l9 : auditing the balance sheet

Question 1

what is the audit risk associated with inventory?

Answer 1

inventory can be incorrectly valued at the lower of cost and NRV

Question 2

what is the fraud risk associated with inventory?

Answer 2

misappropriation of stock (theft)

Question 3

which audit assertions are associated with auditing inventory?

Answer 3

Accuracy
Valuation
Existence

Question 4

give 6 key controls for inventory.

Answer 4

• inventory count
• three way match (order, invoice, goods dispatch note)
• authorisation before inventory accepted
• evidence of monthly review of obsolete stock
• evidence of monthly review of stock
• standard cost / price list for all items

Question 5

what is the audit risk associated with receivables?

Answer 5

receivables are overstated or may not be recoverable

Question 6

which audit assertions are associated with auditing receivables?

Answer 6

Accuracy
Existence
Obligation & rights

Question 7

give 5 key controls for receivables.

Answer 7

• credit checks on new customers
• three way match (order, invoice, goods despatch note)
• authorisation before debt write off
• evidence of monthly review of debts
• authorisation before issue of credit notes

Question 8

what is the audit risk associated with cash?

Answer 8

cash doesnt exist

Question 9

what is the fraud risk associated with cash?

Answer 9

misappropriation of cash (theft)

Question 10

which audit assertions are associated with auditing cash?

Answer 10

Accuracy
Existence
Obligation & rights

Question 11

give 6 key controls for cash.

Answer 11

• authorisation of monthly bank reconciliation
• multiple signatories on cheques
• supplier change of bank details authorised
• physically lock cash in a safe
• count cash on site regularly
• standardise exchange rates

Question 12

give 5 key controls for current liabilities.

Answer 12

• authorisation of purchase invoices
• client review of accruals list to check completeness
• authorisation of payments due to HMRC
• three way match (purchase order, purchase invoice, goods received note)
• authorisation of loans by senior mgt

Question 13

what is the audit risk associated with reserves?

Answer 13

shareholders may have not been protected or shares have been illegally distributed

Question 14

which audit assertion are associated with auditing reserves?

Answer 14

Completeness
Accuracy
Valuation
Existence
Presentation & disclosure