June 09 - F8 Bit Session 1

[siddharth]

Hi Friends,

Here goes the 1st session questions. Answer with option code and reasons for supporting it.

1. Which of the following considerations on accepting a new client does not involve quality control:

a. Availability of appropriately qualified staff to perform the audit.
b. Previous auditor’s advice as to whether audit fees are paid promptly
c. Provision of other services to the client that might impair independence
d. Previous auditor’s communication as to possible illegal acts by the client.

2. Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the audit engagement letter is to

a. Remind management that the primary responsibility for the financial statements rests with management.
b. Satisfy the requirements of the auditor’s liability insurance policy.
c. Provide a starting point for the auditor’s preparation of the audit programme.
d. Provide a written record of the agreement with the client as to the services to be provided.

3. When planning an audit an auditor would not normally be concerned with

a. Problems encountered on the previous year’s audit
b. Changes in the company’s accounting system.
c. The collection of the fee for the previous year’s audit
d. Changes I the organization of the internal audit department.

4. In the tour of the client’s operations, the auditor noted two machines were not operating in the client’s factory. This meant that production was 25% lower than normal. The factory manager informed the auditor that this was because the machine was being serviced: however, the auditor saw no evidence of this. How would this affect the audit plan?

a. It would have no effect. The factory manager’s explanation should be accepted.
b. It would increase the amount of audit work on plant and machinery
c. It would be necessary to perform a more thorough review of sales for the year and the sales forecasts.
d. It would be necessary to perform more work on stock to check for obsolescence.

5. Which of the following is not one of the uses of a time budget

a. Determining the extent of reliance on internal control.
b. Controlling the efficiency of the performance of audit staff
c. Planning the assignment of staff to jobs.
d. Negotiating the audit fee with the client.

I will wait for answers till Wednesday and it will be posted by me on Wednesday. Next Session questions will be given on the same day.

For detailed scheme of study for these sessions CHECK JUNE 2009 BIT SESSION THREAD

Hope you guys/gals will enjoy this session.

Good day

[siddharth]

Hi guys,

Answers will be posted tomorrow. try to rush up with your answers

[Suze]

for question 1 the answer is D. The auditor before accepting the position would have already done their background checks and if these checks were negative they would have declined.

a - If there is not sufficient appropriate qualified staff to carry out the audit then the auditor would be unable to give a confident opinion on the f/s.

b - if fees are not paid promptly then it may look as if the auditor is extending a loan to his client.

c - providing other services to the client is ok providing the audit staff is separate from the other services staff.

Hope I am correct

[siddharth]

Hi Suze,

It was a good try, but

Answer is (B)

Check all the answers in the next post

[siddharth]

Hi Pals,

The following are the answers for Session 1 questions.


1. Which of the following considerations on accepting a new client does not involve quality control

(B) Previous auditor’s advice as to whether audit fees are paid promptly
(While accepting a new client we consider option A, C, D for quality control purpose and NOT option B)


2. Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the audit engagement letter is to

(D) Provide a written record of the agreement with the client as to the services to be provided
(Engagment letter is useful for all the options mentioned. But primary purpose is option D and other options are serves secondary purpose.)


3. When planning an audit an auditor would not normally be concerned with

(C) The collection of the fee for the previous year’s audit
(While planning an audit, auditor will concern problems encountered on the previous year’s audit, Changes in the company’s accounting system, Changes in the organization of the internal audit department but not the collection of the fee for the previous year’s audit.)


4. In the tour of the client’s operations, the auditor noted two machines were not operating in the client’s factory. This meant that production was 25% lower than normal. The factory manager informed the auditor that this was because the machine was being serviced: however, the auditor saw no of this. How would this affect the audit plan?

(D) It would be necessary to perform more work on stock to check for obsolescence.
(Since Auditor sees no evidence of servicing the machine, he should not accept the explanation. Option B wont affect the audit plan because purpose of audit of tangible fixed assets is checking the following assertions a. Existence, b. completeness, c. Rights and Obligation, d. Classification and Valuation and e. Presentation and disclourse, option c is also not relevant. So it should be option (D). because non operating implies low sales and surplus stock, so Auditor has to amend the audit plan to increase audit procedures for valuing inventories (IAS 2).)


5. Which of the following is not one of the uses of a time budget

(A) Determining the extent of reliance on internal control
(Time budget is essential for Controlling the efficiency of the performance of audit staff, Planning the assignment of staff to jobs, Planning the assignment of staff to jobs but it has nothing to do with measuring the extent of reliance on internal control.)

I hope my friends enjoyed this session, though there is not much of participation.

Let’s go the second session

[siddharth]

Any Suggestions welcome

[Asif]

I think no.4 answer should be B. since the machine is producing less it may effect the valuation assertion of fixed asset. It may need to be written down. so audit plan need to incorpate further procedures to ensure it is appropiately valued.

[ShonelleClarke]

I like this seeion I think it is very helpful

[siddharth]

Hi Asif,

Yes, It might affect valuation of plant and machinery in terms of depreciation and impairment which depends on various circumstances of the case. But we cannot neglect option D also, hope you agree with this

May be Moderator Sravanthi or Author can help us in this ambiguity

[siddharth]

Hi Shonell,

Yes, it will help you to understand concepts in a better fashion.

Hope you participate in this sessions soon

[Asif]

yess...D is the answer too...but i think B is more appropiate....can the author pls clarify this

[ManOo]

I guess Stock valuation would be necessary to incorporate in the audit plan...since this account is considered as vulnerable than plant n machinery ... obviously amount of work will increase in plant n machinery as well .. but the word necessary* is the point to count on.