MOCK 1

NURNAJIHAH BINTI ZAKARIA

191171905

1. A YES
B NO
C YES
D YES
2. A, B
3. C
4. A true
B true
C true
D false
5. 1. True
2. True
3. False
6. D
7. D
8. C
9. A
10. C
11. B
12. C,D
13. A
14. C
15. B
QUESTION 16
a) CRIME

b) TOC
Deficiency Recommendation Test of Control
The count will be Management should Attend year end inventory
undertaken by 15 teams of allocate team counters for count.
two counters from the inventory count from
warehouse department another independent Enquire the management to
with Margot’s financial department such as sales or know the counter is from
controller providing overall finance department. which department.
supervision.

There is risk that the

counter is not independent
from the warehouse
department. Thus, any issue
arise during inventory count
might not be highlighted to
the manager.

Each team of two is Inventory sheets should Inspect inventory sheets to

allocated a number of bays only contain product codes confirm only product codes
within the warehouse to and pre-printed quantities. and pre- printed quantities
count and they are provided are included in the
with sequentially numbered inventory count sheet and
inventory sheets which not the quantities.
contain product codes and
quantities extracted from
the inventory records.

There is risk that the

counter will simply agree
with the quantity stated in
the inventory sheets
without actually counted it
properly.

Thus, inventory record may

contain error.

The warehouse is large and All items belong to the third Observe process of
approximately 10% of the party should be put aside or inventory counts to ensure
bays have been rented out separated before the that the items belong to
to third parties with similar inventory count and third party have been keep
operations; these are excluded from the counting. separate before inventory
scattered throughout the counts and to confirm
warehouse. whether the counters
exclude third party item
There is risk that item during the inventory count.
belong to the third party is
counted along with items
belong to Margot Co.

Thus, inventory records may

contain error.

Some of Margot’s finished Access to high value Enquire management who

goods are high in value and finished goods or locked has the access and code on
are stored in a locked area areas should only be given the lockable areas to count
of the warehouse and all to higher personnel to the goods.
the counting teams will be count the goods.
given the code to access this Observe lockable areas to
area. After the counting ends, confirm which personnel
management should always have the access to enter the
There is risk that theft might change the code in the lockable areas and make
occur during inventory locked area. sure it is only given to
count and it will be difficult higher personnel.
for the management to
identify individual
responsible for it since all
the counting teams have
access to that area.

Each area is counted once Management should Enquire management if they

by the allocated team; the perform test check on perform test check on
sheets are completed in ink, samples of inventory count sample of inventory count
signed by the team and sheet to confirm whether sheet.
returned after each bay is the first count has been
counted. done correctly or not. Observe if there is anyone
who perform the test check
There is risk that the post inventory count.
inventory count might
contain error or any error is
not detected if the
inventory count only be
performed once.

As no two teams are The area that has been Observe during the
allocated the same bays, counted should be flag to inventory count to confirm
there will be no need to flag prove that the area has whether the counters flag
that an area has been been counted to avoid any the bay once counted is
counted. miscounted areas or done.
counted twice.
There is risk that the bay Enquire supervisor if all bays
may be counted twice or Supervisor should ensure are flag once counted is
not counted at all. that all bays have been done.
flagged once inventory
Thus, inventory quantity count is completed.
might contain errors.

On completion of the count,

the financial controller will
confirm with each team that
they have returned their
inventory sheets.

Financial controller did not

perform any sequence check
on the inventory sheet, thus
any missing inventory sheet
will not be detected.

c) (i) inventory held at 3rd party

(ii) use of standard cost for inventory valuation

d)
QUESTION 17

a) Audit Risk
Audit Risk Auditor’s Response
Lily Co has an internal audit (IA) Auditor should apply professional
department which undertakes controls scepticism and pay more attention and
testing across the network of stores. Each done more work on key areas such as sales
store is visited at least once every 18 to detect any material misstatement.
months. The audit manager has discussed
with the finance director that the external
audit team may rely on the controls testing
which is undertaken by IA.

This is a detection risk as auditor may

unable to identify any audit issues and may
missed out any risk of material
misstatements from the financial statement
if the external auditor rely heavily on the
internal auditor.
Lily Co values inventory in line with industry Obtain the breakdown of cost and NRV of
practice, which is to use selling price less the inventory and recalculate to confirm
average profit margin. The directors valuation and accuracy.
consider this to be a close approximation to
cost.

There is risk that the company does not

value the inventory correctly or in line with
the industry practice.

Hence, inventory may be materially

misstated.
The company does not undertake a full Observe the control to be perform during
year-end inventory count and instead inventory count.
undertakes monthly perpetual inventory
counts, each of which covers one-twelfth of Inspect stock count sheets to ensure that
all lines in stores and the warehouses. all inventories are included and counted.

There is risk that some inventories are left

out during the inventory count.

Hence, inventory values may be

understated.

As part of the interim audit which was

completed in January, an audit junior
attended a perpetual inventory count at
one of the warehouses and noted that
there were a large number of exceptions
where the inventory records showed a
higher quantity than the physical inventory
which was present in the warehouse.

There is risk that the inventory records are

not correctly calculated and recorded.

There is risk that inventory is not properly

counted during the inventory count or any
inventory is being left out during the
inventory count.

Hence, inventory is materially misstated.

During the year, IA performed a review of

the non-current assets physically present in
around one- third of the company’s stores.
A number of assets which had not been
fully depreciated were identified as
obsolete by this review.

The policy used for the recognition of asset

depreciation is not appropriate.

Obsolete asset should be expensed off

The company launched a significant TV Obtain breakdown of revenue and inspect

advertising campaign in January 20X9 in year end revenues recorded to confirm that
order to increase revenue. The directors only revenue that the performance
have indicated that at the year end a obligations is satisfied is recorded.
current asset of $0·7m will be recognised,
as they believe that the advertisements will
help to boost future sales in the next 12
months

As per accounting standard, revenue can

only be recognised if control has been
transferred to the customers.

The revenue of $0.7 million has been

recognised early before performance
obligations is satisfied.

Hence, revenue may be overstated and

current assets may be overstated.
Lily Co decided to outsource its payroll Discuss with management the extend of
function to an external service records the company have before pass to
organisation. This service organisation external service organization.
handles all elements of the payroll cycle
and sends monthly reports to Lily Co which Review any controls undertaken by service
detail wages and salaries and statutory organization to ensure that controls taken
obligations. are effective.

This is a detection risk as external auditor

unable to obtain sufficient and appropriate
audit evidence and confirm the
completeness of wages and salaries.

Hence, wages and salaries account may be

materially misstated.

b) (i) equity
(ii) research and development
QUESTION 18 (SP)

a) PPE (valuation and rights)

b) Insurance Claim
c) Assess going concern
d)