The answer as per the system for Question 2 is – Analytical Procedures, but if you refer to the slides, Page 31 then it does specify analytical procedures. Shouldn’t the answer be ‘recalculation’?
Q7 Should be sufficient reliable and relevant. So by logic variant sufficient and reliable. But system says that the correct answer is Sufficient and appropriate, could someone explain please this issue?
Para 6 ISA 500 states “The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.”
It is, of course, important that information is reliable and relevant, but those qualities are included under the heading ‘appropriate’.
Gross profit percentage has decreased so the effect is obviously not neutral. Besides the question talks about an understatement, that implies an error.
actually this is not so relate with financial accounting, in this question you are required to make assessment of risk which can be material, as auditor is required to maintain professional scepticism, in the result of DECREASED GROSS PROFIT % the first think rise in the mind of auditor is that “the sales may have been overstated in this year” so focus on the sales testing
The answer is analytical procedures. For example, calculating a ratio or comparing this year’s sales to last year’s can tell you nothing about the operation of a control. Recalculation will let you know if, for example, a bank reconciliation (a control) has been carried out correctly.
Megha says
The answer as per the system for Question 2 is – Analytical Procedures, but if you refer to the slides, Page 31 then it does specify analytical procedures. Shouldn’t the answer be ‘recalculation’?
Ken Garrett says
Sorry – the mention of analytical procedures in that slide is incorrect. P47 of the notes is what you need to go by. We’ll correct the slide.
Apologies again.
Megha says
Thanks
bloodlydeath says
Q7 Should be sufficient reliable and relevant. So by logic variant sufficient and reliable.
But system says that the correct answer is Sufficient and appropriate, could someone explain please this issue?
Ken Garrett says
Para 6 ISA 500 states “The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.”
It is, of course, important that information is reliable and relevant, but those qualities are included under the heading ‘appropriate’.
aarju says
why is understatement of sales reason for the reduction in the gross profit percentage ?
Ken Garrett says
Say cost of sales = 60 and sales should be 120, GP% would be 50%, If sales were understated at 100 the gp% would be only 40%.
maat9 says
.. if sales decrease then cost of sale will also decreases then the net Effect will be neutral ????
Ken Garrett says
Gross profit percentage has decreased so the effect is obviously not neutral. Besides the question talks about an understatement, that implies an error.
nooo says
actually this is not so relate with financial accounting, in this question you are required to make assessment of risk which can be material, as auditor is required to maintain professional scepticism, in the result of DECREASED GROSS PROFIT % the first think rise in the mind of auditor is that “the sales may have been overstated in this year” so focus on the sales testing
nooo says
I APOLOGIZE FOR ABOVE STATEMENT
the first think rise in the mind of auditor is that “the sales may have been UNDERSTATED in this year” so focus on the sales testing
Sharjeel says
For Q2 It should b Recalculation because how you can recalcuate controls… where controls can be compared with previous year.
Ken Garrett says
The answer is analytical procedures. For example, calculating a ratio or comparing this year’s sales to last year’s can tell you nothing about the operation of a control. Recalculation will let you know if, for example, a bank reconciliation (a control) has been carried out correctly.
zhaoyunyi says
Can someone explain Q2 & Q6?
For Q6, I think it should be materiality, that is the only one not mentions in the notes.
Sharjeel says
for Q6 I also think so It should b materiallity..
Ken Garrett says
It shold be materiality. Sorry, we nominated the wrong answer.
Sharjeel says
Thank you Sir. 🙂