Audit EXAM 5

Question 1

Inherent risk

Answer 1

• Identify high-risk areas based on nature of business (e.g., complex estimates, industry regulations).
• Perform detailed substantive testing in risky areas.
• Use experienced audit team members.

Question 2

Control

Answer 2

• Perform walkthroughs to understand controls.
• Test design and operating effectiveness of key controls.
• If controls are weak → increase substantive testing.

Question 3

Detection

Answer 3

• Increase sample sizes.
• Use more rigorous substantive procedures.
• Perform unpredictable audit procedures (e.g., surprise inventory count).

Question 4

Fraud

Answer 4

• Discuss fraud risk with audit team.
• Perform journal entry testing.
• Apply professional scepticism.
• Inspect unusual transactions.

Question 5

Revenue recognition

Answer 5

• Perform cut-off testing at year-end.
• Review major contracts to determine correct timing of revenue.
• Confirm sales with customers.
• Analytical procedures on revenue trends.

Question 6

Related parties

Answer 6

• Obtain a list of related parties.
• Review board minutes and legal documents.
• Confirm balances and transactions with related parties.
• Check disclosure compliance with accounting standards.

Question 7

Going concern

Answer 7

• Review cash flow forecasts.
• Inspect post-balance sheet events.
• Review loan agreements.
• Obtain management representations on going concern.

Question 8

Management Override of Controls

Answer 8

• Test journal entries and adjustments.
• Review estimates for bias.
• Investigate large or unusual transactions.