AAA1-CHAPTER 5

Which TWO of the following would be used in understanding the entity in accordance with ISA 315?

• The results of tests of details

• Objectives and strategies related to the business risks

• Nature of the entity, including selection and application of accounting policies

• The results of a review of events after the date of the financial statements.

Which THREE of the following would normally be included in the overall audit strategy?

• Identification of specific audit risks

• Details of economic factors and industry conditions

• The results of initial analytical procedures

• Confirmation of management's responsibility for the financial statements

• Detailed plan of audit procedures

Which THREE of the following statements about materiality are incorrect?

• Materiality is based on the auditor's experience and judgement

• Materiality is always based on revenue

• Materiality should only be calculated at the planning stage of the audit

• Information is material if its omission or misstatement could influence the economic decisions of users of the financial statements.

• Once established, the materiality level initially set cannot be revised during the course of the audit

Which THREE of the following statements in respect of risk are true?

• Auditors should provide suggestions for companies to overcome business risks

• Auditors can impact on inherent risk to bring audit risk to an acceptable audit risk

• Identifying business risks is part of the company's risk assessment processes

• Inherent and control risks are components of audit risk

• Risk of material misstatement is organized by inherent and control risks

The auditor of Yexmarine Co assessed that risk of material misstatement is high and wishes to reduce audit risk. Which TWO of the following actions could the auditor take to achieve this?

• Reduce control risk

• Reduce inherent risk

• Increase sample sizes

• Assign more experienced staff to the engagement team

If you want to gain an understanding of the specific business operations of the audited entity, which ONE of the following matters would an auditor need to consider?

• Leasing of property, plant or equipment for use in the client's business

• Products or services and markets of the client's business

• Accounting principles and industry specific practices relevant to the client's business

• Acquisitions or disposals of the client's business activities

when implementing the analytical procedures on the financial statements of Yexmarine Co, you have identified that the entity’s quick ratio has fallen from 1.8/1 to 1.2/1. Which ONE of the following might help to explain this decline

• Inventory levels have fallen

• Credit control has been poor

• The allowance for receivables has been reduced

• The entity has purchased a property for cash

• The entity has purchased a batch of inventory for cash

The extracted data from financial statements of Yexmarine as follow:

Revenue: $6,00000

Total assets: $9,000,000

Profit before tax: $600,000

At planning phase, auditor have auditor have assessed the ROMM at low level decided base on total assets to define overall materiality level. Which ONE of the following could be suitable materiality level set for the financial statements for the company?

• $24,000

• 48,000

• 90,000

• 180,000