Deck 13: Final Work: General Principles and Analytical Review of Financial Statements, and Management Assertions on Financial Statement Heading

Question 1

By the time the interim work has been completed the auditor should have a good understanding of the client and problems that management is likely to encounter preparing the financial statements. What should the auditor do if, as they prepare for the final work, they discover a significant unanticipated problem area?

A) Amend the audit plan and advise management about impacts on disclosure and accounting.
B) Follow the audit plan that has been agreed and include an appropriate qualification in the audit report.
C) Resign as auditor as the risk is too great that other problems will arise.
D) Notify the appropriate regulator that there is a problem with the financial statements.

Answer 1

Amend the audit plan and advise management about impacts on disclosure and accounting.

Question 2

Which of the following activities should form part of the interim audit work?

A) Inventory count observations
B) Circularization of customers
C) Confirmation of stage of completion of long-term construction assets
D) Tests of controls

Answer 2

Tests of controls

Question 3

What is the purpose of bridging work?

A) To assist clients preparing their financial statements, so they comply with the accounting standards.
B) To ensure that systems operated as expected during the whole year, not just a part of it.
C) To do desk top reviews of the client's previous financial statements in preparation for the new audit.
D) To train the auditors on the changes to accounting and auditing regulations that will impact the current year's audit.

Answer 3

To ensure that systems operated as expected during the whole year, not just a part of it.

Question 4

Complete the definition of analytical procedures using the phrases below:
a. evaluations
b. expected
c. financial and non-financial data
d. fluctuations or relationships
e. internal and external data
f. previous
g. reviews
h. transactions
-________________ of financial information through analysis of plausible relationshipsamong both ________________. Analytical procedures also encompasssuch investigation as is necessary of identified ________________that are inconsistent with other relevant information or that differ from ________________values by a significant amount.

Question 5

Which statement completes paragraph 6 of ISA 520: ?
The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements…

A) … provide a true and fair view.
B) … present all material amounts.
C) … are consistent with the auditor's understanding of the entity.
D) … comply with the accounting standards.

Question 6

If the preparers of the financial statements conclude that compliance with the accounting and reporting standards issued by the ASB and IASB (the Board) is insufficient to provide a true and fair view of the accounts what should they do?

A) Provide sufficient additional disclosures to provide a true and fair view.
B) Ask the auditor to provide an alternative accounting approach.
C) Determine their own accounting approach.
D) Revert to UK GAAP to determine the correct accounting.

Question 7

If the auditor is using only analytical procedures as substantive tests rather than tests of detail what should they do?

A) Only use evidence generated in the normal course of business.
B) Ensure that control risk is low.
C) Analytical procedures cannot be the only substantive test used.
D) Analytical procedures can only be used as tests of detail.

Question 8

An auditor doing analytical analysis calculates the acid test ratio for a supermarket. The acid test, or quick, ratio compares a company's most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. The formula is: Acid Test = (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities
The auditor determines that the ratio is 0.19.
Which of the following conclusions is most valid?

A) The ratio is extremely concerning because the expected average for the acid test ratio is 1.
B) The ratio is extremely good because the expected average for the acid test ratio is 1.
C) The ratio is meaningless for supermarkets and can be safely ignored.
D) To be useful the ratio needs to be compared with previous periods and other supermarkets.