Question

Part One: True / False Questions (2.5 marks/ question) 1. An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts 2. Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable. 3. The examination of warehouse receipts is sufficient verification of a material amount of goods stored in public warehouses. 4. The receiving department should accept only goods for which there is an approved purchase order on hand. 5. A major control procedure related to plant and equipment is a budget for acquisitions and disposition. 6. The primary purpose of internal control over plant and equipment is to safeguard the assets from theft 7. Confirmation of accounts payable is a required generally accepted auditing procedure. 8. The assertion most directly addressed when performing the search for unrecorded liabilities is completeness 9. Existence is of principle concern to the woditors in the examination of accounts payable. 10. Audit reports should be dated as the date on which sufficient appropriate audit evidence has been collected 11. If financial statements of a public company fail to disclose a material fact, the auditors may disclose the information in an additional paragraph added to the report and, depending upon materiality issue either a qualified opinion or adverse opinion on the statements. 12. The Sarbanes-Oxley Act shifted a majority of the responsibility for maintaining internal control from management to the auditors. 13. Independence is required for the performance for some, but not all assurance services. 14. Deficiencies in intermal control identified by the auditor that are lesser than significant deficiencies must be communicated to management, and the audit committee need only be informed of the communication to management 15. If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows, the suditors should issue a qualified report for the departure from generally accepted accounting principles. 16. The auditors' search for recorded liabilities is completed subsequent to the balance sheet date. 17. In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the waiters accumulate factual judgmental and projected misstatements and an allowance for undetected misstatements in the financial statements. 18. When the editors cannot observe ending inventory nor confirm accounts receivable and cannot obtain sufficient evidence using alternative procedures, the auditors should disclaim an opinion. 19. The subsequent events might require an adjustment to the client's financial statements, when major customer declares bankruptcy causing a material receivable to be uncollectible 20. When there is substantial doubt about a company's ability to remain a going concer, with the matter properly disclosed in the financial statements, the report issued is unmodified with an emphasis of matter paragraph or a disclaimer of opinion.
auditing

Answer 1

1 TRUE Ageing analysis helps in understanding how much debtors amount will be recovered And how much provision of doubtful debts is to be created. TRUE Such coomunication helps in direct understanding of balance outstanding. It removes ambiguity of false debtors being available. 3 FALSE Physical verification is also required along with checking of receipts. TRUE Purchase order is a proof that goods to be recived are same as that of order and coming from same person to whom order was given. TRUE A proper budget helps in knowing amount required for acquisition which removes chances of fraud. 6 TRUE Fixed assets are of high value and internal controls are required to avoid theft and misuse. TRUE Accounts Payable is party to whom amount is to be paid and confirmation is required from such parties to avoid inflation or deflation of creditors and misrepresentation of balances. TRUE Completeness deals with whether all transaction are recorded or not and unrecorded liabilities deals wit this assertion. 9 TRUE Existence is important because accounts payable being shown should actually exist in reality. 10 TRUE Audit report is date on which auditor certifies his opinion on audited financial statements. Hence, such date should be date on which sufficient audit evidence has been obtained. 11 TRUE Public companies are required to disclose all material facts to owners and users of financial statements. If company fails, the auditor may add a new paragraph under qualified or adverse opinion. 12 FALSE Sarbanes Oxley Act puts lost of responsibility on management and top managers are required to personally certify documents and hence responsibility is on management and not on auditors. 13 FALSE Independence is required for all assurance services because assurance services are ones where documents certified by auditors are relied upon by users of those documents. Hence, necessary. 14 FALSE Internal control deficiencies must always be reported to management along with auditors comments. Response from management for such deficiencies must be communicated to the auditor. 15 TRUE Under GAAP, financial statements include Balance Sheet, Income Statement, Cash Flow Statement, Statement of Changes in Equity and their Notes. Any deviation and auditor may issue qualified report. 16 FALSE Auditors search for unrecorded liabilities must be completed before Balance Sheet so that same may be record If known after Balance Sheet, auditor may issue qualified report if company denies to report it. 17 TRUE Audit involves judgement and once auditor recives sufficient evidence that financial statements are proper and by applying acceptable level or tolerable level of mis-statements, he issues his audit report. 18 TRUE Not being able to confirm inventory and accounts receivable puts doubt over financial statements. Auditor has full right to disclaim from giving his opinion. 19 TRUE Events subsequenet to financial statements, may require statements to be restated and it can be done. However, it can be disclosed and that may be sufficient. 20 TRUE Going concern concept when hampered puts doubt over future working of the company. Auditor has right to modify his opinion or issue EOM paragraph to put attention of shareholders.