ACCA F8 - Audit and Assurance Revision Kit 2016

84 The correct answer is:
A sampling method which involves having a constant sampling interval, the starting point for testing is
determined randomly
The first option describes monetary unit sampling. The third option is an example of block selection. The
fourth option describes haphazard sampling.
85 The correct answer is:
Whether there are any significant threats to the objectivity of the internal auditor
The objectivity of the internal auditor should be considered in determining whether or not the work of the
internal auditors can be used in the first place. It is not part of evaluating the work itself.
86 The correct answer is:
Inventory and profit for the year would be overstated by $6,000
Inventory should be measured at the lower of cost and net realisable value. Net realisable value is defined by
IAS 2 as estimated selling price less estimated costs necessary to make the sale. In this case, inventory
should be written down by $6,000 and the write-down expense charged to profit or loss.
Wright
87 A Material items will require more evidence to support them than immaterial items, which might be
tested by comparative analytical review only. If the evidence is of high quality, then less may be
required than if it were of poorer quality. Time and budget constraints should never influence the
auditor’s judgement regarding the sufficiency of audit evidence. The size of the account is considered
in determining materiality (ie materiality may be determined as 5% of profit before tax), but the
auditor’s judgement regarding the sufficiency of audit evidence depends on the level of audit risks
associated with each account. The operating effectiveness of the company’s internal control systems
will also influence this judgement.
88 B Casting and cross-casting the trial balance is a detailed substantive procedure, not an analytical
procedure. Analytical procedures analyse significant relationships and trends, in order to highlight
unexpected deviations which may require further investigation.
89 C Analytical procedures must be used at the planning and the final review stages, although they can be
used at all stages of the audit. They are used at the planning stage as a risk assessment procedure to
obtain an understanding of the entity and to help determine the nature, timing and extent of audit
procedures. Analytical procedures at the final review stage assist the auditor in forming an overall
conclusion as to whether the financial statements are consistent with the auditor’s understanding of
the entity.
90 A The bank confirmation letter must be sent identifiably by the auditor, and responses should be
provided directly to the auditor. This is to prevent the information being distorted by any lack of
objectivity, or tampering by client management.
91 B All the options are valid written representations, but only 2 and 4 are required in all circumstances by
ISA 580. The auditor is also required to request a written representation that it has fulfilled its
responsibility for the preparation of the financial statements in accordance with the applicable
financial reporting framework, including, where relevant, their fair presentation, as set out in the terms
of the audit engagement.
138 Answers