The production department of Cates Ltd is headed by Brad Hogg, whose deputy is Michael. Brad reports to the managing director, John Silver. There are several other departments namely sales and marketing, treasury, accounting, production, processing, purchasing, HR and internal audit.
Which of the following is the BEST method to make 'purchase orders' from production department?

• A. Brad Hogg and Michael should make purchase orders as production needs dictate.
• B. Brad Hogg should make purchase orders, although Michael could make requisitions as production needs dictate.
• C. Brad Hogg and Michael should send requisition for materials as production needs dictate, but orders should be placed by the purchasing department.
• D. Brad Hogg and Michael should send requisition for materials as production needs dictate but orders should be placed by the purchasing department, having been authorised by John Silver.

The internal auditing department has been assigned to perform an audit of a division. Based on background review, the auditor knows the following about management policies:
Company policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than three years.
A significant portion of division management's compensation comes in the form of bonuses based on the division's profitability.
The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past three years and uses a standard cost system.
During the preliminary review, the auditor notes the following changes in financial data compared to the prior year:
Sales have increased by 10%.
Cost of goods sold has increased by 2%.
Inventory has increased by 15%.
Divisional net income has increased by 8%.
Which of the following items might alert the auditor to the possibility of fraud in the division?

• A. Sales have increased by 10%
• B. Inventory has increased by 15%
• C. A significant portion of management's compensation is directly tied to reported net income of the division
• D. The division is not scheduled for an external audit this year

Audit documentation provides evidence that the audit complies with the ISAs. However, it is neither necessary nor practicable for the auditor to document every matter considered, or professional judgment made, in an audit. Further, it is unnecessary for the auditor to document separately (as in a checklist, for example) compliance with matters for which compliance isdemonstrated by documents included within the audit file. For example the existence of an adequately documented audit plan demonstrates that the auditor has planned the audit.
Which one of the following is not an objective of audit planning?

• A. To determine the scope of the engagement
• B. To ensure appropriate attention is devoted to the important areas of the audit
• C. To identify potential problems and resolve them on a timely basis
• D. To assign work to members of the audit team

Frederich Gastona has been invited by ECA Co to perform the audit of financial statements of 2012-13. When deciding whether to accept an auditing engagement, Frederich must judge his independence and objectivity. If Frederich's audit firm lacks independence or objectivity, Frederich can't accept the engagement.
What does "Independence" mean in the context of the above case?

• A. Being an advocate for ECA Co in the law suit.
• B. Not being financially dependent on client ECA Co.
• C. Taking an unbiased viewpoint while conducting audit of ECA Co.
• D. Remaining aloof from client ECA Co.

After completing an internal control review of the accounts payable department partially, the auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use

• A. Discovery sampling to select a sample of vouchers processed by the department during the past year.
• B. Monetary unit sampling to select a sample of vouchers processed by the department during the past year.
• C. Simple random sampling to select a sample of vouchers processed by the department during the past year.
• D. Judgmental sampling to select a sample of vouchers processed by clerks identified by the department manager as acting suspiciously.