Which of the following is NOT an audit software technique

MC Question 5 - September 2016

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• Past Exam Question

You are an audit senior of Viola & Co and are currently conducting the audit of Poppy Co for the year ended 30 June 20X6.

Materiality has been set at $50,000, and you are carrying out the detailed substantive testing on the year-end payables balance. The audit manager has emphasised that understatement of the trade payables balance is a significant audit risk.

Below is an extract from the list of supplier statements as at 30 June 20X6 held by the company and corresponding payables ledger balances at the same date along with some commentary on the noted differences:

SupplierStatement balancePayables ledger balance$’000$’000Carnation Co7050Lily Co175105

Carnation Co
The difference in the balance is due to an invoice which is under dispute due to faulty goods which were returned on 29 June 20X6.

Lily Co
The difference in the balance is due to the supplier statement showing an invoice dated 28 June 20X6 for $70,000 which was not recorded in the financial statements until after the year end. The payables clerk has advised the audit team that the invoice was not received until 2 July 20X6.

To help improve audit efficiency, Viola & Co is considering introducing the use of computer assisted audit techniques (CAATs) for some audits. You have been asked to consider how CAATs could be used during the audit of Poppy Co.

Which of the following is an example of using test data for trade payables testing?

A. Selecting a sample of supplier balances for testing using monetary unit sampling
B. Recalculating the ageing of trade payables to identify balances which may be in dispute
C. Calculation of trade payables days to use in analytical procedures
D. Inputting dummy purchase invoices into the client system to see if processed correctly

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MC Question 8 - December 2014

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Which of the following is NOT an audit software technique?

A. Using computer programs to extract a sample for a receivables circularisation
B. Running a computer program to test the addition of the cash book
C. Using a computer to perform an analytical review comparison of administration expenses against the prior year
D. Entering a sample of dummy sales orders through the computer system which takes customers over their credit limit to ensure the system rejects the orders

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Question 1c - December 2012

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Lily Window Glass Co (Lily) is a glass manufacturer, which operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are two warehouses, where the company’s raw materials and finished goods are stored. Lily’s year end is 31 December.

Lily is finalising the arrangements for the year-end inventory count, which is to be undertaken on 31 December 2012. The finished windows are stored within 20 aisles of the first warehouse. The second warehouse is for large piles of raw materials, such as sand, used in the manufacture of glass. The following arrangements have been made for the inventory count:

The warehouse manager will supervise the count as he is most familiar with the inventory. There will be ten teams of counters and each team will contain two members of staff, one from the finance and one from the manufacturing department. None of the warehouse staff, other than the manager, will be involved in the count.

Each team will count an aisle of finished goods by counting up and then down each aisle. As this process is systematic, it is not felt that the team will need to flag areas once counted. Once the team has finished counting an aisle, they will hand in their sheets and be given a set for another aisle of the warehouse.

In addition to the above, to assist with the inventory counting, there will be two teams of counters from the internal audit department and they will perform inventory counts.

The count sheets are sequentially numbered, and the product codes and descriptions are printed on them but no quantities. If the counters identify any inventory which is not on their sheets, then they are to enter the item on a separate sheet, which is not numbered.

Once all counting is complete, the sequence of the sheets is checked and any additional sheets are also handed in at this stage. All sheets are completed in ink.

Any damaged goods identified by the counters will be too heavy to move to a central location, hence they are to be left where they are but the counter is to make a note on the inventory sheets detailing the level of damage.

As Lily undertakes continuous production, there will continue to be movements of raw materials and finished goods in and out of the warehouse during the count. These will be kept to a minimum where possible.

The level of work-in-progress in the manufacturing plant is to be assessed by the warehouse manager. It is likely that this will be an immaterial balance. In addition, the raw materials quantities are to be approximated by measuring the height and width of the raw material piles.

In the past this task has been undertaken by a specialist; however, the warehouse manager feels confident that he can perform this task.

You are the audit senior of Daffodil & Co and are responsible for the audit of inventory for Lily. You will be attending the year-end inventory count on 31 December 2012.

In addition, your manager wishes to utilise computer-assisted audit techniques for the first time for controls and substantive testing in auditing Lily Window Glass Co’s inventory.

Required:

For the audit of the inventory cycle and year-end inventory balance of Lily Window Glass Co:

(i) Describe FOUR audit procedures that could be carried out using computer-assisted audit techniques (CAATS);

(ii) Explain the potential advantages of using CAATs; and

(iii) Explain the potential disadvantages of using CAATs.

The total marks will be split equally between each part (12 marks)

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Question 3a - June 2009

Following a competitive tender, your audit firm Cal & Co has just gained a new audit client Tirrol Co. You are the manager in charge of planning the audit work. Tirrol Co’s year end is 30 June 2009 with a scheduled date to complete the audit of 15 August 2009. The date now is 3 June 2009.

Tirrol Co provides repair services to motor vehicles from 25 different locations. All inventory, sales and purchasing systems are computerised, with each location maintaining its own computer system.

The software in each location is the same because the programs were written specifically for Tirrol Co by a reputable software house. Data from each location is amalgamated on a monthly basis at Tirrol Co’s head office to produce management and financial accounts.

You are currently planning your audit approach for Tirrol Co. One option being considered is to re-write Cal & Co’s audit software to interrogate the computerised inventory systems in each location of Tirrol Co (except for head office) as part of inventory valuation testing.

However, you have also been informed that any computer testing will have to be on a live basis and you are aware that July is a major holiday period for your audit firm.

Required:

(i) Explain the benefits of using audit software in the audit of Tirrol Co; (4 marks)

(ii) Explain the problems that may be encountered in the audit of Tirrol Co and for each problem, explain how that problem could be overcome. (10 marks)

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Question 4a b c - December 2007

Delphic Co is a wholesaler of furniture (such as chairs, tables and cupboards).

Delphic buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from large retail chain stores to smaller owner-controlled businesses.

The receivables balance therefore includes customers owing up to $125,000 to smaller balances of about $5,000, all with many different due dates for payments and credit limits.

All information is stored on Delphic’s computer systems although previous audits have tended to adopt an ‘audit around the computer’ approach.

You are the audit senior in charge of the audit of the receivables balance.

For the first time at this client, you have decided to use audit software to assist with the audit of the receivables balance.

Computer staff at Delphic are happy to help the auditor, although they cannot confirm completeness of systems documentation, and warn that the systems have very old operating systems in place, limiting file compatibility with more modern programs.

The change in audit approach has been taken mainly to fully understand Delphic’s computer systems prior to new
internet modules being added next year.

To limit the possibility of damage to Delphic’s computer files, copy files will be provided by Delphic’s computer staff for the auditor to use with their own audit software

Required:

a) Explain the audit procedures that should be carried out using audit software on the receivables balance at Delphic Co.

For each procedure, explain the reason for that procedure. (9 marks)

b) Explain the potential problems of using audit software at Delphic Co.

For each problem, explain how it can be resolved. (8 marks)

c) Explain the concept of ‘auditing around the computer’ and discuss why this increases audit risk for the auditor. (3 marks)

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Question 1d - Pilot (pre 2007)

Westra Co assembles mobile telephones in a large factory. Each telephone contains up to 100 different parts, with each part being obtained from one of 50 authorised suppliers.

Like many companies, Westra’s accounting systems are partly manual and partly computerised. In overview the systems include:

(i) Design software

(ii) A computerised database of suppliers (bespoke system written in-house at Westra)

(iii) A manual system for recording goods inwards and transferring information to the accounts department

(iv) A computerised payables ledger maintained in the accounts department (purchased off-the-shelf and used with no program amendments)

(v) Online payment to suppliers, also in the accounts department

(vi) A computerised general ledger which is updated by the payables ledger

Mobile telephones are assembled in batches of 10,000 to 50,000 telephones. When a batch is scheduled for production, a list of parts is produced by the design software and sent, electronically, to the ordering department. Staff 
in the ordering department use this list to place orders with authorised suppliers.

Orders can only be sent to suppliers on the suppliers’ database. Orders are sent using electronic data interchange (EDI) and confirmed by each supplier using the same system. The list of parts and orders are retained on the computer in an ‘orders placed’ file, which is kept in date sequence.

Parts are delivered to the goods inwards department at Westra. All deliveries are checked against the orders placed file before being accepted. A hand-written pre-numbered goods received note (GRN) is raised in the goods inwards department showing details of the goods received with a cross-reference to the date of the order.

The top copy of the GRN is sent to the accounts department and the second copy retained in the goods inwards department. The orders placed file is updated with the GRN number to show that the parts have been received.

Paper invoices are sent by all suppliers following dispatch of goods. Invoices are sent to the accounts department, where they are stamped with a unique ascending number. Invoice details are matched to the GRN, which is then 
attached to the invoice. Invoice details are then entered into the computerised payables ledger. The invoice is signed by the accounts clerk to confirm entry into the payables ledger. Invoices are then retained in a temporary file in number order while awaiting payment.

After 30 days, the payables ledger automatically generates a computerised list of payments to be made, which is sent electronically to the chief accountant. The chief accountant compares this list to the invoices, signs each invoice to 
indicate approval for payment, and then forwards the electronic payments list to the accounts assistant. The assistant uses online banking to pay the suppliers. The electronic payments list is filed in month order on the computer.

Required:

Discuss the extent to which computer-assisted audit techniques might be used in your audit of purchases and payables at Westra Co. (5 Marks)

What are the examples of audit techniques?

Which of the following is not computer assisted audit technique?

What are the 5 kinds of computer assisted audit techniques?

Which one of the following technique is used by the auditor?