Audit & Assurance
Practice Questions ONLY
(answers are separately indexed)
KET TO PASSING AA: Attempt ALL these past questions and
read the answers! CANNOT pass without reading answers!
Questions
M/J 2016 b-Hessonite
Question page
number
Assurance Engagements, Audit regulation
77
Code of Ethics
S/D 2021 Scenario 1 (c) Apricot
S/D 2020 Scenario 1 (d) Morph
S/D 2017-Halley-a
M/J 2017-c-Caving
Dec 2016-d-Ant & Co
S/D 2015-Pink Panthers
22
36
61
64
67
Obtaining and accepting audit engagements
S/D 2022 Scenario 2 (a) Magpie (Eng Letter)
M/J 2022 Scenario 1 (a) Esk (Preconditions)
M/J 2021 Scenario 2 (a) Woodward (Preconditions)
M/J 2020-a,b-Orange (Eng Letter, Client Acceptance)
S/D 2017-a-Cupid
Dec 2016-a-Ant & Co
11
14
30
38
62
67
Audit Planning
S/D 23-(a,b)-Knight Electronics Co
M/J 2023 Indigo
S/D 2022 Scenario 2 (b and c) Magpie
M/J 2022 Scenario 1 b and c ESK
S/D 2021 Scenario 1 (a) Apricot
M/J 2021 Scenario 2 (b) Woodward
S/D 2020 Scenario 1 (a) (b)-Morph
M/J 2020-c-Orange
S/D 2019-b and c- Brooklyn
M/J 2019-a and b-Daffodil
S/D 2018-b and c- Earl & Co
M/J 2018-b-Loganberry
S/D 2017-b and c-Cupid
79
4
11
14
22
30
36
38
43
49
52
58
62
Tick when
done!
M/J 2017-a and b-Caving
Dec 2016-b and c-Ant & Co
M/J 2016-a,b-Amethyst
64
67
78
Internal Control over financial reporting
S/D 2023 Silver Co (a,b) (inventory count)
M/J 2023 Petra (Payroll, Sales, Purchases)
S/D 2022 Scenario 1 Daley (Payroll, NCA, Components of ICS)
M/J 2022 Scenario 2 Walsh (Sales, Payroll, Bank)
S/D 2021 Scenario 2 (a, b) Pomeranian (Sales/NCA/Purchases)
M/J 2021 Scenario 1 Apple {a, b, c) (Payroll)
S/D 2020 Swift (a) (b) (Payroll, Purchases)
M/J 2020-a,b and c-Rocky (Payroll/Sales/Bank)
S/D 2019-Amberjack-(sales)
M/J 2019- a and b-Freesia-(Sales/Purchases/Payroll)
S/D 2018-b- Camomile - Cash receipts and payments
M/J 2018-a and b-Raspberry (Payroll)
S/D 2017 Halley-b and c (purchases and payables)
M/J 2017-a and b-Equestrian (mixed)
Dec 2016-a,b-Caterpillar (cash receipts)
Sept 2016-a,b,c-Heraklion (sales and payroll)
M/J 2016-Hessonite-a (inventory count)
81
1
8
16
24
26
34
40
45
47
54
57
61
66
69
72
77
Substantive procedures
S/D 2023-c and d-Knight Electronics Co (Revenue, Payroll fraud)
S/D 2023-a,b and c-Latte Co (receivables, Legal claim, Bank Loan)
M/J 2023- Owl (PPE, Bank, Provision)
S/D 2022 Scenario 3 Pacific (Payables, Provisions, Revenue)
S/D 2022 Scenario 1 Daley (Bank Balance)
M/J 2022 Scenario 3 Sweetcorn (Revenue, Inventory, Equity)
M/J 2022 Scenario 1(d) Esk (Receivables)
S/D 2021 Scenario 3 Danube (PPE, Receivables, Provisions)
S/D 2021 Scenario 1(d)(R&D)
M/J 2021 Scenario 3 Purrfect (Inventory, Receivables, provisions)
M/J 2021 Scenario 1(d) (Payroll)
S/D 2020 Morph (c) (Directors' Bonuses)
S/D 2020 Sagittarri (a-c) (income, restructuring, loans)
M/J 2020-d-Orange (Redundancy costs)
M/J 2020-a,b,c-Velo (PPE, Receivables, provisions)
$/D 2019-d and e- Brooklyn (Receivables & PPE)
S/D 2019-a and b-Spadefish-(Receivables)
M/J 2019- Hyacinth-(Inventory, R&D, Sales tax liab)
M/J 2019- c-Freesia-(Tax payable)
79
83
6
13
8
18
14
20
28
26
36
32
38
41
43
46
50
47
S/D 2018- d, e- Earl & Co (inventory and revenue)
S/D 2018- a, b- Jasmine (Trade receivables & bank balances)
M/J 2018-d-Raspberry (Tax payable)
M/J 2018-a,b,c-Cranberry (R & D ,PPE, Directors' bonus)
S/D 2017-d (purchases)
S/D 2017-a and b- Dashing (Receivables)
M/J 2017 a to d-Airsoft (payables, accruals, bank, remuneration)
Dec 2016-a,b-Snail (income, trade payables, trade receivables)
Sept 2016-d-Heraklion (revenue)
Sept 2016-a-Elounda (PPE, Inventory, Bank loan)
M/J 2016-Kyanite (Bank, PPE, Equity)
M/J 2016-c-Amethyst (relying on work of others)
52
56
57
60
61
63
65
70
72
73
76
78
Audit Completion and Review
M/J 2023- Owl- part d
5/D 2019-c and d-Marlin- (Going Concern)
5/D 2018- a- Earl & Co
M/J 2016-Grains (Subsequent events)
6
46
52
76
Audit Opinion and Reporting
S/D 2023 Latte Co- d(i, ii) (KAM)
$/D 2022 Scenario 3 (d) Pacific
M/J 2022 Scenario 3(d) Sweetcorn (KAM)
S/D 2021 Scenario 3(d) Danube (KAM)
M/J 2021 Scenario 3(d) Purrfect
S/D 2020 Scenario 3(d) Canopus
M/J 2020-d-Velo
M/J 2019- d-Hyacinth
S/D 2018- c and d- Jasmine (Going concern & Audit Report)
M/J 2018-d-Cranberry
S/D 2017-d-Dashing
M/J 2017-e-Airsoft
Dec 2016-c-Snail
84
13
18
20
28
32
42
50
56
60
63
65
70
Corporate Governance
M/J 2023 Petra
S/D 2022 Scenario 1 Daley (d)
M/J 2019- d-Freesia
M/J 2016-Satsuma
1
8
47
75
March June 2023
Question 1 petra
This scenario relates to six requirements.
It is 1 July 20X5. Petra Co is a company listed on a stock exchange. It manufactures handbags
which it supplies to retailers across the country. The company's year end is 30 September 20X5.
You are an audit supervisor with Babylon & Co, preparing the draft audit programmes and
reviewing the internal controls documentation in preparation for the forthcoming interim audit.
Payroll
Petra Co employs factory staff, who are paid based on the number of hours worked. They are
paid in cash on a weekly basis due to commercial reasons. These staff each have a unique clock
card which they use to enter and exit the factory at the beginning and end of their shift, and this
process is supervised by security staff. The clock card system and the payroll system are linked.
The payroll system automatically calculates the gross and net pay along with relevant deductions
and generates employee payslips. The payroll supervisor selects a sample of the payslips,
reperfonns the gross to net pay calculations and investigates any discrepancies. The sampled
payslips are then signed as evidence of this review.
Factory staff receive an annual inflation-based pay increase every April. The revised hourly
wage rates are communicated to the payroll department. The revised pay rates are entered into
the system in April by a payroll clerk and each entry is checked by a senior clerk for input errors
prior to processing that week's wages. The senior clerk signs a payroll listing of factory staff
employees, which includes the revised hourly wage rates as evidence of undertaking this review.
Two members of the payroll department produce the cash pay packets. One member is
responsible for preparing the pay packets by reference to the payslips generated by the system.
The second member recounts the contents of the finished pay packets and confirms that this
agrees to the payslips. Both members of staff are required to sign the weekly payroll listing on
completion of this task.
Sales
Petra Co carries out credit checks for all new customers. Upon passing these checks, new
customers are set up by an accounting clerk in the receivables ledger master file and a credit
limit is set by the finance director. The credit limits are only reviewed if an increase is requested
by the customer.
Petra Co generates revenue through visits by members of its sales department to customers'
premises. When a customer places an order, sales staff check that the customer is within its credit
limit and that the inventory is available and then complete a three-part pre-printed order fonn.
One copy is left with the customer, the second is sent to the warehouse and the third to the
finance department. The sales staff have monthly sales targets and are able to use their discretion
in granting discounts up to a maximum of 8%. No review is undertaken of discounts granted.
Purchases
The company has a purchasing department based at its head office. All members of this
department have full access to the supplier master file data and are able to make changes. When
goods are received from a supplier they are processed by the warehouse team, who agree the
delivery to the purchase order, checking the quantity and the quality of goods, and complete a
sequentially numbered goods received note (GRN). The GRNs are matched to the purchase
orders and are filed in the warehouse.
On receipt of the purchase invoice from the supplier, a payables ledger clerk, logs them into the
payables ledger using document count controls to ensure that the correct number of invoices has
been input. The total on the payables ledger is not compared to the control account in the general
ledger at the end of each month as the payables ledger clerk believes this process is unnecessary.
(a) List FOUR control objectives of Petra Co's sales system.
Note: You do not need to refer to the scenario to answer this requirement.
(4 marks)
(b) In respect of the PAYROLL system of Petra Co:
(i) Identify and explain THREE 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 key controls is operating effectively.
Note: The marks will be split equally between each part.
(6 marks)
(c) Identify and explain FIVE DEFICIENCIES in Petra Co's SALES AND PURCHASES
systems and provide a recommendation to.address each of these deficiencies.
(10 marks)
Petra Co produces monthly management accounts which include a detailed analysis of key
expense categories.
( d) Describe substantive procedures the auditor should perform to obtain sufficient and
appropriate audit evidence in relation to Petra Co's purchases and other expenses.
(4 marks)
Sep/Dec 23
Knight Electronics Co
This scenario relates to four requirements.
It is 1 July 20X5. Your firm, Hercules & Co, has recently won the audit of a new client, Knight Electronics
Co, for the year ending 30 September 20X5. Knight Electronics Co sells products enabling 'smart building'
systems which allow customers to efficiently control their security, lighting and networking needs. The
audit manager held a preliminary meeting with the finance director and has provided you with the
following notes:
Planning meeting notes
Since its launch five years ago, Knight Electronics Co has experienced high levels of growth such that the
founder and CEO, William Knight, is considering a stock exchange listing next year.
Knight Electronics Co has both corporate and domestic customers. On 1 October 20X4 Knight Electronics
Co began to offer customers the option to purchase a three-year servicing agreement. This provides
three annual services for products purchased. Customers pay for the servicing agreement in full at the
start of the agreement.
Component parts are purchased from a number of suppliers. Prices of components have been steadily
increasing over the past two years leading to a reduction in the gross profit margin. The forecast financial
statements for the year ending 30 September 20X5 show inventory valued at cost.
In June 20X5, Knight Electronics Co decided to revalue its premises, which had previously been
accounted for using the historic cost model. Properties with a carrying amount under the cost model of
$3.8m were revalued to $8.4m based on a valuation performed by management. The finance director
also carried out an extensive review of non-current asset lives and decided to extend the useful life of
plant and equipment from five years to eight years.
In May 20X5, defective equipment used by Knight Electronics Co resulted in a small fire at its premises.
The company has commenced legal action against the supplier of the equipment. Knight Electronics Co's
lawyers have advised that the legal action is likely to be successful and, as a result, the finance director
has included a receivable for the damages likely to be received from the supplier in the forecast financial
statements.
During the year the company's credit controller was ill and was absent from work for four months. Due
to staff shortages, no replacement credit controller was appointed. The receivables collection period has
increased from 45 days to 75 days.
An instance of payroll fraud was also discovered during the year. A payroll clerk had set up a number of
fictitious employees and the wages were then paid into the clerk’s own bank account. Controls have now
been implemented to prevent this from re-occurring and the clerk involved no longer works for the
company. However, the audit manager is concerned that additional fraud may have taken place in the
payroll department prior to the controls being implemented.
William Knight would like the audit to be completed by 31 October 20X5.
79
REQUIRMENTS
(a) Briefly explain how each of the following sources of information will be used by Hercules & Co to
gain an understanding of Knight Electronics Co at the planning stage of the audit: prior year audited
financial statements, current year budgets and management accounts, prior year report to
management, board meeting minutes and company website.
Note: You do not need to refer to the scenario to answer this requirement.
(5 marks)
ANSWER FORMAT:
Source
Prior year audited financial statements
Use
Current year budgets and management accounts
Prior year report to management
Board meeting minutes
Company website
(b) Describe EIGHT audit risks and explain the auditor's response to each risk in planning the audit of
Knight Electronics Co.
(16 marks)
(c) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate
audit evidence in relation to Knight Electronics Co's revenue.
(5 marks)
ISA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements provides
guidance for auditors regarding fraud and error. Auditors must obtain sufficient appropriate audit
evidence regarding the assessed risks of material misstatement due to fraud through designing and
implementing appropriate responses.
(d) Describe procedures which should be undertaken during the audit of Knight Electronics Co as a
result of the payroll fraud.
(4 marks)
(30 marks)
80
Sep/Dec 23
Silver Co
This scenario relates to two requirements.
It is 1 July 20X5. You are an audit senior with Golden & Co and you are in the process of reviewing the
inventory count arrangements for your audit client, Silver Co, in preparation for attendance at the full
year-end inventory count on 30 September 20X5. The company manufactures household furniture such
as tables, sofas and beds and has a factory and a large warehouse which are located on a single site.
Inventory count arrangements
The company manufactures goods 24 hours a day, seven days a week to meet customers’ demands.
Production will still be continuing during the inventory count as it is not possible for the company to stop
producing goods. Movements of goods in and out of the factory and warehouse will also have to
continue for operational reasons.
The count will be undertaken by 20 teams of two counters from the warehouse, and the warehouse
supervisor will be overseeing the inventory count. Each team will be given a specific area of the
warehouse to count using sequentially numbered inventory sheets which detail the items of inventory
together with quantities held at the date of the count as per the inventory system. It has been left to the
individuals within each team to decide how to allocate the responsibilities between them.
All goods present in the warehouse on 30 September 20X5 will be allocated into separate warehouse
bays (designated areas of the warehouse) in preparation for counting. When a warehouse bay has been
counted, it is crossed out on the warehouse map which is held in the office by the warehouse supervisor.
As the warehouse supervisor is confident that the 20 teams are familiar with the warehouse and the
location of the inventory, he has said that each bay only needs to be counted by one team. One area of
the warehouse, which includes a large quantity of spare parts left over from production, will be
segregated so that this inventory will not be counted, as the warehouse supervisor has stated that these
items are unusable.
A numerical sequence check of the sheets will be carried out by the warehouse supervisor once the
count is finished. The inventory sheets will then be passed to a warehouse assistant to update the
inventory records to reflect the inventory physically present as per the inventory sheets.
Work in progress valuations have previously been carried out by an external inventory valuer. However,
the warehouse supervisor has suggested that he undertakes this valuation this year as he is familiar with
the company’s products. The directors have agreed to this on the basis that it will save costs.
Last week the company agreed to store 30 sofas belonging to a third party in its warehouse for the next
four months as the third party’s storage facilities became flooded. For convenience, these sofas have
been stored alongside similar products which belong to Silver Co.
REQUIRMENTS
Auditors have a responsibility under ISA 265 Communicating Deficiencies in Internal Control to Those
Charged with Governance and Management to communicate significant deficiencies in internal controls
to those charged with governance.
81
(a) Describe FOUR matters the auditor should consider in determining whether a deficiency in internal
controls is significant.
Note: You do not need to refer to the scenario to answer this requirement.
(4 marks)
(b) Identify and explain EIGHT deficiencies in Silver Co’s inventory count arrangements and provide a
control recommendation to address each of these deficiencies.
(16 marks)
(20 marks)
82
Sep/Dec 23
Latte Co
This scenario relates to four requirements.
It is 1 July 20X5. You are an audit supervisor with Macchiato & Co currently working on the final audit of
Latte Co, a supplier of catering equipment, for the year ended 31 March 20X5. Latte Co is a listed
company with total assets of $22.7m and profit before tax of $3.2m. You are responsible for finalising the
audit fieldwork in respect of the following:
Trade receivables
Latte Co's net trade receivables balance is $5.1m which comprises trade receivables of $5.5m and an
allowance for receivables of $0.4m at 31 March 20X5 (20X4: receivables of $4.4m and an allowance of
$0.6m). As a result of a lack of responses in prior years, the audit engagement partner has decided that a
trade receivables circularisation will not be performed this year. Instead, he has asked you to identify
alternative substantive procedures to confirm the existence and valuation of trade receivables.
Provision for legal claim
A former employee of Latte Co has made a claim for $0.6m against the company in respect of an injury
suffered while operating equipment which did not have the correct safety equipment installed. The
directors have recognised a provision of $0.25m in the current year financial statements which is the
maximum amount they are willing to pay to settle the claim.
Bank loan
Latte Co obtained a new three-year bank loan of $1m on 1 October 20X4 to finance the purchase of new
equipment. The loan attracts an interest rate of 5%. Under the terms of the loan, 10 payments of
$105,000, comprising capital and interest, are due to be made on a quarterly basis commencing 31
December 20X4. Latte Co did not make the quarterly payment due on 31 March 20X5 until 15 April
20X5.
(a) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate
evidence in relation to the EXISTENCE and VALUATION of Latte Co’s trade receivables.
(6 marks)
(b) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate
evidence in relation to Latte Co’s provision for the legal claim.
(4 marks)
(c) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate
evidence in relation to Latte Co’s bank loan.
(5 marks)
83
It is now 12 August 20X5. During the audit of the legal claim against Latte Co, the audit team concluded
that a provision of $0.6m should be recognised, rather than the $0.25m originally provided for. A
significant increase in the provision was required, in order to comply with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. The audit engagement partner has determined that the provision is
now appropriately valued and that this issue should be communicated as a key audit matter (KAM) in
accordance with ISA 701 Communicating Key Audit Matters in the Independent Auditor's Report.
(d)(i) Describe the factors which the audit engagement partner would have considered in determining
that this issue is a KAM; and
(ii) Describe the content of the KAM section of the auditor’s report for Latte Co.
(5 marks)
(20 marks)
84
Audit and Assurance
Answers Pack
Each answer has to be read to understand the audit language
that the examiner expects.
Exam Attempt
Page Number
S/D 2023
159-164
M/J 2023
1-8
S/D 2022
9-20
M/J 2022
21-33
S/D 2021
34-41
M/J 2021
42-49
S/D 2020
50-62
M/J 2020
63-75
S/D 2019
76-84
M/J 2019
85-93
Hybrid DEC 18
94-102
M/J 2018
103-109
S/D 2017
110-116
M/J 2017
117-127
DEC 2016
128-135
SEPT 2016
136-146
M/J 2016
147-159
159
160
161
162
163
164