Despite running a successful company, BJM's Board have often needed to be reminded of some fundamental principles and you often have to explain key concepts.Which of the following statements best defines the external audit?
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1 .From reading the prior year audit file you have just realised that Mason funded the original purchase of each aircraft with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank have indicated that finance costs will increase further.Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when the police are trying to substantially reduce the amount they pay in the wake of government cuts. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.From the above information, which is the MOST important audit risk that should be documented in the detailed audit plan?
A Disclosure relating to the secured loan may be omitted from the financial statements B Mason's going concern status may be at risk if the contract is not renewed C That interest charges may be understated D That the bank will rely on the audited financial statements when deciding whether to renew ...
2 .The directors are aware that in accordance with corporate governance provisions they have responsibilities for internal control but are unclear as to the extent of these responsibilities.Which of the following correctly describes their responsibilities?
A To review internal controls annually No; To report on internal controls to shareholders No B To review internal controls annually Yes; To report on internal controls to shareholders No C To review internal controls annually No; To report on internal controls to shareholders Yes D To review interna...
3 .Which of the following are valid responses to the fact that Mason's contract with the police force is due for renewal?(1) Review Mason's contracts with its other three customers to determine whether they contain a break clause, in order to determine the likelihood of losing any further contracts to other aircraft providers(2) Contact the police force directly and request confirmation as to whether the contract is to be renewed(3) Review the short-term and long-term funding facilities which are available to Mason(4) Review correspondence with the police force to determine the likelihood of the contract being renewed
A 1, 2 and 3 B 1, 2 and 4 C 1, 3 and 4 D 2, 3 and 4
4 .The board of Tangerine is considering establishing an internal audit function.Which of the following factors would be relevant in making this decision?(1) It would help the audit committee to discharge its responsibilities for monitoring internal control(2) The board would no longer need to take responsibility for the prevention and detection of fraud and error(3) The costs of establishing an internal audit function should be considered against the benefits gained
A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
5 .Mason also holds around USD2 million of aircraft spares which are included within inventory. 55 Mason also holds around USD2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.Approximately a quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continue to be recognised at amortised cost.Which of the following summarises the key audit concern arising from the matter described?
A Accuracy, valuation and allocation of non-current assets B Completeness of non-current assets C Existence of inventory D Accuracy, valuation and allocation of inventory
7 .The audit partner has asked you to prepare some information ready for the tender.Which of the following would NOT be included in the tender for the audit of Severn Co?
A The proposed fee for the initial audit of Severn Co B A description of Rivers & Co, including the curriculum vitae of key staff likely to be assigned to the client C Overall level of materiality to be used in the audit D A summary of potential other services Rivers & Co could provide to Severn Co
8 .The Board has also struggled to differentiate between their responsibilities and those of the external auditor in circumstances such as the prevention and detection of fraud and error, and compliance with regulations.Which of the following statements best describes YHT & Co's responsibility regarding BJM's compliance with hygiene regulations, in line with ISA 250 Consideration of laws and regulations in an audit of financial statements?
A YHT & Co should actively prevent and detect non-compliance with the regulations. B YHT & Co should perform specific audit procedures to identify possible non-compliance. C YHT & Co should obtain sufficient appropriate audit evidence about BJM's compliance with the regulations as they have a direct...
9 .You have identified a number of issues which should be considered prior to tendering for a new client, whether:(1) The firm is independent of the potential client(2) The firm has the appropriate resources to conduct the audit of the potential client(3) The preconditions of audit will be met(4) The outgoing auditors will give Rivers & Co access to working papersGiven what you already know of Severn Co, which of these are most important to consider further prior to tendering for the audit?
A 1 and 2 B 2 and 3 C 3 and 4 D 1 and 4
10 .The partner responsible for the review of hygiene compliance has informed you that the engagement is an assurance engagement.Which of the following would NOT have been relevant to the partner in forming this opinion?
A The existence of a three-party relationship B The existence of suitable criteria C The determination of materiality D The subject matter
