ACCA MOCK D
September 2023
Time allowed: 3 hours
Section A – ALL 15 questions are compulsory and MUST be
attempted
Section B – ALL THREE questions are compulsory and MUST be
attempted
Please note that the real exam is a computer based exam. Therefore,
the questions in this paper version reflect the question formats of a
computer based exam.
Kaplan Publishing/Kaplan Financial
AA
Audit and Assurance
(AA)
A A : A UD I T AND ASS URANCE
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2
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
KAPLAN P UBLI S H I N G
3
A A : A UD I T AND ASS URANCE
SECTION A
ALL 15 questions are compulsory and MUST be attempted
Each question is worth 2 marks
The following scenario relates to questions 1–5
You are an audit senior in Beech & Co and have been allocated to the audit of Willow Wands Co
(Willow), a listed company which has been an audit client for eight years, and specialises in
manufacturing musical instruments.
Bethan Oak was the audit engagement partner for Willow and as she had completed seven years
as the audit engagement partner, she has recently been rotated off the audit engagement. The
current audit engagement partner, Sandeep Pine, has suggested that in order to maintain a close
relationship with Willow, Bethan should undertake the role of engagement quality reviewer this
year. In addition, a representative of Willow’s audit committee has requested that Bethan assist
them by attending the audit committee meetings, as a non-executive director has recently left the
company. Willow has also asked Sandeep and the other partners at Beech & Co to help with the
recruitment of a new non-executive director.
The total fees received by Beech & Co for last year equated to 16% of the firm’s total fee income.
The current year’s audit fee has not yet been confirmed, but along with taxation and other possible
non-audit fees, the total income from Willow this year could be greater than for last year. Last
year’s audit fee was being paid monthly by Willow, but no payments have been made for the last
three months.
The audit manager for Willow has just announced that she is leaving Beech & Co to join Willow as
the financial controller.
1
2
4
Which of the following correctly identifies the threat to objectivity if Bethan Oak
undertakes the role of engagement quality reviewer and the cooling-off period which is
required before Bethan can become the engagement quality reviewer?
Threat to objectivity
Cooling-off period
A
Self-interest
7 years
B
Familiarity
5 years
C
Familiarity
3 years
D
Self-review
2 years
Which threat to objectivity will arise if Beech & Co helps with the recruitment of a nonexecutive director?
A
Self-interest
B
Self-review
C
Advocacy
D
Intimidation
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
3
4
5
Which of the following statements are TRUE in respect of the request for Bethan to attend
the audit committee meetings?
(1)
Attendance may be perceived as assuming management responsibilities.
(2)
A self-interest threat will arise.
(3)
Bethan can attend the meetings if she is no longer engagement partner.
(4)
Bethan can attend the meetings but must not participate in any decisions of the audit
committee.
A
(4) only
B
(2) and (3)
C
(1), (3) and (4)
D
(1) and (2)
Which THREE of the following statements are TRUE in respect of the audit fees due from
Willow Wands Co?
A
The fees, representing 16% of the firm’s total fee income, represent a contingency fee
B
Significant fees may cause the audit firm to overlook issues to avoid losing the client
C
Outstanding fees may be perceived to be a loan to the client
D
Both fee issues represent advocacy threats
E
Significant fees from a client should be discussed with those charged with governance
F
If fees are outstanding for more than 3 months the audit firm must cease work until
they are paid
Which THREE threats to objectivity arise as a result of the audit manager leaving the audit
firm to join Willow Wands Co as financial controller?
A
Self-interest
B
Self-review
C
Familiarity
D
Advocacy
E
Intimidation
KAPLAN P UBLI S H I N G
5
A A : A UD I T AND ASS URANCE
The following scenario relates to questions 6 – 10
It is 1 July 20X5. You are an audit senior at OakSoSolid, a furniture company with a year ended
30 April 20X5. You have been assigned the audit of receivables. Due to the high audit risk of this
engagement, materiality has been calculated as $24,500 based on 0.5% of revenue.
The following financial statement extracts are available:
Revenue
Trade receivables
30/4/20X5
$
4,896,659
30/4/20X4
$
1,939,667
335,324
243,397
Trade receivables
OakSoSolid requests payment at the end of the month following the month of sale.
A positive circularisation has been performed on a selection of balances detailed below.
Balance at
30/4/20X5
Catt
Drey
M&M
Jays
Tu-Ting
Thirty Pence
Total sampled
$
18,761
4,999
27,417
(2,654)
15,234
3,308
–––––––
67,065
–––––––
Note
(1)
(2)
(3)
Circularisation response
Y/N
Amount
received to
1/7/20X5
$
0
4,999
2,417
0
15,035
3,308
Y – balance agreed
Y – balance agreed
No
Y – balance agreed
Y – balance agreed
No
(1)
Amounts due from M&M at 30/4/20X5 relate to 3 invoices dated June 20X4.
(2)
The credit balance with Jays is to be used against future sales. OakSoSolid has agreed to
journal this amount to trade payables.
(3)
The balance due from Tu-Ting relates to one invoice dated 3 March 20X5.
6
Complete the following statement by selecting an option from the drop down list below:
The group of financial statement assertions most relevant to the audit of receivables is
List options are as follows:
6

Existence, rights and obligations, completeness

Occurrence, completeness, classification

Existence, rights and obligations, cut-off

Occurrence, cut-off, accuracy
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
7
8
9
10
Identify, by clicking on the relevant box, the correct movement in the receivables collection
period and the audit risk implied by this movement.
Movement
Implication
Reduction of 28 days
Understatement of receivables
Increase of 28 days
Overstatement of receivables
Reduction of 21 days
Going concern risk
Increase of 21 days
No audit risk implied
Which receivable balances require further investigation before a conclusion can be made
over the VALUATION of trade receivables?
A
Tu-Ting
B
Catt, M&M
C
Catt, Jays
D
Jays, Tu-Ting
Which receivable balances require further investigation before a conclusion can be made
over the EXISTENCE of trade receivables?
A
Jays, Thirty Pence
B
M&M, Thirty Pence
C
Jays, Tu-Ting
D
M&M
It is later discovered that the three invoices raised to M&M in June 20X4 were raised in
error. Which TWO of the following statements are TRUE in respect of the issue?
A
The auditor should perform further testing on an increased sample to determine the
true extent of the error
B
No adjustment is necessary as the error is not material, however the auditor should
keep note of all errors should they become material in aggregate
C
As the sample selected makes up 20% of the total population, the auditor should
request that management reduces trade receivables by $125,000
D
Request that management reduces trade receivables by $25,000
KAPLAN P UBLI S H I N G
7
A A : A UD I T AND ASS URANCE
The following scenario relates to questions 11–15
It is 1 July 20X5. You are the audit manager responsible for the audits of Yorebridge Co and
Richmond Co. Both audits are nearing completion and the auditor’s reports are due to be signed
next week. The year end in each case is 31 March 20X5.
Yorebridge Co
The following misstatements have been identified which the finance director has refused to adjust.
1
Receivables are overstated by $405,000 due to a balance which will not be recovered as the
customer has gone into liquidation.
2
Errors during the inventory count have resulted in inventory being understated by $198,000.
Profit for the year is $5 million.
Richmond Co
Richmond Co is a listed company. The following matters have been brought to your attention.
1
The statement of profit or loss shows a gross profit of $14 million generated from revenue of
$56 million. The Chair’s Statement comments on “an improved performance in the year,
seeing the gross profit margin increase to 30%”.
2
During the year a new financial reporting system was installed. This was identified as a
significant risk of material misstatement impacting the audit approach. The system was
extensively tested by the audit team during the audit. Controls over the installation and
testing of the system prior to going live were found to be effective and no issues with the
new system have been encountered.
11
Which TWO of the following elements are always included in an auditor’s report as given
in ISA 700 (Revised) Forming an Opinion and Reporting on Financial Statements?
12
8
A
Responsibilities of management and those charged with governance
B
Key Audit Matters
C
Basis for Opinion
D
Other Matter
E
Emphasis of Matter
In respect of Yorebridge Co, which of the following steps should the auditor now take?
A
Modify the audit opinion due to material misstatement
B
Discuss the misstatements with those charged with governance
C
Discuss the misstatements with the finance director again
D
Assess the materiality of the errors individually and in aggregate, to assess the impact
on the auditor’s report
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
13
14
15
In respect of Yorebridge Co, which TWO of the following statements are TRUE?
A
The misstatements are individually immaterial, therefore if no adjustments are made,
the opinion will be unmodified
B
The misstatements are not material when aggregated therefore if no adjustments are
made, the opinion will be unmodified
C
Management should be asked to adjust the misstatements irrespective of whether or
not they are material
D
The misstatement in relation to receivables must be corrected to avoid a qualified
opinion
E
The misstatement in relation to inventory must be corrected to avoid a qualified
opinion
Which of the two matters should be included in the Key Audit Matters section of the
auditor’s report of Richmond Co?
A
Both 1 and 2
B
Neither 1 nor 2
C
1 only
D
2 only
You conclude that the gross profit margin reported in the Chair’s Statement is incorrect and
the financial statements are correct. If the inconsistency between the Chair’s Statement
and financial statements remains unresolved, which of the following audit opinions is most
appropriate for Richmond Co?
A
Unmodified
B
Qualified
C
Adverse
D
Disclaimer
KAPLAN P UBLI S H I N G
9
A A : A UD I T AND ASS URANCE
SECTION B
All THREE questions are compulsory and MUST be attempted
16
It is 1 July 20X5. You are an audit supervisor in Cupola & Co and you are reviewing extracts
from the internal controls documentation in preparation for the audit of Maddie Ronson Co
(Maddie’s). The company’s year end is 30 September 20X5.
Maddie’s operates three cafes in the centre of a large city and employs 40 staff both full and
part time. The company is run by the owner, Maddie. Each cafe has a cafe manager who is
responsible for the day to day running of the cafe. You are the audit supervisor of and are
currently reviewing the payroll and revenue systems in preparation for the forthcoming
audit.
Payroll
As Maddie’s is a small company it is not considered necessary to issue a contract of
employment to new members of staff. Instead, each new starter is told verbally what their
hours of work and rate of pay will be along with other key terms and conditions.
At the start of a shift, each employee uses a clock card to record their time of arrival. They
use the same machine to clock out at the end of their shift. The clock machine is in a quiet
corner of each cafe, away from customers and kitchen, to avoid disruption. The clocking in
and out process is not supervised. The rack where the clock cards are kept always contains
one or two spare cards in case any get spoiled or damaged by the machine. Once an
employee has clocked in, they are entitled to sit and have a drink and something to eat before
starting work.
At the end of each week, Maddie collects the clock cards from the rack in each cafe and posts
them to the payroll service organisation to process as there is no in-house accountancy
expertise. Employees are paid by bank transfer on the first day of each month.
Customers often leave a gratuity for the staff when they pay their bill. These gratuities are
left by the customer in a dish by the cash register and at the end of each month the cafe
manager divides the amount by the total hours worked by each employee and gives them
their share in cash. No records of these amounts are retained.
Sales
Customers pay for their food and drink at the central cash register in each cafe, either by
cash or payment card. The cash register is pre-programmed with the price of each menu item
including if they attract sales tax or not, and these prices can only be adjusted by Maddie. At
the end of each day, the cash register produces a total of sales, split between cash and card
amounts. Sales are recorded in the accounting system analysed by cafe and by payment
method. On a daily basis the cafe manager counts the physical cash in the register and
produces a report from the card machine and reconciles the total cash and credit card
payments to the total sales figure from cash register report.
Although there are usually six members of staff serving customers during any shift, only the
cafe manager and one other person per shift are authorised to use the cash register and take
payments from customers.
There is a CCTV camera positioned above the cash register recording during the opening
times of each cafe.
10
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
Required:
(a)
Explain the terms control objective, control activity and test of control, and for each,
give an example relevant to payroll.
(6 marks)
(b)
Identify and explain FIVE DEFICIENCIES in Maddie’s payroll system, and provide a
recommendation to address each of these deficiencies.
(10 marks)
Note: Prepare your answer using two columns headed Control deficiency and Control
recommendation respectively. The total marks will be split equally between each part.
(c)
(i)
In respect of Maddie’s revenue system, identify and explain FOUR DIRECT
CONTROLS which the auditor may seek to place reliance on; and
(ii)
Describe a TEST OF CONTROL the auditor should perform to assess if each of
these controls is operating effectively.
(8 marks)
Note: Prepare your answer using two columns headed Direct control and Test of
control respectively. The total marks will be split equally between each part.
(d)
Describe substantive procedures the auditor should perform to obtain sufficient and
appropriate evidence in relation to Maddie’s payroll costs.
(6 marks)
(Total: 30 marks)
17
It is 1 July 20X5. You are an audit supervisor in Hood & Co and you are planning the audit of
ReadMe Co for the year ending 31 August 20X5. ReadMe Co is a new client, adding to the
growing range of literary clients for your firm. The audit manager attended a planning
meeting with the finance director, Lionel Mandon, last week and has provided you with the
following meeting notes and financial statement extracts.
Client background and notes from planning meeting
ReadMe Co is a bookstore specialising in easy reading and summer read fiction books and
prides itself on the large range of books it has available. The owner happily claims they are
“gathering dust while they wait to find the perfect home”. Revenue is generated from sales
of books in store as well as internet sales through its own website and by listing on popular
online marketplaces.
A full inventory count will be performed at the year end, however due to the high volume of
inventory this is expected to take up to three days. Lionel would like the auditors to attend
on the morning of the first day of the count, when his staff will be more “fresh-faced”, and
the inventory will be “in less of a shambles”. ReadMe Co is currently holding $450,000 at cost
of ‘Whisk me Away’, a romantic novel released in June 20X5 by a celebrity chef. Sales of the
book have been disappointing since its release as it has not been well-received by book
critics. The author is due to visit the bookstore for a signing in October 20X5 to attempt to
generate sales.
In May 20X5 ReadMe Co expanded its range into children’s books both in store and online
under the brand ‘ReadToMe’. Lionel has spent a large amount of time on this launch, seeing
it as his last big project before he retires at the end of October 20X5. The brand was
purchased at a cost of $4 million and has been expensed in the statement of profit or loss. In
March 20X5, ReadMe Co took out a five-year loan for $6 million, with an interest rate of 10%,
to purchase and advertise the brand. The loan has a covenant attached which requires an
interest cover of 2.5 otherwise the loan becomes repayable on demand.
KAPLAN P UBLI S H I N G
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A A : A UD I T AND ASS URANCE
Financial statement extracts for the year ending 31 August
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Finance cost
Profit before tax
Draft
20X5
$000
33,570
(24,833)
–––––––
8,737
(7,787)
–––––––
950
(380)
–––––––
570
–––––––
Actual
20X4
$000
28,347
(19,533)
–––––––
8,814
(3,729)
–––––––
5,085
(23)
–––––––
5,062
–––––––
7,612
2,749
1,348
4,826
6,400
4,911
2,411
1,539
2,950
400
Statement of financial position extracts
Inventory
Trade receivables
Cash
Trade payables
Long-term loan
Required:
(a)
Explain FOUR matters which the auditor should obtain an understanding of in
accordance with ISA 315 (Revised 2019) Identifying and Assessing the Risks of
Material Misstatement.
(4 marks)
(b)
Calculate the FOUR ratios listed in the table below, for BOTH years, to assist you in
planning the audit of ReadMe Co.
(4 marks)
Note: Formulas are NOT required to be shown.
Ratio
Operating profit margin
Inventory holding period
Payables payment period
Interest cover
(c)
20X5
20X4
Using the information provided and the ratios calculated, describe SIX audit risks and
explain the auditor’s response to each risk in planning the audit of ReadMe Co.
(12 marks)
Note: Prepare your answer using two columns headed Audit risk and Auditor’s
response respectively.
(Total: 20 marks)
12
K A P LA N P UB L I S H I N G
MO CK D QUES TIONS
18
It is 1 July 20X5. You are an audit manager in Jamie & Co. The audit of Outlander Co for the
year ending 31 July 20X5 is due to commence next month. The following information has
been gathered during the planning process.
Outlander Co is a retailer of women’s clothing. In October 20X4 Outlander Co decided to
expand the business into children’s clothing. In order to finance the expansion Outlander Co
took out a loan of $5 million. The majority of the loan was used to purchase stock for the new
children’s clothing range which was launched in November 20X4. $1.5 million of the loan was
spent on advertising the new clothing range. Loan repayments are paid quarterly in arrears
and commenced three months after the loan was received. To cope with the increased level
of business three more sales and marketing staff were recruited in November 20X4. Total
assets are expected to be $200 million at 31 July 20X5.
Required:
(a)
Describe the three types of misstatement identified in ISA 450 Evaluation of
Misstatements Identified During the Audit and explain why it is important for the
auditor to consider the type of misstatement that has occurred.
(3 marks)
(b)
Describe the audit procedures the auditor should perform to obtain sufficient and
appropriate audit evidence in relation to the expansion of the business regarding:
(c)
(i)
Loan liability
(4 marks)
(ii)
Inventory
(3 marks)
(iii)
Advertising costs
(3 marks)
(iv)
Staff costs
(3 marks)
It is now 30 September 20X5 and the audit of Outlander Co is nearing completion.
During the audit, it was identified that the notes to the financial statements do not
include the disclosure relating to the loan, which is required by the applicable financial
reporting framework. The audit engagement partner has discussed the issue with
management and those charged with governance but no amendment to the
disclosures has been made.
Required:
Discuss the issue and describe the impact on the auditor’s report, if any, if the issue
remains unresolved.
(4 marks)
(Total: 20 marks)
KAPLAN P UBLI S H I N G
13