The auditor of Woodferns Agencies Co is facing a legal claim for negligence. It is allegedthat a fraud was perpetrated by the manager at one of the smallest of the company’s 80branches. The auditor had not visited that branch for three years as he had adopted arotational testing approach. As a consequence the fraud had gone undetected for two years.What is the auditor’s BEST defence against the claim?
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1 .Which of the following statements is FALSE?
A Materiality depends on the monetary amount of an item B Materiality may depend on either the nature of an item or its monetary amount C Materiality is a matter of professional judgment
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A Neither 1 nor 2 B Both 1 and 2 C 1 only D 2 only
3 .As an audit team member with two years of experience, you were assigned to carry out asubstantive test on directors’ expenses. The result of the test showed that in several casesinvolving the same director, the Chief Financial Officer (CFO) had authorised the overpayment of his expenses. Each expense item was less than the performance materiality level.What action should be taken?
A Draw conclusion B Discuss with a senior member of the audit team C Extend sample D Discuss with the CFO
4 .Which is the best way of describing a material item?
A Its omission or disclosure would reasonably influence the decisions of a user of thefinancial statements B It is large in relation to the same figure in previous years C It amounts to more than 10% of the total of which it forms a part D It is one which would reduce a company’s profits
5 .“The materiality level calculated at the planning stage should NOT be revised during laterstages of the audit.”Is this statement true or false?
A True B False
7 .Which of the following procedures is NOT likely to result in the discovery of possiblenon-compliance with laws and regulations?
A Making inquiries of management or the entity’s lawyer B Reviewing internal control questionnaires C Performing tests of details of transactions
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A Those charged with governance B The company’s shareholders C The tax authorities
10 .Which of the following items of information that comes to an auditor’s attention wouldbe most likely to suggest non-compliance with laws and regulations?
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