Chapter 5
Use with The Audit Process 4th Edition
By Iain Gray & Stuart Manson ISBN 9781844806782
2008 Cengage Learning
LEARNING OBJECTIVES
After studying this chapter you should be able to:
ACTIVITY 5.1
ACTIVITY 5.2
ACTIVITY 5.3
ACTIVITY 5.4
ACTIVITY 5.5
ACTIVITY 5.6
ACTIVITY 5.7
ACTIVITY 5.8
ACTIVITY 5.9
ACTIVITY 5.10
ACTIVITY 5.11
maintaining reputation;
ACTIVITY 5.12
Kellie is a rapidly growing company providing
advertising copy to a variety of individuals and
companies. It currently has 10% of the
market but its management has as one of its
objectives to increase this to 20% within
the next two years. Management is of the view
that this will be necessary if its desired level of
profitability is to be maintained and if the
company is to retain and attract high quality staff.
ACTIVITY 5.13
ACTIVITY 5.14
You are auditing a company and have obtained the
following information in from a variety of sources.
ACTIVITY 5.15
Wedel Ltd operates a city-centre restaurant
specializing in fast food. During the audit you
discover that a customer has sued the company
for personal injury caused by food poisoning. The
amount claimed is 100,000, but management has
told you that the company has good defences
against the claim.
ACTIVITY 5.16
You have been performing a cut-off test at 31
December 2007 to satisfy yourself that purchases
are recorded in the proper period. You have
compared the pre-numbered goods received notes
(GRNs) with purchase invoices to ensure that the
invoices are recorded in 2007 where the GRN has
been issued up to the end of December.
Figure 5.2
ACTIVITY 5.17
ACTIVITY 5.18
Do you think that during the course of discussions
you would be able to form an impression of the
competence and integrity of David Jones and Carol
Henshaw?
What would you be looking for in particular?
What do you think that management would expect
from you?
CHAPTER SUMMARY
In this chapter we set the scene for the audit,
introducing you to:
An audit firm, the people who work for it and the
way in which their time is charged;
A risk-based approach to audit;
Definitions of audit and business risk;
Approaches to deal with such risks;
FURTHER READING
Colbert, J.L. (1987) Audit risk: Tracing the
evolution, Accounting Horizons, September, pp.
4957.
Eilifsen, A., Knechel, W. and Wallage, P. (2001)
Application of the business risk audit model: a field
study, Accounting Horizons, 15(3): 193207.
Gwilliam, D. (2003) Audit methodology, risk
management and non-audit services, Centre for
Business Performance Briefing, 05.03, ICAEW.