F8 Answers to Revision Test!

Answer 1
Which of the following is a test of control and which a substantive test?! ToC 20 purchase invoices for expenses amounts are traced to debit entries in the appropriate nominal ledger accounts. Expenses are compared to similar expenses in the previous year. 20 purchase invoices are inspected to see if they had been stamped Approved for payment by the chief accountant 20 cars are inspected to see if they exist 15 Capital expenditure authorisations for purchases over $1,000 are inspected to see if they have been signed-off by the finance director 15 capital expenditure invoices are traced to the appropriate non-current asset and VAT accounts Depreciation calculations are re-performed by the auditor 10 records in the fixed asset register are inspected to verify that the assets were physically inspected within the last 12 months. The receipt of goods into the factory is observed to ensure that deliveries are counted by staff upon receipt The auditor inspects inventory to see if any appears damaged. ! ! ! ! ! ! ! ! ST ! !

A ToC has to test a control. The auditor tracing amounts, comparing amounts, inspecting assets are not internal controls!

Answer 2
Total assets = $10m. What is the preliminary estimation of materiality?! 1 2% ie $100,000 to $200,000!

Answer 3
If a preliminary estimation of materiality is $2m, is performance materiality more likely to be $1m or $3m?! $1m performance materiality is a more rigorous test!

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Answer 4
An internal control system is found not to be operating effectively. Which of the following is the appropriate audit response?! (a)! (b)! Carry out more tests of control! Carry out more substantive tests "!

Answer 5
Which three of the following terms are the odd ones out?! Honesty, objectivity, condentiality, independence, secrecy, professional competence and due care, professional behaviour, integrity! ! [Note: see the ACCAs fundamental ethical principles]!

Answer 6
The question Can non-current assets be bought without proper authorisation? is an example of:! (a)! (b) ! A control objective "! A control procedure ! and would the question be found on an! ICQ! ICEQ? "!

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(a) (b)

Answer 7
What are the preconditions of an audit?!

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(a) An acceptable nancial reporting framework! (b) Management accepts the premise of an audit!

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Answer 8
Are the following methods of sampling statistical or non-statistical?!

Statistical Block sampling Monetary unit sampling Random sampling Haphazard sampling ! !

Non-statistical !

Answer 9
Fill in the blanks:!
Internal auditors Report to? Employed by? Work determined by? Purpose of work? Management/audit committee Company, management/ audit committee Management/audit committee Test internal control, value for money audits, investigate fraud almost anything managements requires. External auditors Members An independent audit firm Statute, ISAs, IFAC To collect sufficient appropriate audit evidence to be able to give reasonable assurance (or otherwise) that the FS are free of material misstatement

Answer 10
What are the 5 elements of an assurance engagement?!
(a) (b) (c) (d) (e) A three party arrangement (responsible party, person to whom to report, practitioner)! Suitable criteria! Sufcient appropriate evidence! Appropriate subject matter! A written report in the prescribed form!

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Answer 11
Indicate the relevance of the following list of assertions to the audit of account balances, transactions and events, and presentation and disclosure:!
! ! Period end balances Accuracy Completeness Cut-off Allocation Existence Classification Occurrence Valuation Rights and obligations ! ! ! ! ! ! ! ! ! ! ! Transactions and events ! ! ! Presentation and disclosure ! !

Answer 12
Is the following statement true or false? ! A contingent liability is caused by a future event. ! False. It relates to a past event whose outcome will only be known upon some future event!

Answer 13
What is wrong with the following description of an audit procedure? ! Inspect the cash book for amounts received after year end in respect of amounts owing at year end. ! Audit procedures should state what assertion they are designed to verify.!

Answer 14
Could a sharp fall in sales after year end be an adjusting event?! Yes, it could be. It might indicate that inventory at year end is not saleable and so it should be written down.

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