Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and at the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.
Which of the following statements is NOT an explanation of why ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment requires a risk assessment to be carried out at the planning stage?

You have identified several audit risks which you feel your team will need to address. One such audit risk relates to the risk that income may be understated in the financial statements. You are concerned that not all income may be recorded. Which of the following statements is NOT a valid response to this audit risk?

Another identified audit risk is the susceptibility of EuKaRe's business to fraud due to the high levels of cash involved.
Which of the following statements correctly describes the auditor's responsibilities in accordance with ISA 240 The auditor's responsibilities relating to fraud in an audit of financial statements?

5 The audit manager has noted in the detailed audit plan that EuKaRe's control environment may be weak. Which TWO of the following statements are valid reasons as to why EuKaRe may have a weak control environment?

Which of the following are potential indicators that Strawberry is not a going concern?
(1) The breach of the loan covenants
(2) The departure of the sales director
(3) The fall in inventory turnover days
(4) The negative cash flow figures

You are reviewing the management's assessment of Strawberry's ability to continue as a going concern. What period must management's assessment cover?

You are concerned that the debt due from Grape Co may not be recoverable and believe that this would have a significant effect on the viability of Strawberry. Which of the following would provide you with the most reliable evidence regarding the recoverability of this debt?

You have raised your concerns with management regarding the ability of Strawberry to repay the $0.6m loan in six months. The directors have assured you that this will be possible as they have a contingency plan. Which of the following courses of action by the directors would provide you with the most assurance that Strawberry will be able to meet this commitment?

You have concluded that Strawberry is not a going concern. If the directors refuse to amend the financial statements which of the following correctly describes the impact on the auditor's report?
Audit opinion Explanation of circumstances
A Adverse opinion (A) Basis for adverse opinion
B Qualified opinion (B) Basis for qualified opinion
C Adverse opinion (c) Material Uncertainty Related to Going Concern section
D Qualified opinion (D) Material Uncertainty Related to Going Concern section

Mason has secured a five year contract with each of its four customers (the police force, ambulance service, fire service and the coastguard). The contracts in place are all of equal value. Under the terms of the contract Mason charges customers an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences. Based on the above information, which of the following statements summarises a key audit risk?

Mason has not purchased any new helicopters during the year to 31 December 20X3; however there has been a lot of re-fitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place. This information has led you to be concerned that property, plant and equipment may be overstated in the financial statements. Which of the following statements represents a valid response to this audit risk?

From reading the prior year audit file you have just realised that Mason funded the original purchase of each aircraft with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank have indicated that finance costs will increase further. Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when the police are trying to substantially reduce the amount they pay in the wake of government cuts. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract. From the above information, which is the MOST important audit risk that should be documented in the detailed audit plan? A BC D

Which of the following are valid responses to the fact that Mason's contract with the police force is due for renewal?
(1) Review Mason's contracts with its other three customers to determine whether they contain a break clause, in order to determine the likelihood of losing any further contracts to other aircraft providers
(2) Contact the police force directly and request confirmation as to whether the contract is to be renewed
(3) Review the short-term and long-term funding facilities which are available to Mason
(4) Review correspondence with the police force to determine the likelihood of the contract being renewed

Mason also holds around $2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped. Approximately a quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continue to be recognised at amortised cost. Which of the following summarises the key audit concern arising from the matter described?

Your audit partner has highlighted to you that because South is a new audit client, it is particularly important that every member of the audit team has a good understanding of South's business. Which of the following procedures must you use to obtain an understanding of the South and its environment in accordance with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment?
(1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance

Having established a good understanding of South and its environment, the audit partner will need you to produce the planning documentation for the audit. Which of the following statements describe the objectives / benefits of planning an audit according to ISA 300 Planning an audit of financial statements ?
(1) To ensure appropriate attention is devoted to important areas of the audit
(2) To assist in the coordination of work done by experts
(3) To facilitate the assignment of work to audit team members
(4) To ensure the audit is completed within budget restraints

Having reviewed this information you have identified several audit risks which you feel your team will need to address. The first risk relates to the cost of the new till system which South has capitalised as a noncurrent asset. You are concerned that South may have included within the capitalised costs some items which are revenue in nature, leading to the overstatement of non-current assets. Which of the following statements is a valid response to this audit risk?

A second audit risk relates to how well the new till system is operating. You are concerned that the system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. You are also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry. Which of the following statements represent valid responses to this audit risk?
(1) Perform analytical procedures by comparing daily / weekly sales by store with both the prior year and with expectations, in order to determine whether any unusual patterns have occurred following the installation of the new system
(2) Vouch the sales revenue per the system to the till receipts to confirm the accuracy of the sales
(3) Obtain a copy of the training manual relating to the new till system and discuss with directors the extent of training staff have received on the new system
(4) Test the internal controls relating to the till system and the transfer of data into the accounting system

You plan to review the legal correspondence relating to the claims made by customers to whom South sold contaminated meat. Which of the following are valid objectives of this audit procedure?
(1) To determine whether South's reputation will have been damaged within the local area
(2) To confirm whether there are deficiencies in South's internal controls relating to food hygiene
(3) To assess whether a provision for customer compensation is required in South's financial statements
(4) To determine whether disclosure of the nature and financial effect of the legal claim is required in South's financial statements