1. In the audit of Meghna Foods Ltd, the auditor must obtain evidence on purchase cut-off at 30 June. Warehouse staff can backdate goods-received notes (GRNs), so controls over GRNs are ineffective. The auditor holds the GRNs, the purchase ledger, a written representation from the production manager, and a supplier statement mailed directly to the auditor by the supplier. Which evidence is the most reliable for the cut-off assertion?

A) The GRNs, because documents prepared at the point of receipt are more reliable than statements, whatever the state of controls
B) The purchase ledger, because it is the complete population of recorded purchases from which the cut-off can be tested fully
C) The production manager's written representation, because the employee closest to the goods gives the best direct evidence
D) The supplier statement, because it is external evidence received directly by the auditor, independent of the weak controls

Correct: D difficult ISA 500

ISA 500 explains that evidence from external sources is more reliable than evidence generated internally, and that evidence obtained directly by the auditor is more reliable than evidence obtained indirectly. Internally generated documents are more reliable only when the related controls operate effectively, which is not the case for the GRNs here. The payables ledger is also internal evidence and is not independent of the weak receiving controls, and a written representation from management is weaker than documentary evidence from an independent party. The supplier statement is therefore the strongest evidence of when liabilities arose.

2. Padma Textiles Ltd calculates its allowance for doubtful receivables by applying percentages to age bands in a system-generated ageing report. The auditor has agreed the report total of CU 18.6 million to the receivables ledger and intends to recompute the allowance from the bands. Which further step best addresses the reliability of the report as audit evidence?

A) Ask the credit controller to recompute the allowance from the bands, since recalculation by a second employee validates the data
B) Rely on management's confirmation that the report is system-generated, since computer-produced information is free from error or bias
C) Re-age a sample of invoices from their invoice dates to test the report data, since agreeing the total does not validate the bands
D) Treat the report as reliable, because agreeing the CU 18.6 million total to the ledger shows each invoice is in the right band

Correct: C difficult ISA 500

Under ISA 500, when the auditor uses information produced by the entity, the auditor must obtain evidence about the accuracy and completeness of that information and evaluate whether it is precise and detailed enough for the purpose. Agreeing the total proves only that the balance is complete in total, not that individual invoices are in the correct age band, which drives the allowance. System generation does not remove the risk of wrong parameters or logic, and a recalculation by the entity's staff re-uses the same unvalidated bands. Re-ageing a sample from source invoice dates tests the attribute that matters.

3. To test existence of 40 high-value additions to fixed assets of Padma Textiles Ltd, the auditor planned to inspect 15 invoices, but only photocopies supplied by management are available. Risk of material misstatement is assessed as high, so the auditor extends the work to all 40 photocopies and all agree to the asset register. Which conclusion about the evidence is correct?

A) Sufficiency measures quality and appropriateness measures quantity, so testing all 40 items fixes the appropriateness shortfall in full
B) It is still not appropriate; more low-quality items cannot offset poor reliability, so originals or supplier confirmations are needed
C) It is adequate, because a high assessed risk is answered by testing more items and document format affects its relevance
D) It is now sufficient, because the larger quantity of agreed photocopies makes up for the lower reliability of each individual document

Correct: B difficult ISA 500

ISA 500 defines sufficiency as the measure of the quantity of evidence and appropriateness as the measure of its quality, meaning its relevance and reliability. The two are related, since higher quality evidence reduces the quantity needed, and higher assessed risk increases it. However, a larger quantity does not make up for poor quality: photocopies are less reliable than originals and were provided by management, so 40 of them remain weak evidence. The auditor should obtain originals or evidence from a third party, such as supplier confirmations or inspection of the assets.

4. Overall materiality for Padma Textiles Ltd is CU 1.5 million (5% of profit before tax of CU 30 million). The auditor found inventory overstated by CU 2.1 million, receivables overstated by CU 0.5 million and accruals understated by CU 0.4 million, all increasing profit. Management corrected CU 1.4 million of the inventory overstatement and refused to adjust anything else. Total assets are CU 160 million. What is the effect on the auditor's opinion?

A) An unmodified opinion, because the largest single uncorrected misstatement of CU 0.7 million is below materiality of CU 1.5 million
B) A qualified opinion, because uncorrected misstatements total CU 1.6 million, above materiality, and are confined to specific items
C) An unmodified opinion with an Emphasis of Matter paragraph, because disclosing CU 1.6 million of uncorrected items informs users
D) An adverse opinion, because uncorrected misstatements of CU 1.6 million exceed materiality and affect three separate statement areas

Correct: B complex ISA 705 (Revised)

Uncorrected misstatements are evaluated in aggregate, not item by item. After management's correction of CU 1.4 million, the uncorrected items are CU 0.7 million of inventory, CU 0.5 million of receivables and CU 0.4 million of accruals, totalling CU 1.6 million, which exceeds the CU 1.5 million materiality. ISA 705 requires a qualified opinion when misstatements are material but not pervasive, and these items are confined to identifiable balances in a CU 160 million asset base. An adverse opinion needs pervasive effects, and an Emphasis of Matter paragraph cannot replace a modification of the opinion.

5. Teesta Holdings Ltd's only operating subsidiary, Sundarban Logistics Ltd, represents 85% of consolidated total assets and 90% of consolidated revenue. During the audit, the subsidiary's management refused access to its accounting records, no alternative procedures were possible, and the rest of the group is immaterial. Group materiality is CU 2 million. Which opinion should the auditor express on the consolidated financial statements?

A) A disclaimer of opinion, because the possible effects of undetected misstatements from the limitation are material and pervasive
B) A qualified opinion with an Emphasis of Matter paragraph on the refusal of access, since users need to know the cause of the limit
C) An adverse opinion, because the missing records imply that the consolidated figures are materially and pervasively misstated
D) A qualified opinion 'except for' the limitation, because the restriction concerns one component and not the holding company

Correct: A difficult ISA 705 (Revised)

Under ISA 705, a limitation on scope whose possible effects are material and pervasive requires the auditor to withdraw where practicable and, if withdrawal is not practicable, to disclaim an opinion, because sufficient appropriate evidence cannot be obtained on which to base any opinion. The subsidiary supplies 85% of assets and 90% of revenue, so undetected misstatements could affect most of the statements. A qualified opinion is for limitations that are material but not pervasive. An adverse opinion is for known pervasive misstatement, whereas here the problem is inability to obtain evidence.

6. Meghna Foods Ltd (unlisted) faces a tax claim of CU 25 million, about 60% of annual profit, whose outcome depends on a pending appeal. Note 24 discloses the claim fully, and the auditor agrees that no provision is required and that the disclosure is adequate. The auditor considers the matter fundamental to users' understanding. What should the auditor's report contain?

A) An unmodified opinion with an Emphasis of Matter paragraph on Note 24, because the matter is properly disclosed and fundamental
B) A qualified opinion, because an uncertainty of this size relative to profit means the financial statements are materially misstated
C) An unmodified opinion with no additional paragraph, because a matter that is adequately disclosed needs no further mention
D) An unmodified opinion with an Other Matter paragraph, because the claim concerns a legal outcome rather than an accounting treatment

Correct: A difficult ISA 706 (Revised)

ISA 706 requires an Emphasis of Matter paragraph when the auditor considers it necessary to draw users' attention to a matter that is appropriately presented or disclosed and is fundamental to their understanding of the financial statements; exceptional litigation is a standard example. The paragraph refers to the note, states that the opinion is not modified, and does not change the opinion. Qualification is wrong because the treatment and disclosure are accepted. An Other Matter paragraph deals with matters that are not presented or disclosed in the statements.

7. Padma Cement Ltd is listed. Matters discussed with the audit committee were: (1) revenue on bill-and-hold sales, a significant risk with heavy auditor judgement; (2) valuation of revalued land, with high estimation uncertainty and a specialist used; (3) a small petty cash error found and corrected; (4) acquisition of a subsidiary in the year, requiring significant audit effort; (5) routine payroll, low risk and standard testing. Which matters should the auditor consider as candidates for key audit matters?

A) All five matters, because each was communicated to those charged with governance and communication alone creates a key audit matter
B) Matters (3) and (5), because routine areas with simple processes are the most likely places for undetected errors to arise
C) Matters (1) and (2), because key audit matters are restricted to significant risks and estimation uncertainty, not significant events
D) Matters (1), (2) and (4), because each needed significant auditor attention through high risk, judgement or a significant transaction

Correct: D complex ISA 701

ISA 701 starts with matters communicated to those charged with governance and then identifies those that required significant auditor attention, taking into account areas of higher assessed risk or significant risks, significant auditor judgements including estimates with high estimation uncertainty, and the effect on the audit of significant events or transactions. Of those, the auditor selects the ones of most significance as key audit matters. The bill-and-hold revenue, land valuation and acquisition meet these criteria, while a corrected petty cash error and routine payroll do not. Communication to the committee is a starting point, not a test.

8. In the audit of listed Padma Cement Ltd, the auditor concludes that inventory is overstated by CU 12 million, which is material but not pervasive, and expresses a qualified opinion. Inventory was also the area of most significance in the audit. How should the auditor deal with the matter in the report?

A) Describe it in the Basis for Qualified Opinion section and cross-refer to it from the key audit matters section itself
B) Report it solely as a described key audit matter, since the key audit matters section removes the need to modify the opinion
C) Leave it out of the key audit matters section with no cross-reference, since modified-opinion matters are not key audit matters
D) Describe it in full both as a key audit matter and in the Basis for Qualified Opinion section, to maximise information for users

Correct: A complex ISA 701

ISA 701 states that a matter giving rise to a modified opinion, or to a material uncertainty about going concern, is by its nature a key audit matter, but it must not be described in the key audit matters section. It is reported in accordance with ISA 705 in the Basis for Qualified Opinion section, and the key audit matters section includes a reference to that section. Key audit matters never substitute for modifying the opinion, and omitting any reference would mislead users about where the matter is dealt with.

9. Teesta Garments Ltd (unlisted) has current assets of CU 52 million, current liabilities of CU 90 million and a CU 25 million loan maturing in three months. A bank has offered refinancing but not yet signed. The financial statements use the going concern basis and Note 6 clearly describes the events, the uncertainty and management's plans. The auditor agrees the basis is appropriate and the disclosure is adequate. What is the correct report?

A) A qualified opinion, because the unsigned refinancing means the auditor lacks sufficient evidence on the going concern basis
B) An unmodified opinion with an Emphasis of Matter paragraph in place of a separate section, since uncertainties are reported that way
C) An adverse opinion, because net current liabilities of CU 38 million show that the going concern basis is not appropriate
D) An unmodified opinion with a separate section headed Material Uncertainty Related to Going Concern that refers to Note 6

Correct: D difficult ISA 570 (Revised)

Net current liabilities are CU 90 million less CU 52 million, or CU 38 million, which is an event or condition casting doubt, but the facts here show a material uncertainty rather than an inappropriate basis. When the basis is appropriate, a material uncertainty exists and disclosure is adequate, ISA 570 requires an unmodified opinion plus a separate section with the heading Material Uncertainty Related to Going Concern, referring to the note. An Emphasis of Matter paragraph is not the vehicle here. Qualification or an adverse opinion would apply only if disclosure were inadequate or the basis inappropriate.

10. Teesta Garments Ltd's board minutes show a resolution, taken before the report date, to cease trading and liquidate the company within two months of the year end. The financial statements are nevertheless prepared on the going concern basis, with no mention of the resolution. Management will not change the basis. Which opinion should the auditor express?

A) A disclaimer of opinion, because the auditor cannot obtain sufficient appropriate evidence about management's future intentions
B) A qualified opinion, because the disclosure of the board resolution is missing, yet the recorded balances may still be fairly stated
C) An adverse opinion, because the going concern basis is inappropriate and the effect on the financial statements is material and pervasive
D) An unmodified opinion with a Material Uncertainty Related to Going Concern section, because liquidation is an uncertainty about continuing

Correct: C difficult ISA 570 (Revised)

ISA 570 requires an adverse opinion when the financial statements are prepared on the going concern basis but, in the auditor's judgement, management's use of that basis is inappropriate. A decision to liquidate is a known fact, not an uncertainty, so a material uncertainty section does not fit. A disclaimer is wrong because evidence is available, namely the board minutes, and a qualified opinion understates the problem since assets and liabilities would need to be measured on a break-up basis throughout the statements.

11. The annual report of listed Padma Textiles Ltd includes a chairman's review stating that profit after tax rose 35% to CU 14.2 million. The audited financial statements, which are correct, show profit after tax of CU 12.4 million against CU 10.5 million last year. Management declines to correct the review. What should the auditor do?

A) Add an Emphasis of Matter paragraph restating the chairman's figures as CU 12.4 million, since the auditor may correct them
B) Tell those charged with governance and, if uncorrected, describe it in the Other Information section, opinion unmodified
C) Take no action, because the auditor's opinion covers the audited financial statements and does not extend to other contents of the report
D) Qualify the opinion on the financial statements, because a material misstatement anywhere in the annual report undermines them all

Correct: B difficult ISA 720 (Revised)

Under ISA 720, the auditor reads the other information and, on finding a material misstatement, asks management to correct it. If management refuses, the auditor communicates with those charged with governance and, if it remains uncorrected, considers the implications for the report, which includes describing the misstatement in the Other Information section; withdrawal is also considered where permitted. Actual growth is 12.4 against 10.5, or about 18%, not 35%. The opinion on the statements is not modified, because the financial statements themselves are correct, yet the auditor cannot ignore the inconsistency.

12. Teesta Energy Ltd engages a practitioner under ISAE 3000 (Revised) to provide limited assurance on its greenhouse gas emissions statement of 84,000 tonnes of CO2 equivalent. The practitioner has performed mainly inquiries, analytical procedures and limited testing of source data, with no misstatements found. Which form of conclusion is appropriate?

A) A statement that the emissions figure is free from error and fraud, since no misstatement was found in the procedures done
B) A negative-form conclusion that nothing has come to attention, because risk is reduced to a level above that of reasonable assurance
C) A statement that no conclusion can be given, because inquiry and analytical procedures cannot support an assurance conclusion
D) A positive-form opinion that the statement is fairly stated in all material respects, since the subject matter is quantitative

Correct: B difficult ISAE 3000 (Revised)

ISAE 3000 distinguishes reasonable assurance, where risk is reduced to an acceptably low level and a positive opinion is expressed, from limited assurance, where risk is reduced to a level acceptable in the circumstances but greater than for reasonable assurance. The limited assurance conclusion is expressed in a negative form: based on the procedures performed, nothing has come to the practitioner's attention that causes belief that the subject matter is materially misstated. The report also summarises the work done so users can understand the conclusion. Quantitative subject matter does not demand positive wording, and no assurance gives a guarantee.

13. The audit of Meghna Foods Ltd resulted in an unmodified report with overall materiality of CU 1.2 million and complied with ISAs. Later, a collusive fraud of CU 300,000 over three years between a purchasing clerk and a supplier is found. The company's lender says the audit failed. Which response best explains the position?

A) The audit should have tested every supplier transaction, because absolute assurance over all transactions is what a clean report conveys
B) The audit failed, because an unmodified report guarantees that no fraud of any amount occurred during the period audited
C) The report gave reasonable, not absolute, assurance; a collusive fraud at 25% of materiality does not by itself show audit failure
D) The audit failed, because ISAs make the auditor responsible for finding every fraud above the clearly trivial level, as CU 300,000 is

Correct: C difficult ISA 200

The expectations gap arises when users believe auditors give absolute assurance, test all items or detect all fraud. An ISA audit gives reasonable assurance, a high but not absolute level, about material misstatement, and collusion, forgery and concealment are inherent limitations that make fraud harder to detect than error. CU 300,000 is 25% of CU 1.2 million materiality (0.3 / 1.2), so the audit not finding it does not alone prove a failure, although the auditor must still consider whether qualitative factors made it material. Sampling and materiality are accepted features of auditing.

14. Meghna Foods Ltd's year end is 31 December 2025 and the auditor signed an unmodified report on 10 March 2026. Before the financial statements are issued, the auditor learns that a customer owing CU 4.5 million went into liquidation in January 2026 and was already insolvent at 31 December. The liquidator expects to pay unsecured creditors 10%; materiality is CU 1.0 million. What should the auditor do?

A) Discuss with management; the CU 4.05 million write-down is material, so if amended, issue a new report dated after the revised approval
B) Reissue the report dated 10 March once a note is added, because a customer's later liquidation is a non-adjusting event
C) Re-date the original report to the discovery date and add an Emphasis of Matter paragraph, leaving the statements unchanged
D) Do nothing, because the auditor has no obligation to perform procedures after the report date and the liquidation occurred in 2026

Correct: A complex ISA 560

ISA 560 applies to facts that become known after the report date but before the financial statements are issued: the auditor discusses with management whether the statements need amendment. The loss is CU 4.5 million x (1 - 0.10), or CU 4.05 million, well above materiality, and insolvency at the year end makes it an adjusting event. If management amends the statements, the auditor extends procedures to the new report date and issues a new report dated no earlier than the approval of the amended statements. If management refuses, the opinion is modified; a mere Emphasis of Matter does not fix a material misstatement.

15. During an interim audit of Meghna Foods Ltd, the auditor finds that (1) the finance manager can both amend supplier bank details and approve payment runs without independent review, which the auditor judges a significant deficiency, and (2) small gaps in petty cash voucher numbering totalling CU 15,000. Which action complies with the auditing standards on communicating deficiencies?

A) Modify the audit opinion for deficiency (1), because a significant control weakness over payments is a limitation on the scope of the audit
B) Communicate both deficiencies to those charged with governance orally, because written communication is needed after a misstatement has occurred
C) Communicate deficiency (1) in writing to those charged with governance at the end of the audit, because the timing is left to the auditor's discretion
D) Communicate deficiency (1) to those charged with governance in writing on a timely basis, and raise (2) with management if judged important enough

Correct: D difficult ISA 265

ISA 265 requires the auditor to communicate significant deficiencies in internal control in writing to those charged with governance on a timely basis, describing the deficiency and explaining its potential effects. Other deficiencies of sufficient importance to merit management's attention are communicated to management, orally or in writing, unless inappropriate. A deficiency need not have caused a misstatement to be reported, and waiting until the end of the audit defeats the purpose of timeliness. A control deficiency does not by itself modify the opinion, because the auditor can still obtain evidence through substantive procedures.

16. The auditor of Gopalganj Dairy Ltd is deciding how much weight to give to different types of audit evidence on the company's payables balance with a major supplier. Which statement about the reliability of audit evidence under ISA 500 is correct?

A) Evidence from the entity's own records is always more reliable than evidence from external sources, since the records are the basis of the statements
B) Direct evidence obtained by the auditor is more reliable than indirect evidence; entity records are more reliable when controls operate effectively
C) Oral representations from senior management are more reliable than written ones, because they can be probed and clarified by the auditor at once
D) A photocopy of an external document is as reliable as the original, provided that a member of the client's staff has signed it as a true copy

Correct: B difficult ISA 500

ISA 500 guidance states that audit evidence from external sources is more reliable than that obtained from the entity's records, that evidence obtained directly by the auditor is more reliable than evidence obtained indirectly or by inference, and that evidence from the entity's records is more reliable when the related control systems operate effectively. Written evidence is more reliable than oral representations, and original documents are more reliable than photocopies or facsimiles, whoever certifies them.

17. To test the existence of trade receivables at Tongi Auto Ltd, the auditor intends to select confirmation samples from an ageing report generated by the company's ERP system. What does ISA 500 require before the auditor relies on that report as audit evidence?

A) Nothing further, because a report produced by a computer system is more reliable than one prepared manually by the finance staff
B) Only a test that the report agrees to the total of the receivables ledger, since the completeness of the individual items is not important
C) A signed confirmation from the finance director that the report is accurate, since management is responsible for the system that produces it
D) Evidence of its accuracy and completeness, and an evaluation of its precision and detail, possibly by testing related controls

Correct: D difficult ISA 500

When the auditor uses information produced by the entity, ISA 500 requires the auditor to obtain audit evidence about the accuracy and completeness of that information and to evaluate whether it is sufficiently precise and detailed for the auditor's purposes. This may be achieved by testing the controls over the preparation of the report. System output is not reliable merely because it is automated, and a management representation alone is not sufficient evidence.

18. The auditor of Feni Cement Ltd has tested the controls over receivables and found them operating effectively throughout the year. The audit senior proposes to carry out no substantive procedures on receivables and to rely on the controls. Which statement is correct under ISA 330?

A) That is acceptable, because effective controls give reasonable assurance, so substantive procedures would only repeat work already done on the controls
B) That is acceptable if the engagement partner approves, because the extent of substantive procedures is purely a matter of audit judgement for the team
C) Substantive procedures are always required, including agreeing the statements to the records and examining material journals, however reliable the controls
D) Substantive procedures are needed only on balances that were found to be misstated by the tests of controls, as other balances are covered by them

Correct: C difficult ISA 330

Auditors must always perform some substantive procedures, because internal control systems have inherent limitations and can never be fully relied on. ISA 330 also requires certain substantive procedures irrespective of the assessed risks: agreeing the financial statements to the underlying accounting records, examining material journal entries and examining other adjustments made in preparing the financial statements. Partner approval cannot waive the requirement.

19. Karnaphuli Telecom Ltd earns revenue from several million small prepaid recharges processed automatically through its billing system. During the year it also bought two large generators for CU 30 million, supported by supplier invoices and delivery records. Which audit approach is the most appropriate and efficient?

A) Tests of controls over recharge billing, and substantive procedures on the generators, with some substantive work on revenue
B) Substantive sampling of individual recharges for revenue, and tests of controls over the purchase of the two generators
C) Substantive analytical procedures only on both areas, because tests of controls are inefficient where transactions are automated
D) Tests of controls only on both areas, because substantive procedures cannot give any evidence about automated transactions

Correct: A difficult ISA 330

Where there is a vast number of routine transactions processed through a system, it is usually more efficient to test whether the system operates effectively than to sample individual items. Where there are a small number of large items which can be verified by third-party evidence, substantive procedures are more efficient. Even then, the auditor must always perform some substantive procedures on material items, so tests of controls alone are not enough.

20. The auditor of Rangamati Textiles Ltd plans to test controls over the year-end inventory count and over the processing of sales invoices throughout the year. The senior suggests carrying out only enquiries of the finance team. Which statement about the tests of controls is correct?

A) Enquiry alone is enough for sales controls, but the count controls need reperformance, since the inventory count is a material area
B) Enquiry must be combined with reperformance or observation; count controls are tested only at the count, others over the whole year
C) Enquiry is sufficient for both controls, since staff responsible for the controls are best placed to say whether they have operated
D) Observation is not an acceptable test of controls, and all controls should be tested at the year end for convenience, whatever their nature

Correct: B difficult ISA 330

In testing controls the auditor must use enquiry but must not use only enquiry; reperformance and observation are helpful additional procedures. The timing depends on the purpose of the test: controls over a year-end inventory count can only be tested at the year end, while controls that operate throughout the year must be tested to show they were effective over the whole period. Testing all controls only at year end would not show effectiveness during the year.

21. For the audit of Sylhet Ceramics Ltd for the year ended 30 June 2026, the auditor wants to rely on evidence from earlier audits. Control A (cash receipts posting) was tested effective in the 2025 audit and has not changed. Control B (revenue cut-off review) relates to a significant risk and was tested effective in the 2025 audit. Which statement is correct?

A) Both controls may be relied on without retesting, because both were tested effective within the last three audits
B) Both controls must be retested in the current year, because prior audit evidence about controls can never be used
C) Control A may be relied on if evidence shows it has not changed, but Control B must be tested in the current year
D) Control B may be relied on without retesting, but Control A must be retested because it is not linked to a significant risk

Correct: C difficult ISA 330

The auditor may rely on evidence from earlier audits about controls if evidence is obtained about any changes since the controls were last tested, and controls must be tested for effectiveness at least once in every three audits. Control A qualifies, as it was tested in 2025 and is unchanged. Where the related risk is a significant risk, the auditor cannot rely on prior-year testing and must test the control in the current year, so Control B must be retested.

22. The auditor of Bogura Foods Ltd must choose between substantive analytical procedures and tests of detail for three areas: (i) wages and salaries, a large volume of predictable transactions; (ii) the existence and valuation of trade receivables; (iii) a revenue item identified as a significant risk. Which allocation is most appropriate?

A) (i) tests of detail; (ii) analytical procedures; (iii) analytical procedures, since they are cheaper and cover the whole population
B) (i) tests of detail; (ii) tests of detail; (iii) analytical procedures, because significant risks are best dealt with by ratios
C) (i) analytical procedures; (ii) analytical procedures; (iii) tests of detail, because significant risks need only one kind of test
D) (i) analytical procedures; (ii) tests of detail; (iii) tests of detail, with procedures specifically responsive to the risk

Correct: D difficult ISA 330

Analytical procedures tend to be appropriate for large volumes of predictable transactions, such as wages and salaries. Tests of detail are more appropriate for account balances such as receivables, particularly for the assertions of existence and valuation. For significant risks, tests of detail are likely to be more appropriate than analytical procedures, and the auditor must determine procedures specifically responsive to the risk. Significant risks are likely to be the most difficult to obtain sufficient appropriate evidence about.

23. A partner at Dhaka & Co says that data analytics lets the firm test 100% of the sales ledger entries of Gazipur Retail Ltd, so the firm no longer needs to understand the sales system or test how the data was captured. Which statement is correct?

A) The auditor still needs to understand the system that produced the data and test how data entered it, for example by testing actual cash receipts
B) The partner is right, because testing the whole population removes sampling risk and so makes any consideration of the entity's system unnecessary
C) Data analytics can replace substantive procedures entirely, but the auditor must continue to test all of the client's internal controls each year
D) Data analytics is not permitted in an audit under ISAs, because the standards assume that testing is done only on a sample basis

Correct: A difficult ISA 500

Data analytics lets auditors examine a complete data set, which may lead to reconsideration of how controls are tested, but the auditor would still have to understand the system which produced the data and how data got into it. A data set may show that a certain amount of cash has been received, but the only way to tell whether it is reliable is by testing the actual cash receipts. The ISAs do not forbid data analytics, and it does not remove the need to consider the reliability of the data.

24. The auditor of Mymensingh Pharma Ltd finds: (i) sales recorded for goods never shipped; (ii) a December sale recorded in January; (iii) a finance cost posted to administrative expenses; (iv) a credit sale invoice left out of the ledger. Which assertions about classes of transactions are mainly at issue, in that order?

A) (i) completeness; (ii) classification; (iii) cut-off; (iv) occurrence
B) (i) existence; (ii) cut-off; (iii) presentation; (iv) rights and obligations
C) (i) occurrence; (ii) cut-off; (iii) classification; (iv) completeness
D) (i) accuracy; (ii) occurrence; (iii) cut-off; (iv) classification

Correct: C difficult ISA 315 (Revised 2019)

Occurrence means that recorded transactions have actually taken place and pertain to the entity, which is breached by sales for goods never shipped. Cut-off means transactions are recorded in the correct period, as with a December sale recorded in January. Classification means transactions are recorded in the proper accounts, as with a finance cost put in administrative expenses. Completeness means all transactions that should have been recorded have been, which a missing invoice breaches. Existence and rights and obligations apply to balances, not to transactions.

25. Bhairab Hardware Ltd allows 90 days' credit, employs no credit controller, produces no ageing list, does not follow up late payers and posts customer receipts to the ledger without matching them to invoices. Which assertion about the trade receivables balance at the year end is most directly threatened?

A) Existence, because the lack of credit control makes it likely that customers have never actually ordered the goods that were invoiced
B) Accuracy, valuation and allocation, because weak credit control makes it likely that some balances are overstated or irrecoverable
C) Rights and obligations, because without an ageing list the company cannot show which customer balances it is entitled to collect
D) Presentation, because the ledger does not distinguish between current and non-current balances in the way the framework requires

Correct: B difficult ISA 315 (Revised 2019)

A lack of credit control activities, including no ageing analysis, no follow-up of overdue accounts and unmatched receipts, creates a risk that balances are overstated or will not be collected. This most directly affects the valuation assertion, that is, accuracy, valuation and allocation, since receivables may be carried at more than their recoverable amount. The scenario gives no suggestion that the invoices are fictitious or that the company lacks the right to collect.