Audit and Assurance CIE 2

Why did Zenith Manufacturing Ltd. use aggressive revenue recognition?

• To comply with tax regulations

• To meet loan covenants and attract investors

• To reduce costs

• To avoid an external audit

What was the primary audit risk in Zenith Manufacturing Ltd.?

• Weak internal controls

• Aggressive revenue recognition and inventory misstatement

• High employee turnover

• Poor customer relations

What inconsistency did the auditors at Green & Co. first identify?

• Missing payroll records

• Lack of shipping documents for recorded sales

• Duplicate vendor payments

• Unrecorded liabilities

What is the likely consequence if Zenith’s financial statements are not corrected?

• Increased stock prices

• Legal and financial penalties

• Higher employee salaries

• More investor confidence

Why did the CFO resist changes to the financial statements?

• He believed they were correct

• He was unaware of accounting regulations

• He wanted to present strong financial performance

• He feared losing his job

What did the auditors conclude about Zenith’s financial statements?

• They were accurate and reliable

• They contained material misstatements

• They were free from errors

• They needed no adjustments

What was one of the main reasons XYZ Corporation implemented an internal control system?

• To safeguard assets and prevent fraud

• To increase inventory shrinkage

• To bypass controls

• To share login credentials

What issue was identified during the external audit of XYZ Corporation?

• Unauthorized transactions due to shared login credentials

• Excessive employee training

• Successful prevention of fraud

• Complete and accurate reconciliations

What recommendation did the auditors make to XYZ Corporation to improve their internal control system?

• Implement biometric authentication for sensitive transactions

• Reduce the frequency of audits

• Allow shared access to the accounting system

• Ignore unauthorized manual adjustments

What action did XYZ Corporation's management take in response to the audit findings?

• Revoked shared access and revised security protocols

• Increased inventory shrinkage

• Reduced monitoring of financial transactions

• Ignored the auditors' recommendations