[AA/F8: Tài liệu ôn thi] Part E: Review and Reporting

Part E sẽ ôn lại 3 dạng bài tập quan trọng môn Audit & Assurance (F8) với chủ đề Review and Reporting.

1. Tổng quan

Topics	Question types	Question index
		MCQ	Case
Review and Reporting	1. Subsequent events	1,2,3,4,5	6
	2. Going Concern Review & Indicators	7,8,9,10	11
	3. Audit opinion	12,13,14
	4. Overall review of financial statement	15,16
Reference: BPP ACCA F8 - Audit & Aussurance StudyText

2. Dạng bài tập chi tiết

Mức độ: Quan trọng

2.1. Dạng 1: Subsequent events

It is 1 July 20X5. You are an audit manager in Blenkin & Co responsible for the audit of Sampson Co, a large listed retailer. The audit for the year ended 31 March 20X5 is nearing completion and the auditor’s report is due to be signed next week.

You have been informed that the financial controller left Sampson Co on 28 February 20X5. As part of the subsequent events audit procedures, you reviewed post year‐end board meeting minutes and discovered that a legal case for unfair dismissal has been brought against Sampson Co by the financial controller. During a discussion with the Human Resources (HR) director of Sampson Co, you established that the company received notice of the proposed legal claim on 10 April 20X5.

The HR director told you that Sampson Co’s lawyers believe the financial controller’s claim is likely to be successful, but estimate that $150,000 is the maximum amount of compensation which would be paid. However, the directors do not intend to make any adjustment for a provision or to include any disclosures in the financial statements relating to the issue.

The draft financial statements currently show a profit before tax of $6.5 million and revenue of $66 million for the financial year ended 31 March 20X5.

Câu 1:

Question:

Subsequent events procedures should be performed between the date of the financial statements and which date?

A.  The date the audit work for subsequent events is performed
B.  The date of approval of the financial statements
C.  The date of the auditor’s report
D.  The date the financial statements are issued

Answer: C

Auditor has an active responsibility to carry out subsequent events procedures between the date of the financial statements and the date of the auditor’s report. After that, auditor has no requirement to perform audit procedures.

References: F8 BPP Chapter 18: Audit review and finalization phần 1.1.1 Events occurring up to the date of the auditor's report.

Câu 2:

Question:

Which statements are TRUE about subsequent events?

	True	False
All material subsequent events require the numbers in the financial statements to be adjusted
A non-adjusting event is a subsequent event for which NO amendments to the current year financial statements are required
The auditor’s responsibilities for subsequent events which occur prior to the audit report being signed are different from their responsibilities after the audit report has been issued
The auditor should request a written representation confirming that all relevant subsequent events have been disclosed

Answer:

	True	False
(1)       All material subsequent events require the numbers in the financial statements to be adjusted		X
(2)       A non-adjusting event is a subsequent event for which NO amendments to the current year financial statements are required		X
(3)       The auditor’s responsibilities for subsequent events which occur prior to the audit report being signed are different from their responsibilities after the audit report has been issued	X
(4)       The auditor should request a written representation confirming that all relevant subsequent events have been disclosed	X

Statement 1 is false as only material adjusting events would require an amendment to the figures within the financial statements.

Statement 2 is false as while a non-adjusting event would not require a change to the numbers it may require a disclosure to be made. If this is material, non-disclosure could still result in a modification to the audit report.

Statement 3 is true as the auditor is required to carry out procedures up to the date of the audit report to gain sufficient appropriate evidence that all relevant subsequent events have been identified and dealt with appropriately.

After the audit report is issued the auditor does not need to actively look for subsequent events.

Statement 4 is true as an auditor is required to obtain written confirmation from management or those charged with governance that all subsequent events have been identified and dealt with.

Câu 3:

Question:

Which of the following audit procedures should be performed to form a conclusion as to whether the financial statements require amendment in relation to the unfair dismissal claim?

• Inspect relevant correspondence with Sampson Co’s lawyers
• Write to the financial controller to confirm the claim and level of damages
• Review the post-year-end cash book and bank statements for evidence the claim has been settled
• Request management confirms their views in a written representation letter
  A. 1, 2 and 3
  B. 1, 2 and 4
  C. 1, 3 and 4
  D. 2, 3 and 4

Answer: C

Statement (1): Inspect relevant correspondence with Sampson Co’s lawyers to obtain evidence about the possibility of the financial controller’s claim => true

Statement (2): Write to the financial controller to confirm the claim and level of damages is not a relevant procedure because he is not independent => false

Statement (3): Because of applying the prudence concept, if the auditor didn’t know the final verdict, the auditor needs to review the post-year-end cash book and bank statements for evidence the claim has been settled to confirm companies need provision => true

Statement (4): Request management confirms their views in a written representation letter to obtain evidence about their view and treatment about this claim => true

Câu 4:

Question:

Select the type of opinion that is appropriate and the nature of any additional communications necessary if the unfair dismissal case is NOT adjusted for or disclosed within the financial statements

Opinion		Additional communications
Unmodified		No additional communication
Qualified		Emphasis of Matter paragraph
Adverse		Material Uncertainty Related to Going Concern paragraph
Disclaimer		Other matter paragraph

Guidance:

Step 1: Calculate the materiality

Step 2: Assess whether misstatement is material or not.

A percentage is applied to a chosen benchmark for determining materiality. If materiality calculated in Step 1 is more than these percentages è misstatement is material

Value	%
Profit before tax	5
Gross profit	½–1
Revenue	½–1
Total assets	1–2
Net assets	2–5
Profit after tax	5–10

• If misstatement is not material ⇒ Express unmodified audit opinion;
• If misstatement is material ⇒ Step 3;
• If Inability to obtain sufficient appropriate audit evidence for concluding about material (auditor expect that the possible effects of undiscovered errors could be material and pervasive to the financial statements)⇒ Express disclaimer of opinion.

Step 3: Assess whether a material misstatement is pervasive or not

• If material misstatement is not pervasive ⇒ Express qualified opinion.
• If material misstatement is pervasive ⇒ Express an adverse opinion.

Answer: Unmodified opinion

Step 1: Calculate the materiality

The maximum damages of $150,000 = 2.3% of profit before tax = 0.2% of revenue

Not material to the financial statement (Step 2: Assess whether a misstatement is material or not)

• Express unmodified audit opinion

Câu 5:

Question:

One month after the financial statements were issued the legal claim was finalized with the court awarding compensation of $500,000 to the ex‐financial controller. The directors of Sampson Co have contacted Blenkin & Co to inform them of the outcome.

Which TWO of the following are appropriate actions for Blenkin & Co to take?

A.  Discuss the matter with management and, where appropriate, those charged with governance
B.  Obtain a written representation from management
C.  Consider whether the firm should resign from the engagement
D.  Enquire how management intends to address the matter in the financial statements where appropriate

Guidance:

Step 1: Determine misstatement is material or not

Step 2: Determine procedures needed base on peiod time. There are 3 period times:

Period time	Responsibilities of auditor	Procedures
Events occur from year end to the date of the auditor’s report	Must obtain sufficient appropriate evidence about all subsequent events that require adjustment or disclosure have been identified.	·       Enquiring into management to determine whether events occurring after the accounting year that could affect FSs; ·      Obtaining a written representation from management to confirm all subsequent events and accounted for them appropriately in the financial statements.
Events occur after the date of the auditor's report but before the financial statements are issued	No requirement to perform audit procedures. If fact becomes known, must take the necessary action.	If auditors know about after year-end events that need to amend, they need to perform the following procedures: ·       Discuss the matter with management and those charged with governance; ·       Determine whether the financial statements need amendment; ·       Inquire how management intends to address the matter in FSs. If management amends FSs: ·       Carry out the audit procedures necessary in amended circumstances; ·       Extend the audit procedures to the date of the new auditor’s report; ·       Provide a new auditor’s report on the amended financial statements. If management does not amend FSs ·       Auditors should notify management and those charged with governance not to issue the financial statements before the amendments are made; ·      If the client issues the financial statements despite being requested not to by auditors, the auditor shall take action to prevent reliance on the auditor's report.
Events occur after the financial statements have been issued	No requirement to perform audit procedures. If fact becomes known, must take the necessary action.	·       Auditors should discuss the matter with management and consider if the financial statements require amendment; ·       Issue a new auditor's report including emphasis of matter or other matter paragraph to draw attention that the financial statements and auditor's report have been reissued; ·      If management refuses to recall and amend the financial statements, auditors should take action to prevent reliance on the auditor's report.

Answer: A + D

Step 1: Determine misstatement is material or not

$500,000 represents 7.7% of profit before tax and 0.8% of revenue, therefore is material.

Step 2: Determine procedures needed base on period time

Had this outcome been known before the financial statements were issued => they would have required adjustment => the auditor should:

• Discuss the matter with management and those charged with governance (Option A)
• Determine whether the financial statements need amendment;
• Inquire how management intends to address the matter in FSs (Option D)

Option B is false because the auditor doesn’t have an active duty in this period

Option C is false because it is not necessary to resign from the audit.

Câu 6:

Learning outcome: Xác định được đâu là 1 subsequent events

Question:

Grains 4U Co (Grains) manufactures breakfast cereals and has three factories, four warehouses, and three distribution depots spread across North America. The audit for the year ended 31 December 2015 is almost complete and the financial statements and audit report are due to be signed shortly. Profit before taxation is $7·9 million. The following events have occurred subsequent to the year-end and no amendments or disclosures have been made in the financial statements.

Event 1 – Fire

On 15 February 2016, a fire occurred at the largest of the distribution depots. The fire resulted in extensive damage to 40% of the company’s vehicles used for dispatching goods to customers; however, there have been no significant delays to customer deliveries. The company estimates the level of damage to the vehicles to be in excess of $650,000. Only a minimal level of inventory, approximately $25,000, was damaged. Grain’s insurance company has started to investigate the fire to assess the likelihood and level of payment, however, there are concerns the fire was started deliberately, and if true, would invalidate any insurance cover.

Event 2 – Inventory

On 18 February 2016, it was discovered that a large batch of Grain’s new cereal brand ‘Loopy Green Loops’ held in inventory at the year-end was defective, as the cereal contained too much green food coloring. To date, no sales of this new cereal have been made. The cost of the defective batch of inventory is $915,000 and the defects cannot be corrected. However, the scrapped cereal can be utilized as a raw material for an alternative cereal brand at a value of $50,000.

Based on the information provided, explain whether the financial statements require amendment

Guidance (Tips/ Steps/ Cách tư duy)

Step 1: Identify whether the event is adjusting or non-adjusting events

• Determine the time when events occur
• Determine whether it provides more evidence of conditions that existed at the year-end date or not

Step 2: Determine whether the events need to amend or not

• If it is an adjusting event ⇒ need to amend the financial statement.
• If it is a non-adjusting event and it is not material ⇒ no need to do anything.
• If it is the non-adjusting event and it is material ⇒ disclosure

Answer:

Event 1 – Fire

Step 1:

This event occurred after the reporting period and is not an event which provides evidence of a condition at the year-end ⇒ this is a non-adjusting event.

Step 2:

Normally as the company is insured, only uninsured losses suffered by Grains 4U Co (Grains) would need to be accounted for, which in the normal course of events would be an immaterial amount.

However, the insurance company is investigating, as there is a possibility the fire was started deliberately, and this would invalidate the insurance policy. If this is the case, the total damaged assets of $675,000 (650 + 25) would be material as they represent 8.5% (675/7,900) of profit before tax.

Therefore as a material non-adjusting event, the assets should not be written down to their scrap value in the current year financial statements; however, the directors should include a disclosure note detailing the fire and the total value of assets which may be impacted due to the possibility of a lack of an insurance settlement.

Event 2 – Inventory

Step 1:

This information was obtained after the year-end but provides further evidence of the net realizable value of inventory at the year-end ⇒ adjusting event

Step 2:

IAS 2 Inventories requires that inventory is valued at the lower of cost and net realizable value. The inventory of $915,000 must be written down to its net realizable value of $50,000.

The write-down of $865,000 (915 – 50) is material as it represents 10.9% (865/7,900) of profit before tax. Hence, the directors should amend the financial statements by writing down the inventory to $50,000.

Dạng 2: Going Concern Review & Indicators

It is 1 July 20X5. You are an audit manager in Yellow Submarine & Co responsible for the audit of Magical Mystery Tour (MMT). The audit is nearing completion and the auditor’s report is due to be signed next week.

MMT is a travel agency that has been trading for over five years. The company arranges holidays and hotel bookings in remote locations for individual customers and corporate clients. The company is financed partly through overdrafts and loans and also by several large shareholders. The overdraft facility is due for renewal later in July 20X5.

In January 20X5, a new competitor, Pure Shores Co, entered the market. Through competitive pricing, Pure Shores Co has gained considerable market share from MMT, including one of MMT’s larger corporate clients which have moved its business to Pure Shores. In addition, a number of MMT’s travel agents have left the company and joined Pure Shores. MMT has found it difficult to replace these employees due to the level of skills and knowledge of remote overseas locations required.

The directors have produced a cash flow forecast which shows a significantly worsening position over the coming 12 months. You have been informed that MMT’s bankers will not make a decision on the renewal of the overdraft facility until after the auditor’s report is issued. The directors have agreed to include brief disclosure of the uncertainty over going concerned

Câu 7:

Question:

Which THREE of the following statements correctly describes the respective responsibilities of directors and auditors in relation to going concern?

A.  The directors must assess whether the company can continue to trade for the foreseeable future.
B.  The auditors and the directors must make disclosure of going concern uncertainties in the financial statements
C.  The auditor will evaluate management’s assessment of going concerned
D.  The directors will usually prepare a cash flow forecast to assess whether the company is likely to be able to trade for the foreseeable future
E.  The auditor should make an assessment of an entity's ability to continue as a going concern

Guidance:

Director's responsibilities	Auditor's responsibilities
Assess the company’s ability to continue as a going concern when they are preparing the financial statements.	Obtain sufficient appropriate audit evidence regarding, and conclude on the appropriateness of management's use of the going concern basis of accounting.
If they are aware of any material uncertainties which may affect this assessment, they should disclose these in the financial statements.	Conclude whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.
When the directors are performing their assessment they should take into account a number of relevant factors such as: ·        Current and expected profitability; ·        Debt repayment; ·        Sources (and potential sources) of financing.	Report in accordance with ISA 570.

 

Answer: A+C+D

Options A, C, D are responsibilities of the auditor and management

Option B is false because directors must make disclosure of going concern uncertainties in the financial statements they if become aware of material uncertainties, auditor just need to evaluate the ability to go concerned

Option E is false because it is a requirement of management, the auditor just needs to evaluate it.

Câu 8:

Question:

Which THREE of the following procedures should be performed to assess the uncertainty arising in relation to the overdraft renewal?

A.  Calculate key ratios to identify possible financial problems
B.  Inspect correspondence with the bank to identify any disputes which may indicate the overdraft facility will not be renewed
C.  Review the level of profit made in previous periods to assess whether the company is likely to continue to trade
D.  Enquire with management whether any alternative sources of finance have been considered if the bank does not renew the overdraft facility
E.  Inspect board minutes for discussions of management as to how they plan to improve the financial position of MMT

Guidance: Audit procedures to assess management's evaluation:

You can choose procedures base on the procedures above

Answer: B+D+E

Calculation of key ratios may identify indicators of going concern issues that need to be investigated further through audit procedures. However, the ratios do not provide evidence that the company is or is not a going concern => A is false

Inspect correspondence with the bank to identify any disputes which may indicate the overdraft facility will not be renewed for evidence of bank evaluation of possibility of going concern => B is true

Reviewing the level of profit made in the past does not provide reliable evidence that the company will be able to trade in the future as the financial circumstances of the company may be different => C is false

Options D and E to evaluate the company’s effort in maintaining the entity's ability to continue as a going concern

Câu 9:

Question:

What will be the impact on the auditor’s report of MMT in the following circumstances?

Adequate disclosure of going concern uncertainties is made	Unmodified opinion with no additional communication	Modified opinion	Unmodified opinion with Going Concern paragraph	Unmodified opinion with Emphasis on Matter
Adequate disclosure of going concern uncertainties is NOT made	Unmodified opinion with no additional communication	Modified opinion	Unmodified opinion with Going Concern paragraph	Unmodified opinion with Emphasis of Matter

Guidance:

Scenario	Impact on auditor’ report
Going concern assumption appropriate but material uncertainty which is adequate disclosure.	Unmodified opinion
Going concern assumption appropriate but material uncertainty which is not adequately disclosed.	Qualified or adverse opinion
Use of going concern assumption inappropriate.	Adverse opinion
Management is unwilling to make or extend its assessment.	Qualified or disclaimer of opinion

Answer:

Adequate disclosure of going concern uncertainties is made	Unmodified opinion with no additional communication	Modified opinion	Unmodified opinion with Going Concern paragraph	Unmodified opinion with Emphasis on Matter
Adequate disclosure of going concern uncertainties is NOT made	Unmodified opinion with no additional communication	Modified opinion	Unmodified opinion with Going Concern paragraph	Unmodified opinion with Emphasis on Matter

Câu 10:

Question:

In which of the following situations should a company NOT prepare financial statements using the breakup basis?

A.  The company has ceased to trade
B.  A decision has been made to close the company
C.  There are material uncertainties relating to going concerned
D.  The company has run out of cash and is unable to pay its debts

Answer: C

The financial statements should be prepared on the breakup basis if

• The company has ceased trading, intends to cease trading, or has no realistic alternative but to cease trading. ⇒ A is false
• The company cannot pay its debts when they fall due to the company will have no alternative but to cease trading. => D is false
• There is a decision to close the company => B is false

If there are material uncertainties relating to going concerned the financial statements will still be prepared on a going concern basis but disclosure of the uncertainties should be included in the notes => C is true.

Câu 11: Case study about going concerned

Learning outcome: Nắm được cách xác định và giải thích cho các potential indicator của going cocern

Question:

It is 1 July 20X5 and you are an audit manager of Spadeflsh & Co and you are currently responsible for the audits of existing clients:

Manin Co is a distributor of electronic goods and the year ended on 30 April 20X5. The audit is almost complete and the auditor's report is due to be signed shortly. The following matters have been brought to your attention for each company.

Marlin Co - Going concerned

During the year under audit, Marlin Co has consistently paid a number of its suppliers significantly later than usual and only after several reminders. As a result, some of its suppliers have withdrawn credit terms meaning the company must pay cash on delivery. The company has also just received notification that its main supplier who provides the company with over 60% of its specialist electrical equipment has ceased to trade.

The overdraft has increased significantly over the year and the directors have informed you that the overdraft facility is due for renewal next month, and they are confident it will be renewed. The directors have decided that in order to conserve cash, no final dividend will be paid in 20X5.

Required:

• Identify and explain THREE potential indicators that Marlin Co is NOT a going concern.
• Describe the audit procedures the auditor should perform in assessing whether or not Marlin Co is a going concern.

Guidance (Tips/ Steps/ Cách tư duy)

Identify and explain potential indicators that the entity is NOT a going concern.

• We must identify indicators that rely on aspects of going concerned by looking at information in the sample about going concern aspects: Financial, Operating, Legal, or Regulation.
• If there are factors related to cash flow, debt, or assets, it will be financial aspects;
• If there are factors related to labor difficulties, shortages of important applies, it will be operating aspects.
• From the above information, explain reasons and consequences of indicators to going concerned such as: If the company was struggling to meet their liability (reasons) ⇒ Paid some of the suppliers considerably later than usual ⇒ Suppliers have withdrawn credit terms meaning the company must pay cash on delivery (consequences).

Answer:

Marlin Co has paid some of its suppliers considerably later than usual and only after many reminders ⇒ some of them have withdrawn credit terms meaning the company must pay cash on delivery ⇒ put significant additional pressure on the company’s cash flow ⇒ Financial aspect

Marlin Co’s main supplier who provides over 60% of the company’s specialist equipment has just stopped trading. ⇒ There is a risk that Marlin Co may not be able to obtain these products from other suppliers which would impact on the company’s ability to trade. ⇒ Operating aspect

If there are other suppliers available but they may be more expensive or may not offer favourable credit terms ⇒ Increase the outflows of Marlin Co and worsen the cash flow position ⇒ Financial aspect

Marlin Co’s overdraft has grown significantly during the year and is due for renewal within the next month ⇒ If the bank does not renew the overdraft and the company is unable to obtain alternative finance, then it may not be able to continue to meet its liabilities as they fall due ⇒ the company may not be able to continue to trade à Financial aspect

In order to conserve cash, Marlin Co has decided not to pay a final dividend for the year ended 30 April 20X5. This may result in shareholders losing faith in the company and they may attempt to sell their shares; in addition, they are highly unlikely to invest further equity, and Marlin Co may need to raise finance to repay their overdraft ⇒ Financial aspect

2.3. Dạng 3: Audit opinion

You are an audit manager in Bond & Co responsible for the audit of Paddington Co which is nearing completion. You are now resolving the last few issues before deciding on the appropriate audit opinion.

During the audit the following issues have been identified:

1. Paddington Co’s main competitor filed a lawsuit for $3 million alleging a breach of copyright. This case is ongoing and will not be resolved prior to the auditor’s report is signed. Paddington Co’s lawyers believe the claim is only possible to succeed. Paddington Co has sufficient cash to make the settlement if it loses the case. The lawsuit has not been mentioned in the financial statements or related disclosures.
2. A warranty provision of $25 million has not been recognized in respect of goods that require repair or replacement within the first twelve months if they do not perform as expected.
3. Depreciation in respect of property, plant, and equipment has not been recognized in the financial statements. The auditor has estimated that a depreciation charge of $1 million should be recognized.
4. Intangible assets have been overstated by $12 million due to research costs being capitalized as development costs in the statement of financial position.

Paddington Co’s profit before tax is $29 million.

Câu 12:

Question:

Which of the issues identified during the audit is likely to lead to an adverse opinion on Paddington Co’s financial statements?

A.  Lawsuit
B.  Warranty provision
C.  Depreciation
D.  Intangible assets

Answer:

	Step 1: Calculate materiality Step 2: Assess whether a misstatement is material or not. By comparing with a percentage applied for the benchmark (5% profit before tax)	Step 2 + Step 3: Assess whether a misstatement is material or not and Assess whether a material misstatement is pervasive or not to express an opinion
Lawsuit	Materiality = 3 ≈ 10% of profit	Material
Provision	Materiality = 25 ≈ 86% of profit	Material and pervasive
Depreciation	Materiality =1 ≈ 3% of profit	Not material
Intangible assets	Materiality = 12 ≈ 41% of profit	Material

Failure to recognize the warranty provision is likely to require an adverse opinion as the misstatement represents a substantial proportion of Paddington’s profit

Câu 13:

Question:

The audit is now complete and the auditor’s report is due to be issued next week. All adjustments requested have been corrected by management.

Which of the following correctly identifies the implications for the audit opinion and report of Paddington Co?

A.  Unmodified opinion with no additional communication
B.  Unmodified opinion with an Emphasis of Matter paragraph
C.  Qualified opinion with Basis for Qualified Opinion
D.  Disclaimer of opinion with Basis for Disclaimer of Opinion

Answer:

The matter is correctly treated in the financial statements therefore the opinion should be unmodified. Paddington Co has sufficient cash to make the settlement therefore there is no uncertainty facing the company and hence an emphasis of matter paragraph is not necessary.

Câu 14:

Question:

Match the following auditor’s report sections to the appropriate explanation of its purpose.

Element		Purpose
1.Title		A.      Provides a description of the professional standards applied during the audit to provide confidence to users that the report can be relied upon
2. Addressee		B.      Identifies the intended user of the report
3. Basis for opinion		C.      Identifies the person responsible for the audit opinion in case of any queries
4. Key audit matters		D.     Clearly identifies the report as an Independent Auditor’s Report
5. Name of the engagement partner		E.      Draws attention to any other significant matters of which the users should be aware which have been discussed with those charged with governance

Answer:

Element		Purpose
1. Title		Clearly identifies the report as an Independent Auditor’s Report (D)
2. Addressee		Identifies the intended user of the report (B)
3. Basis for opinion		Provides a description of the professional standards applied during the audit to provide confidence to users that the report can be relied upon (A)
4. Key audit matters		Draws attention to any other significant matters of which the users should be aware which have been discussed with those charged with governance (E)
5. Name of engagement partner		Identifies the person responsible for the audit opinion in case of any queries (C)

Mức độ: Ít quan trọng

2.4. Dạng 4: Overall review of financial statement

Câu 15:

Question:

Auditors are required to undertake an overall review of the financial statements as the final step before they form their audit opinion. As part of this process, they undertake a number of procedures.

Which of the following procedures would an auditor NOT undertake as part of the overall review of the financial statements?

A.  Reviewing the financial statements to ensure they are consistent with the auditor’s knowledge of the business and the results of their audit work
B.  Performing analytical procedures on the financial statements to form an overall conclusion on the financial statements
C.  Undertaking a review of subsequent events to identify whether any adjustment or disclosure is required in the financial statements
D.  Reviewing the financial statements to ensure compliance with accounting standards and local legislation disclosure

Guidance (Tips/ Steps/ Cách tư duy)

Procedures A, B, and D would be undertaken as part of the overall review of the financial statements. However, procedure C is undertaken when reviewing subsequent events occurring between the date of the financial statements and the date of the auditor’s report.

Answer: C. Undertaking a review of subsequent events to identify whether any adjustment or disclosure is required in the financial statements

Câu 16:

Question:

Which of the following would form part of the auditor's overall review of the financial statements?

(1) Establishing whether the pre-conditions for an audit are present

(2) Assessing whether the information and explanations obtained during the audit are adequately reflected

(3) Performing a detailed review of the audit working papers to ensure the work has been properly performed

(4) Reviewing the adequacy of the disclosure of accounting policies

A.  1 and 2
B.  3 and 4
C.  1 and 3
D.  2 and 4

Guidance (Tips/ Steps/ Cách tư duy)

As part of the overall review of the financial statements, the auditor should assess whether the information and explanations gathered during the audit and accounting policies are adequately reflected and disclosed.

Pre-conditions should be considered as part of the auditor’s acceptance procedures and a detailed review of the audit working papers is conducted as part of the firm’s quality control procedures.

Answer: D. 2 and 4