26.3 When auditing a client’s year-end cash balance, an auditor uses standard bank confirmations and performs tests on the client’s year-end bank reconciliations.Which of the following assertions is tested by these procedures?
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1 .25.3 A company uses the services of a company secretary agent to deal with all regulatory issues relating to share capital including maintenance of the share register, share issues and statutory returns.What written confirmation should the auditor obtain from the company’s agent?
A Details of any restrictions on the payment of dividends B The number of shares issued and outstanding C Guarantees of preferred share liquidation value D The authorised share capital
2 .25.4 An auditor is in the process of performing substantive procedures on a client’s equity balances and traces share-related transactions recorded during the year to the board minutes.Which of the following assertions is the auditor testing with this procedure?
A Valuation B Understandability and classification C Existence and occurrence D Completeness
3 .25.1 The financial statements of a manufacturing company do not disclose a loan of USD1,500 made to a director during the year and repaid in full before the year end. The company’s profit for the year was USD2million.What reference, if any, should be made to this matter in the audit report?
A No reference is necessary B As an except for opinion, giving details of the loan (lack of evidence) C As an except for opinion, giving details of the loan (material misstatement) D An adverse opinion, giving details of the loan
4 .26.4 Farnham Co has a bank overdraft of USD450,000, secured by a floating charge over its inventory.It also has a deposit with the same bank of USD200,000. The bank confirmation letter states that the bank has the right to off-set these balances, and has set an overall net borrowing limit on the company of USD300,000. The finance director has disclosed these amounts as “secured overdraft – USD250,000” under “current liabilities”, with no further description in the notes other than the nature of the security.What steps, if any, should the auditor take in respect of this matter?
A None, as the treatment is correct B Insist upon classification of USD200,000 under current assets and USD450,000 under current liabilities C Insist that the company discloses in the notes the full amount of the overdraft and that it is in breach of its borrowing limit D Accept the treatment but in...
5 .26.1 Which of the following procedures would be the most appropriate for verifying the interest accrued on borrowings?
A Confirming the interest rate with the lender B Vouching the payment of interest on the borrowings C Recalculating the interest accrued on the basis of outstanding amount, interest rate and period to which it relates
7 .26.5 During the audit of a company’s year-end bank reconciliation, the auditor discovered that a material amount of cheques to pay the company’s suppliers were drawn and recorded in the books just before the year end. The cheques were sent out two weeks after the year end.What action should be taken by the auditor?
A Not seek to make any adjustment to the amount of trade payables or bank balance in the accounts B Confirm when the cheques were cleared before deciding if any adjustment is necessary C Request the company to adjust the amount of trade payables and bank balance by the total of the cheques D Request...
8 .26.2 Obtaining annual bank confirmation letters and receivable confirmation letters are standard audit procedures. The two forms of letterhead mostly used are:(1) Client’s letterhead(2) Auditor’s letterhead.On whose letterhead are bank letters and receivable confirmation letters sent?
A Both on 1 B 1 for the bank letter, 2 for the receivable confirmation C 1 for the receivable confirmation, 2 for the bank letter D Both on 2
9 .27.4 Which of the following tests of details would be most effective in determining whether accounts payable have been misstated?
A Reviewing cash payments made before year end B Examining suppliers’ statements for amounts not included in purchases C Searching for goods returned to suppliers that were not recorded as returns
10 .27.1 Which of the following procedures is UNLIKELY to provide useful evidence concerning contingent liabilities?
A Review of replies received from customers in response to a receivables confirmation B Review of board minutes C A discussion with the company’s legal representatives
