Tick and Bash LLP is considering the preliminary audit strategy for the following new audit client, whose principal characteristics are set out below.
For the new client, select whether Tick and Bash LLP would be likely to rely on internal controls, rely completely on substantive procedures, or it depends on the size of the business, or it should be referred to a more senior auditor.
- Alex Manufacturing Ltd has recently been incorporated and is experiencing rapid growth. It is in the process of recruiting a financial controller.
Select ONE answer:
- Rely on internal controls
- Rely completely on substantive procedures
- Depends on the size of the business
- Consult a senior colleague
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 2
- Not correct
- Correct – If the auditor cannot rely on the internal controls in place, because they are deficient, he will need to rely completely on substantive procedures. Alex Manufacturing Ltd, a newly formed company without a financial controller, will be unlikely to have effective internal controls therefore the auditor will need to rely completely on substantive procedures. Lucy Trading Ltd is an established company with apparent controls in place so the auditor should be able to test and rely on those controls.
- Not correct
- Not correct
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