Practice Exam Questions: Accounting

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C8-5 (P.162)
Determine likely significant audit risks and key accounts at risk Audit risk: risk that auditor has not uncovered a material misstatement in the financial statements Potential accounts at risk:  Provision for compensation claims/litigation  Inventory  Accounts receivable  Accounts payable  Brand name

PRACTICE EXAM 2, QUESTION 3, PART 1 (PP.240-241)
Identify 5 business factors and explain their impact on risk of material misstatement Also identify account balance most affected. Business factor (i) Listed on stock exchange Explanation of impact Risk - increased compliance with regulations - increased reliance on financial information by users - pressure on profitability, dividends/share maintenance Risk Pressure to meet forecast to maintain share price Risk Reduced demand may lead to stock obsolescence Risk Current stock may be superseded and become obsolete Risk Pressure to increase profit to comply with covenant Account balance Accounts subject to management discretion to  profitability e.g. Provision for doubtful debts / other provision account/s As (i) above

(ii) Struggling to meet forecasts (iii) Poor ski season (iv) Change in design (v) Debt covenant (profit/assets)

Inventory

Inventory

As (i) above

PRACTICE EXAM 2, QUESTION 3, PART 1 (PP.240-241)
Identify 5 business factors and explain their impact on risk of material misstatement Also identify account balance most affected. Business factor (vi) Cut in tariffs Explanation of impact Risk Increased competition and decreased demand for locally produced equipment Risk Recoverability of debts at risk (increased risk of bad debts) Account balance Inventory

(vii) No follow-up procedures for overdue accounts

Accounts receivable (or Provision for doubtful debts)

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