENT of non-current assets?

1. 1. Physically inspect a sample of assets selected from the non-current asset register

2. 2. Trace a sample of assets inspected at a location to the non-current asset register

3. 3. Inspect the condition of assets held and assess whether any are impaired

4. 4. Agree disposals recorded in the non-current asset register to proceed in the bank ledger account

• 1. 1 and 2

• 1 and 3

• 2 and 4

• 3 and 4

An audit program for plant and equipment includes the following procedure

“For a sample of additions recorded in the non-current asset register agree the details (e.g. description, amount and date) to the purchase invoice.”

Which of the following assertions is tested by this procedure?

• Completeness

• Existence

• Occurrence

• Rights