AA-Ch-12 ( Reporting )

Which TWO of the following audit procedures should be performed in order to form a conclusion on whether an amendment is required in Palm's 20X5 financial statements in respect of the disputed balance?

• Review whether any payments have subsequently been made by this customer since the audit fieldwork was completed

• Match the total of the aged receivables' listing to the sales ledger control account

• Vouch the balance owed by the customer at the year end to sales invoices

• Review the latest customer correspondence with regards to an assessment of the likelihood of the customer making payment

The auditor's report for Palm is due to be signed in the next week or so. You have concluded that the disputed balance is likely to be irrecoverable, but the directors have not made any changes to the financial statements in respect of this. Which of the following options correctly summarises the impact on the auditor's report for Palm if the issue remains unresolved?

• Unmodified with key audit matters section

• Disclaimer of opinion

• Qualified 'except for'

• Adverse opinion

Which of the following correctly summarises the effect of the issue relating to the inventory count of Ash at the year end?
Material Financial statement impact
(A) No (A) Current assets are understated
(B) No (B) Gross profit may be understated
(C) Yes (C) Opening inventory may be materially misstated
(D) Yes (D) Gross profit may be overstated

• A

• B

• C

• D

The audit engagement partner for Ash has requested that additional audit procedures be performed in order to conclude on the level of adjustment needed in relation to the above inventory issue.
Which TWO of the following audit procedures should be performed in order to form a conclusion as to whether Ash's 20X5 financial statements require amendment?

• Obtain a copy of the aged inventory report and use computer assisted audit techniques to verify the accuracy of the report. Discuss the valuation of slow moving inventory with the production director.

• Review the internal auditors' reports of the inventory count to identify the level of adjustments made to the records, in order to assess the reasonableness of relying on the inventory records for the purpose of the year end audit.

• Perform test counts of inventory in the warehouse and compare these first to the inventory records, and then from inventory records to the warehouse, in order to assess the reasonableness of the inventory records maintained by Ash.

• Review Ash's sales order book for February, March and April 20X5 to estimate the level of inventory that will need to be produced in the new accounting period to fulfil customer demand.

Alternative procedures performed as Chestnut & Co were unable to attend the inventory count of Ash did not provide sufficient appropriate audit evidence regarding the inventory balance in the statement of financial position.
From the options below indicate the audit opinion which would be given in these circumstances and the appropriate disclosure in the auditor's report.
Audit opinion Disclosure in the auditor's report
(A) Qualified (A) Basis for qualified opinion
(B) Disclaimer (B) Basis for disclaimer of opinion
(C) Qualified (C) Key audit matters section
(D) Disclaimer (D) Emphasis of matter

• A

• B

• C

• D

Which of the following correctly summarises whether the uncorrected misstatement of inventory is material and its impact on the 20X4 financial statements?
Material Adjust in 20X4 financial statements
A No (A)No
B No (B)Yes
C Yes (C) Yes
D Yes (D) No

• A

• B

• C

• D

Which of the following factors are indicators that may cast doubt on Clarinet's ability to continue as a going concern?
(1) The entry of the new competitor reducing Clarinet's market share
(2) The significant increase in the overdraft
(3) The company has a long term loan
(4) The reluctance of the shareholders to provide further investment in Clarinet

• 1, 2 and 3

• 1, 2 and 4

• 1, 3 and 4

• 2, 3 and 4

As part of your assessment of going concern you have reviewed the cash flow forecast. This is based on the assumption of significant increases in revenue. Which of the following procedures would provide the most reliable evidence regarding the validity of this assumption?

• Email correspondence between the sales director and potential new customers

• A review of board minutes showing details of new customers won

• A review of post year-end sales and the order book

• Discussions with management regarding their plans for obtaining new business

You have concluded that circumstances exist which cast significant doubt on Clarinet's ability to continue as a going concern. Which of the following must you include in your communication with those charged with governance in accordance with ISA 570 Going concern? (1) Whether the circumstances you have identified constitute a material uncertainty (2) Whether the use of the going concern basis of accounting is appropriate in the preparation and presentation of the financial statements (3) The adequacy of the related disclosures (4) The period of time your assessment has covered if less than 12 months from the date of the financial statements

• 1, 2 and 3

• 1, 2 and 4

• 1, 3 and 4

• 
  2, 3 and 4

The auditors have been informed that Clarinet's bankers will not make a decision on the overdraft facility until after the auditor's report is completed. The directors have now agreed to include some going concern disclosures and you believe these disclosures are adequate. Which of the following correctly summarises the impact on the auditor's report of Clarinet if the auditor believes the company is a going concern but that this is subject to a material uncertainty?
Opinion Disclosure
(A) Modified (A) Key Audit Matters
(B) Unmodified (B) Material Uncertainty Related to Going Concern
(C) Unmodified (C) Key Audit Matters
(D) Modified (D) Material Uncertainty Related to Going Concern

• A

• B

• C

• D