You are reviewing the audit files of Monty Ltd with a view to finalising the audit. From
your review of the files you identify the following factors . Identify whether or not they
can be
a) Ignored
b) Whether the financial statements might have to be amended
c) Whether or not the financial statements should include a reference by way of a note
without any adjustment to the figures
In the table below tick the response you feel is the most appropriate
The role of the Auditing Practices Board does not include
a) establishing high standards of auditing
b) meeting the developing needs of users of financial information
c) ensuring public confidence in the auditing process
d) issuing International Accounting Standards
An external auditor is required to carry out a final review to ensure their conclusions are
supported by sufficient reliable evidence
Select whether each of the statements below is true or false in connection with the final
audit review
True False
a) Auditors should carry out analytical review procedures on the financial statements
b) The audit report should include a disclaimer to the effect that the auditor’s report is
purely for the shareholders
c) Where audits are particularly complex or large the files should be subject to a hot
review by a second audit partner before being signed off
d) All weaknesses in internal controls should be reported to management in a letter of
weakness even if they have been reported in previous years
State whether each of these statements are true or false
a) Auditors have no responsibility for validating comparative figures providing the audit
report
for the previous financial period has not been modified
b) Auditors must check that the opening balances have been brought forward correctly
into the new accounting period
c)Where the financial statements for the previous accounting period were audited by
another firm the incoming auditors must get confirmation from the outgoing auditors
that their auditor’s report is unchanged
Greenfumb is a company which operates a chain of garden centres specialising in the
retailing of high quality garden products and the provision of landscaping services.
Following information from one of the employees, it was discovered that the financial
controller had used company cheques and bank transfers to pay for goods and services
for his own use. Although the amounts involved were immaterial in the context of the
financial statements, it transpired that this had been going on for several years.
The managing director is considering whether the company’s auditors were negligent.
He has requested that your firm undertakes a detailed independent review of
Greenfumb’s purchase and payments system in order to establish any shortcomings in
its policies and procedures, so that they can be rectified.
Required:
(a) Distinguish between the responsibilities of the management and the statutory auditor
of a limited company for the prevention and the detection of fraud and outline how
these responsibilities are discharged.
(b) Prepare a list of questions in respect of internal control procedures,
Decide whether or not these statements are true or false
a) Auditors owe a duty of care to potential investors in their client
b) Auditors may reduce the consequences of a negligence claim against them by
operating as a limited liability partnership
c) In order to prove a successful claim for negligence the client only has to suffer a loss
which is the fault of the auditors
You are the audit senior of Wellington Ltd for the year end 31 December 2X11, in
charge of trade receivables. You are about to start your year end work and have been
given the following extracts by your audit manager for you to consider as part of your
planning and analytical review stage.
Receivables ledger (ageing extract)
Income statement (extract)
(a) Calculate ratios or percentages that will help your analysis of the sales and trade
receivables position for the two years.
(b) Explain some of the concerns you have following your initial analysis (in part a) and
the resulting potential implications for your audit.
(c) You sent out a receivables circularisation on the year end balances. Describe the
process you would have gone through to do this.
(d) Some of the debtors have not responded to your circularisation. List the procedures
you would now follow for these balances.
Management representations are a source of audit evidence. These representations may
be oral or written, and may be obtained either on an informal or formal basis. The
auditors will include information obtained in this manner in their audit working papers
where it forms part of the total audit evidence.
Discuss the implications for the auditor of a small company, if the directors refuse to
sign the letter of representation.
You are an audit manager with Tickett & Run. One of your clients, Bolington Limited,
has recently asked your firm to perform a limited review of the financial statements.
During your review, you discovered a cash payment of $50,000. You have asked
the company for details of this payment, and the directors have told you that it was an
agency fee, and they cannot tell you any more details as the company would lose its
competitive advantage. Profit before tax is $2m.
Your audit supervisor is happy with this explanation, and has proposed a draft review
report with the following opinion paragraph:
‘Based on our review nothing has come to our attention which indicates that the
financial statements do not give a true and fair view’.
Discuss the validity or otherwise of the suggested opinion, and discuss the
appropriateness of alternative opinions and suggest suitable wording for the opinion
you consider to be most appropriate.
List five threats to auditor independence and provide an example of each
Briefly describe three audit strategies
Explain what is meant by the following terms: (i) audit risk (ii) inherent risk (iii) control
risk (iv) detection risk