Rostar Ltd develops games for X-box and PCs. The unique gaming experience made the company outstandingly popular among the local customers and its last game release outperform its expectation. This popularity leads to sudden growth in revenues that quadrupled during the last period. As a result, Rostar Ltd is now obliged to have a statutory audit for the first time.
Which of the following is not a benefit that Rostar Ltd may obtain from the statutory audit?

• A. Increased accountability of the IT department
• B. Assurance of compliance with Companies Act
• C. Recommendations on systems via management letter
• D. Independent confirmation of profits earned/net assets

The auditor of Net plc carried out an external confirmation of receivables at the year end to confirm the accuracy of total trade receivables in the balance sheet at that date. Two of the replies to the confirmations disagreed the balance.
For each of these two disagreements, select whether the disagreement would be considered as a misstatement or would not be considered as a misstatement for the purposes of evaluating the accuracy of total trade receivables in the balance sheet at the year end.
(i)Word Ltd disagreed the balance because they had made a payment two days before the year end. The auditor has confirmed that the cheque cleared the bank two days after the year end.
(ii)Red Ltd disagreed the balance because their records did not contain invoice number SI 00942. This invoice and associated goods were despatched by Net plc on the last day of the year. The auditor has verified that the despatch note and cut-off with inventory are correct.

• A. (i) would be considered as misstatement and (ii) would not be considered as misstatement
• B. (i) would not be considered as misstatement and (ii) would be considered as misstatement
• C. Both (i) and (ii) would be considered as misstatement
• D. Both (i) and (ii) would not be considered as misstatement

Adam & Co is the external auditor of Green plc, a listed company. Adam & Co is going to start the audit of financial statement of year 2011-12.
If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, what will be the action by Adam & Co?

• A. Adam & Co shall discuss the matter with management of Green plc and shall determine whether it is necessary to modify the opinion in their report.
• B. Adam & Co shall discuss the matter with management of Green plc and shall determine whether it is necessary to rework the audit.
• C. Adam & Co shall discuss the matter with the audit committee and shall determine whether it is necessary to modify the opinion in their report.
• D. Adam & Co shall discuss the matter with the shareholders of Green plc and shall determine whether it is necessary to modify the opinion in their report.

The internal auditing department has been assigned to perform an audit of a division. Based on background review, the auditor knows the following about management policies:
Company policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than three years.
A significant portion of division management's compensation comes in the form of bonuses based on the division's profitability.
The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past three years and uses a standard cost system.
During the preliminary review, the auditor notes the following changes in financial data compared to the prior year:
Sales have increased by 10%.
Cost of goods sold has increased by 2%.
Inventory has increased by 15%.
Divisional net income has increased by 8%.
Assume the auditor found that there was a plan to overstate inventory and therefore increase reported profits for the division. If reported correctly, the division would not have shown an increase in net income. The auditor has substantial evidence that the divisional manager was aware of and approved the plan to overstate inventory. There is also some evidence that the manager may have been responsible for the implementation of the plan.
The appropriate audit action would be to

• A. Inform management and the audit committee of the findings and discuss proper follow-up action and/or further investigation with them.
• B. Document the case thoroughly and report the suspicions to the external auditor for further review and external reporting.
• C. Inform the divisional manager of the audit suspicions and obtain the manager's explanation of the findings before pursuing the matter further.
• D. Continue to conduct interviews with subordinates until a clear-cut case is made and then report the case to the audit committee.

The auditor is subject to relevant ethical requirements. Relevant ethical requirements ordinarily comprise Parts A and B of the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) related to an audit of financial statements together with national requirements that are more restrictive.
Interpretations of the IESBA Code of Professional Conduct are dominated by the concept of __________________.

• A. Accounting.
• B. Compliance with standards.
• C. Acts discreditable to the profession.
• D. Independence.