It is common practice for the auditor of a service company to provide a Type 1 or Type 2report to be used by the auditors of that service company’s clients.What is the main difference between a Type 1 and Type 2 report?
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1 .Which of the following items may be included within the report to management?(1) An indication of areas in which the client can assist in improving audit efficiency.(2) Constructive feedback on business systems, risk systems and risk management.(3) Details of the audit work carried out to detect deficiencies.(4) Details of additional extensive work that could have been carried to try and detectfurther significant deficiencies.
A 1 and 2 only B 1 and 3 only C 1, 2 and 4 only D 2, 3 and 4 only
2 .Alhare Co uses a service provider to produce its payroll. Originating documents are kept byAlhare and regularly reconciled (i.e. through control totals and reviews/re-computation ofdata sent to and received from the service provider). Audit approach options available to theauditor include:(1) Assess the design and implementation of the service provider’s controls relevant tothe payroll processing(2) Test the service provider’s controls(3) Assess the design and implementation of the payroll controls at Alhare(4) Obtain a representation from the directors of Alhare concerning the operation ofAlhare’s payrollWhich of the following would be the most likely approach taken by the auditors ofAlhare concerning the service provider?
A 1 only B 3 only C 1 and 2 only D 3 and 4 only
3 .A finance company uses a service provider to process its high volume, complex transactions.Which of the following circumstances is most likely to affect the auditor’s ability to formhis opinion?
A The possibility of loss of input documentation in transmission to the serviceprovider B Inadequate back-up and reconstruction facilities at the service provider C Failure of service provider staff to identify exceptions in output and bring them tothe attention of management D Refusal of permission...
4 .An auditor is auditing the financial statements of Aloe Co. Aloe uses a service provider toprocess its payroll. The auditor of the service provider recently issued a report on the design,implementation and effectiveness of the service provider’s internal controls.Which of the following procedures should the auditor of Aloe perform with respect tothe assurance report issued by the service provider’s auditor?
A Perform tests of controls at the service provider B Assess control risk at maximum when auditing Aloe’s payroll C Review the audit program followed by the service provider’s auditor D Inquire concerning the competence of the service provider’s auditor
6 .Which of the following is the LEAST persuasive method of gathering evidence?
A Inspection of a supplier’s invoice B Reperformance of a depreciation calculation undertaken by the reporting accountant C Inspection of a sales invoice produced by the client
7 .An auditor recalculates the amortisation of intangible assets to determine whether theamortisation period is reasonable.Which financial statement assertion is being tested?
A Valuation and allocation B Existence C Completeness
8 .During the course of an audit, the auditor may use the following documents:(1) An analysis of repairs expenditure for tax purposes(2) An aged debt listing(3) Suppliers’ statement reconciliationsWhich of these are acceptable if prepared by the client as a basis for further auditwork?
A 1 only B 1 and 2 only C 1, 2 and 3
9 .Sufficiency of audit evidence depends, among other things, on the “risk of misstatement”.Which of the following would increase this risk, and so indicate that more evidenceshould be collected for “sufficiency”?
A The knowledge that the audit working papers will be reviewed by an independentexternal technical body B The use of audit staff who are unfamiliar with the client C The use of judgement sampling rather than statistical sampling D A reporting deadline which is unusually soon after the year end
10 .In order to detect an understatement of sales, which of the following procedures wouldbe most effective?
A Select sales delivery notes and check the details with the related sales invoices B Select sales invoices and check the details with the related sales orders C Select sales invoices and check the details with the related sales delivery notes D Select sales orders and check the details with the rel...
