EAU1J12 CGA-Canada, 2012 Page 1 of 6

CGA-CANADA

EXTERNAL AUDITING [AU1] EXAMINATION
June 2012
Marks Time: 3 Hours

30 Question 1
Select the best answer for each of the following unrelated items. Answer each of these items in your
examination booklet by giving the number of your choice. For example, if the best answer for item (a)
is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will
not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations.

Note:
2 marks each

a. Which of the following statements is true concerning professional judgment?
1) Professional judgment is adequately documented if each auditor on the audit engagement can
understand the conclusions made on significant matters arising during the audit.
2) Professional judgment is most important to provide justification for decisions that are not
supported by sufficient appropriate audit evidence.
3) Professional judgment is necessary when making decisions about audit risk.
4) Professional judgment is not required in the interpretation of relevant ethical requirements
because CAS contains complete ethical standards for auditors.

b. Which of the following risks varies inversely with control risk?
1) The auditors business risks, such as losses from litigation or adverse publicity
2) Audit risk
3) Inherent risk in the financial statements being audited
4) The acceptable level of detection risk

c. Which of the following would show that an auditor had been negligent in issuing an unqualified
opinion at the conclusion of an audit of financial statements?
1) Undetected material misstatements due to fraud involving collusion of senior management
officials of the auditee
2) Undetected related party relationships and transactions in the financial statements
3) An undetected error in the income tax return filed 1 month prior to the conclusion of the audit
4) Undetected bankruptcy of a major competitor in the same industry as the auditee

d. How does accounting risk relate to information risk with respect to the audit of financial statements?
1) Accounting risk and information risk in a set of audited financial statements increase when the
auditor fails to obtain sufficient audit evidence.
2) Accounting risk refers to the risk of errors associated with the failure to disclose accounting
estimates.
3) Accounting risk refers to the category of information risk when the auditees employees are not
professional accountants.
4) Accounting risk and information risk in a set of audited financial statements increase when the
auditor sets materiality too high.






Continued...
EAU1J12 CGA-Canada, 2012 Page 2 of 6
e. How does the independent auditors report refer to the audit evidence collected?
1) By stating that the auditor believes that the audit evidence obtained is sufficient and appropriate to
provide a basis for the audit opinion
2) By stating that the auditor believes that the audit evidence obtained is persuasive but not
conclusive as a basis for the audit opinion
3) By stating that the audit evidence obtained depends on estimates and disclosures made by the
clients management
4) By stating that the audit evidence obtained depends on the effectiveness of the clients internal
controls

f. Which management assertion is most likely being tested when an auditor collects evidence to
determine an auditees estimated liability for product warranties?
1) Cut-off
2) Presentation (classification and disclosure)
3) Ownership (rights and obligations)
4) Existence

g. A failure to record accruals for expenses incurred but not yet paid would most likely affect which of
the following management assertions?
1) Completeness
2) Presentation (classification and disclosure)
3) Existence
4) Compliance

h. Obtaining the lower of cost or market data for an auditees inventory would relate to which
management assertion?
1) Cut-off
2) Presentation (classification and disclosure)
3) Valuation
4) Compliance

i. Which of the following characteristics of a recorded transaction would be associated with a lower
level of risk of material misstatement?
1) Hedging transaction covering foreign exchange and interest rate hedging
2) Transactions with related parties
3) Accruals involving estimates
4) Transactions in the normal course of business for the entity

j. You are auditing T-Diamonds Inc., and this is your first audit of a mining company. T-Diamonds
recorded a large diamond deposit (not being mined yet) based on the valuation provided by an expert
appraiser of diamond mining deposits. You have verified that the expert appraiser is independent of
your client, and the amount is material. At the conclusion of the audit, you have found no material
misstatements. How should you handle the valuation of this asset on your clients balance sheet?
1) You must add another paragraph to the audit report, issue an unqualified (unmodified) opinion,
but explain the circumstances of managements outside expert.
2) You must hire your own expert and increase the audit fees accordingly.
3) You must evaluate the competence, capabilities, and objectivity of managements expert.
4) You must issue a modified (qualified) opinion as you have no means by which to verify the value
of the diamond deposit.



Continued...
EAU1J12 CGA-Canada, 2012 Page 3 of 6
k. Which of the following would have to increase if detection risk increased?
1) Audit risk
2) Control risk
3) Inherent risk
4) Risk of material misstatement

l. When a company follows overly aggressive revenue recognition policies, which of the following
assertions have increased risk for the audit of the revenue account?
1) Completion
2) Existence
3) Valuation
4) Authorization

m. When a company earns significant amounts of its revenue in a foreign country, which of the following
assertions have increased risk for the audit of the revenue account?
1) Completion
2) Disclosure
3) Valuation
4) Authorization

n. Which of the following is true concerning a fidelity bond?
1) It helps to prevent embezzlement occurrences.
2) It helps to detect embezzlement losses.
3) It replaces the need for controls against embezzlement.
4) It insures a company against embezzlement losses.

o. How would an auditor use a walk-through in the audit of accounts receivable?
1) To verify the auditors understanding of the receivables controls
2) To determine if the receivables controls were operating effectively during the audit period
3) To obtain sufficient appropriate evidence about the accuracy of receivables
4) To verify that the assessed control risk for the receivables controls was correct

10 Question 2
J ules is a student in the CGA program, and was recently hired as a junior auditor. His employer is
conducting an external audit of DDD Ltd.s 2011 financial statements. DDD is a wholesale distributor of
electronic supplies. J ules found a purchase invoice with all required supporting documentation, including a
receiving memo attached to a packing slip, showing that DDD had purchased and received 20,000 pieces
of a particular item. However, the supplier invoice only listed 2,000 pieces, and the supplier mistakenly
billed DDD only for 2,000 pieces. When J ules brought this to his audit managers attention, he was told
not to worry about it. The manager said an audit can never find all mistakes and that sometimes mistakes
work in the clients favour, and sometimes work against the client, so they balance out. The manager
told J ules: If we were to advise the client, we would have to modify our audit opinion if the client refused
to notify the supplier, and DDD would lose money. Jules was told that if he wanted to keep his new
position, he had better learn how business everywhere really operates. The manager is also a professional
accountant.

Required
Explain four ethical issues in the above situation.




Continued...
EAU1J12 CGA-Canada, 2012 Page 4 of 6
12 Question 3
Three weeks ago, Aron started the audit of RST Inc., a furniture retailer. His supervisor, J ane, a CGA,
provided Aron with the results of her ratio analysis and told Aron to continue the analytical procedures by
reviewing the directors minutes. J anes ratio analysis was as follows:

2010 2009 2008
Debt/equity ratio 0.046 0.039 0.039
Days sales in receivables 39.200 19.000 14.300
Inventory turnover 3.600 3.600 3.600
Gross margin percentage 23% 23.5% 23%

Required
2 a. Explain how Aron would use the above ratio analysis to assist in his audit.

6 b. Identify three examples of other information relevant to the debt/equity ratio analysis prepared by his
supervisor that Aron could obtain, as part of his analytical procedures, from the directors minutes.

4 c. Explain two implications of the inventory turnover, gross margin percentage, and days sales in
receivables ratio results.

12 Question 4
Zainabs CGA firm has accepted G-Computers Inc. (GCI) as a new audit client. Zainab met with the
information systems manager and the accounting manager together to obtain an understanding of the
GCIs operation. Zainab learned that GCI sells computers to businesses. Sales are recorded on
pre-numbered invoices by the salesperson, but must then be authorized by the sales manager. The
authorization process is handled by GCIs information system; when the salesperson enters the sales
invoice to the sales sub-system, the sales manager reviews it from her own computer, and if she approves
the sale and its terms, the system assigns an authorization code to the invoice and it is automatically
entered into the unmatched sales file. When goods are shipped to the customer, the invoice is transferred to
the sales journal in the general ledger. Computers are usually shipped within 3 weeks of the sales invoice
date.

Required
6 a. Identify three examples of additional information that Zainab needs in order to understand the
accounting procedures related to sales at GCI.

6 b. Identify three examples of additional information Zainab needs in order to better understand the
internal controls related to accounting and reporting of sales at GCI.

6 Question 5
J ulia is supervising a CGA student in an audit of a companys financial statements. The student selected
three samples: accounts receivable, sales, and accounts payable. The student selected all the accounts
receivable with a balance over $4,000, plus 10% of the accounts receivable with a nil balance, for
confirmation. For the second sample, after determining the sample size according to statistical tables, the
student selected a sample of 100 sales invoices by random selection. The third sample was chosen from
the recorded accounts payable, by selecting all recorded accounts payable at January 15, 2012 (2 weeks
after the year end) and then eliminating the ones resulting from purchases after the year end.

Required
1 a. Indicate for which of the above sample(s) J ulia could quantify the sampling risk.

5 b. Explain your answer to part (a) with two points.

Continued...
EAU1J12 CGA-Canada, 2012 Page 5 of 6
8 Question 6
Last year, Big Springs Ltd.s office space was damaged by a fire. For 6 months, while the office was being
rebuilt, the company provided Internet access and access to the companys internal network from the
12 employees home offices. For the 6 months, the employees worked only from their homes, using their
home computers to do the companys work. Each morning the employees would log into the companys
network from their homes, download transaction data, then log out of the network, process the company
transaction data on their home computers, and upload their results at the end of the day. The company
allowed the employees to use their personal e-mail accounts for company business as needed, on the
condition that employees be careful about data being sent by e-mail.

Required
Explain using four points how the companys temporary telecommuting arrangement would affect the
security of the companys data.

10 Question 7
Martin has a professional accounting designation and has built a successful auditing practice by auditing
5 companies owned by a single family. Recently, the 5 companies were sold to a public corporation and
Martin lost the auditing contract.

Martin then contacted a small company in the same industry, who needs audited financial statements for
its creditors. Martin has offered to audit its financial statements for a reduced fee in order to get the
experience. Martin has hired you, a CGA, to review his work before presenting his findings to the client.

At the start of the audit, Martin promised the client that he will keep management informed as follows:
Martin will issue a management representation letter at the start of the audit, to explain that the auditor is
not responsible for the internal controls, but is only testing them.
Martin will issue a management letter explaining any serious problems found in the companys internal
control during the interim audit.
Martin will send a letter to the clients law firm asking if there are any outstanding legal issues.
The client must issue an engagement letter at the audit report date, once it knows the results of the
engagement, including the audit opinion.

Required
For each of the bullets above, indicate whether you agree or disagree with Martins plans regarding
communication with the client on the audit of the companys financial statements. Support your answer
with at least one reason per bullet.

















Continued...

EAU1J12 CGA-Canada, 2012 Page 6 of 6
12 Question 8
The inventory-count instructions for Lucky Statues Inc. (LSI) for 2010 were as follows:
All counters must print their name and sign each sheet that they use.
The sheets are already marked for each shelf in the warehouse. Make sure to only record inventory on
the proper inventory sheet for that shelf. For example, do not record inventory from shelf 31-A on a
sheet marked as 31-B, and so on.
Everyone must take their lunch break and morning break at the same time during the count.
Turn in all count sheets, including sheets that are not used.
Record the inventory part number, the quantity, and note any indications of damage on the count sheet.
If an item looks obsolete, estimate the new value and enter that on the count sheet.
The count will start at 8:00 a.m. Everyone must be in attendance at 7:00 a.m. to review the count
instructions.
The shop supervisors will be available in the warehouse if you encounter any problems and to collect
completed count sheets. Empty sheets are to be turned in when you have completed your area.
Try to count everything quickly. If a salesclerk wants to remove an item for sale to a customer, be sure
to count it first.

Required
Identify four strengths in the inventory count procedures at LSI, and explain one reason why each is a
strength.

END OF EXAMINATION

100


EXTERNAL AUDITING [AU1]
EXAMINATION














AU1
















Before starting to write the examination, make sure that it is complete and that there are no
printing defects. This examination consists of 6 pages. There are 8 questions for a total of
100 marks.

READ THE QUESTIONS CAREFULLY AND ANSWER WHAT IS ASKED.


To assist you in answering the examination questions, CGA-Canada includes the following glossary of terms.
Glossary of Assessment Terms
Adapted from David Palmer, Study Guide: Developing Effective Study Methods (Vancouver: CGA-Canada, 1996).
Copyright David Palmer.

Calculate Mathematically determine the amount
or number, showing formulas used and
steps taken. (Also Compute).
Compare Examine qualities or characteristics that
resemble each other. Emphasize
similarities, although differences may
be mentioned.
Contrast Compare by observing differences.
Stress the dissimilarities of qualities or
characteristics. (Also Distinguish
between)
Criticize Express your own judgment concerning
the topic or viewpoint in question.
Discuss both pros and cons.
Define Clearly state the meaning of the word or
term. Relate the meaning specifically to
the way it is used in the subject area
under discussion. Perhaps also show
how the item defined differs from items
in other classes.
Describe Provide detail on the relevant
characteristics, qualities, or events.
Design Create an outcome (e.g., a plan or
program) that incorporates the relevant
issues and information.
Determine Calculate or formulate a response that
considers the relevant qualitative and
quantitative factors.
Diagram Give a drawing, chart, plan or graphic
answer. Usually you should label a
diagram. In some cases, add a brief
explanation or description. (Also Draw)
Discuss This calls for the most complete and
detailed answer. Examine and analyze
carefully and present both pros and
cons. To discuss briefly requires you to
state in a few sentences the critical
factors.
Evaluate This requires making an informed
judgment. Your judgment must be
shown to be based on knowledge and
information about the subject. (Just
stating your own ideas is not sufficient.)
Cite authorities. Cite advantages and
limitations.
Explain In explanatory answers you must clarify
the cause(s), or reasons(s). State the
how and why of the subject. Give
reasons for differences of opinions or of
results. To explain briefly requires you
to state the reasons simply, in a few
words.
Identify Distinguish and specify the important
issues, factors, or items, usually based on
an evaluation or analysis of a scenario.
Illustrate Make clear by giving an example, e.g., a
figure, diagram or concrete example.
Interpret Translate, give examples of, solve, or
comment on a subject, usually making a
judgment on it.
Justify Prove or give reasons for decisions or
conclusions.
List Present an itemized series or tabulation.
Be concise. Point form is often
acceptable.
Outline This is an organized description. Give a
general overview, stating main and
supporting ideas. Use headings and
sub-headings, usually in point form.
Omit minor details.
Prove Establish that something is true by citing
evidence or giving clear logical reasons.
Recommend Propose an appropriate solution or course
of action based on an evaluation or
analysis of a scenario.
Relate Show how things are connected with
each other or how one causes another,
correlates with another, or is like
another.
Review Examine a subject critically, analyzing
and commenting on the important
statements to be made about it.
State Clearly provide a position based on an
evaluation, e.g., Agree/Disagree,
Correct/Incorrect, Yes/No. (Also
Indicate)
Summarize Give the main points or facts in
condensed form, like the summary of a
chapter, omitting details and illustrations.
Trace In narrative form, describe progress,
development, or historical events from
some point of origin.

SAU1J12 CGA-Canada, 2012 Page 1 of 4
CGA-CANADA

EXTERNAL AUDITING [AU1] EXAMINATION
June 2012
SUGGESTED SOLUTIONS

Marks Time: 3 Hours

30 Question 1
Note:
2 marks each

Sources:
a. 3) Topic 1.1 (Level 1)

b. 4) Topic 4.7 (Level 1)

c. 2) Topic 1.1 (Level 1)

d. 2) Topic 1.2 (Level 1)

e. 1) Topic 1.8 (Level 1)

f. 3) Topic 3.2 (Level 1)

g. 1) Topic 3.2 (Level 1)

h. 3) Topic 3.2 (Level 1)

i. 4) Topic 3.2 (Level 1)

j. 3) Topic 3.3 (Level 1)

k. 1) Topic 4.7 (Level 1)

l. 2) Topic 8.2 (Level 1)

m. 3) Topic 8.3 (Level 1)

n. 4) Topic 8.3 (Level 1)

o. 1) Topic 8.3 (Level 1)












Continued...
SAU1J12 CGA-Canada, 2012 Page 2 of 4
10 Question 2
Source: Topic 2.3 (Level 1)
The Code of Ethical Principles and Rules of Professional Conduct (CEPROC) applies to students such
as Jules as well as to members. Jules manager would also be subject to a professional code of ethics.
An intimidation threat occurs because Jules was told that his employment could be affected if he
disclosed the error.
Both Jules and his manager would be associating themselves with false information if the error is not
corrected.
By agreeing not to disclose the error, Jules would bring the CGA association into disrepute.

Note:
2
1
/2 marks per bullet

12 Question 3
Source: Topic 4.2 (Level 1)

2 a. Aron would use the results of the ratio analysis and horizontal analysis as part of the planning process,
to identify areas that need to be investigated in his audit.

6 b. Review the minutes of directors meetings for:
Authorization of share issues, long-term debt
Approval to pledge assets as security for debts
Any approval on debt and financing
Approval of major purchases of property

Note:
2 marks per bullet to a maximum of 6 marks

4 c. The inventory turnover and gross margin percentage appear consistent year to year, but the auditor
should also compare them to the industry ratios.
The days sales in receivables has increased significantly year to year, therefore the auditor should
investigate the accounts receivables to determine the reason for the change.

Note:
2 marks per bullet


















Continued...
SAU1J12 CGA-Canada, 2012 Page 3 of 4
12 Question 4
Source: Topic 5.3 (Level 1)
6 a. What adjustments are made at year end to transfer the general ledger (G/L) sales account to the draft
financial statements?
What other types of sales transactions does the company have; for example, sales to individuals?
Are these handled using the same procedures?
What are the related accounting records produced when sales are shipped?

Note:
2 marks per bullet

6 b. What are the internal controls in place for the sales journal entries?
What are the internal controls in place for non-standard journal entries used to record non-recurring,
unusual transactions or adjustments?
How are errors identified and corrected? Has an unauthorized sale ever been included in the sales
account in the G/L?

Note:
2 marks per bullet

6 Question 5
Source: Topic 6.3 (Level 2)
1 a. Julia can only quantify the sampling risk for the sample of sales invoice.

5 b. This is the only sample selected by statistical methods.
The other two samples were chosen by arbitrary election and therefore it is not possible to determine
if they are representative of the populations they were chosen from.

Note
2
1
/2 marks per bullet

8 Question 6
Source: Topic 7.6 (Level 2)
Many home computers do not have personal firewall packages installed, thus creating a weak link for
hackers to target the corporate network.
The telecommuting arrangement will make the corporate network more vulnerable.
Using personal e-mail accounts makes the companys communications very easy for hackers to
intercept.
E-mail could be sent to the wrong person by mistake, since personal address books in the e-mail account
may be used unintentionally.
Data downloaded to home computers may not be removed after use. This will lead to risk of disclosing
companys confidential information.

Note
2 marks per bullet to maximum of 8 marks







Continued...
SAU1J12 CGA-Canada, 2012 Page 4 of 4
10 Question 7
Source: Topic 10.6 (Level 1); Topics 10.7, 10.12, and 10.13 (Level 2)
Disagree. The management representation letter is issued by the client, not by Martin. It is issued at the
audit report date. It states management has fulfilled its responsibilities to prepare complete financial
statements and that all relevant information has been provided to the auditor.
Agree. Martin will issue a management letter explaining any serious problems found in the companys
internal control during the interim audit.
Disagree. The client should send the letter to the law firm and the reply from the law firm should be
returned directly to Martin. The letter must also enquire about potential claims.
Disagree. Martin should issue the engagement letter at the start of the audit, once the client is accepted.
The client does not issue the letter but has to sign the letter.

Note
1
/2 mark for agree or disagree. 2 marks for reasons for each bullet.

12 Question 8
Source: Topic 9.3 (Level 1)
The counters names are on each sheet. This will help to reconcile any problems in the count; for
example, if one staff member has a lot of errors, those items could be re-counted.
The instructions state the start time and require the counters to attend early to get the instructions. This
will ensure that everyone understands their responsibilities.
All count sheets are to be turned in. This is necessary so that the auditor can ensure that there is no
inventory that was counted but not included in the final reconciliation of the inventory.
It is clear that shop supervisors are to be notified if there is a problem. This will ensure all problems are
dealt with appropriately.
The count sheets are organized by inventory shelf. This should help the auditor to verify that all
inventory is counted and that no inventory is double-counted.
Counters are to note any indications of damage. This will assist the auditor in verifying the value of the
inventory.

Note
1 mark for identifying the strength plus 2 marks for the explanation to a maximum of 12 marks

END OF SOLUTIONS

100

AU1J12 CGA-Canada, 2012
CGA-CANADA

EXTERNAL AUDITING [AU1] EXAMINATION
June 2012
EXAMINERS COMMENTS
General Comments
Students demonstrated a good awareness of materiality and risk, reporting, and control objectives as
tested. As on all examinations, some students answers did not address the required; for example, students
often provided answers that identified examples but did not explain how these related to the required.
Where the required asked students to explain, some students did not clarify the reasons for their answer.
Examination questions will typically allocate most of the marks for reasoning, not just for a conclusion. It
is also important for students to put their answers in the context of the audit process; that is, in their
explanations, they should state how or why the issue is relevant for an audit.
Specific Comments
Question 1 Multiple choice (Level 1)
This question was answered very well.

Some students had difficulty with parts (c), (d), (f), and (j).

c. Options 3) and 4) are not directly related to the financial statements and so would not be likely to
suggest negligence by an auditor. An auditor has a responsibility to conduct procedures to
uncover all material misstatements, including fraud, but fraud involving collusion can be very
hard to detect. By definition, the misstatements are hidden or misrepresented. Auditors routinely,
however, must consider related party transactions and must be satisfied with their disclosure.
Therefore, option 2) is the best choice.

d. This part deals with accounting risk as it relates to information risk. Option 1) deals with the
auditor failing to obtain sufficient audit evidence. Option 4) is also a risk associated with the
auditor, namely, setting the materiality too high. Option 3) mentions accounting, and therefore
might seem logical as an answer, but accounting risk is defined in terms of information risk in the
textbook as the risk that errors associated with forecasts used in GAAP accounting estimates are
not properly disclosed. Therefore, option 2) is the best choice.

f. The question is not related to whether or not the estimated liability exists (which involves the
occurrence of a liability) nor to cut-off (which involves the timing of the occurrence), since both
of these deal with liabilities but not with estimated liabilities particularly. Ownership (rights and
obligations) is a question for an estimated liability for a product warranty. Therefore, option 3) is
the best choice.

j. This part deals with how an auditor should address the issue of an independent expert appraisal of
an important asset on the audit clients balance sheet. This is discussed fully in CAS 500. It
should be possible in this question to eliminate the incorrect options. Option 4) cannot be correct
as auditors cannot accept an engagement in which they cannot obtain sufficient appropriate
evidence. Option 1) is not correct and should be eliminated based simply on knowledge of what is
contained in the audit report, and again, would mean that the auditor failed to obtain sufficient
appropriate evidence. Option 2) would be possible, but this would have been dealt with at the
outset of the audit and included in the estimated fees. Option 3) presents the method by which the
auditor can evaluate the evidence and is as discussed in CAS 500. Therefore option 3) is the best
choice.



Continued...
AU1J12 CGA-Canada, 2012
Question 2 Professional ethics (Level 1)
Question 2 was answered satisfactorily by almost all students. Ethics is a very important topic for the CGA
program, and students should be able to demonstrate a strong knowledge of ethical issues in auditing (as
well as other courses). Most students were able to identify four ethical issues, but not all could. Many
students obtained only part marks due to answers that were too brief.

Question 3 Analytical procedures in audit (Level 1)
Part (a) was answered satisfactorily, but many students provided answers that lacked sufficient
explanation. Typical answers were compare to other years or compare to budget, without explaining
how such a comparison would be of any benefit to an auditor or why an auditor would take such a step.

Part (b) was answered satisfactorily overall. Some students gave answers that ignored the directors
meeting minutes altogether, indicating that they had not read the question carefully. Other students gave
answers such as the number of shares issued or re-purchased, when this information would be obtained
from the records themselves or from the share registrar. The directors minutes provide authorization, and
possibly explanation, for debt and share transactions.

Part (c) was not answered very well. Many students gave answers that did not involve the audit course
material at all, such as the sales havent changed much, or that were based on invalid assumptions, such
as the inventory turnover hasnt changed therefore inventory has stayed the same. In fact this is
incorrect. In addition, some students did not even attempt to deal with three examples, regardless of the
required.

Question 4 The components of internal control; The nature of a control environment; Analytical procedures
(Level 1)
Part (a) was answered satisfactorily. Students who had difficulty tended to answer in terms of internal
control issues, not accounting issues as required. Internal control is an addition to the accounting
procedures; for example, segregation of duties is an internal control issue, not an issue of how an entity
accounts for transactions. Students are reminded to read the required carefully when preparing their
answers.

Part (b) was answered well, with no common problems noted.

Question 5 Sampling and non-sampling error (Level 2)
Parts (a) and (b) were answered satisfactorily. Some students continue to have difficulty with statistical
concepts. Audits involve sampling and therefore statistical concepts are important in the process of
designing samples and evaluating evidence. This topic is important therefore not just for the examination,
but also in terms of learning and understanding other topics in the course material.

Question 6 The impact of EDI and the Internet on a companys operations (Level 2)
Question 6 was answered very well, with no problems noted.

Question 7 Enquiry letter to the clients lawfirm(Levels 1 and 2)
Question 7 was not answered very well, but virtually all students obtained part marks. Some students were
not aware that the client sends the letter to the lawyer, or thought that the client prepares the engagement
letter, or confused the management representation letter with the engagement letter.

Question 8 Inventory observation (Level 1)
Question 8 was answered very well by most students. Most students obtained close to full marks, although
some answers were too brief and could only be awarded part marks. No other common problems were
noted, except that a few students did not even attempt the question. Inventory procedures are an important
topic and students should have no difficulty identifying and explaining these procedures.