[yeungeva]

MCQ i could not rmb as well.
yes. alot of C and i know i have 2B somewhere.
Good idea to write mcq on hand. I should do it next time if still have mcq.

my answers for your input.. not sure if they are correct!

Q1: Ethical Threats
familiarity (michelle mars 7 yrs)
self interest (contingent audit fee) not acceptable.
self review (valuation task? should reject this) not sure did i mix up with other qn.

what other internal audit procedure other than internal control can be done
(think 4-5mark on this? left this as my last question to be completed as i just write whatever comes to my mind)

Q2: chg engagement letter
change in company significant accounting policy e.g. depreciation method / useful life calculation etc.
change in company management e.g. outsource internal audit dept which will change audit’s plan, work and strategy and reliance of internal control work (control risk chg).

2b) 6 parts of engagement letter
fee
auditor responsibilities
management responsibility
timeline
reporting framework
could not recall what i wrote for last point.

how to understand new client for audit planning.
– website. if listed, published financial statement available as reference.
– previous years financial statement and result as trend for reference.
– competitor’s result as comparison against industry mean and average. Able to reference for market share and trend as well as risk.
– ask previous audit firm on any risk to take note for this client. If reply is no risk, should be no issue. If audit firm reply saying client dont allow to disclose, review with management again. potential issue for audit firm dismissal and change.
– cant remember my last point.

Q3. Going concern
5 reason why they were not going concern
using the points from the paragraph and explain.

– significant buyer drop sales which will impact their buying power from the co. Material revenue impact.
– double impact for cash flow – cash on delivery vs credit term to customer.
– Contingent court case – impact to credit rating with payment delays (make it hard for future loans or credit term from suppliers) To do a contingency provision on estimated loss.
– Didnt include the obsolete product line in their forecast cash flow. I read the paragraph a few times and noted that it was only told by their finance director that the product line may be due to regulation etc……… to be obsolete. I have commented that auditor should validate the source of this information and check with respective authority whether this news is rumour or truth before deciding next step to this. If this is real, check when will this new regulation be passed and see if this impact the current financial statement. Auditor may need to include in their report disclosure according to the period of this impact.
– cant recall the last point.

Q4. audit risk
review w management on their decision to chg their useful life/depreciation calculation. auditor to validate useful life.
bonus related performance. self interest threat to produce a higher profit before tax by creative accounting.
insurance. they should not trt as received when they have not recv it. this is part of contingency.
share report earlier so that they can know how much they will get? —> not sure did i mix up this with other qn. explain by saying co may avoid material posting during reporting period which is potential cut-off issue.

Q5. 18 restaurant chains.
6 deficiencies, implement control test and how external auditor can test on them.

– purchase order dept order goods after restaurant mgr submit inventory level. This should be ordered by restaurant mgr (RM) and submitted to purchasing dept to order instead as RM should know how much to order and purchasing dept should order from the list of acceptable vendor list to ensure low cost and good quality. “If stock is low, RM will order from local supplier” This should be avoided as well as these usually are of higher cost (buy in small quantity) and quality may not be as good.
– cash should bank daily. if cannt bank daily, keep them is a safe that is fire proof and preferably immovable (fixed on wall etc). auditor can check by verifying deposit in bank vs daily cash sales.
– petty cash $500 with some receipt missing. to reduce the petty cash box amount and change petty cash personnel. if no receipt strictly dont approve any reimbursement. auditor to do surprise checks to ensure petty cash float tie with petty cash voucher issued.
– friend and family discount – all RM give different discount which is bias and missing objectivity by the RM. This will also cause revenue loss to the company as the discount given might be more than the cost involved in serving the meal. To standardise the discount before financial year start and deploy to all restaurant. This can be tested by pulling daily sales and discount in POS and cast the computation on discount given.
– report not sent to head office on time and each restaurant use own accounting records. To design a standard template and lock sensitive field to reduce human error and formula issue. Deploy training to restaurant mgr to ensure all know how to fill up. Auditor to review the template.
– inventory level at store dont match the one submitted to head office. Internal audit dept should hold surprise check at restaurant to check inventory level submitted vs actual inventory level. If there is no internal audit dept, operation manager may do such checks regularly on surprise visits.

Q6.
audit evidence
Source- I think i mention about, black and white written confirmation better than verbal one.
Independency- 3rd party confirmation stronger evidence than internal confirmation.
A few more points but cannot recall now.

before inventory count
-see past year inventory count if there are issues.
-confirm the location of these 12 sites ( i think is 12 location if im nt wrong) considering the travelling distance.
-ensure mgt deploy out minimal stock movement on stocktake days.
-make sure all people who count stock are aware wat’s their responsibility area and training/deployment properly given.

during inventory count
-sequentially numbered stocktake sheet given out.
-No missing stocktake sheet when collecting back the papers.
-signed in ink.
-ensure no warehouse personnel involve in stocktake.

modified report.

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