Sample Answers

Dear sir,
Kindly Give mark on these answer so i can get confidence to appear in exam, its my 4th attempt .

Audit Risk(TED Co)

—As Ted co obtained listing during the year there is a risk that Financial statements might be manipulated to get good potential shareholder attraction towards the company. so there is risk that many accounts might be over/understated.(e.g Revenue,Profit, assets,liabilities)

— Investments are 6% of total assets therefore material to SOFP. As it appears that company deals with short term investments there is a risk that gain and losses are not properly treated. ideally gain and losses to be treated in p&L the risk is that they might be treated through OCI.

Business Risk (Connolly Co)

–As Connolly Co(C co.) Advertise drugs on TV and as stated in some countries advertising on TV is banned so there are chance of fines and lose of reputation if C co. advertised it. secondly there are chances that it might not market its product properly which results loss of revenue.

— As C Co. is researching on 4 new drugs and also seeking loan from bank there is risk that loan might not be granted and cause cessation of research .ultimately loss to the company and may result a Going Concern threat.

Matters & Evidence (Darren Co.) 6 Marks

(c)
ISA 720 requires to read other info and compare that info with the F/S if any inconsistencies are found ask managemt to amend the other info. In Darren Co. case the F/S shows 12.5% increase i n PBT where as KPI shows 20% so therefore auditor should notify this misstatement to audit committee.
if the KPI’s are not amended on auditors request the auditor should refer this matter in other matter paragraph in audit report and should state that the audit report is not modified in this respect.
the Other matter should be after the EOM paragraph.