Question

37. Name the stages of the finance cycle ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

38. In auditing the finance cycle, what type of procedures do auditors use more so than testing and relying on controls? Why?   ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

39. Under the new PCAOB reporting standard, what is the auditor now required to disclose regarding its relationship with its client? ____________________________________________________________________________________________________________________________________________________________

40. With long term debt, auditors are most concerned with the assertion of ___________________ because ____________________________________________________________________________________________________________________________________________________________

41. Auditors rely on written management representation letters, in part, because they cannot corroborate ___________________________________________________________________.

42. The standard for auditing and assessing management’s estimates is _____________________________________________________________________________.

Answer 1

37.            Name the stages of the finance cycle

Answer:    Financing cycle is the counterpart to the Investment cycle and Business cycle. It covers the period from raising Financial resources to their repayment.

This cycle includes capital increases in cash, the payment of dividends (i.e. payment out of the previous year's Net profit) and Share buy-backs, change in Net debt resulting from the repayment of (short-, medium- and long-term) borrowings, new borrowings, changes in Marketable securities (short-term investments) and changes in cash and cash equivalents.

38. In auditing the finance cycle, what type of procedures do auditors use more so than testing and relying on controls? Why?   

Answer: In Auditing there is always a Control risk, which is the risk that a misstatement due to error or fraud that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented or detected on a timely basis by the company's internal control.

Hence the auditors will do a compliace test and follow below procedures other than testing and relying on controls while auditing the finance cycle:

• The auditor needs to ensure that internal control exist and that the internal control is operating effectively and being operating continuously throughout the period under audit to ensure that they can be relied upon.

• In summary, by doing Compliance Tests, the auditor can then able to ascertain the existence, effectiveness and continuity of the internal control system.

39. Under the new PCAOB reporting standard, what is the auditor now required to disclose regarding its relationship with its client?

Answer: The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs) which are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment.

40. With long term debt, auditors are most concerned with the assertion of ___________________ because

Answer: With long term debt, auditors are most concerned with the assertion of the existence; rights and obligations; completeness and valuation because the auditor’s main concern is understatement (completeness assertion).

41. Auditors rely on written management representation letters, in part, because they cannot corroborate

Answer: As per AS:2805 Management represntations, Auditors rely on written management representation letters because they cannot corroborate the plan or intent of the management. For example, if an entity plans to discontinue a line of business and the auditor is not able to obtain sufficient information through other auditing procedures to corroborate the plan or intent, the auditor obtains a written representation to provide evidence of management's intent.

42.            The standard for auditing and assessing management’s estimates is

Answer:    AS 2501: Auditing Accounting Estimates