Certied Accounting Technician Examination Advanced Level

Implementing Audit Procedures (UK Stream)

Monday 14 December 2009

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A ALL TEN questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certied Accountants

Paper T8 (UK)

Section A ALL TEN questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. Each question in this section is worth two marks. 1 Which of the following statements correctly describes the principal purpose of an external audit of a limited company? A B C D To assist in the preparation of the companys nancial statements. To prevent fraud within the company. To examine and express an opinion on the companys nancial statements. To assist the directors in improving the companys nancial reporting process.

Which of the following is the key characteristic of a systems-based audit: A B C D The auditor ascertains and records the clients accounting system. The auditor makes use of computer assisted audit techniques. The client has a computer-based accounting system. The auditor seeks to rely on internal controls.

Which of the following papers would normally be retained on the permanent le maintained for a limited company audit client? A B C D Completed checklist of statutory disclosure provisions. Extracts of minutes of meetings of the directors. Letter of Representation. Copy of the companys legal constitution.

Which of the following are management controls? 1 2 3 4 A B C D The separation of authorisation, execution, custody and recording functions. Monthly reporting to the directors of stock levels. Review of management accounts and comparison to budgets. The internal audit function. 1, 2 and 3 2, 3 and 4 1, 2 and 4 1, 3 and 4

Which of the following controls would provide the most positive assurance as to the completeness of the sales gure recorded in the nancial statements of a manufacturing company? A B C D Segregation of sales between the preparation of goods despatched notes and the preparation of the sales invoices. The issue of pre-numbered sales invoices for every sales transaction and internal checking for completion of processing. The use of a pre-numbered goods despatched note for every sales transaction and internal checking for completeness of processing. Authorisation of all sales invoices by the sales manager prior to processing.

What primary audit objective is an auditor seeking to conrm when carrying out a physical inspection of the plant and equipment of a company? A B C D Ownership of the assets. Existence of the assets. Ownership and existence of the assets. Valuation of the assets.

Which of the following procedures carried out at a stock count by an auditor is a test primarily for overstatement of stock? A B C D Ensure completeness of sequence of pre-numbered stock sheets at the conclusion of the count. Check valuation of slow-moving or obsolete stock lines. Check that stock held at third party locations are included in the count. Agree items that have been counted (including items of high value) to stock sheets.

Which of the following data should NOT be held on a wages master le of a company for an individual employee of a company? A B C D Authorised rate of pay. Employees identication number. Cumulative statutory deductions to date. Date of commencement of employment.

Which of the following elements, relating to a companys operations, should an internal audit department review? 1 2 3 4 A B C D Reliability and integrity of nancial and operational information. Effectiveness and efciency of operations. Safeguarding of assets. Compliance with laws, regulations and contracts. 1 and 4 only 2 and 3 only 2, 3 and 4 1, 2, 3 and 4

10 Which of the following is NOT a necessary component of a standard audit report for a limited company? A B C D A title identifying to whom the report is addressed. Identication of the nancial statements audited. Conrmation of the accounting convention used in preparing the nancial statements. Conrmation of the directors responsibility in connection with the preparation of the nancial statements. (20 marks)

[P.T.O.

Section B ALL FOUR questions are compulsory and MUST be attempted 1 Country Limited is a long-standing audit client of your rm, and it has a good control environment. The company manufactures photocopying machines at a large production site which houses both factory and warehouse premises and also a large ofce administration block. Its directors are all located on site as are the companys purchasing, sales, accounting, personnel and general administration functions. The company operates a batch control system over the posting of invoices and credit notes to its accounting ledgers. As a member of the team to be involved in the audit of the nancial statements of Country Limited for the year ending 31 March 2010 you will assist Jenni Coe, an audit senior, in the audit of purchases. As such you will have involvement in ascertaining, recording and evaluating the purchases and trade creditors system and you will have to carry out walk-through tests. Required: (a) State FOUR objectives of the internal controls that should be exercised over the purchases and trade creditors system of Country Limited. (4 marks) (b) Identify and explain the THREE methods by which you should ascertain the purchases and trade creditors system of Country Limited. (6 marks) (c) Explain the purpose and nature of a walk-through test from an audit perspective. (3 marks)

(d) Describe SIX internal controls that should exist over the procurement of manufacturing components by Country Limited from the ordering of components through to the authorisation of purchase invoices/credit notes prior to the batching of these for posting to the companys nominal and trade creditors ledgers. For each stage of the procurement process you should identify the documentation that should exist and the controls that should be exercised over it. (12 marks) (25 marks)

Skife Limited is a large company and a leading single site manufacturer of go-karts and quad bikes. Owing to increasing demand for its products, the company has signicantly increased its scale of operations over the last 12 months. This has resulted in a bigger workforce and the carrying out of substantial repairs, renovations and extension programme to its factory and administration buildings. Using various nancing methods, since January 2009 Skife Limited has also invested heavily in replacement and additional plant and machinery. As a part of the audit team engaged on the audit of the companys nancial statements for the year ended 30 November 2009, you recently attended an audit planning brieng meeting. At the meeting, your audit manager conrmed that your rm would adopt a risk-based approach to the audit of the nancial statements and stated that the area of tangible xed assets is of high inherent risk. Your manager also acknowledged that in arriving at a conclusion for certain areas of the nancial statements your rm may need to rely on evidence provided by experts. Required: (a) State the objective of a risk-based approach to the audit of nancial statements and explain how it is used to direct audit resources to areas of high nancial statement risk. (10 marks) (b) Identify and explain FOUR inherent risk factors that you would associate with the xed assets area of the nancial statements of Skife Limited. (10 marks) (c) State TWO of the three factors that your manager should consider at the planning stage of the audit when deciding whether expert evidence will be required in arriving at an audit opinion. (2 marks) (d) State THREE matters that auditors should consider in evaluating whether a specied expert has the necessary competence, capabilities and objectivity for the purpose of providing reliable audit evidence. (3 marks) (25 marks)

Rock Limited is an engineering company with a good control environment and well documented procedures. As part of the team engaged in the audit of the companys nancial statements for the year ended 30 September 2009, you are aware that various members of the team have carried out detailed audit procedures. Required: For each procedure listed below, explain the purpose of carrying it out: (a) Forwarding of a bank conrmation request letter to the bankers of Rock Limited. (b) Examination of supplier statement balances as at 30 September 2009. (c) Cut-off tests on stock, purchases and sales. (d) Analytical procedures at the nal review stage of the audit. (4 marks) (4 marks) (4 marks) (3 marks) (15 marks)

[P.T.O.

Three employees of your rm Alan Ame, Steve Sim and Vicki Ven recently attended an auditing seminar. Alan is an associate member of ACCA, and Steve is a student member. Vicki has a university degree in accountancy, has been with the rm for several years but has no desire to become an ACCA member. Therefore, she has not registered as a student of ACCA. At the seminar, the speaker explained ACCAs Code of Ethics and Conduct providing detailed coverage of the Codes fundamental principles comprising integrity, objectivity, professional competence and due care, condentiality, and professional behaviour. He also covered the conceptual framework for applying the fundamental principles and identied circumstances which may give rise to specic threats to compliance with the principles. After the seminar, in conversation with Steve, Vicki expressed her concern that she had previously been unaware of the Code of Ethics and Conduct but would endeavour to comply with it in future. Steve had understood that the Code applied only to fully qualied ACCA members and that compliance was voluntary for student members of ACCA. He therefore advised Vicki that neither of them need have any concerns about complying with the Code. Required: (a) Comment on the accuracy of the advice given to Vicki Ven by Steve Sim. (3 marks)

(b) Describe the obligation that any TWO of the following fundamental principles of ACCAs Code of Ethics and Conduct places upon members: (1) Integrity (2) Objectivity (3) Professional behaviour.

(3 marks)

(c) Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Such threats may fall into the following categories: (1) Self-review (2) Familiarity (3) Intimidation. For each of the above categories of threat: (i) Describe the circumstances in which the threat may arise; (3 marks)

(ii) Identify TWO specic circumstances in an audit situation which give rise to the threat to an auditor. (6 marks) (15 marks)

End of Question Paper