Rehan & Co has been appointed as an external auditor of Limba Plc for the financial year 2011-12. Rehan & Co has identified some problems in the financial statements and now at the final stage of writing the report on the audit.
In which of the following case, Rehan & Co may issue an adverse opinion?

• A. Some parts of the financial statements of Limba Plc found misleading or misstated on the performed investigation but Rehan & Co is not sure about their pervasiveness.
• B. The audit firm, Rehan & Co, is not independent from the management of Limba Plc.
• C. The overall financial statements of Limba Plc are as materially misstated or misleading as a whole that they do not present fairly the financial position or results of operations and cash flows in conformity with IFRS.
• D. Some parts of the financial statements of Limba Plc are materially misstated or misleading.

After partially completing an internal control review of the accounts payable department, 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. Simple random sampling to select a sample of vouchers processed by the department during the past year.
• B. Discovery sampling to select a sample of vouchers processed by the department during the past year.
• C. Judgmental sampling to select a sample of vouchers processed by clerks identified by the department manager as acting suspiciously.
• D. Probability-proportional-to-size sampling to select a sample of vouchers processed by the department during the past year.

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%.
If the auditor decides that there are significant problems with the standard cost system, the next audit step to perform would be to

• A. Schedule all variances and determine their source and their disposition, that is, whether they are allocated to inventory or cost of goods sold.
• B. Select a random sample of products and review the standard cost build-up by tracing purchases to the standard cost record.
• C. Interview divisional management to determine why the standard cost system has not been updated on a timely basis.
• D. Use generalised audit software to prepare a listing of gross margin by product by comparing standard cost with sales price. Select all high-gross-margin items for further investigation.

Grey Ltd has recently discovered that it has been paying invoices in respect of goods which had been returned as faulty prior to acceptance. It is company policy to record goods only if they have been accepted.
Which of the following controls would be useful in preventing such incidence in future?

• A. Matching of purchase invoices with goods received notes
• B. Matching of purchase invoices with orders
• C. Comparison of supplier statements with payables ledger accounts
• D. Date stamping purchase invoices on receipt