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AA – Audit & Insurance

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Showing 1–3 of 10 questions

Question 1

The financial statements are the management's responsibility. They should therefore inform the auditors of any material subsequent events between the date of the auditor’s report and the date the financial statements are issued. If, after the date of the auditor's report but before the financial statements are issued, the auditor becomes aware of a fact that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report.

In the above situation, which of the following may NOT be an appropriate action taken by the auditor?

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    Discuss the matter with the management
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    Consider whether the financial statements need amendment
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    Inquire how management intends to address the matter in the financial statements
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    Issue a new audit report dated no earlier than the date of approval of the amended financial statements
Question 2

A production manager for a medium-sized manufacturing company began ordering excessive raw materials and had them delivered to a wholesale company he runs as a side business. He falsified receiving documents and approved the invoices for payment.

Which of the following audit procedures would most likely detect this fraud?

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    Take a sample of cash disbursement; compare purchase orders, receiving reports, invoices, and check copies.
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    Take a sample and confirm the amount purchased, purchase price, and date of shipment with the vendors.
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    Observe the receiving dock and count material received; compare your counts to receiving reports completed by receiving personnel.
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    Prepare analytical tests, comparing production, material purchased, and raw material inventory levels and investigate differences.
Question 3

The management of Tory Bank Ltd suspects that a bank loan officer frequently made loans to fictitious companies, disbursed loan proceed to his wife’s accounts, and then the loan has been written-off as irrecoverable. Some significant facts about the loan officer include

• A high standard of living, explained as the result of sound investments and not taking vacations

• An expensive personal car obtained through business contacts

• Gasoline and repair bills submitted for an assigned company car that is higher than company average (mileage logs were submitted on a quarterly basis)

• Marked annoyance with questions from auditors

The extent of loans made to fictitious borrowers by the loan officer could best be determined by

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    Reviewing a representative sample of the loan officer’s transactions for compliance with bank policies and procedures.
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    Reviewing a representative sample of loan files for properly completed documents, such as loan agreements, credit approvals, and approval of secured loan.
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    Comparing current loan approval balances with those of prior years.
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    Requesting positive confirmations for all outstanding loans made by the loan officer.