Extra Question Pack

1. Which of the following should be included in a formal document regarding the responsibilities of the audit committee?
(1) To monitor and review the effectiveness of the newly established internal audit function
(2) To evaluate the balance of skills, experience and independence of board members
(3) To take responsibility for the appointment and removal of the external auditors
(4) To monitor and review the effectiveness of internal financial controls established by the company

A. 1 and 2
B. 1 and 4
C. 2 and 3
D. 3 and 4

2. Indicate, by clicking on the relevant row in the table below, which of the following options correctly describes the deficiency relating to NEDs' remuneration and

(3)

3. Complete the sentences below to provide appropriate recommendations to improve the effectiveness and independence of the IA department.

The head of internal audit should report to the audit committee.

Maria Marquez should be appointed as head of internal audit
The audit team requires more senior staff with audit experience

4. The board has started to compile a list of tasks for the IA department to carry out once it is up and running. It has been agreed that the first assignment to be c
What type of internal audit assignment does this represent?

A. A value for money audit

B. A management audit
C. A financial audit
D. An IT audit

5. When deciding on the role of the IA department in undertaking operational audits, which of the following should the team NOT be involved in?
A. Observing procedures carried out by Sistar Co's staff
B. Reperforming procedures documented in procedures manuals
C. Designing and implementing internal control procedures to address deficiencies
D. Reporting findings directly to the board of directors

6. Which TWO of the following issues could individually cast doubt over the going concern assumption for Oak Co?
A. A number of personnel in the purchasing department left during the year and have not been replaced
B. A major supplier to Oak Co has just gone out of business with a number of unfulfilled orders
C. A new product which was due to account for 30% of revenue has proved to be unsuccessful
D. A litigation claim has been raised against Oak Co after the year end with potential damages totaling 3% of this year's profit

7. As part of your review of the final analytical procedures, you compare the results to the following comments on the audit file
1. The company has increased the sales prices charged to customers while maintaining costs at a level comparable to 20X5
2. The company has become more reliant on its overdraft facility during the year
3. Due to cash restrictions, the company has encountered delays in paying suppliers
4. At the year-end inventory count, a lower level of slow moving inventory was noted compared to prior year
Which of the above comments are INCONSISTENT with the results of the final analytical procedures?
A. 1 and 2
B. 1 and 4
C. 2 and 3
D. 3 and 4

8. Which of the following procedures would provide the MOST reliable evidence in relation to the new business won post year-end?
A. Review of post year-end sales orders from the new customer
B. Inspect email correspondence between the sales director of Oak Co and the new customer
C. Obtain a written representation confirming the level of business agreed with the new customer
D. Review of board minutes discussing the contract with the new customer

9. The initial going concern assessment conducted by the management of Oak Co covers the period to 30 November 20X6.
Which of the following is an appropriate course of action in the circumstances described above?
A. Request management extend the assessment to the date of the auditor's report
B. Design and carry out procedures to only assess going concern in the period from 31 May 20X6 to the date of the auditor's report
C. Request management extend the assessment to cover at least until 31 May 20X7
D. Accept the timeframe used by management as the going concern review is their responsibility

10. The audit engagement partner has concluded that the disclosure included in the financial statements in relation to the loan negotiations is adequate. Addition
Complete the following sentence, identifying what form of auditor's report should be issued.

An auditors report with an unmodified opinion and

a material uncertainty relating to going concern paragraph should be issued.

11. Which of the following statements explains the CUT-OFF assertion for wages and salaries?
A. Wages and salaries have been fairly allocated within the statement of profit or loss
B. Wages and salaries have been appropriately calculated taking into account all relevant taxation costs and adjustments
C. Wages and salaries which have been incurred during the period have been accounted for in respect of all personnel employed by Walker Co
D. Wages and salaries accounted for relate to the current year ended 31 October 20X6

12. The following audit evidence has been gathered in relation to wages and salaries.
Order the evidence, in terms of its reliability, starting with the MOST RELIABLE.

13. The prior year financial statements for Walker Co included $17m for wages and salaries in the statement of profit or loss.
What would be the estimated current year wages and salaries expense, ignoring redundancy costs, based upon the data gathered by the review of the audit files
A. $16,740,000
B. $16,893,000
C. $16,815,000
D. $18,600,000

500 employees 10% made redundant 450

6% pay rise for 10 monthhs 34000 2833.333333 170 765000

fix bonus of 1500 per employee 675000

15300000 765000 675000 16,740,000.00

14. Which TWO of the following are substantive ANALYTICAL PROCEDURES for wages and salaries?
A. Trace and agree the total wages and salaries expense per the payroll system to the draft financial statements
B. Recalculate the gross and net pay for a sample of employees, agree to payroll records and investigate discrepancies
C. Compare the current year total payroll expense to the prior year and investigate any significant differences
D. Perform a proof in total calculation and compare expected expense to actual expense within the draft financial statements to identify varian

15. Which of the following is not an assertion in SOPL ?

A. Rights and obligations
B. Cut off
C. Existence
D. Occurrence
elating to NEDs' remuneration and makes a valid recommendation for improvement.

he IA department.

ed that the first assignment to be completed will be for IA to review Sistar Co's processes over capital expenditure to verify if the right items are purchased at an appropriate time

T be involved in?
negotiations is adequate. Additionally, the audit partner has commented that this disclosure is fundamental to the users' understanding of the financial statements.

ed by Walker Co

red by the review of the audit files?

ements to identify varian
are purchased at an appropriate time and competitive price.
he financial statements.
Key ratios used in analytical procedures

Profitability

ROCE (return on capital employed) = Profit before interest and tax (PBT) / TALCL (total assets less current liabilities)

Gross profit margin (GP margin) = Gross profit / revenue

Operating profit margin = PBT / revenue or Operating profit / revenue

Liquidity

Current ratio = Current assets / Current liabilities

Quick ratio (acid test) = (Current assets - Inventory) / Current liabilities

Inventory days = Inventory / COS * 365 days

Receivables collection period = Trade receivables / Credit sales * 365 days

Payables payment period = Trade payables / Credit purchases * 365 days

Gearing

Debt / equity = Interest bearing debt / Capital reserves