Wa0015.

Fakultas Ekonomi Universitas Andalas
Mid Term Examination Academic Year 2022/2023

Subject : Auditing I
Day/Date : Tuesday/ December 20th, 2022
Time : 08.00-09.40 WIB
Lecturer : Dra. Husna Roza, MCom(Hons), Akt. CA
Answer All Questions below!!
1. You are evaluating audit results for assets in the audit of Roberts Manufacturing.
You set the preliminary judgment about materiality at $50,000. The account balances,
performance materiality, and estimated overstatements in the accounts are shown
next.
Accounts Accounts Balance Performance Estimate of Total

Materiality Overstatement
Cash $50.000 $ 5.000 $1.000
Accounts receivable 1.200.00 30.000 20.000
Inventory 2.500.000 50.000 ?
Other Assets 250.000 15.000 12.000
Total $4.000.000 $100.000 ?
Required:
a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 in
overstatements. Ignoring sampling risk, what is your estimate of the total

misstatement in inventory?
b. Based on the audit of the assets accounts and ignoring other accounts, are the
overall financial statements acceptable? Explain.
c.What do you believe the auditor should do in the circumstances?
2. a.Why is it important to distinguish the auditor’s assessment of the
risk of material misstatement due to fraud from the assessment of the risk of material
misstatement due to error?
b. Explain how audit risk and materiality are related and why they need to be
considered together in planning an audit.
3. You are doing the audit of Phelps College, a private school with approximately
2,500 students. With your firm’s consultation, they have instituted an IT system that
separates the responsibilities of the computer operator, systems analyst, librarian,
programmer, and data control group by having a different person do each function.
Now, a budget reduction is necessary and one of the five people must be laid off. You
are requested to give the college advice as to how the five functions could be done
with reduced personnel and minimal negative effects on internal control. The amount
of time the functions take is not relevant because all five people also do non
accounting functions.
Required:
a. Divide the five functions among four people in such a way as to maintain the best
possible control system.
b. Assume that economic times become worse for Phelps College and it must
terminate employment of another person. Divide the five functions among three
people in such a way as to maintain the best possible internal control. Again, the
amount of time each function takes should not be a consideration in your decision.
c. Assume that economic times become so severe for Phelps College that only two
people can be employed to do IT functions. Divide the five functions between two
people in such a way as to maintain the best possible control system.
c. If the five functions were done by one person, will internal controls be so
inadequate that an audit cannot be done? Discuss.
4. Jeanne Maier, CPA, believes that it is appropriate to obtain an understanding of

internal control about halfway through the audit, after she is familiar with the client’s
operations and the way the system actually works. She has found through experience
that filling out internal control questionnaires and flowcharts early in the engagement
is not beneficial because the system rarely functions the way it is supposed to. Later in
the engagement, the auditor can prepare flowcharts and questionnaires with relative
ease because of the knowledge already obtained on the audit. Evaluate her approach.
5. a.Why is it desirable to design tests of details of balances before performing tests of

controls and substantive tests of transactions? State the assumptions that the auditor
must make in doing so. What does the auditor do if the assumptions are wrong?
b.Why do auditors often consider it desirable to perform audit tests throughout the
year rather than wait until year-end? List several examples of evidence that can be
accumulated before year end.
Good Luck

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Fakultas Ekonomi Universitas Andalas

Mid Term Examination Academic Year 2022/2023

Accounts Accounts Balance Performance Estimate of Total

Cash $50.000 $ 5.000 $1.000

Accounts receivable 1.200.00 30.000 20.000

Inventory 2.500.000 50.000 ?

Other Assets 250.000 15.000 12.000

Total $4.000.000 $100.000 ?

overstatements. Ignoring sampling risk, what is your estimate of the total

c.What do you believe the auditor should do in the circumstances?

2. a.Why is it important to distinguish the auditor’s assessment of the

possible control system.

people in such a way as to maintain the best possible control system.

4. Jeanne Maier, CPA, believes that it is appropriate to obtain an understanding of

5. a.Why is it desirable to design tests of details of balances before performing tests of

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