Audit CBT 1,2 Question

MAS Education Centre AAT Level 4 Audit 2022
CBT 1
Task 1 (10 marks)
This task is about the conceptual and regulatory framework, corporate governance and
internal audit. This task contains parts (a) to (e).
(a) Identify whether the following statements about external audit are true or false. (3 marks)
Statement True False
It is not required where there is an effective internal audit team. F
If users do not understand what the audit process involves this is T
known as the expectation gap.
Reasonable assurance means the auditor only provides a low level F
of assurance.
(b) Complete the following statement. (2 marks)

A true and fair view means that the financial statements ______________ and they represent
the __________ of transactions.
 are correct  do not contain any  have been

material misstatement audited
 legal form  economic substance  accuracy
(c) Identify the correct option for each responsibility. (2 marks)

Responsibility Options
Set the standards relating to the conduct of audits.
Decide who is exempt from audit.
 Government  IAASB  Professional body
Sayar Thura Shein (09-940003499) (thurashein@mas-education.com) Page-1

You are the external auditor and have completed the year end audit. In the working papers,
it is noted that the board of the company have decided that they internal audit team will be
disbanded. The reasons given include the fact that there is a risk management function, the
internal audit team have not found any frauds for a number of years and the company has
had difficulty recruiting new internal auditors.
(d) Identify which of the following statements is correct. (1 mark)

1. Your audit report should identify this is not appropriate as the UK Code of Corporate
Governance requires all companies to have an internal audit function.
2. If the board explain to shareholders why this decision has been made, it is in line with the
UK Code Of Corporate Governance.
3. As the company has a risk management function in place, this is an acceptable alternative
to internal audit under the UK Code of Corporate Governance.
(e) Identify which TWO of the following statements are the responsibility of an effective audit
committee. (2 marks)
1. Appoint the external auditor.
2. Ensure audit recommendations are actioned.
3. Review risk management statements.
4. Sign off the financial statements.
Task 2 (15 marks)

This task is about professional ethics. This task contains parts (a) to (e).
(a) Identify which TWO of the following ethical codes AAT members are subject to when
undertaking a supervised external audit. (2 marks)
1. The Code of Ethics set by the Government.
2. The FRC's Ethical Standard.
3. The International Code of Ethics set by IFAC.
4. The AAT Code of Professional Ethics.

You are an Accounting Technician assisting in the audit of Learnerlets Ltd, a letting company
that specializes in student accommodation in Newcastle, who has been an audit client for
five years. The tax team of your audit practice also provide support with the tax returns for
Learnerlests Ltd.
Whilst planning the audit, you are informed that the Financial Controller of Learnerlets was
ill during the year and unable to work. As the company had no suitable staff to fill the role,
a qualified audit senior who worked part-time in your audit practice had also been working
one day a week at Learnerlets for four months. She is now heading up the current audit of
Learnerlests as the only audit senior. As a result of the Financial Controller only being part-
time, additional audit time was required so the fee income from Learnerlets Ltd rose to 60%
your audit practice's total fees.
Looking through the planning file at information on the Finance Director of Learnerlets Ltd,
you realise that the Finance Director knows the audit partner as they studied accountancy
at the same college. You look through social media feeds and you discover that they have
also been on holiday together with their families. You note from the firm records that 20%
of the audit fee from last year has not yet been paid and has not been chased for payment,
in line with usual policy. There is a note in the records stating that an e-mail was sent from
the partner requesting that the fee is not chased.
(b) Identify the ethical threat and action to be taken by the firm for each of the following
situations. (8 marks)
Situation Ethical threat Action
The audit senior has been working
as the Financial Controller of
Learnerlets Ltd and is now heading
up the audit team.
The total fee income from
Learnerlets is 16% of the total fees
for the audit practice.

The partner and Finance Director

know each other socially and have
done for some time.
The outstanding audit fee from last
year.
 Self-interest  Self-review  Advocacy

 Intimidation  Ensure audit senior  Remove audit senior
does not work on from the audit
areas she prepared. entirely.
 Report the ethical  As the fee was due to  Review whether
threat to the audit exceptional independence is still
committee. circumstances and met.
will not reoccur do
nothing.
 Resign from the audit.  Report the partner  Commence debt
from the audit. recovery process.
 Stop all audit work until  Dismiss the partner.  Do nothing.
payment is made.
In the audit file for the previous year, there are notes about the establishment of an internal
audit team. As Learnerlets has grown substantially in size, the management team asked if
establishing an internal audit team would reduce the audit fee charged each year. They said
that the audit partner has agreed to provide details of the fees paid by other clients with
internal audit teams.
(c) Identify the most appropriate action you should take. (1 mark)
1. Provide details of fees with client names to the management team.
2. Provide details of fees without client names to the management team.
3. Refer the query to the Audit Manager.
4. Contact the AAT and ask for advice.

(d) Identify which TWO of the following situations represent a threat to independence. (2
marks)
 The provision of statutory guidance to the management team about effective internal
audit.
 The total fee income from Learnerlets is 16% of the fees for the audit practice.
 The partner and Finance Director know each other socially and have done for some time.
 The outstanding audit fee from last year.
(e) Identify whether the following statements about the fundamental ethical principles are
true or false. (2 marks)
Confidentially means that the audit partner at Learnerlets should
keep client affairs secret in all circumstance.
If the audit practice takes on another letting company as a client,
Learnerlets do not need to be informed if there are adequate
safeguards available.
Task 3 (25 marks)

This task is about the planning process.
This task contain parts (a) to (d).
(a) Identify whether the following items present an inherent risk, control risk or detection
risk. (3 marks)
Item Inherent Control
risk risk
A number of key staff in the finance team left during the year.
The hours allocated to complete the audit have been reduced
so the team decided to reduce all sample sizes.
As a result of staff shortages at the year end, the estimates in
the financial statements have been carried forward from the
previous year.

(b) Complete the following statement. (1 mark)

Audit risk is the risk that the external auditor will form an ____________ opinion.
 appropriate  inappropriate  acceptable  unacceptable
(c) Identify which ONE of the following statements about audit working papers is true. (1
mark)
 All audit files are the property of the client as they contain their data.
 Audit files do not need to be held as paper copies.
 If the tax authorities are investigating the company the audit file must be released to
them.
You are part of the audit team for the external audit for a new client, Lovely Stuff Ltd, an
online retailer of fast fashion. The company's year end is June 20X1 and they have continued
to grow the business. You have been asked by the partner in charge of the audit to undertake
work in preparation for the audit. She has provided you with her notes from the meeting
with the Finance Director and the draft figures from the income statement that were
discussed. Materiality has been set at 5% profit before tax.
Notes from the meeting.

 LovelyStuff Ltd has spent £2.6 million extending its warehousing facility. To finance
the build, some office buildings have been sold at a profit of £300,000 and an
additional £1.8 million has been borrowed from the bank. This is due to be repaid over
five years. The refurbishment is expected to extend the life of the warehouse by 20
years.
 When the new building were completed two months ago, all company activities,
including the finance team, were relocated there. A new integrated computer system
was also purchased and successfully implemented. This brought together the online
sales system, the warehouse management system and the financial system.

Extracts from the draft Financial Statements:

20X1 20X0
Draft Final
£ £
Revenue 10,491,850 10,461,850
Cost of sale 5,601,880 6,026,900
Administration 1,403,700 1,262,920
Depreciation 13,790 13,090
Marketing and distribution 124,770 123,249
This information can also be viewed in the references section to the right.
(d) Using the notes from the audit partner:

i. discuss THREE audit risks, from the scenario above, that should be considered when
planning the audit of LovelyStuff Ltd (12 marks)
ii. explain the audit procedures that should be undertaken for each risk identified in part
(i). (8 marks)
Risk 1

Audit procedure
Risk 2
Audit procedure

Risk 3
Audit procedure
Task 4 (20 marks)

This task is about procedures for obtaining sufficient and appropriate audit evidence.
This task contain parts (a) to (e).
You are a member of the internal team of The Audit College which owns a number of large
building across the country from which it runs accountancy training. In each building is a
catering outlet for staff, students and external guests to use, which is currently owned and
run in-house. The outlets operate as a coffee bar and serve a selection of hot and cold drinks
and pre-packaged food items, such as sandwiches and cakes. They also provide catering for
all events within each building and for external clients. The outlets have a turnover of £30,000
per week on average.

The catering operation has been outsourced to an external supplier and the business will
transfer as a going concern to ensure continuity of trading. As such, all the contents of the
catering unit (including food and beverages and fixtures and fittings) will be transferred to
the new owner. It has been agreed with the unions that staff involved will also be transferred
into the employment of the new company. As part of the transfer process, the internal audit
team are required to undertake a due diligence review to agree the final figures and confirm
that appropriate controls are in place.
(a) Identify which TWO the following statements about the audit approach are true. (2 marks)
 The external audit team of The Audit College should also be involved as an internal audit
team will not provide independent assurance.
 The internal audit team needs to maintain professional skepticism and be alert to the
increased risk of errors occurring as this may increase as a result of staff transferring to a
new employer.
 The inventory count can be performed by the internal audit team on different days across
each site.
 Effective internal audit forms part of the control environment.
A number of different audit techniques are available to determine the sample size to be
tested.
(b) Identify the appropriate sampling technique for each action listed below. (3 marks)
Action Sampling technique
The auditor starts the sample on a random number and then
selects every 45th item.
The auditor chooses all payments from November when the
payments clerk was off ill and her position was covered by
the apprentice.
The auditor selects every balance that takes the cumulative
total over £10,000.
 Haphazard  Judgemental  Systematic  Monetary
unit

You are preparing the list of audit procedures to be undertaken during the final inventory
check of the catering operations. You have been provided with the list of procedures issued
to staff in the catering operations when inventory counts are undertaken.
Inventory Count Procedures
1. Count should be carried out at the end of the day, after out of date items have been
discarded. Any additional out of date items identified during the count should also be
disposed of and recorded as waste for that day.
2. One team member should count the inventory using a hand held scanner and another
check against current inventory records.
3. Care should be taken to ensure the count is carried out in an organized manner and
all items in boxes should be opened, inspected and included in the count.
4. Forward all count sheets to the finance team for the inventory records to be updated.
Your Audit Manager has suggested that these procedures are acceptable, as long as a
member of the audit team observes the count.
This information can also be viewed in the references section to the right.
(c) For the proposed inventory count:
i. evaluate whether the proposed inventory count procedures, including the
suggestion to observe the count, will provide sufficient and appropriate evidence
for the due diligence review (10 marks)

ii. identify ONE substantive audit procedure to be performed (1 mark)
iii. identify ONE additional test of control to be performed. (1 mark)
(d) Complete the following statement. (1 mark)

If the auditor expects to find errors, the sample size should be ___________.
 Smaller  Larger

(e) Identify TWO actions that should be taken by the internal audit team if a fraud is
discovered during the due diligence review. (2 marks)
 The internal audit team should stop all work and refer the matter to the external auditors.
 The internal audit team should continue to gather evidence.
 The internal audit team should inform the relevant authorities immediately when fraud is
suspected.
 The internal audit team should report the findings to the audit committee.
 The internal audit team should close the catering operation immediately.
Task 5 (15marks)
This task contains parts (a) to (f).
(a) Complete the following statement. (2 marks)
Audit evidence should be ___________ to enable the auditor to draw ____________ conclusion
to base the audit opinion on.
 precise  accurate  specific  reasonable
 an assertive  a persuasive  a supportive  a conclusive
(b) Identify whether the following audit procedures will provide evidence that controls are
operating as expected. (3 marks)
Audit procedures True False
Observation of staff processing invoices.
Walkthrough test of invoices being input to the system.
Using test data to trace transactions from order to inclusion in the
payables ledger.
You are involved in the year end audit of Fastbike Ltd, a company that manufactures electric
motors to fix to bicycles and retails to general public and bicycle manufactures. The company
has seen a rapid increase in sales over the past year and its profit before tax has increased

from £3.9m in 20X0 to £6.0m in 20X1. This has enabled the company to invest in updating
their computer systems.
Fastbike Ltd purchases its components from a large number of suppliers. Some suppliers are
complaining about delays in payments. During the year, the company introduced a new
inventory system which links directly to the accounting system, although this has not yet
been fully integrated. At the year end the purchase ledger was closed and a reconciliation
was undertaken of the inventory system to identify goods received into the warehouse but
not yet invoiced. An accrual was raised and manually input to the accounting ledger.
(c) Match the audit tests to be performed on the purchase system with the assertion they
will provide evidence on. (4 marks)
Test Assertion
Trace an individual purchase to the expense account in the
financial ledger.
Compare the trade payables against the previous year and
investigate any significant differences.
Compare the invoice received to those recorded in the ledgers
and included within the accruals list.
Trace an invoice received back to the purchase order ensuring
it is appropriate for the company.
 Classification  Completeness  Cut-off  Occurrence
(d) Identify which TWO of the following audit procedures provide the most appropriate
evidence of valuation and existence of the payables balance at the year end. (2 marks)
 Calculate the payables days and investigate variances.
 Confirmation from the suppliers of the invoices outstanding for payment.
 Inspection of bank statements to identify payments made to suppliers during the year.
 Inspection of bank statements to identify payments made to suppliers after the year.

(e) Identify which ONE of the following financial assertions the audit may find difficult to
obtain sufficient audit evidence for if internal controls are weak. (1 mark)
 Occurrence
 Classification
 Completeness
 Valuation
(f) Identify whether the following statement about computer assisted audit techniques are
true or false.
(3 marks)
Audit software involves the use of the audit report function in the
accounting ledger of the client.
The use of artificial intelligence to read documents will increase the
efficiency of an audit.
Predictive analytics should never be used to obtain audit evidence.
Task 6 (15 marks)

This task is about reviewing and reporting findings and audit opinions.
This task contains parts (a) to (c).
You are undertaking the external audit of Ecobrew Ltd, who import and roast organic coffee
beans. Over the past few years, they have seen increasing competition and as a result,
demand for their products has decreased. The profit before tax for the year was £85,400
(£950,600 in the previous year).
As part your overall review, you performed analytic procedures on the draft financial
statements and have noted that the trade payables collection period has increased and the
trade receivables collection period has reduced considerably over the past year. You are
aware that as result of a lack of available cash, suppliers have been paid late and their key
supplier has withdrawn credit facilities and requires payment on delivery.

The audit review includes an assessment of uncorrected misstatements, which identified a

number of transactions.
(a) Assess the following uncorrected misstatements for materiality. (3 marks)
Uncorrected misstatement Material Not
material
Expenses payments to staff of £26,800 not authorised.
Errors in recording returned products resulting in
overstatement of sales totaling £53,215.
Irrecoverable receivables of £43,500 not recalculated. The
prior year figure of £38,500 was included.
The company has experienced quality issues with their products as a result of equipment
which is becoming obsolete and they are concerned that production capacity will be
compromised id new equipment is not purchased within two months.
Ecobrew Ltd are currently in negotiations to replace their roasting equipment and are
discussing leasing as an option as they have been unable to secure an increase in their loan
from the bank. The new equipment will cost £75,000 to lease, but the lease company is
concerned about the company's ability to pay, as they have been in discussion with Ecobrew
Ltd's main supplier who has told them that they were now asking Ecobrew Ltd for cash on
delivery.
The directors have agreed to included disclosures in the financial statements regarding the
obsolete equipment and the delay in leasing new equipment in line with accounting
standards. The lease company have suggested that the lease cannot be agreed until the
lease company receive a copy of the audit report as they are concerned about Ecobrew Ltd's
ability to pay.

(b) Identify which TWO of the following statements about the audit report are false.(2 marks)
 If the disclosures made are reasonable then the audit report will be unmodified.
 If the disclosures made are reasonable then the auditors do not need to make any
reference to them in the audit report.
 As the issue is material then a qualified audit report must be given.
 If the auditor report includes the issue then the directors do not need to make any
disclosures in the financial statements.
One of the uncorrected misstatements for closing inventory listed a batch of roasted beans
costing £18,000 that were returned due to quality issues. The audit work suggested that the
returned batch should be written down to cost, but the directors dispute the findings. They
suggest that the net realizable value of the batch still exceeds the cost and can be resold in
the staff shop. Further enquiries have identified that the staff shop sells products that cannot
be sent to customers due to quality issues and are sold for the price of the raw materials. All
proceeds from the sales are used to fund the staff Christmas party.
(c) Prepare extracts for inclusion in a report to the Audit Committee of Ecobrew Ltd, which
sets out:
i. the possible consequences of the deficiencies
ii. the recommendations you would make. (10 marks)

CBT 2
Task 1 (10 marks)
internal audit.
This task contains parts (a)to (e).
An assurance engagement provides a conclusion with the aim of increasing confidence
about the subject matter.
(a) Identify the types of assurance conclusion provided for each type of assurance. (2 marks)
Types of assurance Negative Positive
Reasonable assurance p
Limited assurance n
(b) Complete the following statement. (1 mark)

An internal audit provides assurance to the ____________ on the efficiency of operations.
 shareholders  external auditor  audit committee
(c) Identify TWO principle of good governance from the list below. (2 marks)
 Accountability
 Accessibility
 Truthfulness
 Transparency

(d) Complete the following statements. (2 marks)

The use of the UK Code of Corporate Governance by companies is _____________ . If a
company is unable to comply with any of the requirements in the code, they should
____________ .
 required by statue
 recognized as good practice
 ensure controls are implemented as soon as possible
 fully explain any departures to the code to shareholders
(e) Identify whether the following statements relate to professional scepticism or

professional judgement. (3 marks)
Statement Professional Professional
scepticism judgement
Ensuring audit evidence is not ps
contradictory.
Being alert to the possibility of fraud ps
throughout the audit.
Drawing conclusions based on the pj
evidence obtained.
Task 2 (15 marks)

This task is about professional ethics. This task contain parts (a) to (f).
(a) Identify whether the following statements about professional ethics are true or false.

The AAT Code of Professional Ethics only applies to members F
undertaking supervised statutory audits once full membership is
obtained.

The AAT Code of Professional Ethic allows principles to be T

applied to different audit situations and so are still effective if
changes occur.
If the AAT Code of professional Ethics is applied in full then the F
auditor cannot be sued for negligence.
You have recently qualified as an Accounting Technician after an apprenticeship with Look
Now Ltd, a large clothing retailer. You had not agreed with some of the ethical practices
around employment and accounting practices that were applied within Look Now Ltd but
as an apprentice were unable to influence any of the company decisions.
On completion of your apprenticeship, your skills and experience enabled you to successfully
transfer to the consultancy section of a large audit firm. At your induction, you met Asha,
who is about to start her first audit at Look Now Ltd. She said she had seen a recent TV
programme about poor ethical practice in the clothing industry and was looking forward to
exposing Look Now Ltd as she was sure they had similar practices. When she discovered you
had previously worked there, she asked you for any background knowledge that could help
her as she would like to make a good impression with her Audit Manager on her first review.
(a) Identify which ONE of the following actions you should take in response to Asha's request
for information. (1 mark)
 Tell Asha everything you know as you are 'whistleblowing' on malpractice.
 Tell the Audit Manager everything you know as you are 'whistleblowing' on malpractice.
 Seek advice from the AAT before talking to the Audit Manager.

You have not been included as a member of the audit team for Look Now Ltd.
(b) Identify which TWO of the following threats to independence you are safeguarded
against. (2 marks)
 Self-awareness
 Self-interest
 Self-review
 Familiarity
On the day before the Audit Manager visits the audit team at Look Now Ltd to sign off the
files, Asha identifies some potential problems with the inventory valuations. The Audit
Supervisor tells Asha they do not have time to check her work and all the inventory checks
she attended were fine so she should leave it out of the working papers.
(c) Identify which ONE of the following actions Asha should take. (1 mark)
 Seek advice from the AAT.
 Excluded the findings from the working papers as requested.
 Inform the Audit Manager.
Look Now Ltd has an internal audit team but has faced some difficulties in recruiting a Head
of Internal Audit. They have asked the audit partner if her wife, Bobbie, would apply as they
know she is interested in such a role. All staff in Look Now Ltd are entitled to shares in the
company as part of their bonus each year. The Finance Director of Look Now Ltd commented
that she would be perfect for the role and would be ideally placed to renegotiate the audit
fee next year.
(d) Identify whether the following statements about the independence of the audit firm are
true or false.
(4 marks)
As long as the audit partner and her wife both disclose this with their F
professional bodies the conflict of interest is mitigated.

The audit partner should be rotated off the audit of Look Now Ltd if T
Bobbie is appointed.
Bobbie should refuse shares in Look Now Ltd if she is appointed. T
The audit partner should not mention this vacancy to her wife as this F
would compromise her objectivity.
The audit firm has been approached by TopTog Ltd and have asked them to act as their
auditor and business advisor.
(e) Match the statement with the appropriate safeguard. (4 marks)
Statement Safeguard
The fee income from the engagement with TopTog Discuss the issue with audit
Ltd will represent 8% of the total income of the audit committee
firm.
TopTog Ltd is the main competitor of Look Now Ltd. Accept engagement with the
safeguard of separate teams
The consultancy work will involve providing tax Refuse engagement
advice.
The consultancy work will involve providing advice Accept engagement
on the establishment of an internal audit team.
 Accept engagement
 Accept engagement with the safeguard of separate teams
 Discuss the issue with the audit committee
 Refuse engagement as no safeguards possible

Task 3 (25 marks)

This task is about the planning process.
This task contains parts (a) to (d).
You are part of the external audit team for CityLife Ltd, a lifestyle magazine which has been
published and delivered free of charge to residents in Manchester for the past 10 years.
Earlier in the year, a social media site was set up by a competitor targeting Manchester and
the surrounding area.
The full cost of producing the magazine is funded through advertising revenues. The
financial statements for the showed an annual turnover of £950,000. Materiality has been
set 1% of turnover.
(a) Identify whether the following items will be deemed as material or not material when
planning the auditor of their financial statements. (3 marks)
Statement Material Not
material
Depreciation on IT equipment purchased during the year at a
cost of £28,000 has not been included. IT assets are usually
depreciated over three years but as the equipment was for staff
working from home rather than located in the office building,
the assets were not depreciated.
A key client has not renewed their contract for advertising as
they are now using the social media site of the competitor. This
contract was worth £12,000 per year.
The company vacated one of the office spaces two months ago.
They have not paid the rent of £5,000 per month since vacating
the premises. CityLife Ltd suggested that they have verbal
confirmation from the landlord that they do not need to pay
any further rent as the landlord says they have found a new
client for the space.

(b) Identify whether the following situations would indicate a higher or lower audit risk. (3
marks)
Statement Higher Lower
The audit client now uses the cloud for all data storage.
The audit firm has recently invested in updated audit software
with means that 100% of the transactions can be analysed.
Staff of the client are allowed to work remotely unless they are
required to be on the premises for meetings.
You are part of the audit team for the external audit of Coastal Coffee Ltd, a chain of coffee
shops. Your Audit Manager told you that the audit in the previous year was extended due
to difficulties in obtaining accurate information on inventories, as year end inventory checks
had not been undertaken by Coastal Coffee Ltd staff.
A new branch also in Saltburn was opened three months earlier than expected during the
year. This was not in the original audit plan, as it was agreed that this may have caused
operational difficulties for the company and information in the audit file suggested that this
was not considered to be an audit risk.
You have been provided with the following data for the branches in your area for the year
ended 31 March 20X1:
Financial data Total Segmental analysis
£000 Scarborough Whitby Filey Redcar Saltburn
£000 £000 £000 £000 £000
Revenue 6,750 2,600 1,150 1,300 550 1,150
Labour 1,815 570 255 345 280 365
Inventory as at 31 36 13 6 6 3 8
March 20X1
You have researched industry averages, which suggest that labour costs are 28% of revenue
and inventory holdings are 30% of the weekly revenue.

Your audit manager has asked you to plan the audit of Coastal Coffee Ltd using a risk-based
approach to enable staff to be allocated.
(c) Using the information provided,
i. analyse the information to support the audit planning. You must include calculations to
illustrate your answer. (12 marks)
ii. Recommend which THREE shops should be visited based on your analysis in part (i). (6
marks)

(d) Identify which ONE of the following statements about standardized working papers is
false. (1 mark)
 Their use can help in the delegation of work to the audit team.
 If standardized checklists are used, then the auditor is not required to apply judgement
in assessing the results.
 If standardized questionnaires are used, then this may save time.
Task 4 (20 marks)

This task contains parts (a) to (d).
(a) Identify which ONE of the following statements about audit procedures is true. (1 mark)
 Substantive procedures are only carried out if the results of tests of control are
uncertain.
 Substantive procedures should be carried out on all material items.
 Substantive procedures are not required when the control systems are strong.
You are a member of the internal audit team for Stellar Spa, who own exclusive hotels in the
UK. The audit manager has provided you with a copy of of the procedure notes issued to
reception staff.
Procedure notes for reception staff
 Booking are made over the internet and a 10% deposit of the room rate taken by
card, with the right to extract the full payment if the guest fails to pay their final bill
on departure. The final payment will include the room rate plus any meals, drinks,
and spa treatments.
 Day bookings can be made for Spa visits only over the internet or by phone. These
are paid for on entry to the hotel and can be by cash or card.
 Spa products can also be purchased from reception, and these are not included in
the final bill but must be paid for by cash or card on purchase.

 The receptionist records all sales of spa products and payments for day bookings
on a spreadsheet created and maintained by the accountant, who has saved it on
a shared drive so they both have access.
 Selected spa products are displayed on open shelves behind the reception desk.
Additional items are kept in a locked cupboard and the key is held in the cash box.
When purchases are made, the credit card receipt or cash is placed in the cash box.
The key to the cash box is hanging on a hook behind the reception desk.
 The contents of the cash box are taken by the receptionist on duty to the
accountant's office by 16:00 each weekday. When reception is closed, it is
responsibility of the head receptionist to secure the cash box in the hotel safe.
(b) You are preparing a summary for the audit plan in which you should:
(i) determine the audit approach to testing based on current procedures at Stellar Spa.
(12 marks)

(ii) identify FOUR control procedures that could be implemented to mitigate areas of
concern identified in part(i). (4 mrks)
(c) Complete the following statement. (1 mark)

The technique referred to as interval sampling is also known as _____________ sampling.
 random  stratified  systematic  block
(d) Identify which TWO of the following statements could result in the sample size being
decreased. (2 marks)
 The risk of material misstatement decreases.
 The auditors required confidence level increases.
 There is a decrease in the tolerable misstatement.
 An increase in the standards of internal controls when compared to the previous year.
Task 5 (15 marks)

This task contains parts (a) to (e).
You are the audit senior for EGT Ltd. You are preparing the external audit programme for
Property, Plant and Equipment (PP&E) for the forthcoming year end review. The company
has been a client for a number of years.

(a) Complete the following statement about sufficient and appropriate audit evidence. (2
marks)
When evidence is appropriate it is ___________ and __________ .
 relevant  right  reasonable
 realistic  related  reliable
You are investigating the sources of evidence you will use during the audit and have
identified a range of options.
(b) Identify whether the following statements about audit evidence for Property, Plant and
Equipment (PP&E) are true or false. (3 marks)
Evidence obtained from EGT Ltd's records.
Copies of the non-current asset register on paper are more
reliable than downloads from the financial records.
Evidence on PP&E purchases is more reliable when internal
controls are operating effectively.
(c) Match the audit procedure below with the assertions they will provided evidence on and
the type of verification technique they represent. (6 marks)
Audit procedure Assertion Verification
technique
Review the costs charged to repairs and
maintenance and identify any costs incorrectly
treated as revenue rather than capital
expenditure.
Compare the PP&E schedule to the previous
year.
Review the results of the asset verification
checks carried out externally.

 Existence  Completeness  Accuracy

 Valuation  Presentation  Inspection
 Observation  Recalculation  Analytical procedure
 Enquiry
(d) Identify which of the following financial assertions the audit may find difficult to obtain
sufficient audit evidence for internal controls are weak. (1 mark)
 Occurrence
 Classification
 Completeness
 Valuation
(e) Match the following tests to the computer assisted audit technique. (3 marks)
Test Computer assisted audit
technique
Recalculation of the net book value of non-current
assets.
Confirmation that any sales invoices issued causing
a credit balance on a customer's account is
highlighted.
Analysis of net profit by different product
classifications.
 Audit software  Data analytic tools  Test data

Task 6 (15 marks)

This task is about reviewing and reporting findings and audit opinions.
The task contains parts (a) to (e).
The audit report for Carilcat Ltd, a large building company who has been trading for over 10
years, is being finalized for the year end 20X1. Your Audit Manager is preparing an interim
report for the audit committee and has asked you to identify if there are any issues arising
which will impact upon providing an unmodified audit opinion.
Your review of the audit files identified that at the year end, Carilcat Ltd received notification
from one of its customers that a fire inspection identified materials recently supplied do not
meet new fire regulations and so must be removed and replaced. The customer had lost
significant revenue as they have been unable to use the building and had informed Carilcat
Ltd that they intend to take legal action against them for loss of earnings.
Carilcat Ltd had investigated the problem after the year end and discovered that other work-
in-progress is similarly affected. Inventory for these items should also be written down. A
note from the Finance Director stated that as this misstatement was identified after the year
end, it can be included in the financial statements for the year-ended 31 march 20X2 and
has refused to included any disclosure in the current year statements.
(a) The Audit Manager has asked you to:
(i) explain the issue identified (6 marks)
(ii) identify the audit opinion arising. (2 marks)

Carilcat Ltd has expanded significantly in recent year as a result of gaining large contracts in
the public sector to build long terms projects such as roads, hospitals and schools. In the
current year, a number of large contracts have not been delivered on time or on budget and
the contracts include financial penalties that could be imposed upon Carilcat Ltd in such
situations, although this has never happened in the past.
(b) Identify the action that should be taken. (1 mark)
 This not significant to the financial statements based on past experience and so on action
is required by the audit team.
 This may be significant to the financial statements if penalties are imposed so should be
disclosed in financial statements.
 Further audit evidence should be obtained to ensure Carilcat Ltd is still a going concern.
 This is not significant to the financial statements in the current year but could indicate
potential problems in future so should be discussed with the directors in the first instance.
(c) Identify which TWO of the following items are reported by exception in the external audit
report. (2 marks)
 Information in the directors' report is consistent with the financial statements.
 Details of directors pay has been disclosed correctly.
 Financial statements have been properly prepared.
 All information and explanations required have been received.

You are a member of the internal audit team of Dragon Entertainments Ltd, which operates
a theme park known as Dragon Land. Tickets can be purchased on the day using cash or a
credit card or online in advance using a credit card. Tickets are valid for one day only and
are all a standard price of £30 each. Tickets purchased in advance are offered at a reduced
rate of 30% off the ticket price for a set date or 10% reduction for an open date ticket.
At the entrance, a limited number of booths are also available to purchase tickets with cash
or credit card – manual tickets are issued, which are held in a locked drawer in each booth.
All sales are recorded on a till system showing the amount of each sale and the number of
tickets issued.
As the audit work continues, you identify a number of unusual transactions.
(d) Identify the action that should be taken with the following audit findings. (2 marks)
Findings Action
A member of staff in one of the booths has been
selling tickets for the following day at a discount of
30%.
The general manager of Dragon Land manned a
booth during a period of staff illness and during this
time a batch of tickets went missing.
 Refer to audit  Report to Dragon  Report to the police
manager Land management
 Do nothing
(e) Identify which TWO of the following parties internal audit should report internal control
deficiencies to. (2 marks)
 The directors of Dragon Entertainment Ltd.
 The external auditors of Dragon Entertainment Ltd.
 The shareholders of Dragon Entertainment Ltd.
 The audit committee of Dragon Entertainment Ltd.

1 Mock Assessment Questions

Task 1
internal audit. (10 marks)
(a) Identify whether the following statements about the expectations gap are true or false.
(2 marks)
An example of the expectations gap is that users of the financial

statements may not understand the limitations of the audit process.
An example of the expectations gap is that users of the financial
statements may not understand the concept of reasonable assurance.
The shareholders of Jax plc have raised concerns that they have not had reports from the
internal audit division, as they believe that they are entitled to see such information. (1 mark)
(b) Identify to which body the internal audit function primarily reports.
Body 
The external auditors
The shareholders
The shareholders
The government regulator
(c) Identify whether the following statements about auditing are true or false. (3 marks)
The external auditor is appointed by the shareholders.
An internal audit function is required for all UK companies.
Professional skepticism is a requirement specific to the audit of
listed companies.

(d) Complete the following statement:

The UK Corporate Governance Code is _____GAP 1______ for UK companies and aims to try
and prevent ______GAP 2_______ from abusing their power. (2 marks)
Gap 1
Mandatory
good practice
irrelevant
Gap 2
shareholders
company directors
the wider community
(e) Identify the type of assurance described in the extracts below. (2 marks)
Extract Reasonable Limited
Nothing has come to our attention to suggest that there are
any significant fraud concerns.
The financial statements for Rey Ltd give a true and fair view.
Task 2
This task is about professional ethics. (15 marks)
(a) Identify whether the following statements about the AAT Code of Ethics are true or false.
(3 marks)
The AAT Code of Ethics relates only to members who are
undertaking audit work.
The AAT Code of Ethics is a principles-based approach to ethical
dilemmas.

The AAT Code of Ethics identifies professional honesty as a key

ethical principle.
You are an Accounting Technician for ASC, an accounting firm which provides a number of
accounting services to clients. You have recently been added to the audit team of Wings plc,
a national airline listed on the London Stock Exchange.
The audit team is large and many of them have been on the job for a number of years.
During the year, the previous audit manager left ASC to work for Wings plc as the Finance
Director.
(b) Identify which TWO of the following threats to objectivity arise from the audit manager
leaving ASC to join Wings plc. (2 marks)
Threat
Self-review
Intimidation
Familiarity
Advocacy
(c) Identify which TWO of the following represent appropriate action to take in respect of
the audit manager joining Wings plc. (2 marks)
Action
Select members of the audit team who do not know the manager.
Reduce the amount of testing on work completed by the new Finance
Director, as you are aware of their competence.
Perform additional file reviews to ensure appropriate levels of audit work
is being performed.
Resign from the client for a minimum of two years.

During the course of the audit, you become aware that Wings plc have significant financial
difficulties. There is the talk of redundancies for staff, but the directors of Wings plc have
come up with some plans to turn the business around. The first option is for them to obtain
further bank finance in order to continue with the business and they would like your audit
firm to lead negotiations with the bank in order to secure finance on their behalf.
The second option is to sell the company to Fly Inc, a company based in the United States
of America. Discussions have taken place with Fly Inc. If the sale were to go ahead, Wings
plc would like you to do additional consulting work in relation to the sale. Wings plc is your
biggest client and currently makes up 3% of your firm’s total practice income.
(d) For each piece of work identified, select the potential problem and a course of action that
ASC could take. (4 marks)
Piece of work Problem Action
Meeting with the bank to secure finance. Gap 1 Option 1
Gaining additional fees from consultancy work. Gap 2 Option 2
Gap 1
Advocacy threat
Self-review threat
Intimidation threat
Option 1
Reject the work
Accept with safeguards
No safeguards needed

Gap 2
Self-interest threat
Familiarity threat
Advocacy threat
Option 2
Reject the work
Accept with safeguards
No safeguards needed
One of your colleagues at ASC who is not on the Wings plc audit has been in contact with
you. They have heard rumours that Wings plc may be struggling financially. Your colleague’s
parents own shares in Wings plc and they are asking for your advice on what they should
do.
(e) Identify whether the following statements about the situation are true or false. (2 marks)
Speaking to your colleague about this is acceptable as confidentiality
does not apply within an audit firm.
ASC are not allowed to audit Wings plc as an employee’s family
member has a financial interest in them.
Two of the employees of ASC own shares in Fly Inc.

(f) Identify the appropriate course of action if Fly Inc were to become a client of ASC. (2
marks)
Employee details Ensure not on audit of Fly Employee must sell
Inc shares
Frank, an audit manager in ASC
Sophie, an audit partner in ASC

Task 3
This task is about the planning process. (25 marks)
(a) Identify whether the following statements about the planning process are true or false.
(3 marks)
Materiality must be expressed as a percentage of profit.
Profit-related pay in an entity will increase the inherent risk in the
audit.
Working papers can be in a variety of forms, both electronic and
paper-based.
(b) Identify whether the following situations lead to higher or lower audit risk. (2 marks)
Situation Higher risk Lower risk
The company operates in a complex, technical industry.
This is the first audit that the audit firm has performed in the
industry.
You are working on the audit of Spinz Ltd for the year ended 31 December 20X2. Spinz Ltd
operates a chain of casino premises and bingo halls. Planning materiality for the audit has
been set at £1.2 million.
During the year, Spinz Ltd opened a large new casino. The budget for the set-up of the new
venue was originally £3 million, but the final cost exceeded the budgeted amount. The new
casino was the fourth casino opened by Spinz Ltd and has been open since 1 October 20X2.
The casinos are open 365 days a year and each casino holds the equivalent of 14 days of
revenue in cash on its premises.
The margins are relatively consistent across the industry with most casinos having a net
profit margin of 20% due to the fixed returns generated by the machines in the premises.
These make up the majority of the revenue in each casino other than Casino 3 which
generates more revenue from hosting televised poker events with ticketed sales.
Below are some financial details which should help you with the planning of the audit.

Casino 1 Casino 2 Casino 3 Casino 4

(new)
£000 £000 £000 £000
Revenue 41,200 21,100 9,200 19,300
Total expenses (32,960) (18,300) (4,700) (13,200)
Total profit 8,240 2,800 4,500 6,100
In addition to this, Spinz Ltd operate 25 bingo hall premises. There has been criticism of the
state of the properties that the bingo halls are run from. As a result, Spinz Ltd undertook
some repairs at a number of premises and sold some of the others, reducing the number of
bingo halls from 32 to 25.
(c) From the information provided above:
i. Discuss the audit risks surrounding property, plant and equipment. (4 marks)
ii. Explain the audit procedures to be performed over property, plant and equipment. (6
marks)
iii. Discuss any specific risks identified in the individual casinos and explain the audit
procedures to be performed. (10 marks)
Audit risks surrounding property, plant and equipment

Audit procedures to be performed around property, plant and equipment
Specific risks and procedures on individual casinos

Task 4
This task is about procedures for obtaining sufficient and appropriate audit evidence. (20
marks)
(a) Identify whether the following situations will lead to an increase or decrease in sample
sizes to be chosen. (2 marks)
Situation Increase in sample size Decrease in sample size
The detection risk needs to be low.
Controls are working effectively.
(b) Identify which of the financial statement assertions are being tested by each of the
substantive audit procedures below. (4 marks)
Audit procedure Existence Completeness
Selecting inventory from the warehouse and tracing it to the
inventory listing.
Selecting items from the non-current asset register to
physically verify.
Selecting goods received notes prior to the year-end to
confirm they are included in the liabilities balance.
Selecting inventory from the inventory listing and tracing
them to the warehouse location.
(c) For each of the procedures listed below, identify whether it is a test of control or a
substantive procedure. (2 marks)
Procedure Substantive Test of control
procedure
Observing cash being received from a trade
receivable balance post year-end.
Inspecting a bank reconciliation for evidence of
authorization.

You are part of the audit of Shep Ltd for the year ended 31 December 20X1. During the
planning of Shep Ltd it was noted that the Financial Controller had left during the year. Shep
Ltd took a number of months to find a replacement. During that time, the small accounting
department did their best to cover for the absence of a Financial Controller but the absence
of anyone in the role led to a lack of regular reconciliations or authorisation control activities
being followed.
You have been given the role of auditing the inventory of Shep Ltd. Shep Ltd sells a range
of products. The two most popular items are:
Shep Ltd food-to-go: These are ready-meal food items sold via the website and to retailers.
Shep Ltd kitchen equipment: These are high-quality kitchen products, such as casserole
dishes and saucepans.
The inventory is held across two sites, evenly spread across both. An inventory count is
planned for 31 December 20X1 at both venues.
(d) From the information provided above:
i. Discuss the likely impact that the Financial Controller’s absence will have on the audit
approach. (3 marks)
ii. Explain the audit procedures that you will perform over the inventory balance of Shep
Ltd. Your tests should specifically cover how you intend to assess the existence,
valuation and completeness of inventory. (9 marks)
Impact of absence

Approach for testing inventory
Task 5
This task is about procedures for obtaining sufficient and appropriate audit evidence. (15
marks)
(a) Complete the following statement:
Appropriate evidence is ______GAP 1_______ when it meets one of the financial statement
_______GAP 2________ (2 marks)
Gap 1
understood
correct
relevant

Gap 2
assertions
characteristics
qualifications
(b) Identify whether the statements about cash and bank are true or false. (3 marks)
Petty cash must be counted on every audit.
A bank statement is the best form of evidence for a cash balance.
The auditors should test the bank reconciliation but not produce the
bank reconciliation for the client.
(c) Select the correct category for the following automated tools and techniques. (2 marks)
Technique Test data Audit software
Inputting dummy invoices into the client system to see if
internal controls are working as intended.
Extracting information and analysing data.
(d) Match the following audit procedures to the type of verification technique it represents,
from the picklist below. (4 marks)
Procedure Verification technique
Contacting a customer to confirm the receivables balance
owed to the client.
Comparing monthly payroll costs to examine any
variances.
Examining an invoice to agree the amount to the figure
recorded in the financial statements.
Reperforming the client’s depreciation workings.

 Inspection  Analytical  Observation

procedures
 Recalculation  External
confirmation
(e) Identify whether the following items represent a misstatement in the account balance. (2
marks)
Item Misstatement Not misstatement
A payment made to a supplier was posted against
the wrong supplier.
Goods received in December 20X1 were not
recorded until January 20X2.
(f) Identify whether the following tests will be testing primarily for understatement of
overstatement of the account balance. (2 marks)
Test Understatement Overstatement
A sample of sales have been selected from the sales
ledger and will be traced to see if there are valid
goods dispatch notes for each of them.
A sample of physical assets have been selected to
see if all items have been correctly recorded on the
asset register.
Task 6
This task is about reviewing and reporting findings and audit opinions. (15 marks)
You are part of the audit of Sparx Ltd, a fashion retailer, and you are looking at their
purchases controls. You have been given the following information about the purchases
system.

Sparx Ltd has 4 retail stores and a central warehouse. Each store can order more goods from
the warehouse when they feel that their store is low on an item. There is no set figure for
this, but managers tend to order when their quantities are lower than 10. This is done via e-
mail from the store manager to the warehouse manager.
Sparx Ltd are always on the lookout for new suppliers and have a wide range of
manufacturers that are dealt with. All new suppliers are selected by John Shrat, the
purchasing director.
The warehouse inventory system automatically raises a purchase requisition for goods when
it hits a set re-order level. This differs per product and is controlled by Julie Jac, the
warehouse manager.
Once the purchase requisitions are raised, a purchase order is made with the relevant
supplier. Julie can raise purchase orders up to £5,000. Anything over this needs approval
from John Shrat.
Each purchase order is generated a unique code incorporating the goods, the supplier and
the date. If goods are not received within 10 days of Julie or John raising the order, another
order is placed with a different supplier.
(a) From the information provided above:
i. Identify and explain FOUR control deficiencies in the purchases system. (4 marks)
ii. Recommend improvements to the controls in the purchases system. (6 marks)
Control deficiencies

Recommended improvements
You are looking over some of the audit files from the clients you have worked on, before
issuing the audit opinion, and you have found the following information.
Spinz Ltd has an ongoing court case with a customer who is claiming substantial damages.
The damages are material but Spinz Ltd have not provided for them as they believe they will
win the case. Your legal advisers believe that Spinz Ltd will lose the case.
Shep Ltd had an inventory write-down of £400,000 in January 20X3. This inventory was
included in the 31 December 20X2 financial statements. Materiality on the Shep Ltd audit
was set at £850,000.
Sparx Ltd has a significant uncertainty over their future funding as a loan is due to be repaid
within a year. If this is not extended, Sparx Ltd would not be a going concern. You agree with
the way the directors have treated this issue in Sparx Ltd’s financial statements and the
disclosure they have made in the notes to the accounts.

(b) Identify whether the above situations will lead to a modified or unmodified audit opinion.
(3 marks)
Audit client Modified Unmodified
Spinz Ltd
Shep Ltd
Sparx Ltd
(c) Identify TWO items below that are reported by exception in the auditor’s report. (2 marks)
Item
All sections of the annual report are in agreement.
Proper accounting records have been kept.
The financial statements are free from material misstatement.
Accounts agree to the underlying records.
Chapter - 6
TESTS OF DETAIL
EXISTENCE AND RIGHTS AND OBLIGATIONS
Planning our attendance at the inventory count
1. 2 Where the date selected for the inventory count is an interim date we must be able to
rely on the year-end book inventory records. Assess the past reliability of the book
records by examining the materiality of differences disclosed by previous physical
inventory counts. If there are any doubts as to the reliability of the book records, discuss
immediately with the manager whether we should request the client to conduct a year-
end inventory count.
2. 3 Review the adequacy of the client’s inventory count instructions. Any serious
shortcomings must be discussed immediately with responsible client officials so that they
can be rectified before the inventory count.
3. 4 Select for test counting those inventory items expected to have the largest monetary
value at the inventory count date.

4. 5 Where the client maintains inventory of a technical nature which is not readily
identifiable, or whose conditions we are not competent to ascertain, consider using
independent experts.
5. 6 Obtain a list of all inventory held by third party custodians. Ensure that the list is
complete. In respect of these inventory:
(a) Establish the suitability of the custodian.
(b) Confirm the existence and title of such inventory directly with the custodians.
(c) Review the controls exercised by the client over this inventory (including cut-off) and
consider whether there is any need for us to inspect them physically.
6. 7 Arrange for the necessary audit staff to attend inventory counts at the various locations.
Brief the audit staff and ensure that they have a copy of the client’s instructions for the
inventory count together with a list of the inventory items pre-selected in 4 above and
the audit programme for procedures during inventory count which they will be required
to complete.
Make arrangements for the audit staff to be present at the end of the inventory count.
KAPLAN
7. On completion of the inventory count obtain and review the audit working papers
prepared during our attendance at the various locations, and summarise the adequacy
and effectiveness of the inventory count.
Procedures subsequent to inventory count

8. Obtain the client’s count records and test that they are complete and accurate, as follows:
(a) Test for completeness, by comparing the numerical sequence of count records with
the details recorded in our working papers at the time of the physical count.
(a) Scrutinise the count records to ensure that they have not been altered subsequent
to our attendance at the inventory-count by comparing the records with details
recorded in our working papers at the time of the physical count (e.g. photocopies).

Testing continuous inventory count procedures

9. Review the instructions issued to inventory counters and the procedures adopted by the
client, in order to determine whether such instructions and procedures are adequate. Pay
particular attention to controls revealed on the ICQ for the inventory system where
inventory is not physically counted at the year-end date.
10. Arrange to attend at least one of the continuous inventory counts during the year. Review
the inventory count reports or the inventory records to ascertain the extent to which
inventory have been counted during the year, and also to determine (by reviewing any
differences disclosed) the accuracy of the inventory records. In the light of this review,
determine the extent of the counting to be performed under 12 (a) and (b) below. Test
that the differences disclosed by inventory count have been adjusted in the inventory
records.
11. Carry out audit tests as follows:
(a) Select from the inventory account at the year-end date a sample of inventory items,
and check the quantities with the underlying inventory records and the valuation of
the items with supporting documents.
(b) Count a number of items that are in inventory, and check these by comparing them
with the inventory account.
12. Summarise on a working paper our findings on the adequacy and effectiveness of the
continuous inventory count procedures and on the reliability of the inventory records.
Also indicate the approximate amount of the differences found during the year.
Checking quantities on inventory sheets

13. Test the casts of the inventory sheets by:
(a) Casting the pages to which counted items have been traced and follow the totals
through to the inventory summary.
(b) Casting the final inventory summary, selecting individual page totals and casting these
pages, at the same time selecting items for examination in procedure 15(a).

14. Test that the physical quantities shown on the final inventory sheets are neither
overstated nor understated by performing the following procedures:
(a) Overstatement: Agree the details of those items selected in procedure 14 (b) above
with the client’s count records, to ensure that the inventory sheets only incorporate
count records from the inventory count.
(b) Understatement: Agree items which were counted by us, or in our presence, with the
final inventory sheets.
Testing the cut-off of inventory
15. Test that there was a proper cut-off at the inventory count date, as follows:
(a) Select from the goods received reports for a few days either side of the inventory count
date, and compare with the relevant inventory records (and vice versa) to ensure that
goods received were recorded in the inventory records in the correct accounting
period.
(b) Select from the despatch records for a few days either side of the inventory count date,
and compare with the relevant inventory records (and vice versa) to ensure that goods
despatched were recorded in the inventory records in the correct accounting period.
(c) Where necessary, test the cut-off on the internal movement of inventory.
VALUATION
Checking valuations and calculations on inventory sheets
16. Record in the working papers in detail the bases and methods of costing used, and obtain
reasonable assurance that these bases and methods are being applied consistently, and
are in accordance with generally accepted accounting practices and the stated
accounting policies of the company.
17. Test the items selected in procedure 15 above as follows:
(a) Prove the unit costs on the inventory sheets by reference to appropriate supporting
records (such as suppliers’ invoices, labour cost analyses, overhead allocations and
other appropriate records).
(b) Prove the extensions on the inventory sheets.

18. Where the costs have been obtained from standard cost records, review the variance
reports or the entries in the variance accounts as appropriate in order to determine
whether or not the standard costs are materially different from actual costs. If there are
material differences, ascertain the reasons for these differences and consider the need to
adjust the valuation of the inventory.
19. 20 Examine the overheads included in the inventory valuation and ensure that:
(a) Their inclusion is in accordance with generally accepted accounting principles.
(b) They reflect the client’s normal level of activity.
20. Ensure that inter-department or inter-branch profit included in inventory have been
properly eliminated and that where inventory include goods purchased or transferred
from group companies they have been identified as such and segregated on the
inventory summary.
21. Check that the general ledger accounts have been adjusted to reflect the results of
physical inventory count. Establish the reasons for any material differences disclosed.
TESTING THE NET REALISABLE VALUE OF INVENTORY

22. Apply the procedures set out in (a) to (e) below to ascertain whether or not inventory
write-downs and provisions are adequate (but not excessive) so that inventory are stated
at the lower of cost and net realisable value. In doing this, consider the following factors
where applicable: the condition of the inventory, its saleability, the possibility of
obsolescence, the levels of inventory in relation to current and expected sales or usage,
the estimated costs of completing work in progress, and current and expected selling
prices less reasonable costs of disposal.
(a) Test the amount at which inventory of finished products and of other items held for
sale to customers is stated does not exceed the selling price less reasonable costs of
disposal. Also test that the quantities held are not excessive. Compare inventory levels
(where appropriate) with sales for the current year, with orders, and with sales
forecasts.

(b) Test that work in progress is current and saleable. Also test that (where appropriate) it
has been written down by the amount of any losses expected to arise on realisation –
taking into account reasonable costs of completion and disposal.
(c) Test that the costs incurred to date on contract work in progress plus the estimated
costs of completing the work do not exceed the net contract price. Inspect written
contracts for significant projects undertaken during the year (whether complete or
incomplete at the year-end date), noting prices, terms of delivery, possible penalties,
and possible variations of the contract price. Where profit is taken on contracts in
progress, review the bases and methods used in order to determine whether or not
such bases are consistent with those used during the previous year and also reasonable
and acceptable.
(d) Test that inventory of raw material and supplies which are defective, obsolete or
surplus to production requirements have been adequately written down.
(e) Test that adequate provision has been made for any major purchase commitments
which are surplus to requirements or which are at prices in excess of current
replacement prices.
TESTING INVENTORY IN TRANSIT

23. In respect of inventory in transit:
(a) Examine the basis for recording any inventory that is in transit.
(b) Check that the inventory has been subsequently received and was validly in transit.
OVERALL REVIEW
24. Compare the inventory at the year-end date with those of the previous year, and obtain
explanations for any significant differences. Compare inventory turnover rates with those
of previous years. Generally consider whether inventory are stated on appropriate bases
consistent with those stated in the preceding year.

Chapter – 7
TESTS OF DETAIL
EXAMINING THE TRANSACTIONS DURING THE YEAR
1. Obtain or prepare working papers of non-current asset balances and a summary of the
related general ledger transactions (including depreciation) and test that these have been
properly prepared, as follows:
(a) Agree the totals with the general ledger accounts.
(b) Test the casts (additions) for overstatement.
(c) Agree the totals with the subsidiary records of non-current assets (e.g. non-current
asset registers).
2. (a) Select the non-current assets to be examined, as follows:
(1) Select from the list of non-current assets at cost at the beginning of the financial
year; and
(2) Select additions to non-current assets in the financial year by selecting from the
debit entries in the non-current asset control account in the general ledger. Test the
casts of the debit entries in this account for overstatement.
(b) Test the additions selected in procedure (a) (2) above with the relevant supporting
records and documents for:
(1) Approval by the board of directors or by other designated officials or committees.
(2) Other independent evidence of validity.
(3) Correctness of the allocations to the general ledger accounts.
(c) For the items selected in procedure (a) (2) above, examine the paid cheque for the
correctness of relevant details.
(d) For each item selected under procedures (a) (1) and (2) above, perform the following
procedures:
(1) Where the non-current asset has not been disposed of, check that it is correctly
included in the non-current asset control account at the year-end date.
(2) Where the non-current asset has been sold or otherwise disposed of during the
financial year, check with the supporting evidence (such as correspondence,
scrapping note, etc.) and ensure that the profit or loss on disposal has been properly

computed and has been correctly recorded in the general ledger accounts.
Determine that the client has made a reasonable scrap recovery in the case of assets
which have been scrapped.
CONFIRMING THE EXISTENCE AND OWNERSHIP OF NON CURRENT ASSETS

3. Confirm the existence and ownership of all noncurrent assets which have been examined
3 (D) (1) above, as follows:
(a) In respect of freehold property, inspect the title deeds or obtain confirmation from
independent
4. third-party custodians.
(b) In respect of leasehold property, inspect the leases or obtain confirmation from
independent
5. third-party custodians.
(c) In respect of plant and equipment and other noncurrent assets, review the evidence of
physical counts, or inspect the assets, or use other appropriate procedures. If the asset
is permanently idle or obsolete, review the value of this asset in the accounts.
CONFIRMING THE CARRYING AMOUNT OF NON CURRENT ASSETS

6. Test that depreciation has been correctly calculated by applying either procedure (a) or
procedure (b) below:
(a) Prove the amount of depreciation in total.
(b) Test the amounts of depreciation on individual items selected in procedure 3 (a) above,
by checking with the authorised depreciation rates and by checking the calculations in
order to ensure that such items are not already fully depreciated. Also, test the casts
of the depreciation records and the postings to the general ledger accounts.
7. Investigate and test the client’s procedure which ensures that all amounts expended by
the client on the acquisition of non-current assets are correctly recorded as non-current
assets.

Note: The purpose of this procedure is to ensure that the test for understatement of
the accumulated provision for depreciation (in paragraph 5 above) is based on a
population of non-current assets that is not materially understated.
8. Ensure that depreciation:
(a) has been provided on a basis which is consistent with that of the previous year.
(b) is adequate but not excessive, by reviewing gains and losses on disposals or by other
appropriate methods.
PROPERTY VALUATION
9. (a) Review the details of any valuation of assets made in the year, whether or not such
valuations have been reflected in the accounts.
(b) Where there is reason to believe that the current market value of a property could be
significantly different from the amount at which it is included in the accounts, and no
valuation has been made in the current year, discuss with the manager the need to
request the client to make such a valuation.
(c) Assess whether or not a true and fair view is shown by the statement of financial
position if the current market value is materially below the book value and, if
appropriate, consult the manager or partner.
REVIEWING AND TESTING CAPITAL COMMITMENTS

10. Obtain or prepare a working paper of capital commitments.
11. Test that they are correctly stated.
12. Consider possible additional commitments. Discuss these with responsible client officials
and include in the working papers the date and outcome of the discussions and the
names and status of the officials concerned.

Chapter – 8
TESTS OF DETAIL
CONFIRMING THE EXISTENCE OF TRADE RECEIVABLES
Note: Receivables may be confirmed at the year-end date or at an interim date. If an interim
date is chosen the followup procedures set out in paragraph 9 of this AP must also be
applied.
1. Obtain a list of trade receivables at the confirmation date and test these receivables for
overstatement by carrying out the audit procedures set out in paragraphs 3, 4 and 5
below.
2. Test the list as follows:
(a) Agree or reconcile the total of the list with the receivables control account in the
general ledger.
(b) Test the casts of the list for overstatement.
(c) Test the individual items on the list for overstatement, by applying the procedures set
out below:
(1) Select either debit balances from the list of receivables or invoices outstanding by
use of sub-sampling techniques.
(2) In respect of the selected balances, send out positive confirmation requests.
(3) Where the receivable will not confirm the balance in writing, try (with the client’s
permission) to obtain confirmation by telephone.
(4) Review each reply that we receive. In cases where the receivable disputes the
balance, request the client to investigate the reasons for all differences. Establish the
validity of the differences and prepare a schedule of the differences and their
subsequent disposal.
Note: It is important to investigate thoroughly any instances where the receivable disputes
the amount paid or the date on which the client’s records indicate payment was received.
Factors such as these may indicate ‘teeming and lading.’
3. Where we are unable to obtain confirmation of a receivable’s balance, obtain evidence
by applying appropriate procedures that the balance was a bona fide receivable of the
client at the confirmation date. The appropriate alternative procedures consist of:

(a) Checking the opening balance of the account with the list of balances at the previous
year end, testing the casts of the account during the year and agreeing the balance.
(b) Testing the outstanding items with independent evidence of validity – including
customers’ orders, despatch records and subsequent payments (where these can be
substantiated by remittance advices or other independent means).
(c) Testing for the understatement of payments etc. by discussing the outstanding items
with a responsible official who is independent of the cash receiving function.
The purpose of the auditing procedures set out in this section of the programme is to
obtain reasonable assurance that receivables are not materially misstated.
4. Where confirmation procedures are not applied, select individual balances from the list
of receivables and carry out the procedures listed in paragraph 4 above.
5. Prepare a summary of the confirmation procedures applied under paragraphs 2 to 5
previously and of our conclusions.
TESTING THE VALUATION OF TRADE RECEIVABLES

6. Test trade receivables for collectability and for understatement of the provision as
follows:
(a) Obtain reasonable assurance that the client’s listing of overdue accounts has been
correctly prepared by checking it with the sample selected in procedure 3 (c) (1). Check
the casts of each column and agree the total with the receivables control account.
(b) Select overdue items from the client’s listing of overdue accounts and check and
investigate the extent to which they are collectable by reviewing credit reports,
correspondence and other independent evidence.
(c) Establish the reasonableness of formulae used to calculate general provisions. Review
generally the client’s irrecoverable receivable experience for the current and recent
financial years and establish the reasons for significant differences. Check the
calculations on which the provision is based.

7. Test the receivable balances written off against the provision during the year for
overstatement by selecting balances written off and checking them with such
independent evidence of validity as correspondence with solicitors, debt collection
agencies, etc.
FOLLOWING UP AN INTERIM CONFIRMATION OF TRADE RECEIVABLES

8. Where the procedures in paragraphs 2 to 8 previously were applied to a date other than
the year-end date, apply the following additional procedures:
(a) Test for overstatement of trade receivables at the year-end date by examining the
transactions in the intervening period from the confirmation date to the year-end date,
as set out below:
(1) Test the credit sales in the intervening period for overstatement as follows. Select
debit entries from the receivables control account and compare these with the final
sales records. Select individual transactions by sub-sampling these final records and
the related intermediate and initial sales records. Check these transactions with
independent evidence of validity, such as customer orders, delivery notes signed by
the receivables, despatch records etc.
(2) Test the sales returns and allowances in the intervening period for understatement,
as follows. Examine the evidence of sales returns and allowances (such as goods
returned records, correspondence with customers, and the relevant sales invoices).
Trace major items in these records to the credit notes and (via the accounting
records) to the credit of the receivables control account. In doing this ensure that
these sales returns were recorded in the correct financial year.
(3) Test the receipts from receivables in the intervening period for understatement, as
follows. Examine customers’ remittance advices, and any other available
independent evidence. Trace major items in these records (via the accounting
records) to the credit of the receivables control account. In doing this, ensure that
these receipts were recorded in the correct financial year.

(b) Review and summarise the movements on the receivables control account from the
confirmation date to the year-end date and establish the reasons for all unusual
fluctuations. Compare the individual balances which were selected for confirmation at
the interim date with the corresponding balances at the year-end date, and investigate
major differences.
TESTING THE CUT-OFF OF RECEIVABLES

9. Test for any overstatement of receivables as at the year-end date that has arisen from
recording transactions in the wrong financial year. Do this by testing for overstatement
of sales and for understatement of sales returns and receipts, in the following manner:
(a) Test for overstatement of credit sales in the period immediately preceding the year
end, as follows: Compare major billings as recorded in the receivables control account
in the last few days of the year, with evidence of the date on which goods were
despatched or services were rendered. In doing this, ensure that the billings are for
sales made during the financial year under review. The evidence of despatch should
preferably comprise the customer’s acknowledgement of delivery or service (such as
signed delivery notes) or, failing that, the client’s despatch records.
(c) Test for understatement of sales returns and allowances in the period immediately
preceding the year end, as follows:
(1) Examine the evidence of sales returns and allowances (such as goods returned
records, correspondence with customers, and the relevant sales invoices) for the last
few days of the year and the first few weeks after the year end. Trace major items in
these records to the relevant credit notes and (via the accounting records) to the
credit of the receivables control account. In doing this, ensure that the sales returns
and allowances have been recorded in the correct financial year or, alternatively, that
adequate provision for sales returns and allowances has been made as at the year
end.

(2) Compare major sales credit notes in the first few weeks after the year end with the
relevant supporting evidence (such as goods returned records, correspondence with
customers, and the relevant sales invoices). In doing this, ensure that these credit
notes have been recorded in the correct financial year or, alternatively, that
adequate provision for sales returns and allowances has been made as at the year
end.
(b) Test for understatement of receipts from receivables in the last few weeks of the year,
as follows. Examine customers’ remittance advices, listings of remittances, and any
other independent evidence. Trace major items in these records (via the accounting
records) to the credit of the receivables control account. In doing this, ensure that these
receipts were recorded in the correct financial year.
REVIEWING THE TRADE RECEIVABLES

10. Review generally the list of balances as at the yearend date. Compute trade receivables
as a percentage of sales and as the number of days sales outstanding. Compare these
ratios with those of preceding years and obtain satisfactory explanations for any
significant differences.
Determine that the balances have been correctly classified for statement of financial
position purposes and in particular that:
(a) Material credit balances have not been deducted from receivables (except where there
is a right to set-off).
(b) Inter-group balances have been classified correctly.
(c) Balances due from any person or company which is in any way connected with the
client arise from bona fide transactions on an arm’s length basis.
TESTING OF OTHER RECEIVABLES AND PREPAYMENTS

11. Obtain a list of other receivables as at the year-end date or, where appropriate, at an
interim date. Test this for overstatement, as follows:
(a) Agree the list with the balances on the relevant accounts in the general ledger.
(b) Test the casts of the list for overstatement.

(c) Determine the nature and bona fides of all significant receivables , paying
particular attention to amounts due from any person or company which is in
any way connected with the client.
12. Obtain a list of prepayments as at the year-end date or, where appropriate, at an interim
date. Test this for overstatement, as follows:
(d) Agree the list with the balances on the relevant accounts in the general ledger.
(e) Test the casts of the list for overstatement.
(f) Select prepayments from the list and test them for overstatement by comparing
them with supporting independent documentation and with the corresponding
amounts in prior years.
LOANS TO DIRECTORS OR EMPLOYEES

13. Identify loans made to, or balances due by either directors, or employees, and consider
the disclosure of such loans in the financial statements.
TESTS OF DETAIL
CONFIRMING BANK BALANCES
1. Obtain or prepare a list of all bank accounts that were open at any time during the year.
Send out requests for confirmation to the banks concerned at least two weeks before the
confirmation date, usually the year end.
2. Obtain, and retain, a copy of the client’s bank reconciliations as at the confirmation date.
Test the reconciliations as follows:
(a) Check the casts of the reconciliations and agree the balances with the general ledger
(or where appropriate with the cash books) and with bank statements.
(b) Obtain bank statements for a sufficient period (usually ten working days) immediately
subsequent to the confirmation date. (If there are any suspicious circumstances, obtain
these statements direct from the bank). Carry out the following procedures:
(1) Test for understatement of outstanding cheques and other items which decrease
the cash book balance as follows. Select from payments recorded by the bank in the
subsequent period and comparing these with the payment records to ensure that

they were recorded in the correct accounting period. Compare the cheques
recorded prior to the confirmation date with the reconciliation.
(2) Check for overstatement of any unbanked receipts and other items which increase
the balance at the bank. Do this by selecting from the list of unbanked receipts and
comparing with paying-in slips and with bank statements. Investigate the reasons
for any delay in banking receipts.
(3) Test for worthless cheques deposited to cover shortages by scrutinising the bank
statements for dishonoured cheques in the first ten working days after the year end.
3. Agree bank certificates with the balances shown on the reconciliations as being due to
or from the banks. Also check that all other information given on the certificates agrees
with the client’s records and is properly reflected in the accounts.
FOLLOWING UP AN INTERIM CONFIRMATION OF BANK BALANCES

4. Where the confirmation date differs from the year-end date:
(a) Review the client’s reconciliations as at the year-end date. Obtain certificates from
banks, agree the reconciliations with the ledger balances and the bank certificates,
check any unusual reconciling items, and test the casts of the reconciliations. Check
that all other information given on the certificates agrees with the client’s records and
is properly reflected in the accounts.
(b) Review the changes in the bank balances from the confirmation date to the year-end
date and establish the reasons for all unusual fluctuations.
WINDOW DRESSING
5. Test for window dressing by reviewing material payments and receipts in the last month
of the year and for a sufficient period immediately after the yearend date.
SETTING-OFF OF BALANCES
6. Ensure that:
(a) A legal right of set-off exists where bank balances have been set-off.
(b) The client has made all known material set-offs in the accounts.

CONFIRMING CASH BALANCES

7. Obtain or prepare a list of all petty cash funds, undeposited receipts, unclaimed wages
and other items. Include, where appropriate, negotiable instruments, title deeds, share
certificates, etc. Agree this list with the general ledger accounts or other appropriate
records.
8. Where cash balances are material, count them (on the date chosen for the confirmation
of bank balances) as follows:
(a) Count and list notes, coins and cheques, vouchers and any negotiable instruments.
Control all funds and other items to ensure that there can be no substitution. Carry out
the count in the presence of the custodian of the funds and do not, at any time, assume
sole custody of these funds. Where there is a significant difference between the book
records and the count, consult the client’s officials immediately.
(b) In respect of cheques:
(1) Ensure that these have been entered correctly in the receipt records. If they have
not yet been entered, obtain a copy of the client’s paying-in slip which records them
and, subsequently, check that they have been properly recorded.
(2) Ensure that these items are lodged in the bank promptly. Also check that there are
no undeposited receipts on hand at the date of our count.
(3) Where cashed cheques are part of petty cash funds, ensure that these are controlled,
that they are not post-dated and that they are banked promptly. Review with an
appropriate official of the client any cheques which are for a relatively large amount
or are signed by the custodian or are in any way suspicious.
(c) In respect of vouchers:
(1) Inspect these for approval, for authenticity and for date.
(2) Ensure that the vouchers have been recorded in the cash fund records. If they have
not been recorded, prepare a list of the items in sufficient detail to enable this check
to be carried out at a subsequent date.
(3) Examine the cash fund records to ensure that those vouchers that have been used
to support a cash fund balance do not also support previous payments.

FOLLOWING UP AN INTERIM CONFIRMATION OF CASH BALANCES

9. Where the confirmation date differs from the year-end date:
(d) Review all movements from the confirmation date to the year-end date and establish
the reasons for all unusual fluctuations.
(e) Prepare a working paper which reconciles the balances at the confirmation date with
those at the year-end date and which shows the totals of payments and receipts. Agree
the receipts with the main cash book and the payments with the monthly ledger
posting.
Chapter – 9
TESTS OF DETAIL
TESTING TRADE PAYABLES FOR UNDERSTATEMENT
Confirmation date
1. Obtain a list of payables at the confirmation date and apply the following procedures:
(a) Agree or reconcile the total of the list with the general ledger accounts.
(b) Cast the list.
(c) Establish whether or not the list appears reasonable by reviewing it for payables which
are obviously misstated, or which, clearly, have been omitted (e.g. by comparing the
list with the balances at the beginning of the period and with the general ledger debit
sample).
2. Test the subsidiary records of trade payables (normally the payables ledger or a listing of
unpaid invoices) for understatement or omission of amounts due to suppliers at the
confirmation date. Do this by selecting suppliers for confirmation as follows:
(a) Determine the length of the average trade payables cycle by dividing the larger of the
trade payables balances at the most recent month end or at the preceding year end
(or the estimated current year-end balance if it is expected to be significantly larger)
by the average monthly payments to trade payables.
(b) Select suppliers’ accounts for confirmation by selecting a sample for a period of two
trade payables cycles (or three months if longer) prior to the examination date from
either:

1. the cash payment records, or

2. the general ledger debits (i.e. in purchase and expense accounts).
3. 4 For the period we used in 3 (b) above, do one of the following:
(a) If we have sampled from the cash payment records, determine the total payments
made in the period to each supplier we have selected.
(b) If we have sampled from the ledger debits, determine the total purchases made in the
period from each supplier we have selected.
Note: The purpose of this step is to enable us to evaluate the results of the confirmation
procedures.
4. Request each supplier selected in 3 (b) above to confirm their balance in writing. If we
receive no reply send second requests or apply other procedures (e.g. telephone calls
made under our control) that might be expected to produce a direct reply from the
supplier.
(c) Reconcile each reply that we receive with the subsidiary records of trade payables and
investigate any differences by examining supporting documents, direct contact with
the supplier or other appropriate means.
(d) Where we are unable to obtain a direct reply from the supplier, either:
1. Obtain a payables statement from the client, scrutinise it for evidence of alteration,
and reconcile the balance at the examination date as in (a) above, or
2. If a statement is not available, examine purchase invoices and documents
supporting cash payments to that supplier for a period of one trade payables cycle
following the confirmation date to determine the adequacy of the liability recorded
at that date. Sample also the debit entries to the payables’ account and establish
their validity by examining paid cheques, credit notes or other relevant evidence.
Agree the opening payables balance on the account with the list of payables at the
previous year end and test the casts of the account.
Note: For the purpose of 6 previously, our reconciliation with supporting documentation
will include selecting purchase items on a judgement basis and tracing them to the goods
received recordsand the inventory records.

5. Consider whether the extent of the errors we discover necessitates our extending the
confirmation procedures.
Following up an interim confirmation of payables

Note: If trade payables have been confirmed at the year-end date omit procedures 8 to 10.
6. Test debit entries to the trade payables recorded between the confirmation date and the
year-end date as follows:
(a) Select items from the cash payments records and examine supporting documents
(including each related cancelled cheque) to determine whether a liability recorded at
the confirmation date has been satisfied.
(b) Trace the selected items to the credits in the subsidiary records of trade payables.
(c) Review the level of purchase returns and allowances. If they are material, select a
sample of purchase returns and allowances from the debit entries to the payables
control account and ensure that they are both valid and recorded in the correct
accounting period by comparing them with supporting evidence (such as goods
returned records, inspection records, correspondence with suppliers and the relevant
credit note).
7. 9 Review and summarise the movements on the payables control account from the
confirmation date to the year-end date, and establish the reasons for any unusual
movements.
8. 10 Compare the individual balances which we selected for confirmation at the
confirmation date with the corresponding balances at the year-end date, and investigate
any major differences.
Year-end date
9. Select a sample of items from the cash payments records for one trade payables cycle,
or (if shorter) the period between the year-end date and the approximate date of
completion of fieldwork.
10. Where the completion of fieldwork occurs later than one trade payables cycle from the
year-end date, select all further top stratum payments until the date of completion of
fieldwork.

11. Test the items selected in 11 and 12 above with supporting documents and determine
whether those payments that satisfied a liability at the year-end date satisfied a recorded
liability at that same date.
12. Test for understatement of credit purchases in the period immediately preceding the year
end by selecting items on a judgement basis from the purchase and expense records for
the first few weeks after the year end, and ensuring that those purchases and expenses
which relate to the period before the year-end were accrued as liabilities at the year end.
13. Enquire whether any old, disputed or questionable liabilities (either recorded or
unrecorded) exist, and investigate as we deem appropriate.
14. Review the level of trade payables and its relationship to purchases. Compare with the
previous year and investigate any significant changes in the composition of the trade
payables between the opening balance and the balance at the year-end date. Record the
results of the investigation in a working paper.
15. Evaluate the errors we discover during our work. If the revised monetary precision is
unacceptable, apply any or all of the following procedures:
(a) Extend the confirmation at the year-end date.
(b) Extend the tests conducted in 8 to 14 above.
(c) Request the client to re-check the recorded liabilities at the year-end date.
(d) Request the client to record an acceptable adjustment based on the estimated
population error in the evaluation for trade payables.
16. Review unpaid suppliers’ invoices and unmatched receiving reports shortly before the
completion of fieldwork. Identify any items that represent unrecorded liabilities at the
year-end date.
TESTING ACCRUALS AND PROVISIONS
17. Test for omission and other understatement of accrued liabilities and provisions. Do this
by examining documentation and by checking calculations to ensure that adequate (but
not excessive) provision has been made for the items listed in (a) to (j) below. Where
there is no independent evidence available concerning the amount of an accrual, test the
debits to the accrual accounts by comparing with internal evidence of validity and with
paid cheques, etc.

(a) Periodic payments (e.g. rent, utilities, insurance, etc.).

(b) Accrued salaries, wages and employer’s social security contributions.
(c) Accumulated holiday pay.
(d) Accrued commissions and bonuses.
(e) Payroll deductions (e.g. PAYE, NI, and pension scheme contributions).
(f) Professional charges.
(g) Directors’ remuneration.
(h) Royalties and similar charges.
(i) Further expenditure for completed work and for after-sales service (e.g. warranties).
(j) VAT.
18. In addition, test for omission of other accruals and provisions, by comparing with accruals
and provisions in previous years, by comparing with expenses incurred during the year,
by making enquiry, and by other appropriate methods. Ensure that the basis for
recognising provisions conforms with IAS 37.

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MAS Education Centre AAT Level 4 Audit 2022

(b) Complete the following statement. (2 marks)

 are correct  do not contain any  have been

(c) Identify the correct option for each responsibility. (2 marks)

 Government  IAASB  Professional body

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(d) Identify which of the following statements is correct. (1 mark)

Task 2 (15 marks)

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The partner and Finance Director

 Self-interest  Self-review  Advocacy

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Task 3 (25 marks)

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(b) Complete the following statement. (1 mark)

Notes from the meeting.

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Extracts from the draft Financial Statements:

(d) Using the notes from the audit partner:

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Task 4 (20 marks)

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Sayar Thura Shein (09-940003499) (thurashein@mas-education.com) Page-11

ii. identify ONE substantive audit procedure to be performed (1 mark)

iii. identify ONE additional test of control to be performed. (1 mark)

(d) Complete the following statement. (1 mark)

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Sayar Thura Shein (09-940003499) (thurashein@mas-education.com) Page-13

 Classification  Completeness  Cut-off  Occurrence

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Task 6 (15 marks)

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The audit review includes an assessment of uncorrected misstatements, which identified a

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(b) Complete the following statement. (1 mark)

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(d) Complete the following statements. (2 marks)

(e) Identify whether the following statements relate to professional scepticism or

Task 2 (15 marks)

Statement True False

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The AAT Code of Professional Ethic allows principles to be T

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Task 3 (25 marks)

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Task 4 (20 marks)

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(c) Complete the following statement. (1 mark)

Task 5 (15 marks)

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