Foundations in Audit Quiz 2

The auditors believe that the inventory of X Co. is overstated by an amount which is material but not pervasive. The directors have refused to correct the financial statements. What form of audit opinion would the auditors issues?

• Unmodified

• Qualified

• Disclaimer

• Adverse

Which of the following situations will lead to an unmodified opinion?

• The directors have refuded to write off a material debt which the auditors believe is irrecoverable.

• A low value director’s loan has not been disclosed properly.

• A material uncertainty about whether the going concern basis of accounting is appropriate exists and has been appropriately disclosed in the financial statements.

• There was no system of control over cash sales which represent 10% off total turnover and the auditors were unable to satisfy themselves that cash sales were fairly stated.

Which of the following statements is true about the auditor’s responsibilities regarding subsequent events up to the date of the auditor’s report?

1. 1. The auditor must obtain sufficient, appropriate evidence that all such events that require adjustment or disclosure in the financial statements have been identified.

2. 2. Procedures must included enquiries of management.

• 1 only

• 2 only

• 1 and 2

• Neither 1 nor 2

The payables ledger clerk at Pagham Co compares supplier statements which payables ledger accounts on a monthly basis. This action supports which of the following assertions?

• Classification

• Rights and obligations

• Existence

• Completeness

Which of the following procedures is most reliable in confirming the valuation of a client’s bank balance?

• Inspecting the cash book

• Inspecting the bank reconciliation

• Inspecting the bank statement

• Inspecting the bank letter

Which of the following is the auditor least concerned with in respect of the year-end inventory balance?

• Existence

• Valuation

• Occurrence

• Completeness

Which of the following is not an objective of audit planning?

• To assign work to the audit team

• To identify risk areas and focus on them appropriately

• To identify potential problems and resolve them

• To agree the scope of the engagement with management

What does the statement ‘to ensure that goods and services are only supplied to customers with good credit ratings’ describe?

• Risk

• Control objective

• Control activity

• Test of controls

Which of the following controls identified when evaluating a sales system would provide positive assurance to an auditor in respect of the key question ‘can goods and services be supplied to a bad credit risk’?

• References are obtained for new customers

• Goods are verified to sales order prior to despatch

• Invoice prices prepared from authorized selling prices

• Receivables statements are prepared

Which of the following controls helps to ensure that non-current assets are depreciated in line with company policy?

• Limited access to non-current assets

• Periodically verifying that assets listed in the non-current asset register exist

• Review of records that show significant profits on disposal

• Obtaining authorization for capital purchases