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Nov.Dec-2010
Assuraiicg
Tins allowedl'i/. bqurs
Total Marks
e.l
100
'Assurarlpe qgg 4$ival pe ablol*tSt, Disgltl; fltp linitafion ol 4ssur4ucg. Which three of the
7+3
r
tollon'ing are benefits of assurance works?
. An independent, professional opinion
. Additional cottfidence given to other related parties
r Testing as a result of sampling is cheaper for the responsible party
'
.
.
A's:
'l'here are limitations to assurance services, and therefore there is always a risk involved that the
\\'rong conclusion will be drawn. The limitations of assurance services include the fact:
auditors do not oversee the process of building the financial statements from start to
ui tt.
e)
finislt.
The accounting systems on which assurance providers may place a degree of reliance
also have inherent limitations.
Most audit evidence in persuasive rather than conclusive
Assurancc providers would not tcst every itenr in tlie subjcct lnatter
The client'i staff members may conclude in fraud that can be deliberately hidden from
tire
',
judgments have io be made'
Assurance provision can be subjective and professional
b)
c)
d)
,\
auditor.
providers rely on the responsible parfy and its staff to provide conect
infonnation, rvhich in sonte cases may be impossible to verify by other means.
h) Some items in the subject matter may be estimates and are therefore uncertain.
g) Assurance
.
.
.
e.2
in brief ,Audit Strategy' and 'Audit Plan'. Which three of the following Y:]d
7+3
normally be contained in the ovlrail audit strategy?
.Thecontractbetweentheauditfirmandtheclient.
Discuss
o
.
rDetailectplanofauditprocedurestobecarriedout
o
Ans:
aud-i1,
dir;tion of the audit and guides the development of the audit plan', , -r_,._ t_!_
ttmtng
Audit plan: An Audit plan is more detailed than the strategy and sets out the nature,
timing and
might be a
b) Define 'MaterialitY' in assurance rvork. Which factors indicate a risk
2+4
significant risk?
o tlonrd nrinrttes
end
o Discussion or corrspondence with the client at the yeargcneral
b)
knowledgc ol currcnt
Autlirors m1y irlso usc spccific industry inlormation or
ilr6'stry ..r,',,iiti."t* l() ilsscss lltc clicnt'$ pcrlormancc'
.Materiality,: An expression of the relative sigrrificance. or importance of a particular
framework for the preparation
matter in the context of financial statements ur u ihol.. BSA
if its commission or
;;;;.rtation of Financial Statements states that a matter is mate^rial
taken on the basis
users
of
misstatement would reasonably influence the economic decisions
of the financial statements.
risk:
The following factors indicate that a risk might be a significant
. Risk of frand
.. Rclatcd to t-ccct'lt significant economic, accounting or othcr dcvclopmcnt
o The complexity df the transaction
. It is a significant transaction with a related parly
Q.4
.Thedegreeofsubjectivityinthefinancialinformation
It is an ulusual::":*::t
' ors implv satisfaction in an unqualified
a) What are thc matters with which the audit
to IISA 70{),
report undcr the Co'rnpanics Act 1994? What basic elcments, a ccording
4+5
the audit rcport shouldinclude?
3
(b) Which three of the follorving are implied opinions given in the audit report?
. All information and exflanations required for the audit have been received'
.,
.
r
.
Ans: a) The following are matters with which the auditors imply satisfaction in an unqualified
i)
following laYout.
'/ Title
'/
,/
Addressee
n' d t. r
Opiiri,rir pgiugr"aph ctlntaining un exprcssion ol'opittion ot'tlrc lirrirncinl stiltenilrnts
Date of thc report
,\ridiior's ailiitcqs
Aurlit,lr,'s iigitiriut:e
b)
rv o rk p
er
fo r nr c rr b y rrr e
l:ollowirtg thrqp ats tlrp inBlipcl pptipns givgtt itt tltu agdl! lgpQrt
r Alllnformation aud "*ptanations required for the audit have been received.
been kept'
.
.
Q.5
reference of the
Dellne ,Audit committee,. what are likely to include in the terms of
stotk exchanges?
auclit committeg as required for the companies listed in the Bangladesh
Ans:
Aurlit Committee: A
subsection
is compri.sed of nontire fi'ance and accounting activities of the company. The audit committee
the rules of
erecuti'e directors. It is a requirement in Bangladesh listed qompanies under'
conrbirted code.
The terms of ret-erence (ToR) iuclude:
./ To review the integrity of the financial statements of the company and formal
,
announcementsrelatingtothecompany'sperformance.
./ To review thc .on1fony', internai financial controls and the company's risk
tl
lranagement system'
./ To n,initor and review the effectiveness of the company's internal audit function (if
,/
,/
relevant)'
auditor'
To make recommendations to the Board in relation to the external
To monitor the independence of the external auditor.
of non audit services by the external auditot'
To implement policy
"r,hr;r*irion
f)ocurncntation establishes standard and proiides guidance regarding
Q.6
Ans:
provide:
Aucirt .Jocumentation or r{orking papers $9ulA
for the assurance provider's report; and
Uasis
the
of
a) .,\ sr-rfficie't and appropriate ricord
with standards and applicable
l-r'idence that the .,lgugr*.i, *as p.trir"ted in accordance
b)
basis'
'/
',,
situation)
terms payables,
Q.7 A Ltd has a number of long and short
Balancc Sheet.
Rcquii'cd:
:', '
you would
Deseribe the audit Procedures
BPPIY to the
statement
relating to disclosures'
rate and an overdraft (a bank
A 10 - Years bank loan rvith a variables interest
.:
both from the same bank.
rvith a debit balance on the bank statement)
10- vear Uant< ioan ana
Ans:
. e"ttdt.tl"n
lant
shourd be examined'
the bank and
rvith
z.
Ty Tl.-yTt.o=:,1,:lg:::
rtlia'Jitnltry loans should be examined
Any covenants restricting
covenants have not been
tout"*t
the
with
compliance
client's
the
and
"niked'financial statements should be
t"d
company
the
for
implications
. complied with the
:d. It should provide
3.Theresponsetotheyear.endbankconfirmationshould'beexamint
drlrins the year in terms
and amoun*.pla and payablg
details of the amounts outstanJing
In both cases' detail's of any
*d capitat-(toan
of both interest (loan and "".raiinl
ioan and overdraft should be requested.
securiry h;ld
and to
th, inttt'J puid in the income statement
4. Analytical procedures ,rrouroi. uipri.Jto
at the period-end for the loan'
properly
the interest and capital paia ouistanding
tftat tle overdraft has been
chJcked ,;
that
amounts
5. The bant reconciiiatio" ,f,"Ja- U. there
are no oil or significant outstanding
that
an6
records,
the
to
reconcilecl
pavable in one vear, rvhich
,n" year-end should incrude amounts
6.
year' The notes to
and amounts payable in over one
payables
current
in
included
be
should
thefinancialstatementsshould^aisodiscloseamountspayableinoverfiveyears.
to the
gitJrtfies are made in the notes
7. The auditors should ,nrur.'*rilui".op;*ti.ie.
Standards'
uno rnl.*utional Financial Reporting
accounts in accordance with the r.giJlii"'"
relating
notes
the
in
rrr""ra be disclosed
rn particular, rv'ere assets
tltc ltssets'
to Sales? Give
you perform test of controls 'in relation
As an assurancP provide-r, how rvill
5+6
tftu .urt, puyment book'
perforrJA.t"
be
to
fests
of
examples
five
itffHftTll"i;1; thr^;rr-;i;;;ii.*
If
il
considered.
"tU
f;;h;
ry*
+i'j*:ff,',r:'r:i,lol,
e.S
a board'or
Ans:
#;"i;';';;;;;il,ili-
in relation to sales:
The following tests control could be used
-'
Quantities
Piices charged rvith official price lists
with
Trade discounts have been properly dealt
,
Calculation and additions
analysed
correctly
are
E;;;i; in sales day book
with
cnarjeable, has been properly dealt
ili:;r;e
Postings to rec6ivables
ledger
--r-
evidence
'
Calculations and
correctly'analyzed
are
these
Fntries in dav book' checking
additions
fire f-ollowings are the examples to be perfonned on the riash payment book:
lirnits.
Q.e
v;;lfj'irrut ruppotting
what rvill
what does assurance provider check if perpetual inventory counting is used? realizable
net
is
circumstances
be the Audit plan for perpetual inventort' count?,In what
3+3+4
value likely to be less tiran
Ans:
cost?
management:
tf perpetual inventory eounting is used, assuraRee Providers will cheek that
i) Ensures that all inventory lines are counted at least once year.
ii) Maintains adequate inventory records that are kept- up{o date.
'/
'/
./
adhered to).
Follorv up tire inventory counts attended'
Review the year's counts'
records'
compare thi listing of inventory with the detailed inventory
Netrcalizablevalueislil<clytrrbclessrvlrctrtlrcrgltasbcclt:
,/ An increase in costs or a fall in selling price
estinrate?
Whatrvillbeauditor'sapproachtoauditofaccounting
2+4
estimates?
,.Accounting Estinrate,, mcans an approximation of thc al'l'rourlt ol'au itenl in tltp fltrsenue of
precise means of measureinent'
Examples are:
..P Accrued Jevenue
) Deferred tax
) Provision for a loss from a law suit
i Provision to meet walranty claims
). Uscful lif'c of dcpreciable assets'
lt
The auditor shoulci obtain suffieient appnopdate audit evidenee 8s to whether an aeoounting
estimate is reasonable in the circumstanci attd, *lten ieqllired, is appropriately disclose.
The auditor should adopt one or combination of the following approaches in the audit of an
accounting estimate:
) Review and test the process used by the management to develop the estimate;
) Use an independent estimate for comparison with that prepared by management; or
) Revierv subsequent events which confirm the estimate made.
Why ls confldcntlallty hnportant? Dtscuss the securlty procetlures whlch mlght be rvtse to
i
ll.
,
An.s:
3+5
Confidentiality is an important matter for clients and assurance providers. Clients are exercising
a degree of trust in theii assurance providers, giving them unprecedented access to information
about the company which most companies would believe to be sOnsitive, and in some cases,
highly commercial.
The follorving sccurity procedures are probably wise to prevent accidental disclosurc of'
information:
,/ Do not discuss client matters with any party outside of the accountancy firm.
r' Do not discuss client matters with colleagues in a public place.
'/ Do no! leave audit files unattended.
t / Do not leave audit files in cars or in gnsecured private residence
./ Do not remove working papers from ihe office unless strictly necessary.
,/ bo not work on electronic working'papers on systems that do not have the requisite
protection