Audit Evidence

SECTION B - QUESTION 18 SCENARIO: GlobalTrade Logistics You are the audit manager responsible for the audit of GlobalTrade Logistics, an international e-commerce fulfillment company, for the year ended 30 September 20X6. The draft financial statements show revenue of $150m, profit before tax of $12m, and total assets of $85m. You are currently reviewing the audit strategy and designing substantive procedures for key areas: 1. Trade Receivables: The balance consists of a high volume of small balances from individual online retailers, alongside five large corporate accounts which make up 40% of the total balance. 2. Revenue: Revenue is recognized in the system automatically when goods are dispatched from the warehouse. However, the company's standard terms and conditions state that the risk and rewards of ownership transfer to the customer only upon successful delivery. 3. Bank and Cash: GlobalTrade operates multiple bank accounts across three different countries in various foreign currencies to facilitate international trade. REQUIREMENTS: Describe substantive audit procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to: (a) Trade Receivables (8 marks) (b) Revenue (7 marks) (c) Bank and Cash (5 marks)

SECTION A - CASE 3: HARVESTYIELD AGRITECH HarvestYield AgriTech manufactures smart farming equipment. You are auditing the financial statements for the year ended 31 December 20X6. The company recently introduced a new line of AI-driven tractors, making older models potentially obsolete. Inventory is held at 15 different regional depots. The company uses a bespoke computerized inventory system. You are planning the inventory count attendance and the substantive testing of receivables, as several farming clients have requested extended payment terms due to a poor harvest season. Which of the following financial statement assertions is most at risk regarding the older models of tractors held in inventory?

SECTION A - CASE 3: HARVESTYIELD AGRITECH HarvestYield AgriTech manufactures smart farming equipment. You are auditing the financial statements for the year ended 31 December 20X6. The company recently introduced a new line of AI-driven tractors, making older models potentially obsolete. Inventory is held at 15 different regional depots. The company uses a bespoke computerized inventory system. You are planning the inventory count attendance and the substantive testing of receivables, as several farming clients have requested extended payment terms due to a poor harvest season. Which of the following describes a valid use of Computer Assisted Audit Techniques (CAATs) using audit software to test the inventory of HarvestYield AgriTech?

SECTION A - CASE 3: HARVESTYIELD AGRITECH HarvestYield AgriTech manufactures smart farming equipment. You are auditing the financial statements for the year ended 31 December 20X6. The company recently introduced a new line of AI-driven tractors, making older models potentially obsolete. Inventory is held at 15 different regional depots. The company uses a bespoke computerized inventory system. You are planning the inventory count attendance and the substantive testing of receivables, as several farming clients have requested extended payment terms due to a poor harvest season. When performing a receivables circularization (confirmation), which of the following provides the most reliable audit evidence?

SECTION A - CASE 3: HARVESTYIELD AGRITECH HarvestYield AgriTech manufactures smart farming equipment. You are auditing the financial statements for the year ended 31 December 20X6. The company recently introduced a new line of AI-driven tractors, making older models potentially obsolete. Inventory is held at 15 different regional depots. The company uses a bespoke computerized inventory system. You are planning the inventory count attendance and the substantive testing of receivables, as several farming clients have requested extended payment terms due to a poor harvest season. Which TWO of the following procedures should the auditor perform DURING the physical inventory count at the regional depots? (Select TWO)

SECTION A - CASE 3: HARVESTYIELD AGRITECH HarvestYield AgriTech manufactures smart farming equipment. You are auditing the financial statements for the year ended 31 December 20X6. The company recently introduced a new line of AI-driven tractors, making older models potentially obsolete. Inventory is held at 15 different regional depots. The company uses a bespoke computerized inventory system. You are planning the inventory count attendance and the substantive testing of receivables, as several farming clients have requested extended payment terms due to a poor harvest season. When selecting a sample of receivables for testing, the auditor decides to select every 10th customer balance from the aged receivables listing, after a random start. What sampling method is being used?

CASE 2: GREENYIELD AGRI CO-OP GreenYield Agri Co-op is a large agricultural cooperative specializing in organic crop production and livestock. You are the audit senior. The year-end is 31 December 2025. GreenYield uses an independent agronomist to value its biological assets. During the year, a new computerized inventory system was implemented. The audit team is planning the inventory count attendance and evaluating the reliability of the agronomist's report. Regarding the year-end inventory count of livestock, which of the following is the primary responsibility of the auditor?

CASE 2: GREENYIELD AGRI CO-OP GreenYield Agri Co-op is a large agricultural cooperative specializing in organic crop production and livestock. You are the audit senior. The year-end is 31 December 2025. GreenYield uses an independent agronomist to value its biological assets. During the year, a new computerized inventory system was implemented. The audit team is planning the inventory count attendance and evaluating the reliability of the agronomist's report. Before relying on the valuation report provided by the independent agronomist (management's expert), what must the auditor evaluate in accordance with ISA 500?

CASE 2: GREENYIELD AGRI CO-OP GreenYield Agri Co-op is a large agricultural cooperative specializing in organic crop production and livestock. You are the audit senior. The year-end is 31 December 2025. GreenYield uses an independent agronomist to value its biological assets. During the year, a new computerized inventory system was implemented. The audit team is planning the inventory count attendance and evaluating the reliability of the agronomist's report. Given the implementation of the new computerized inventory system during the year, how should the auditor approach the system-generated inventory reports used for audit evidence?

CASE 2: GREENYIELD AGRI CO-OP GreenYield Agri Co-op is a large agricultural cooperative specializing in organic crop production and livestock. You are the audit senior. The year-end is 31 December 2025. GreenYield uses an independent agronomist to value its biological assets. During the year, a new computerized inventory system was implemented. The audit team is planning the inventory count attendance and evaluating the reliability of the agronomist's report. Which of the following substantive procedures would be appropriate to verify the VALUATION of the biological assets (livestock) at year-end? (Select ALL that apply)

CASE 2: GREENYIELD AGRI CO-OP GreenYield Agri Co-op is a large agricultural cooperative specializing in organic crop production and livestock. You are the audit senior. The year-end is 31 December 2025. GreenYield uses an independent agronomist to value its biological assets. During the year, a new computerized inventory system was implemented. The audit team is planning the inventory count attendance and evaluating the reliability of the agronomist's report. Management has informed you that a specific herd of cattle is intended to be sold in January 2026 at a premium price due to a special organic certification. You require a written representation regarding management's intent. What is the primary limitation of this written representation?

SECTION B - CONSTRUCTED RESPONSE Company: SwiftCargo Logistics Year-end: 31 October 2026 You are the audit senior at TransportAudit LLP, auditing SwiftCargo Logistics, a major shipping and freight forwarding company. You are currently planning the substantive procedures for the following specific areas: Area 1: Trade Receivables SwiftCargo has a large number of corporate clients. Due to a recent economic downturn, several clients are taking longer to pay, and the allowance for receivables has increased significantly. Area 2: Legal Claims Provision During the year, a cargo ship encountered a severe storm, resulting in damage to several clients' goods. SwiftCargo is currently facing multiple legal claims for damages. Management has recognized a provision of $2.5 million. Area 3: Additions to Property, Plant, and Equipment (PPE) SwiftCargo purchased a new fleet of 50 delivery trucks during the year to expand its last-mile delivery network. Required: Describe substantive procedures the auditor should perform to obtain sufficient appropriate audit evidence in relation to: (a) The VALUATION of Trade Receivables. (7 marks) (b) The COMPLETENESS and VALUATION of the Legal Claims Provision. (7 marks) (c) The EXISTENCE and VALUATION of the Additions to PPE (new fleet of trucks). (6 marks)

SECTION A - CASE 3: AQUAPURE UTILITIES AquaPure Utilities is a highly regulated public utility company managing water and waste services. You are auditing the financial statements for the year ended 31 March 20X6. During the audit, you note the following: 1. AquaPure has a large internal audit (IA) department that recently completed a review of the procurement controls. 2. The billing system is highly automated, generating millions of micro-invoices based on smart meter readings. 3. The company owns a vast network of underground water pipes, which are difficult to physically verify. 4. You plan to use substantive analytical procedures to audit water revenue. Question: Before relying on the work of AquaPure's internal audit department regarding procurement controls, which TWO of the following factors MUST the external auditor evaluate according to ISA 610?

SECTION A - CASE 3: AQUAPURE UTILITIES AquaPure Utilities is a highly regulated public utility company managing water and waste services. You are auditing the financial statements for the year ended 31 March 20X6. During the audit, you note the following: 1. AquaPure has a large internal audit (IA) department that recently completed a review of the procurement controls. 2. The billing system is highly automated, generating millions of micro-invoices based on smart meter readings. 3. The company owns a vast network of underground water pipes, which are difficult to physically verify. 4. You plan to use substantive analytical procedures to audit water revenue. Question: To test the highly automated billing system, the audit team decides to use Computer Assisted Audit Techniques (CAATs), specifically 'Test Data'. What is the primary purpose of using Test Data in this scenario?

SECTION A - CASE 3: AQUAPURE UTILITIES AquaPure Utilities is a highly regulated public utility company managing water and waste services. You are auditing the financial statements for the year ended 31 March 20X6. During the audit, you note the following: 1. AquaPure has a large internal audit (IA) department that recently completed a review of the procurement controls. 2. The billing system is highly automated, generating millions of micro-invoices based on smart meter readings. 3. The company owns a vast network of underground water pipes, which are difficult to physically verify. 4. You plan to use substantive analytical procedures to audit water revenue. Question: When sampling the underground water pipes for impairment testing, the auditor divides the pipes into groups based on their age (e.g., 0-10 years, 11-20 years, 20+ years). What is this sampling technique called, and what is its main benefit?

SECTION A - CASE 3: AQUAPURE UTILITIES AquaPure Utilities is a highly regulated public utility company managing water and waste services. You are auditing the financial statements for the year ended 31 March 20X6. During the audit, you note the following: 1. AquaPure has a large internal audit (IA) department that recently completed a review of the procurement controls. 2. The billing system is highly automated, generating millions of micro-invoices based on smart meter readings. 3. The company owns a vast network of underground water pipes, which are difficult to physically verify. 4. You plan to use substantive analytical procedures to audit water revenue. Question: Regarding the existence of the underground water pipes, which of the following provides the most reliable audit evidence?

SECTION A - CASE 3: AQUAPURE UTILITIES AquaPure Utilities is a highly regulated public utility company managing water and waste services. You are auditing the financial statements for the year ended 31 March 20X6. During the audit, you note the following: 1. AquaPure has a large internal audit (IA) department that recently completed a review of the procurement controls. 2. The billing system is highly automated, generating millions of micro-invoices based on smart meter readings. 3. The company owns a vast network of underground water pipes, which are difficult to physically verify. 4. You plan to use substantive analytical procedures to audit water revenue. Question: You are performing a substantive analytical procedure on water revenue. Which of the following represents the most robust predictive model for this procedure?

SECTION B - QUESTION 3 (20 MARKS) HealthBridge NGO is an international non-governmental organization providing medical aid. You are the audit senior for the year ended 31 May 20X6. During the audit, you note the following: 1. Grant Income: HealthBridge receives substantial funding from international governments. This year, they received a $5m grant specifically restricted to building a new hospital in a developing region. The grant conditions state that if the hospital is not completed by December 20X6, the funds must be repaid in full. HealthBridge has recognized the entire $5m as income in the current year, even though construction has only just begun. 2. Bank and Cash: HealthBridge operates in multiple countries and holds 15 different bank accounts, many in foreign currencies. Due to the remote locations of some clinics, they also hold significant amounts of physical cash in safes at these clinics to pay local suppliers. Requirements: (a) Describe the substantive procedures the auditor should perform to obtain sufficient appropriate evidence regarding the $5m Grant Income. (8 marks) (b) Describe the substantive procedures the auditor should perform to obtain sufficient appropriate evidence regarding the Bank and Cash balances. (8 marks) (c) Assume the audit team discovers that construction of the hospital has severely stalled and there is a high probability it will not be completed by December 20X6. Management refuses to make any provisions or disclosures regarding the potential repayment of the $5m grant. Explain the impact on the auditor's report. (4 marks)

CASE SCENARIO: Global Freightways PLC Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance. QUESTION: You want to verify that the 'Track-It' system correctly calculates freight charges based on the company's complex pricing matrix. Which of the following Computer Assisted Audit Techniques (CAATs) would be most appropriate for this specific task?

CASE SCENARIO: Global Freightways PLC Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance. QUESTION: Which of the following is the most appropriate substantive procedure to verify the valuation of the foreign currency bank accounts at the year-end?

CASE SCENARIO: Global Freightways PLC Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance. QUESTION: You are selecting a sample of shipments to test for revenue cut-off. You decide to select every 20th shipment recorded in the 'Track-It' system for the two weeks before and after the year-end. Which sampling method are you using?

CASE SCENARIO: Global Freightways PLC Global Freightways PLC is a cross-border logistics and shipping multinational. You are the audit senior for the year ended 31 March 20X7. The company has complex revenue recognition policies due to shipments spanning multiple accounting periods. Furthermore, they hold significant foreign currency bank accounts. Global Freightways relies heavily on a bespoke, automated IT system called 'Track-It' to record shipments, calculate freight charges, and generate invoices automatically based on weight and distance. QUESTION: Because shipments can take weeks to arrive, revenue should only be recognized when the performance obligation is satisfied (e.g., upon delivery). Which financial statement assertion is most at risk if Global Freightways recognizes revenue when the ship leaves the port rather than when it arrives at the destination?

CASE SCENARIO: MediCare NGO MediCare NGO is a large international non-governmental organization providing medical aid in disaster zones. You are the audit senior for the year ended 31 December 20X7. MediCare receives funding from two main sources: general public donations and restricted government grants. During the year, MediCare received a $5 million restricted grant from the European Union specifically to build a temporary hospital in a conflict zone. The grant conditions state that any unspent funds, or funds spent on unauthorized activities, must be returned. MediCare employs over 500 medical staff overseas. The payroll is processed centrally at the head office. Overseas project managers email a monthly spreadsheet detailing the hours worked by their staff. The head office payroll clerk manually enters these hours into the payroll system. There is no formal review of the payroll master file to check for 'ghost employees', and overtime is paid automatically if claimed on the spreadsheet. REQUIREMENTS: (a) Describe substantive procedures the auditor should perform to obtain sufficient appropriate audit evidence regarding the $5 million restricted government grant income. (8 marks) (b) Identify the control objectives for the payroll cycle at MediCare NGO, and describe tests of controls you would perform to ensure these objectives are being met. (12 marks)