Sample Audit Exam
Question 1(12 marks)
(1 mark for each relevant point)
Scenario 1 o The auditor would need to confirm information provided by the CFO with the bondholder’s. o The CFO has classified the bond as current and provided a going concern note and therefore the financial statements are in compliance with GAAP. o The auditor would need to perform procedures as to the adequacy of the note disclosure. o If the going concern note disclosure is considered adequate, the auditor would issue an unqualified opinion with an emphasis of matter paragraph. o If the going concern note disclosure is not adequate, the auditor would issue an adverse opinion.
Scenario 2 o The auditor was appointed in the middle of the year and did not observe inventory at the end of the prior year there are no alternatives procedures that can provide the same evidence. o If the client has strong controls over inventory acquisition, sales and recording, it may be possible to reconstruct inventory movements for the entire year from transaction data which, along with the audited year-end balance, might provide sufficient evidence if inventory and cost of sales are not highly material to the financial statements as a whole. The cost of these alternate procedures would be high, however. o If alternative procedures can be performed the auditor can provide an unqualified opinion. o If inventory/cost of sales are material but a possible misstatement would not render the entire set of financial statements misleading or useless the auditor can issue qualified opinion drawing attention to the scope limitation and the financial statements items that the auditor was unable to verify. o If inventory/cost sales is a pervasive component of the company’s financial performance, the auditor would have to give a denial of opinion.
Scenario 3 o The auditor would need to assess the auditors qualifications, compliance with ethical requirements, quality control systems o If deemed necessary,
(1 mark for each relevant point)
Scenario 1 o The auditor would need to confirm information provided by the CFO with the bondholder’s. o The CFO has classified the bond as current and provided a going concern note and therefore the financial statements are in compliance with GAAP. o The auditor would need to perform procedures as to the adequacy of the note disclosure. o If the going concern note disclosure is considered adequate, the auditor would issue an unqualified opinion with an emphasis of matter paragraph. o If the going concern note disclosure is not adequate, the auditor would issue an adverse opinion.
Scenario 2 o The auditor was appointed in the middle of the year and did not observe inventory at the end of the prior year there are no alternatives procedures that can provide the same evidence. o If the client has strong controls over inventory acquisition, sales and recording, it may be possible to reconstruct inventory movements for the entire year from transaction data which, along with the audited year-end balance, might provide sufficient evidence if inventory and cost of sales are not highly material to the financial statements as a whole. The cost of these alternate procedures would be high, however. o If alternative procedures can be performed the auditor can provide an unqualified opinion. o If inventory/cost of sales are material but a possible misstatement would not render the entire set of financial statements misleading or useless the auditor can issue qualified opinion drawing attention to the scope limitation and the financial statements items that the auditor was unable to verify. o If inventory/cost sales is a pervasive component of the company’s financial performance, the auditor would have to give a denial of opinion.
Scenario 3 o The auditor would need to assess the auditors qualifications, compliance with ethical requirements, quality control systems o If deemed necessary,