Exam (elaborations)
Aue3761 test 2023 solutions
- Course
- AUE3761 - THE AUDIT PROCESS
- Institution
- University Of South Africa (Unisa)
Aue3761 test solutions
[Show more]
Content preview
1.1a) Significant risks of material misstatement at the financial statement level for the LS Group, for theyear ended 31 March 2023, include:
1. Risk of overstatement of revenue: The relaxation of credit policies may result in sales being recognized
before they are collectible. This risk is assessed as high, as it can have a significant impact on the
financial statements.
2. Risk of inventory misstatement: The acquisition of inventory from the subsidiary with higher margins
raises concerns about the valuation and existence of inventory. There is a risk of overstatement of
inventory or inventory obsolescence. This risk is assessed as moderate.
3. Risk of management override of controls: The CEO's daughter-in-law being the majority shareholder
and director of the subsidiary raises concerns about potential bias in financial reporting. There is a risk
that management could manipulate the financial statements to meet loan agreement requirements. This
risk is assessed as high.
b) The assessment of the significant risks will guide the auditor in determining the nature, timing, and
extent of audit procedures. Risks assessed as high will require more extensive audit procedures, while
risks assessed as moderate will require a reasonable level of testing. The identified risks indicate a higher
inherent risk in the financial statements, which would increase the overall audit risk.
1.2 The significant risks identified in 1.1a will affect the scope of the audit strategy for the LS Group. The
auditor will need to focus on obtaining sufficient and appropriate audit evidence related to revenue
recognition, inventory valuation, and management override of controls. The audit procedures will need
to be tailored to address these specific risks, including performing additional substantive testing, testing
controls over revenue and inventory, and obtaining corroborative evidence from external sources.
2. In working paper A1:
a) Each sampling factor will affect the sample size as follows:
- Population: The larger the population, the larger the sample size required.
- Sampling risk: Higher sampling risk will result in a larger sample size.
- Confidence level: Higher confidence level will require a larger sample size.
- Tolerable rate of deviation: A lower tolerable rate of deviation will require a larger sample size.
- Expected rate of deviation: A higher expected rate of deviation will require a larger sample size.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Uniquettutorials. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53068 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now