AUDIT AND ASSURANCE

MOCK TEST -1

MOHAMD ASHIK ILAHI .G

SECTION -A

1. FAMILAIRTY -2YEARS
2. A
3. D
4. B,C,E
5. A,C,E
6. EXISTENCE,RIGHTS AND OBLIGATIONS, CUTOFF
7. REDUCATION OF 21 DAYS -UNDERSTATEMENT OF RECEIVABLES
8. A
9. D
10. A,D
11. D,E
12. A
13. A,B
14. D
15. B

SECTION -B
A) CONTROL OBJECTIVE, CONTROL ACTIVITY,TEST OF CONTROL

Control objective
1.Clock cards - employees are only paid actually done
Control activity
Clock cards a record time and supervision of clock card use
Test of control
Observe the use of supervision of clocking in and out to benefit for employee are
not clock in other

b)
 Deficiencies
The clocking in and out process is not supervised
The risk is some staff are clock in other staff and
some staff is not working staff will payments
Maddie collect the clock cards from rack in each
café and post them to payroll service
organisation no in house accountancy expertise
The payroll department can post to payroll sevice
organisation more errors will occurs because no
accountancy expertise are not there
At the end of each month the café manager can
divides the amount by the total hours worked by
the each employee and give them share in cash
no records of these amount are retained
There is risk some staffcan work more hours and
some staff not work and get benfiet of each of
them and amount not shown it additional payroll
costs accured
Once the employee are clocked in they are
entitled to sit and have a drink and something to
eat before the starting work
The employee can only clocked in and drink and
eat the do not focus on the work only working for
payment it leads loss the company goodwill
Customers often leave a gratuity for the staff
when their pay the pay bill. These the gratuities
are left by the customer
The staff member can forget to enter the pay bill
by the customer and error are made in the cash
register and leads loss revenue and loss customer
goodwill
c)
Control
The cash register is pre programmed with price
of each menu item including the if they Attract
sales or not and prices can only be adjusted by
Maddie
Recommendation
The clocking process was supervised by the
responsible official and some controls are place
to monitor the clock in and out process to
prevent the fraudulent staff can get payments
the payroll manager can appointed the sufficient
experience accountant knowledge person to
payroll service organisation
The payroll supervisor can asked the report to
manager payment of wages and salaries and
recalculate total gross and netpay to compare
the payroll records if any discrepancies arise
discuss with management
The supervisor can monitor the work he assigned
work more to get involve the company activities
and only employee can take break and that time
only eat and drink any other members can
observe the work of employees
Some of senior staff can recalculate the cash
register and any error made to investigate
immediately. The cash register can maintain the
daily basis by staff and reviewed by senior staff
member
Test of controls
Inspect the cash register some product can buy
from café and will ensure to reflect sales tax or
not and ensure some staff can attempt to try to
adjust price and will reject process
 This ensure the customer can buy the product
and pay the central cash register to will correctly
payment will be detect and ensure the customer
can buy the product it will attract the sales tax or
not and if any staff cannot the prices because
only adjust by the maddie
At each of each day the cash register the Observe the cash register can produce the total
produces the total sales and split between the sales and split between cash and card amount
cash and card payments amount and sales are and ensure the control are performed effectively
recordings in the accounting system analyzed by
the café and payments method

This is useful for manager to easily trace the

customer who cannot pay amount to identify the
timely basis and timely basis
Six members of staff serving the customer during
the shift only the café manager and one other
staff are authorized to use the cash register and
taken the payment from customers
Sample of staff can attempt to taken payments
from customer use cash register and will not
allow to access and check control are working
effectively

This will reduce the theft of the payments and

make sure the cash register are safe and secure t
There is CCTV camera are positioned above the Review the recording of cash register and ensure
cash the cash register recording during the the correctly recording and check the CCTV
opening time of each café control are effectively processing

This will ensure the reduce manipulation of the

cash register and theft of any amount from cash
register

D) SUBSTATIVE PROCEDURES OF REVENUE

 Compare the overall level of revenue against the budget and prior years and investigate any
significant fluctuations
 Calculate the gross profit margin and compare the this to prior years and investiagate any
significant fluctuations
 Select the sample of customer order agree them to despatch notes and sales invoice through
inclusion in sales day book
 Recalculate the discounts and sales tax applied for sample of large levels
 Inspect the good despatched notes both pre and post year end ensure the have been recorded
in sales day book in the correct account period

17

2005 2004
GROSS PROFIT RATIO=26%
OPEARTING PROFIT RATIO=23%
INVENTORY HOLDING PERIOD=111DAYS
PAYBALES COLLECTION PERIOD=71DAYS
RECEIVABLES COLLECTIONS PERIOD=30DAYS
CURRENT RATIO=2.4
AUDIT RISKS
Reedme co is new client for hood co
As the time is not familiar with accounting
policies and transactions and balance due to
increased the detection risk
The brand was purchase at a cost of $4million
and has been expensed in the financial statement
of profit and loss
Intangible included in the expenses will be
misstated if expenditure treated correctly
Reedme co tookout five year loan $6m
The loan liability will split between current
liabilities and non current liabilities otherwise
the misclassification of errors
A full inventory count will be performed at the
year end however the due high volumes of
inventory should be expected to take up three
days
Under the system all the inventory will count at
aleast of one year
In this case the high volumes of inventory will
take to count three days.
Inventory will over or understated
The loan has a convenant attached which
requires an interest cover of 2.5 otherwise the
loan will repayable on demand
The risk is manipulation of profit to ensure is
convenant is met
The risk that liability will incorrectly allocated the
non current liability rather than current liability
If the covenants is breached
If the company sufficient cash to repay the loan
=31%
=13%
=92DAYS
=55DAYS
=31DAYS
=3
AUDITOR RESPONSES
As the hood co can suitable experience team is
assigned to audit the financial statement and
adequate time to allocated to understanding the
company and risk of misstatement and key berief
of audit
Review the breakdown of cost and agree the
invoice to asses the nature of expenditure if
capital include the intangible assets if expenses
agree to include the statement of profit and loss
Review and recalculate the loan liability ensure
the correctly split between current and non
current assets and disclousure of loan should be
reviewed in detail and ensure compliance with
accounting standards and legislation
Completeness of inventory count should be
reviewed and any controls over count to
adjustments to should be tested
The audit team maintain the professional
scepticism and be alert the risk of profit
overstated and ensure the compliance
 the indicate the going concern and inadequate
disclouress are of going concern issues

18

A) Types of misstatement
Factual misstatement
The misstatement is about which there is no doubt

Judgemental misstatement
A difference in account estimates that the auditor consisders unreasonable or the selection
or the appalicable acoocunting polices that auditor is inappropriate

Projected misstatement
Projected misstatement is the auditor best estimate of the total population
through the projection misstatement identified as sample

b) audit procedures of loan liability

 Obtain the breakdown of all loans outstanding at the year end cast and agree to verify
arithemetical accuracy
 Agree the bank balance outstanding to bank confirmation letter
 Inspect the bank confirmation letter for any loans listed have not included the financial
statement
 Inspect the cash book for loan repayments
 Recalculate the split between non current liabilities and current liabilities

Audit procedures for inventory

 Observe the counting teams to confirm whether the inventory count instructions are
correctly followed
 Observe the procedures for the movements of inventory during the count to confirm
that all movements ceesed
 Confirm the procedures for identifying and segregating damage the goods are operating
correctly.