4551 fall 2008 final exam solution

4551 fall 2008 final exam solution - ADMS 4551 FALL 2008...

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ADMS 4551 FALL 2008 – Exam Marking Key QUESTION 1 ( 29 marks) A) List the major deficiencies in the audit and state what the appropriate auditor action should have been. (2 marks for each point – max 16 marks) Answer: 1. No change the audit plan given despite the new system. The change in the accounting system to computerize the inventory should have caused the auditor to revise the audit plan (given that inventory is a key business process). The auditor need to perform procedures to obtain a detailed understanding of the new information system and is control processes. If control risk is assessed at below maximum, the auditor will need to design and test controls Need to ensure there was a proper conversion to the new inventory computerized system for completeness and accuracy of data ( need to review documentation for any parallel running) 2. Change in accounting personnel should have alerted the auditor to increased risk of material misstatement. The auditor should have increased the scope of his work as there was higher potential for errors in the accounting staff’s work. 3. No change in scope of work despite the existence of a few more errors in the tests of controls. The auditor should have expanded the scope of the work (ie. perform more tests of controls). If the increased tests confirmed that the control was ineffective then the auditor should have increased the substantive procedures. 4. The acquisition of Reclocker was not factored into the audit plan. The auditor did not consider the impact of Reclocker on its client risk assessment- for instance: associated with the various accounts/assertions of this company The auditor should have performed procedures to obtain a full understanding of the new division operations or of its controls. The controls at Relocked which would be different from Gabby would have required separate testing. 5. The auditor did not consider the impact of Reclocker) loon inherent risk – since it is a new acquisition, there would be higher inherent risk associated with the various accounts/assertions of this company 1
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ADMS 4551 FALL 2008 – Exam Marking Key 6. Materiality was not adjusted for the acquisition. Since RecLockers results of operations would now be included in the final results, the auditor would need to have included them in the calculation of materiality. 7. Existence of a new user of the financial statements did not change the audit risk assessment nor the materiality level of the organization. Audit risk should have decreased and materiality would have to be reassessed. (ie. review of the loan agreement for any covenant requirements). 8. Time budget for the audit did not change for the audit from the previous year. The time required to audit should have increased as a result of the new
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4551 fall 2008 final exam solution - ADMS 4551 FALL 2008...

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