AA-Ch-6

Indicate whether the procedures identified by James above will be conducted during the interim or the final audit.

• Audit procedure

• Interim audit

• Final audit

During the interim audit, you performed internal controls testing and the results of these indicate that, to

date, the control environment is strong and internal controls are operating effectively.

James has asked you to explain the factors that will determine the extent of further work on internal controls

that will need to be performed at the final audit.

Which of the following should be taken into account when determining the extent of the additional work

needed at the final audit?

(1) The significance of the assessed risks of material misstatement at the assertion level

(2) The specific controls that were tested during the interim period, and significant changes to them

since they were tested, including changes in the information system, processes, and personnel

(3) The length of the remaining period

• 1 and 2 only

• 2 and 3 only

• 1 and 3 only

• 1, 2 and 3

Which of the following considerations is the MOST important when deciding whether or not to rely on the

work performed by Carlise's internal audit department?

• Whether any members of Carlise's internal audit department hold a professional qualification

• Whether the work performed by the internal audit department relates to specific audit assertions over

  which UYE & Co have concerns

• Whether a separate Audit Committee exists

• Whether Carlise's internal audit department has a work plan which schedules the work they should

  perform to the end of the year

At his previous audit firm James had several audit clients which had an effective internal audit department.

He asks you whether you would consider asking Carlise's internal audit department to provide direct

assistance to your audit team.

Which TWO of the following statements relating to direct assistance are valid?

• Direct assistance describes the use of internal auditors to perform audit procedures under the

  direction, supervision and review of the external auditor1\

• The external auditor should only use direct assistance in relation to areas of the audit where there the

  assessed risk of material misstatement is high

• The external auditor should document their review of the work performed by the internal auditors

• The internal auditors will be separately liable for any material misstatements in the work they have

  performed

All work carried out by the external auditor should be documented in their working papers regardless of

whether it relates to an interim or a final audit.

Which of the following is NOT a valid reason for producing audit documentation?

• It prevents the auditor from being sued for negligence

• It provides evidence for the basis of key conclusions

• It enables senior team members to direct, supervise and review the audit work

• It enables quality control reviews to be performed

The audit partner has asked you to prepare some information ready for the tender.

Which of the following would NOT be included in the tender for the audit of Severn Co?

• The proposed fee for the initial audit of Severn Co

• A description of Rivers & Co, including the curriculum vitae of key staff likely to be assigned to the

  client

• Overall level of materiality to be used in the audit

• A summary of potential other services Rivers & Co could provide to Severn Co

You have identified a number of issues which should be considered prior to tendering for a new client,

whether:

(1) The firm is independent of the potential client

(2) The firm has the appropriate resources to conduct the audit of the potential client

(3) The preconditions of audit will be met

(4) The outgoing auditors will give Rivers & Co access to working papers

Given what you already know of Severn Co, which of these are most important to consider further prior to

tendering for the audit?

• 1 and 2

• 2 and 3

• 3 and 4

• 1 and 4

Your firm has tendered for the engagement and has been successful. You have been asked to follow through the acceptance procedures for the firm.

You are re-appraising whether it is appropriate for the firm to accept the engagement.

Which of the following issues arising would cause Rivers & Co to decline the engagement?

• The engagement letter has not been received by Rivers & Co.

• Rivers & Co losing a major client meaning Severn's audit fee would represent 20% of annual firm

  income.

• A reply from the outgoing auditors stating that they declined to seek reappointment to the audit of

  Severn Co due to a disagreement over accounting policies.

• A request from Severn Co that the audit be carried out in March, when Rivers & Co already works at

  maximum capacity.

You are drafting an engagement letter in respect of Severn Co. You have identified four issues that could be

included in the engagement letter:

(1) Scope of the audit

(2) Responsibilities of management of Severn Co

(3) Timetable for the provision of accounting information by Severn Co

(4) Fees and billing arrangements

Which of the above issues MUST be included in the engagement letter for it to comply with ISA 210 Terms

of audit engagements?

• 1 and 4

• 2 and 3

• 3 and 4

• 1 and 2

Rivers & Co has now accepted the audit of Severn Co.

Which of the following actions in relation to Severn Co is NOT necessary at this stage?

• Obtain references concerning the directors

• Submit the letter of engagement

• Carry out procedures to obtain an understanding of the entity

• Appoint a quality control reviewer