Study guide
Questions and Answers
ADVANCED AUDIT AND ASSURANCE
To be used in conjunction with Advanced Audit and Assurance, 3rd Edition.
,ii | ADVANCED AUDIT AND ASSURANCE
Contents
Question 1.1 1
Question 1.2 2
Question 1.3 4
Question 1.4 5
Question 1.5 6
Question 1.6 7
Question 1.7 8
Question 1.8 9
Question 1.9 10
Question 1.10 11
Question 1.11 12
Question 1.12 13
Case study 1.1: P
rinciples of professional conduct 14
Case study 1.2: Toe Ltd 20
Case study 1.3: Galaxy Ltd 21
Case study 1.4: Analyse Reading 1.1 23
Case study 1.5: Analyse Reading 1.2 26
Question 2.1 29
Question 2.2 30
Question 2.3 31
Question 2.4 32
Question 2.5 33
Question 2.6 37
Question 2.7 38
Question 2.8 39
Question 2.9 40
Question 2.10 41
Question 2.11 43
Case study 2.1: Public sector audits 44
Case study 2.2: LRS Ltd 45
Case study 2.3: Potholders Ltd 46
Case study 2.4: Professional scepticism 49
Case study 2.5: JBR Ltd 50
Case study 2.6: H
IH and the independence of auditors 51
Case study 2.7: HIH 53
Case study 2.8: WorldCom 55
Case study 2.9: Clive Peeters 56
Question 3.1 58
Question 3.2 59
Question 3.3 60
Question 3.4 61
Question 3.5 62
Question 3.6 63
Question 3.7 64
Question 3.8 65
Question 3.9 66
Question 3.10 67
Question 3.11 68
Question 3.12 72
Question 3.13 74
, CONTENTS | iii
Case study 3.1: LM Ltd 77
Case study 3.2: Beta Ltd 79
Case study 3.3: Dobbie Pty Ltd 82
Case study 3.4: Acme Ltd 84
Case study 3.5: China Wide Consortium 86
Case study 3.6: ProGolf Ltd 90
Case study 3.7: Cosmic Electronics Ltd 94
Case study 3.8: Timber floors 95
Case study 3.9: Airline industry 96
Case study 3.10: Creamy Ltd 98
Case study 3.11: QRS Ltd 99
Case study 3.12: MNO Ltd 104
Question 4.1 106
Question 4.2 108
Question 4.3 109
Case study 4.1: The Education Fund Ltd 110
Case study 4.2: Gamma Pty Ltd 113
Case study 4.3: Interlock Pty Ltd 114
Case study 4.4: Huggins Ltd 117
Case study 4.5: Amna Ltd 121
Case study 4.6: South Ltd 124
Case study 4.7: Clark Ltd 128
Case study 4.8: Pet Ltd 132
Case study 4.9: Carey Ltd 136
Question 5.1 138
Question 5.2 140
Question 5.3 141
Question 5.4 143
Question 5.5 145
Question 5.6 147
Question 5.7 149
Question 5.8 151
Question 5.9 153
Case study 5.1: Idealic Pty Ltd 154
Case study 5.2: E-ffervescence.com Ltd 156
Case study 5.3: Diabetes Victoria 158
Case study 5.4: Manna Pty Ltd 161
Question 6.1 163
Question 6.2 164
Question 6.3 165
Question 6.4 166
Question 6.5 167
Question 6.6 169
Question 6.7 170
Case study 6.1: P
erformance reporting by departments 172
Case study 6.2: Home Care Service 173
Case study 6.3: Starlights Defence Force 176
Question 7.1 180
Question 7.2 182
Question 7.3 183
Question 7.4 184
Question 7.5 185
, iv | ADVANCED AUDIT AND ASSURANCE
Question 7.6 186
Question 7.7 189
Question 7.8 190
Question 7.9 191
Case study 7.1: Key performance measures 192
Case study 7.2: RST Ltd 195
Case study 7.3: Internal control system 198
Case study 7.4: OnTrend Appliances Ltd 200
Case study 7.5: Trivoria Kneeball League 202
Case study 7.6: XYZ Ltd 205
Part 1: Client continuance 207
Part 2: Ethics 208
Part 3: The engagement letter 212
Part 4: U
nderstanding the entity and its environment 214
Part 5: Preliminary analytical procedures 221
Part 6: M
isstatement risk for sales, receivables and cash 227
Part 7: Tests of controls 233
Part 8: Substantive tests 238
Part 9: Using audit software 241
Part 10: Audit differences 243
Part 11: Audit reporting 247
Part 12: The fraud triangle 250
Part 13: Management’s responsibility for fraud 253
Part 14: Professional scepticism 255
Part 15: Audit team communications and fraud 258
Part 16: Whistleblowing policy 263
Part 17: Fraud risk assessment 264
Part 18: Board oversight 266
Part 19: Analytical procedures for 20X7 270
Part 20: Summary of fraud risk factors 275
Part 21: Audit approach 277
Part 22: Review of the general journal 279
Part 23: Management override of controls 281
Part 24: Management representations 282
Part 25: Reporting obligations 283
Part 26: Continuing the audit 285
Part 27: The Australian wine industry 287
Part 28: Review of minutes 289
Part 29: M anagement’s assessment of going concern 291
Part 30: Analytical procedures for 20X8 295
Part 31: E valuating management’s assessment of going concern 301
Part 32: Mitigating factors 306
Part 33: Segment level analysis 308
Part 34: Auditor’s going concern assessment 312
Part 35: Auditor’s reporting considerations 313
Part 36: Further communications 316
Part 37: C ommunicating key audit matters in the audit report 318
Questions and Answers
ADVANCED AUDIT AND ASSURANCE
To be used in conjunction with Advanced Audit and Assurance, 3rd Edition.
,ii | ADVANCED AUDIT AND ASSURANCE
Contents
Question 1.1 1
Question 1.2 2
Question 1.3 4
Question 1.4 5
Question 1.5 6
Question 1.6 7
Question 1.7 8
Question 1.8 9
Question 1.9 10
Question 1.10 11
Question 1.11 12
Question 1.12 13
Case study 1.1: P
rinciples of professional conduct 14
Case study 1.2: Toe Ltd 20
Case study 1.3: Galaxy Ltd 21
Case study 1.4: Analyse Reading 1.1 23
Case study 1.5: Analyse Reading 1.2 26
Question 2.1 29
Question 2.2 30
Question 2.3 31
Question 2.4 32
Question 2.5 33
Question 2.6 37
Question 2.7 38
Question 2.8 39
Question 2.9 40
Question 2.10 41
Question 2.11 43
Case study 2.1: Public sector audits 44
Case study 2.2: LRS Ltd 45
Case study 2.3: Potholders Ltd 46
Case study 2.4: Professional scepticism 49
Case study 2.5: JBR Ltd 50
Case study 2.6: H
IH and the independence of auditors 51
Case study 2.7: HIH 53
Case study 2.8: WorldCom 55
Case study 2.9: Clive Peeters 56
Question 3.1 58
Question 3.2 59
Question 3.3 60
Question 3.4 61
Question 3.5 62
Question 3.6 63
Question 3.7 64
Question 3.8 65
Question 3.9 66
Question 3.10 67
Question 3.11 68
Question 3.12 72
Question 3.13 74
, CONTENTS | iii
Case study 3.1: LM Ltd 77
Case study 3.2: Beta Ltd 79
Case study 3.3: Dobbie Pty Ltd 82
Case study 3.4: Acme Ltd 84
Case study 3.5: China Wide Consortium 86
Case study 3.6: ProGolf Ltd 90
Case study 3.7: Cosmic Electronics Ltd 94
Case study 3.8: Timber floors 95
Case study 3.9: Airline industry 96
Case study 3.10: Creamy Ltd 98
Case study 3.11: QRS Ltd 99
Case study 3.12: MNO Ltd 104
Question 4.1 106
Question 4.2 108
Question 4.3 109
Case study 4.1: The Education Fund Ltd 110
Case study 4.2: Gamma Pty Ltd 113
Case study 4.3: Interlock Pty Ltd 114
Case study 4.4: Huggins Ltd 117
Case study 4.5: Amna Ltd 121
Case study 4.6: South Ltd 124
Case study 4.7: Clark Ltd 128
Case study 4.8: Pet Ltd 132
Case study 4.9: Carey Ltd 136
Question 5.1 138
Question 5.2 140
Question 5.3 141
Question 5.4 143
Question 5.5 145
Question 5.6 147
Question 5.7 149
Question 5.8 151
Question 5.9 153
Case study 5.1: Idealic Pty Ltd 154
Case study 5.2: E-ffervescence.com Ltd 156
Case study 5.3: Diabetes Victoria 158
Case study 5.4: Manna Pty Ltd 161
Question 6.1 163
Question 6.2 164
Question 6.3 165
Question 6.4 166
Question 6.5 167
Question 6.6 169
Question 6.7 170
Case study 6.1: P
erformance reporting by departments 172
Case study 6.2: Home Care Service 173
Case study 6.3: Starlights Defence Force 176
Question 7.1 180
Question 7.2 182
Question 7.3 183
Question 7.4 184
Question 7.5 185
, iv | ADVANCED AUDIT AND ASSURANCE
Question 7.6 186
Question 7.7 189
Question 7.8 190
Question 7.9 191
Case study 7.1: Key performance measures 192
Case study 7.2: RST Ltd 195
Case study 7.3: Internal control system 198
Case study 7.4: OnTrend Appliances Ltd 200
Case study 7.5: Trivoria Kneeball League 202
Case study 7.6: XYZ Ltd 205
Part 1: Client continuance 207
Part 2: Ethics 208
Part 3: The engagement letter 212
Part 4: U
nderstanding the entity and its environment 214
Part 5: Preliminary analytical procedures 221
Part 6: M
isstatement risk for sales, receivables and cash 227
Part 7: Tests of controls 233
Part 8: Substantive tests 238
Part 9: Using audit software 241
Part 10: Audit differences 243
Part 11: Audit reporting 247
Part 12: The fraud triangle 250
Part 13: Management’s responsibility for fraud 253
Part 14: Professional scepticism 255
Part 15: Audit team communications and fraud 258
Part 16: Whistleblowing policy 263
Part 17: Fraud risk assessment 264
Part 18: Board oversight 266
Part 19: Analytical procedures for 20X7 270
Part 20: Summary of fraud risk factors 275
Part 21: Audit approach 277
Part 22: Review of the general journal 279
Part 23: Management override of controls 281
Part 24: Management representations 282
Part 25: Reporting obligations 283
Part 26: Continuing the audit 285
Part 27: The Australian wine industry 287
Part 28: Review of minutes 289
Part 29: M anagement’s assessment of going concern 291
Part 30: Analytical procedures for 20X8 295
Part 31: E valuating management’s assessment of going concern 301
Part 32: Mitigating factors 306
Part 33: Segment level analysis 308
Part 34: Auditor’s going concern assessment 312
Part 35: Auditor’s reporting considerations 313
Part 36: Further communications 316
Part 37: C ommunicating key audit matters in the audit report 318
