Delphic Co is a wholesaler of furniture (such as chairs, tables and cupboards). Delphic buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from large retail chain stores to smaller owner-controlled businesses. All information is stored on Delphic's computer systems although previous audits have tended to adopt an audit around the computer’ approach. You are the audit senior in charge of the audit of the receivables balance. For the first time at this client, you have decided to use audit software to assist with the audit of the receivables balance. Computer staff at Delphic are happy to help the auditor, although they cannot confirm completeness of systems documentation, and warn that the systems have very old operating systems in place, limiting file compatibility with more modern programs. As the system is old the auditor will be provided with copy files and not be allowed any direct access to Delphic's computer system. 1 Which of the following is NOT a limitation of using CAATs at Delphic? A There may be substantial setup costs to use the software, especially where the computer systems of the client have not been fully documented B The computer audit department at Delphic cannot confirm that all system documentation is available, especially for the older systems currently in use C There are over 600 customers on the system making the use of audit software inappropriate at Delphic D The auditor will be provided with copy files and not be allowed any direct access to Delphic's computer system 2 Which of the following are procedures that could be carried out using audit software on the receivables balance at Delphic Co? (1) Cast the receivables ledger to ensure it is arithmetically correct (2) Compare the balance on each receivable account with its credit limit to ensure this has not been exceeded (3) Stratify the receivables balances and select an appropriate sample for testing (4) Produce an aged receivables analysis to assist with the identification of irrecoverable receivables A 1 and 2 on B 1, 3 and 4 only C 2, 3 and 4 only D All of them 3 Which of the following is NOT a substantive test for trade receivables that would be performed during the audit of Delphic? A Cast the aged receivables listing B Agree invoices included within the receivables listing to goods despatch notes C Inspect credit reports obtained for new customers to ensure credit checks have been performed prior to accepting the customer D Inspect board minutes for any evidence of disputes with customers 4 Which of the following is NOT an appropriate audit response to the use of CAATs for the first time at Delphic? A The auditor should instruct Delphic to upgrade their systems to enable audit to be used effectively B The audit firm may need to consult with an IT expert within the audit firm C The audit team should include people with expertise of using audit software D The auditor should consider delaying the use of audit software if Delphic is planning to update its systems due to the compatibility issues 5 The term ' auditing around the computer means that the internal software of the computer is not audited but that the inputs to the computer are agreed to the expected outputs from the computer. Which of the following is a valid explanation why audit risk increases when auditing ‘around the computer’? (1) The actual computer files and programs are not tested; therefore the auditor has no direct evidence that the programs are working as expected (2) Where errors are found in reconciling inputs to outputs, it may be difficult or even impossible to determine why those errors occurred A Neither 1 nor 2 B Both 1 and 2 C 1 only D 2 only