Question

Select that appropriate terms from the list provided to the following scenarios the best represent each term. Hint – Each term can only be used once.

1.		Lela Yeoman has been asked to lead her audit team in the audit of the Toronto Raptors basketball team. She performed a review of their risks and found that the team’s risks tend to be driven by the nature of certain significant accounts or business activities that the Raptors pursue.		Analytical procedures, Computer assisted auditing techniques, Detection risk, Dual purpose tests, Inherent risk ,Professional judgement, Test of details, Timing of year end work
2.		Jasma Singh is performing procedures and has decided to vouch the balance in the fixed assets ledger of a furniture manufacturing company back to supporting documentation.		Analytical procedures , Computer assisted auditing techniques , Detection risk , Dual purpose tests , Inherent risk , Professional judgement , Test of details , Timing of year end work
3.		Paul Kasar has performed evaluations of financial information and determined whether the fluctuations of his client’s sales figures are consistent with other data he has gathered. He has used this information to predict year-end amounts of sales.		Analytical procedures , Computer assisted auditing techniques , Detection risk , Dual purpose tests , Inherent risk , Professional judgement , Test of details , Timing of year end work
4.		Oliver Price is concerned about the audit of a high risk client, the Jacksonville Monsters. He believes that there is a high likelihood that because his audit team is inexperienced that the testing procedures will not detect a material misstatement.

Answer 1

1.		Lela Yeoman has been asked to lead her audit team in the audit of the Toronto Raptors basketball team. She performed a review of their risks and found that the team’s risks tend to be driven by the nature of certain significant accounts or business activities that the Raptors pursue.		Inherent risk ·Inherent audit risks are the risks that the material misstatements could possibly happen in financial statements due to other reasons rather than the failure of internal. Inherent risk is generally considered to be high when where transactions of the entity are complex.
2.		Jasma Singh is performing procedures and has decided to vouch the balance in the fixed assets ledger of a furniture manufacturing company back to supporting documentation.		Test of details Tests of details are used by auditors to ensure that the balances, disclosures, and underlying transactions associated with a client's financial statements are correct. These include checking bank statements, invoices, vouchers and other related documents.
3.		Paul Kasar has performed evaluations of financial information and determined whether the fluctuations of his client’s sales figures are consistent with other data he has gathered. He has used this information to predict year-end amounts of sales.		Analytical procedures In the given scenario, auditor has not checked any underlying documents. The auditor has evaluated financial information through analysis of plausible relationships among both financial and non-financial data. Some examples of analytical procedures are: Compare the days sales outstanding metric to the amount for prior years Examine a trend line of bad debt expenses
4.		Oliver Price is concerned about the audit of a high risk client, the Jacksonville Monsters. He believes that there is a high likelihood that because his audit team is inexperienced that the testing procedures will not detect a material misstatement.		Professional judgement As the team is inexperienced, they may not be aware of the risk areas and the question to ask. Moreover, inexperienced auditors are reluctant to ask difficult questions or challenge the management’s decision.

• Computer assisted auditing techniques (CAAT): The auditor has not used CAAT in any of the above scenarios.
• Detection risk: Detection risk is the chance that an auditor will fail to find material misstatements that exist in an entity's financial statements. However, because of the nature of audit procedures, some detection risk will always exist in all scenarios.
• Dual purpose tests: A dual-purpose test is an audit procedure that is used as both a test of controls and a substantive test. Auditor did not use dual purpose tests in above scenarios.
• Timing of year end work: The above scenarios did not mention any work relating to year end.