WGU AFT2 TASK 1 ACCREDITATION AUDIT
COMPLETE STUDY GUIDE WITH SOLVED
QUESTIONS
◉ firm appointed after year end.
Answer: Potentially limits procedures available to verify certain
figures
increasing risk of inappropriate audit opinion
◉ Doubt management integrity
increasing inherent risk of audit.
Answer: Domineering management
◉ Company raising finance.
Answer: Increases risk of management bias,
misstatement in financial statements to comply with covenants
attached to loan
◉ bank loan.
Answer: If company fails to comply with terms and conditions of the
bank loan, the facility may be withdrawn (going concern risk)
,◉ Economic uncertainty and company's rapid expansion.
Answer: May indicate a risk that the company is not a going concern
◉ Overseas element of the operations:.
Answer: Increased risk of failure to meet overseas regulatory
requirements
Poor internal controls due to geographically dispersed operations
Possible errors in translating any transactions in overseas currency
◉ Contracts are renewable.
Answer: Contracts are renewable so there is no guarantee of future
revenue streams (going concern risk)
◉ Directors do not have a finance background:.
Answer: Increase risk of misstatements in the accounting records
and financial statements
◉ Outdated accounting system:.
Answer: Increase risk of misstatements in the accounting records
and financial statements
◉ Regulated industry.
,Answer: Failure of company to comply with industry regulations
may result in fines
fines may not be provided for or disclosed as a contingent liability in
the financial statements
If company fails to comply with laws and regulations, its operating
license may be withdrawn (going concern risk)
◉ Acquisition of subsidiary:.
Answer: Preparing consolidated statements for the first time,
company may lack proficiency in their preparation
Increased risk of consolidation adjustments errors such as goodwill
◉ Rapid expansion of firm.
Answer: firm needs to consider whether it can staff the audit
appropriately in the future
◉ Client is overseas.
Answer: Firm needs to consider whether it has sufficient staff to
send overseas or have its own overseas office.
Issue may arise with language barriers and consideration may have
to be given to using overseas auditors
◉ specific industry.
, Answer: Firm needs to consider whether it has sufficient experience
of the industry to carry out the audit work
◉ timing of audit.
Answer: protect audit quality
◉ conflict of interest.
Answer: check with other clients
◉ incoming auditor.
Answer: why did the old auditor leave
◉ overdraft review is due and possibility of facility being
withdrawn.
Answer: Inspect borrowing agreements and ensure that the
company is able to comply with any terms and conditions
Monitor X's relationship with the bank by inspecting
correspondence with the bank
Obtain written representation on management's intentions and the
going concern basis
◉ The business has experienced rapid expansion which may be
indicative of overtrading resulting in cash flow problems..
COMPLETE STUDY GUIDE WITH SOLVED
QUESTIONS
◉ firm appointed after year end.
Answer: Potentially limits procedures available to verify certain
figures
increasing risk of inappropriate audit opinion
◉ Doubt management integrity
increasing inherent risk of audit.
Answer: Domineering management
◉ Company raising finance.
Answer: Increases risk of management bias,
misstatement in financial statements to comply with covenants
attached to loan
◉ bank loan.
Answer: If company fails to comply with terms and conditions of the
bank loan, the facility may be withdrawn (going concern risk)
,◉ Economic uncertainty and company's rapid expansion.
Answer: May indicate a risk that the company is not a going concern
◉ Overseas element of the operations:.
Answer: Increased risk of failure to meet overseas regulatory
requirements
Poor internal controls due to geographically dispersed operations
Possible errors in translating any transactions in overseas currency
◉ Contracts are renewable.
Answer: Contracts are renewable so there is no guarantee of future
revenue streams (going concern risk)
◉ Directors do not have a finance background:.
Answer: Increase risk of misstatements in the accounting records
and financial statements
◉ Outdated accounting system:.
Answer: Increase risk of misstatements in the accounting records
and financial statements
◉ Regulated industry.
,Answer: Failure of company to comply with industry regulations
may result in fines
fines may not be provided for or disclosed as a contingent liability in
the financial statements
If company fails to comply with laws and regulations, its operating
license may be withdrawn (going concern risk)
◉ Acquisition of subsidiary:.
Answer: Preparing consolidated statements for the first time,
company may lack proficiency in their preparation
Increased risk of consolidation adjustments errors such as goodwill
◉ Rapid expansion of firm.
Answer: firm needs to consider whether it can staff the audit
appropriately in the future
◉ Client is overseas.
Answer: Firm needs to consider whether it has sufficient staff to
send overseas or have its own overseas office.
Issue may arise with language barriers and consideration may have
to be given to using overseas auditors
◉ specific industry.
, Answer: Firm needs to consider whether it has sufficient experience
of the industry to carry out the audit work
◉ timing of audit.
Answer: protect audit quality
◉ conflict of interest.
Answer: check with other clients
◉ incoming auditor.
Answer: why did the old auditor leave
◉ overdraft review is due and possibility of facility being
withdrawn.
Answer: Inspect borrowing agreements and ensure that the
company is able to comply with any terms and conditions
Monitor X's relationship with the bank by inspecting
correspondence with the bank
Obtain written representation on management's intentions and the
going concern basis
◉ The business has experienced rapid expansion which may be
indicative of overtrading resulting in cash flow problems..
