Audit sampling is the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
You are carrying out a review of payments to suppliers with the aim to identifying at least one instance of fraud. Which of the following would be the most appropriate sampling technique to use?
New credit policies have been implemented to prevent entering any new sales order that would cause customers’ accounts receivable balance to exceed average sales for any two-month period in the prior twelve month period resulting in controlled collectability. After implementation there were decreased sales and slower order entries as reported from divisional sales management. Division management contends that these are a direct result of the new credit policy constraints.
Sales management’s data and information provides
Your firm has recently been appointed as auditor to Crate Ltd for the year ending 31 October 2012. This is the first year of audit for Crate Ltd as it fell below the statutory audit exemption limits for the year ended 31 October 2011, which was the company's first period of trading.
Which of the following is NOT a matter to be considered in respect of the opening balances of Crate Ltd?
An auditor performs an analytical review by comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years. The auditor notes a significant increase in the gross margin at one division. The auditor does the preliminary investigation and notes that there were no changes in products, production methods, or divisional management during the year.
Based on the above information, the most likely cause of the increase in gross margin would be
The production department of Cates Ltd is headed by Brad Hogg, whose deputy is Michael. Brad reports to the managing director, John Silver. There are several other departments namely sales and marketing, treasury, accounting, production, processing, purchasing, HR and internal audit.
Which of the following is the BEST method to make ‘purchase orders’ from production department?
The auditor finds a situation where one person has the ability to collect receivables, make deposits, issue credit memos, and record receipt of payments. The auditor suspects the individual may be stealing from cash receipts.
Which of the following audit procedures would be most effective in discovering fraud in this scenario?
The financial statements are the management's responsibility. They should therefore inform the auditors of any material subsequent events between the date of the auditor’s report and the date the financial statements are issued. If, after the date of the auditor's report but before the financial statements are issued, the auditor becomes aware of a fact that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report.
In the above situation, which of the following may NOT be an appropriate action taken by the auditor?
When preparing audit documentation, the auditor of a smaller entity may find it helpful and efficient to record various aspects of the audit together in a single document, with cross-references to supporting working papers as appropriate. Examples of matters that may bedocumented together in the audit of a smaller entity include the understanding of the entity and its internal control, the overall audit strategy and audit plan, materiality, assessed risks, significant matters noted during the audit, and conclusions reached.
Which one of the following would not be included in the overall audit strategy?
Panama and Co has been asked to take on the role of internal auditor at one of its clients and would be responsible for implementing its own recommendations.
Which of the following will NOT be considered by external auditors in their assessment of whether to use the work of internal audit?
Internal auditors and management have become increasingly concerned about computer fraud. Which of the following control procedures would be least important in preventing computer fraud?
Auditing standards require that the auditor and the client agree on the terms of the engagement. The agreed terms must be in writing and the usual form would be a letter of engagement. Any other form of appropriate contract, however, may be used.
Which of the following is NOT a benefit of an engagement letter in respect of assurance services?
The management of Tory Bank Ltd suspects that a bank loan officer frequently made loans to fictitious companies, disbursed loan proceed to his wife’s accounts, and then the loan has been written-off as irrecoverable. Some significant facts about the loan officer include
•A high standard of living, explained as the result of sound investments and not taking vacations
•An expensive personal car obtained through business contacts
•Gasoline and repair bills submitted for an assigned company car that is higher than company average (mileage logs were submitted on a quarterly basis)
•Marked annoyance with questions from auditors
The most appropriate trend analysis to indicate this potential fraud is
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