audit firm is required to perform a risk assessment in order to determine whether to accept the new client or continue with repeat clients annually. Question 2 options: a) True b) False
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2.
An audit firm is required to perform a risk assessment in order to determine whether to accept the new client or continue with repeat clients annually.
Question 2 options:
| a) True | |
| b) False |
Step by step
Solved in 2 steps
- Question 2- PART AAuditors can only control the level of detection risk as the inherent risk andthe control risk are out of auditors’ control. PART A Requirement:Discuss the differences between the three types of risks with an explanation of why auditors can only control the detection risk. PART B You are currently planning the audit of your client, DEF plc. Its year end is 31December 2019 and the forecast profit before tax is £15.5 million. DEF has a small internal audit (IA) department. During the year, IA started a programmeof physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc. Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for…Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?a. Staff will need to be rescheduled to cover this new client.b. There will be a client-imposed scope limitation.c. The firm will have to hire a specialist in one audit area.d. The client’s financial reporting system has been in place for 10 years.Mazars Audit Firm is re-appointed as auditors in Beautiful Jewels for a year ended 31st March 2020. The overall level of acceptable audit risk of the client is considered as 10%. The inherent risk and control risk are assessed at 50% and 80% respectively. (i)Calculate the detection risk from the case let using the audit risk model
- Which of the following circumstances would most likely pose the greatest risk inaccepting a new audit engagement?(1) Staff will need to be rescheduled to cover this new client.(2) There will be a client-imposed scope limitation.(3) The firm will have to hire a specialist in one audit area.(4) The client’s financial reporting system has been in place for 10 yearsMs. Fatema started his auditing service for various types of companies in the year 2020. Can you explain her about acceptable audit risk, client business risk, and risk of material misstatements? When she what to consider these types of risks?Mazars Audit Firm is re-appointed as auditors in Beautiful Jewels for a year ended 31st March 2020. The overall level of acceptable audit risk of the client is considered as 10%. The inherent risk and control risk are assessed at 50% and 80% respectively. (i)Explain the meaning of 10% level of Audit Risk. (ii)Calculate the detection risk from the case let using the audit risk model Calculate the detection risk, if the audit risk falls down to 5% .
- Which of the following BEST (select one) describes why auditing can be viewed as a continuous cyclical process? a) The audit plan is used to develop the audit schedule. b) Many audit departments review the same areas each year as part of the audit plan. c) Historical and current information from audits should be incorporated into the risk assessment. d) Businesses go through economic cycles, so audit plans must go through cycles.You are the audit senior on the audit of PXT Ltd for the yearended 31 January 2020. A former member of the auditengagement team for PXT Ltd left your firm two years ago totake up employment with this client.Identify and explain the potential threats to your firm’sobjectivity and independence when auditing PXT Ltd and listtwo factors you would consider when assessing thesignificance of these threats1. Which of the following is a principle underlying an audit conducted in accordance with generally accepted auditing standards? Select one:a. Auditors are responsible for, among other things, maintaining professional objectivism, exercising professional engagement, and obtaining appropriate documentation.b. The audit report expresses an opinion on whether the financial statements are free of material and immaterial misstatement.c. The audit provides reasonable assurance the client will remain in business for at least one year.d. An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.
- asap F Identify the primary audit objectives that auditors hope to accomplish by confirming a client's year-end accounts receivable. Explain the difference between "positive" and "negative" confirmation requests and discuss the quality of audit evidence yielded by each.FOR THE ANSWER OF THIS QUESTION IN THE AUDIT RISK COLUMN, WITH THE EXPLANATION COULD YOU ALSO WRITE DOWN WEATHER IT IS CONTROL RISK, INHERENT RISK OR DETECTION RISK PART B - QUESTION You are currently planning the audit of your client, DEF plc. Its year end is 31December 2019 and the forecast profit before tax is £15.5 million. DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc. Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team…Analytical procedures are useful at the planning stage for risk assessment. Using analytical procedures and the following extracts from the draft financial statements of an audit client, identify THREE areas which you believe require further investigation, explaining your reasons. 2020(draft) 2019(audited) £ £ Sales 7,765,000 5,974,500 Cost of Sales 5,823,750 4,779,600 Gross Profit 1,941,250 1,194,900 Depreciation 269,800 257,900 Salaries 680,000 645,000 Repairs and maintenance costs 328,000…
