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Good Morning Sir, I have some question from Kaplan study kits, Hope you can clarify for me, I’ve very appreciated it, Thank you.
Q1) pg209, TYU 4
“You have identified a higher than expected deviation rate when performing tests of controls over purchases. Which of the
following would be an appropriate response?”One of the answers is (ii) Extend the sample size.
Is it really help with the auditor as you already know that the deviation rate is higher than expected which mean that the risk is higher for misstatement in the financial statement
————————————————————————————————Q2)Payroll(substantive procedure)pg327
“For wages, agree the total cash withdrawn for wage payments equates to the weekly wages paid plus any surplus cash subsequently banked:
completeness, occurrence.”Is it really related to completeness assertion? I’m wondering it
————————————————————————————————Q3)Illustration 5 ,pg327
Q:Create an expectation of what total payroll will be for year-ending 31 December 20X4.
A:The difference ($65,000) is less than 5% more than our expectation, and we can therefore conclude that the payroll cost is materially correctThe 5% difference is based on the (65/1312 or 65/1377)?
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Q4)is it the comparative and corresponding figure refer to the same thing?(pg373)
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Q5)”The date of the written representation letter should be the same as the date the financial statements are authorised. It must be obtained and signed before the
auditor’s report is finalised.”(pg376)Is it the audit report signed and the written representation letter obtained and signed and the financial statement authorised usually on the same date?
I don’t have a Kaplan kit so these answers are based only on your questions.
1. Suppose the deviation rate you were prepared to accept was 2% and sample size is 60. You find two deviations – i.e. 3.3% error rate. That may not be representative of the population because of the sampling risk. If you extend the test and test another 40 items and find no more deviations – the actual deviation rate is 2% – so you could conclude that this is acceptable. If you find more errors, you don’t keep increasing the sample size indefinitely, but revert to full substantive procedures.
2. This just shows that writing “assertion” may not be particularly helpful. I would take this to mean completeness of cash rather than completeness of wages – if unpaid wages are not rebanked, cash will be incompletely recorded.
3. Whichever amount is the expectation rather than the actual recorded amount.
4. At this level (AA rather than AA) you can take these terms to mean the same thing.
5. It can be – the important thing is that the auditor’s report can never be dated before the financial statements are signed (the financial statements don’t exist in law until they are signed) or before the date of the rep letter – otherwise the rep letter could not have been evidence to support the audit opinion.
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