AA Mock Exam 1: Internal control and Reporting
Question 1: C. The date of the auditor’s report
Question 2 : C 2 and 3 correct answer: B
As per ISA 560 paragraph 15, in the circumstances described the auditor should initially discuss
the matter with management and understand how management intends to address the matter in
the financial statements
Question 3 : C 1, 3 and 4
Question 4 : A Matters which required significant auditor attention
Question 5 : D An unmodified audit opinion
Question 6 : 1. Addressee
2. auditors responsibilities
3. opinion paragraph
4. date of report
Question 7:
S1 – FALSE
S2- FALSE
S3-FALSE Correct answer: True
S4-TRUE
Question 8: option c
Question 9: Option and b
Question 10 : Qualified, unmodified
Question 11 : 3 and 4 Correct answer: 2 and 4
Question 12 : b
Question 13 : 1,3 and 4 only
Question 14 : Correct answer: Misstatement 2 and 4 only
Question 15: 3 Correct answer: Option 1
Question 16 : 2.5 marks out of 4 marks
Narrative notes:
-are the written description of a system.
Disadvantage :
- It is time consuming.
Internal Control Questionaries :
-is consists of a list of questions. It assess that whether all controls are there.
Disadvantages :
- Client may able to overstate controls.
(b) I don’t understand the meaning of key control. 0 out of 8 marks
(c)
Control deficiency Control recommendation
Unauthorized employees holiday forms. All holiday forms are authorised properly
Department manager are required to by the responsible official and their
approve all holiday requests by evidence should be kept.
authorizing employees holiday form but
this does not always occur.
Without authorising of holiday form
there is a risk of error.
This leads to over or understate of the
payments for holiday.
Lack of segregation of duty. Castle courier should appoint a new
Financial controller prepares and responsible official to authorise the
authorises figures have been posted into transfer amount of the bank account.
the accounting records.
If the one person prepares and
authorising the accounts then there is a
risk of fraud.
The member of staff in the finance Company should arrange a syestimatic
department paid in cash without any payment method (e.g. proof of identity)
particular identity. They only ask the so that the payment should be made
name and paid the cash the employees. correctly to the employees.
This leads to fraud and result of this loss
of goodwill.
The company has no way of monitoring Company should made up the rules for
the length of these breaks as delivery the paid break rules for the employee to
drivers are out on deliveries. ensure the rules required by law.
Drivers could take longer breaks than those
authorised
The company should monitor the activity
resulting in payments being made to
employees for time of the delivery drivers through electronic
not worked.
means, for example, by using tracking
devices attached to their vehicles to
ensure that the prescribed breaks are
taken by the employees
Payroll clerk in writing every quarter as ti Payroll department should appoint new
who will receive a bonus. controller who records this and finance
Payroll clerk is not senior enough to director to authorise this payment.
record bonous.this leads to fraudulent
activity.
Question 17:
( a ) 3 marks out of 4
Limitation of internal control system
Human error – mistakes made by those responsible for performing controls.
Collusion of employees – staff work together to bypass the control of segregation
of duty.
Ineffective control- controls which do not work indeed.
Cost – cost of control is greater than the effectiveness of control.
( b)
Control deficiency Control recommendation
Inventory availability is not cheked as Review that the order should not be
the order the company dispatch the confirm without checking the goods in
goods. warehouse to reduce the risk of
There is a risk that if there is not customer goodwill.
available the goods in the warehouse
then it leads to dissatisfiy the customer
and result in loss of customer goodwill.
Control accounts are reconciled in six Reconciliation should be performed on
months later. timely basis better if monthly to
If the reconciliations are not reduce the risk of missing error.
performed on a monthly basis then it
is difficult for the pomeranian co to
identify any missing transaction in
receivable ledger promtly.result of this
misstated ledger balance.
IA only have completed this Pomeranian Co should appoint more
comparison at one factory and one staff in IA department to check the
warehouse. factories asset to reduce the risk of
Without checking all factory and error in non-current asset register
warehouse it is unable to record
correct non-current asset in the
financial statements.
Inventory counting is performed on a Review that the counting system
yearly basis. should be performed on a regular basis
Without counting is performing on a better if per month to identify error
annual basis then it is difficult to easily.
identify error promptly.this leads the
loss of customer goodwill.
The basis of the standard cocts are The standard cost both internal
reviwed by the production department management reporting and for
approximately two years ago. inclusion in the year end FSs are
Standard Costs are reviewed on a reviewed on regular basis.
timely basis due to reduce the risk of
missing transactions. This could over
or understate the inventory balance in
the financial statements.
All member of this department have Ther should be enhance the restriction
full access to the master file data to access the Masterfile any random
If all members have full access to the person to avoid fraud.
Masterfile there is a risk that the error
in master file. this leads to loss of sales
and customer goodwill.
Masterfile data filled and generated by Pomeranian co should authorises the
the purchasing clerk. purchase clerk documentation by more
Purchasing clerk is not senior enough senior responsible official from
to generating Masterfile data.there is management to reduce the risk of
no one who authorise purchase clerk being fraud .
documentation.this leads to risk of
fraud and error.
Finance clerk matches the invoice to Company should match the purchase
purchase order. invoice with the respected goods
Without cheking the dispatched despatched note (GDN).
goods ,purchase invoice is raised then
there is a risk of error as the customer
could not accept goods and this leads
to loss of loss of supplier.
