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Certified Accounting Technician Examination Advanced Level

Implementing Audit Procedures (UK Stream)
Monday 14 December 2009

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A – ALL TEN questions are compulsory and MUST be attempted Section B – ALL FOUR questions are compulsory and MUST be attempted Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper T8 (UK)

To examine and express an opinion on the company’s financial statements. Extracts of minutes of meetings of the directors. Review of management accounts and comparison to budgets. execution. custody and recording functions. The issue of pre-numbered sales invoices for every sales transaction and internal checking for completion of processing. Letter of Representation. 3 Which of the following papers would normally be retained on the permanent file maintained for a limited company audit client? A B C D Completed checklist of statutory disclosure provisions. Copy of the company’s legal constitution. 3 and 4 5 Which of the following controls would provide the most positive assurance as to the completeness of the sales figure recorded in the financial statements of a manufacturing company? A B C D Segregation of sales between the preparation of goods despatched notes and the preparation of the sales invoices. Monthly reporting to the directors of stock levels. The auditor makes use of computer assisted audit techniques. To prevent fraud within the company. 2 and 3 2. 2 Which of the following is the key characteristic of a ‘systems-based audit’: A B C D The auditor ascertains and records the client’s accounting system. To assist the directors in improving the company’s financial reporting process. 4 Which of the following are management controls? 1 2 3 4 A B C D The separation of authorisation.Section A – ALL TEN questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. The use of a pre-numbered goods despatched note for every sales transaction and internal checking for completeness of processing. Each question in this section is worth two marks. 2 and 4 1. 1 Which of the following statements correctly describes the principal purpose of an external audit of a limited company? A B C D To assist in the preparation of the company’s financial statements. 3 and 4 1. The client has a computer-based accounting system. The internal audit function. 1. The auditor seeks to rely on internal controls. 2 . Authorisation of all sales invoices by the sales manager prior to processing.

Agree items that have been counted (including items of high value) to stock sheets. 7 Which of the following procedures carried out at a stock count by an auditor is a test primarily for overstatement of stock? A B C D Ensure completeness of sequence of pre-numbered stock sheets at the conclusion of the count. Date of commencement of employment. Ownership and existence of the assets. Cumulative statutory deductions to date. Compliance with laws. Safeguarding of assets. 2. . 1 and 4 only 2 and 3 only 2.O. 9 Which of the following elements. relating to a company’s operations. Valuation of the assets. should an internal audit department review? 1 2 3 4 A B C D Reliability and integrity of financial and operational information. 3 and 4 10 Which of the following is NOT a necessary component of a standard audit report for a limited company? A B C D A title identifying to whom the report is addressed. 8 Which of the following data should NOT be held on a wages master file of a company for an individual employee of a company? A B C D Authorised rate of pay. Identification of the financial statements audited. Existence of the assets. regulations and contracts. Confirmation of the accounting convention used in preparing the financial statements.6 What primary audit objective is an auditor seeking to confirm when carrying out a physical inspection of the plant and equipment of a company? A B C D Ownership of the assets.T. (20 marks) 3 [P. Confirmation of the directors’ responsibility in connection with the preparation of the financial statements. 3 and 4 1. Check valuation of slow-moving or obsolete stock lines. Effectiveness and efficiency of operations. Check that stock held at third party locations are included in the count. Employees’ identification number.

Section B – ALL FOUR questions are compulsory and MUST be attempted 1 Country Limited is a long-standing audit client of your firm. (6 marks) (c) Explain the purpose and nature of a walk-through test from an audit perspective. and it has a good control environment. (4 marks) (b) Identify and explain the THREE methods by which you should ascertain the purchases and trade creditors system of Country Limited. (3 marks) (d) Describe SIX internal controls that should exist over the procurement of manufacturing components by Country Limited from the ordering of components through to the authorisation of purchase invoices/credit notes prior to the batching of these for posting to the company’s nominal and trade creditors ledgers. The company manufactures photocopying machines at a large production site which houses both factory and warehouse premises and also a large office administration block. Required: (a) State FOUR objectives of the internal controls that should be exercised over the purchases and trade creditors system of Country Limited. The company operates a batch control system over the posting of invoices and credit notes to its accounting ledgers. For each stage of the procurement process you should identify the documentation that should exist and the controls that should be exercised over it. in the audit of purchases. personnel and general administration functions. accounting. As a member of the team to be involved in the audit of the financial statements of Country Limited for the year ending 31 March 2010 you will assist Jenni Coe. an audit senior. recording and evaluating the purchases and trade creditors system and you will have to carry out walk-through tests. (12 marks) (25 marks) 4 . As such you will have involvement in ascertaining. Its directors are all located on site as are the company’s purchasing. sales.

the company has significantly increased its scale of operations over the last 12 months. (4 marks) (4 marks) (4 marks) (3 marks) (15 marks) 5 [P. . Required: For each procedure listed below. you are aware that various members of the team have carried out detailed audit procedures. (2 marks) (d) State THREE matters that auditors should consider in evaluating whether a specified expert has the necessary competence. (10 marks) (b) Identify and explain FOUR inherent risk factors that you would associate with the fixed assets area of the financial statements of Skiffle Limited. (d) Analytical procedures at the final review stage of the audit. As a part of the audit team engaged on the audit of the company’s financial statements for the year ended 30 November 2009. Required: (a) State the objective of ‘a risk-based approach to the audit of financial statements’ and explain how it is used to direct audit resources to areas of high financial statement risk. (b) Examination of supplier statement balances as at 30 September 2009. At the meeting.O. purchases and sales. your audit manager confirmed that your firm would adopt a risk-based approach to the audit of the financial statements and stated that the area of tangible fixed assets is of high inherent risk. As part of the team engaged in the audit of the company’s financial statements for the year ended 30 September 2009. (10 marks) (c) State TWO of the three factors that your manager should consider at the planning stage of the audit when deciding whether expert evidence will be required in arriving at an audit opinion. Your manager also acknowledged that in arriving at a conclusion for certain areas of the financial statements your firm may need to rely on evidence provided by experts. (3 marks) (25 marks) 3 Rock Limited is an engineering company with a good control environment and well documented procedures. This has resulted in a bigger workforce and the carrying out of substantial repairs. Owing to increasing demand for its products.T. since January 2009 Skiffle Limited has also invested heavily in replacement and additional plant and machinery. you recently attended an audit planning briefing meeting. renovations and extension programme to its factory and administration buildings. capabilities and objectivity for the purpose of providing reliable audit evidence. (c) Cut-off tests on stock. explain the purpose of carrying it out: (a) Forwarding of a bank confirmation request letter to the bankers of Rock Limited.2 Skiffle Limited is a large company and a leading single site manufacturer of go-karts and quad bikes. Using various financing methods.

Vicki expressed her concern that she had previously been unaware of the Code of Ethics and Conduct but would endeavour to comply with it in future. (3 marks) (ii) Identify TWO specific circumstances in an audit situation which give rise to the threat to an auditor. Steve had understood that the Code applied only to fully qualified ACCA members and that compliance was voluntary for student members of ACCA. and professional behaviour. Required: (a) Comment on the accuracy of the advice given to Vicki Ven by Steve Sim.4 Three employees of your firm – Alan Ame. the speaker explained ACCA’s Code of Ethics and Conduct providing detailed coverage of the Code’s fundamental principles comprising integrity. professional competence and due care. Alan is an associate member of ACCA. At the seminar. and Steve is a student member. confidentiality. Steve Sim and Vicki Ven – recently attended an auditing seminar. Therefore. (3 marks) (b) Describe the obligation that any TWO of the following fundamental principles of ACCA’s Code of Ethics and Conduct places upon members: (1) Integrity (2) Objectivity (3) Professional behaviour. objectivity. (6 marks) (15 marks) End of Question Paper 6 . He also covered the conceptual framework for applying the fundamental principles and identified circumstances which may give rise to specific threats to compliance with the principles. has been with the firm for several years but has no desire to become an ACCA member. Vicki has a university degree in accountancy. in conversation with Steve. (3 marks) (c) Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. For each of the above categories of threat: (i) Describe the circumstances in which the threat may arise. Such threats may fall into the following categories: (1) Self-review (2) Familiarity (3) Intimidation. After the seminar. she has not registered as a student of ACCA. He therefore advised Vicki that neither of them need have any concerns about complying with the Code.