MAC005 Chap 4 for Tutorial Questions PDF

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Tutorial questions for week 1 till week 5.
All the relevant questions expected in the tests and exam. Try finding the solutions foir it...

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Chapter 4: Risk assessment II Review questions 4.11

What is audit risk? What are the components of audit risk?

4.12

Which components of audit risk can an auditor control? Explain.

4.15

How does the auditor’s preliminary assessment of materiality affect audit planning?

4.16

What guidance is there for an auditor when considering the quantitative materiality of an item when setting planning materiality?

4.17

Explain how the choice of audit strategy affects the amount of substantive and control testing that the auditor does.

4.21

Consider the following statement: ‘If inherent and control risk are high, the auditor will set detection risk as low, to maintain a low audit risk.’ Explain what it means to set detection risk as low. What does this mean for the operation of the audit?

Professional application questions 4.25

Materiality assessment One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers’ normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing cash flow problems for two years.

Required Explain whether (and, if so, how) the information provided impacts on the auditor’s assessment of preliminary materiality.

Chapter 4: Risk assessment II

4.26

Control risk Clear Sky Aviation credits prepayments of air travel to a deferred revenue account until the travel service is provided, at which point it transfers the appropriate amount to the credit of sales revenue. A problem with its control system means that the proper allocation of revenue between ‘sales revenue’ recorded in the profit and loss and the ‘deferred revenue’ account balance in the balance sheet does not always occur. The auditor is considering conducting additional substantive testing to determine whether the sales transactions have been properly classified. Required Explain the type of misstatements in the balance sheet and income statement that the auditor should be expecting if the controls regarding the proper allocation of revenue are not functioning properly.

4.3...