F8 - Q & A

Test Your Understanding

Q
What are the sources or procedures? for obtaining
of audit evidence?

A
Analytical procedures, enquiry, confirmation,
inspection, observation, recalculation and
reperformance.

Question 25
Q
ISA 500 states that auditors must obtain xxxxxxxxxx
xxxxxxxxxxx audit evidence to be able to draw
reasonable conclusion on which to base an audit
opinion. WHAT WORDS ARE REPRESENTED BY
xxxxxxxxxxxxxxx xxxxxxxxxxx?

A
Sufficient appropriate.

Question 36
Q
A common element of analytical procedures is
ratio analysis.
Name three sources of comparison for any ratios
calculated?

A
1) Previous year ratios
2) Budget ratios
3) Industry standard ratios

Question 39
Q
What matters should the auditor agree with third
parties who are carrying out expert work?

A
The auditor should agree the following in writing:
1) Nature, scope and objectives of work
2) Respective responsibilities
3) Nature, scope and timing of communications
4) That the expert observes confidentiality.

Question 40
Q
Are analytical procedures part of the tests of control
or substantive tests?

A
Substantive tests.

Question 43
Q
Under what conditions would be substantive tests to
be carried out instead of tests of control?

A
Substantive tests would be carried out in preference to
tests of control if controls did not exist or were not
operating effectively, or there were relatively few
transactions so that substantive tests so that
substantive tests were more efficient.

Question 44
Q
What are the audit assertions relating to year end
balances?

A
The audit assertions relating to year end balances are:
1) Existence
2) Rights and obligations
3) Completeness
4) Valuation
5) Allocation

Question 47
Q
What are the five inherent limitations to inherent
control?

A
1) Human error
2) Collusion
3) Bypass of controls
4) Costs of control > benefits
5) Non-routine transactions for which no system has been developed.

Question 49
Q
What audit assertions relate to events and
transactions?

A
The audit assertions relating to transactions are:
1) Occurrence
2) Completeness
3) Accuracy
4) Cut off
5) Classification.

Question 52
Q
Is cut-off correct if an item is included in closing
inventory, a sales dispatch note has not been
issued and no sales invoice has been issued?

A
This is correct and is the normal position for closing
inventory.

Question 53
Q
What are the audit assertions? Relating to
presentation and disclosure?

A
the audit assertions relating to presentation and disclosure are:
1. Occurrence
2. Rights and obligations
3. Completeness
4. Classification and understandability
5. Accuracy
6. Valuation.
Question 56
Q
In a Computer system, what is meant by the term
"standing data"?

A
Standing data (also known as reference data) does not change often.
For example, wage rates or customer addresses.
However, this data is often accessed and used, so an error in standing
data can cause many other errors.

Question 59
Q
What are the general methods for testing controls?

A
Enquires: including management views, as to whether controls are
operating
Inspection: e.g. of signatures on documents
Observation: e.g. watching goods received being counted
Re-calculation and Reperformance: e.g. performing a bank
reconciliation to ensure that it was properly carried out.

Question 62
Q
Is cut-off correct if an item is included in closing
inventory, if a goods received note has been issued,
but no supplier invoice has been received or
accrued for?

A
Cut-off is incorrect. If an item is included in closing
inventory it needs to be accounted for in purchases.

Question 63
Q
ISA 315 categorizes audit assertions into three
grouping
What are those groupings?

A
ISA 315, Audit evidence divides assertions into
1. Transactions and events
2. Account balances
3. Presentations and disclosure

Question 69
Q
Which of the following pairs of evidence are better?
External Vs Entity's records
Indirect evidence v/s Auditor-direct
Oral v/s Written
Copy v/s original?

A
External is better than entity's records
Auditor-direct is better than indirect evidence
Written is better than Oral.
Original is better than copy.

Question 83
Q
Analytical procedures are used at three stages of
an audit. What are these?

A
The planning stage; as a source of audit evidence
(substantive test); at the final review stage.

Question 90