Question 1
Question 2
It relates to the assertion of accuracy. It can be tested by vouching to trace recorded expenses to invoices to check whether the full amount was recorded.
Question 3
It can be detected by comparing with the previous year’s number of employees and adjusting for new hires and exits.
It can also be detected by checking the records of terminated employees to see if they are still being paid after termination.
Question 4a
This is because management can use inventory in transit to hide some information. For instance, if they want to overstate inventory, they can indicate that the inventory in transit is much higher than it is because auditors cannot see it.
Question 4b
This is because they are transactions that occur at the end of a financial year or at the beginning. Therefore, there is a risk that they can be classified in the wrong period. The assertion is cut off.
Question 5
Question 6
It can be tested by re-computing the interest expense by multiplying the interest rate with the loan amount. If it is higher than what we expect then it means the interest expense was overstated or repayment of the principal was included as part of the loan.
Question 7
The first thing to do is to check whether the beginning balance is correct. The beginning balance is the closing balance for the previous year.
Question 8
The three types are probable, reasonably probable and remote. Probable are those that are most likely to occur, reasonable probable is those that may occur and remote are those with very little chance of occurring. The measure as to whether they should be disclosed depends on the likelihood of occurring and the loss could be reasonably estimated. They are only disclosed in the notes. They are not included in the financial statements.
Question 9
Qualified opinion
Disclaimer report
Adverse report
Question 10
It is a good opinion to take the CPA exam and become as qualified CPA. This is because there are certain actions that only accountants who are members of the CPA can do. They include signing an external audit report or tax report. One has to pass the exams to be a member. Accountants who is not member is limited to undertake only certain roles. Therefore, their career options are limited and earning ability as well. Undertaking the exam and passing it also creates the impression that you fully understand what accounting is about and you have the requisite skills. Therefore, it increases the chances of getting good job offers and passing interviews.
