Tutorial 1 Solutions

ACCT7103 Tutorial 1 Solutions

Tutorial 1 questions (Arens textbook end of chapter questions):

1.14; 1.21 (a, c); 1.23 (corrected, use this format instead of the textbook question);
1.29; 4.28.

1-14 An audit in accordance with ASAs provides reasonable assurance, and not a guarantee,
that the financial report is free from material misstatement. What is "reasonable" depends on the
circumstances. An audit involves application of professional judgment in planning the audit, the
selection of audit procedures and the conclusions drawn. Audits also have inherent limitations,
including the use of samples rather than tests of complete populations, the limitations of internal
control structures, the possibility of collusion, and the fact that most evidence is persuasive
rather than conclusive.

1-21 a. (3) c. (2)

1-23
a. 3. Client evaluation Acceptance
b. 6. Monitoring.
c. 5. Engagement performance (a) Direction, supervision & performance
d. 2. Ethical requirements independence

1-29 The most likely type of auditor and the type of audit for each of the examples are:

Type of auditor Type of audit

1 Tax auditor Compliance
2 Auditor-General Performance
3 Internal auditor or public accountant Performance
4 Internal auditor or public accountant Financial statements
5 Auditor-General Performance
6 Public accountant Financial statements
7 Auditor-General Financial statements
8 Tax auditor Compliance
9 Public accountant Financial statements
10 Internal auditor or public accountant Compliance
11 Internal auditor or public accountant Performance/Financial statements
12 Auditor-General Compliance

 Tutorial 1 Solutions

4-28 a. Management assertions are implied or expressed representations by

management about the classes of transactions and related accounts in the
financial statements. There are five broad categories of transaction-related
assertions which are stated in the problem. These assertions are the same for
every transaction cycle and account.
General transaction-related audit objectives are essentially the same as
management assertions, but they are expanded somewhat to help the auditor
decide which audit evidence is necessary to satisfy the management assertions.
Accuracy, classification, timing, and posting and summarisation are a subset of
the valuation or allocation assertion.
Specific transaction-related audit objectives are determined by the auditor for
each general transaction-related audit objective. These are developed for each
transaction cycle to help the auditor determine the specific amount of evidence
needed for that cycle to satisfy the general transaction-related audit objectives.
b and c. The easiest way to do this problem is to first identify the general transaction-
related audit objectives for each specific transaction-related audit objective. It is
then easy to determine the management assertion using Table 4-3 as a guide.

b. c. GENERAL
SPECIFIC TRANSACTION- MANAGEMENT TRANSACTION-
RELATED AUDIT OBJECTIVE ASSERTION RELATED AUDIT
OBJECTIVE

a. Recorded cash disbursement 3. Accuracy 8. Accuracy

transactions are for the amount of
goods or services received and
are correctly recorded.
b. Cash disbursement transactions are 3. Accuracy 9. Posting and
properly included in the accounts summarization
payable master file and are correctly
summarized.
c. Recorded cash disbursements are for 1. Occurrence 6. Occurrence
goods and services actually received.

d. Cash disbursement transactions are 4. Classification 10. Classification

properly classified.
e. Existing cash disbursement 2. Completeness 7. Completeness
transactions are recorded.
f. Cash disbursement transactions are 5. Cutoff 11. Timing
recorded on the correct dates.