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Dac 402: Financial Auditing And Investigations Question Paper
Dac 402: Financial Auditing And Investigations
Course:Bachelor Of Commerce
Institution: University Of Nairobi question papers
Exam Year:2013
INSTRUCTIONS
1. Answer ALL Questions.
2. Be NEAT.
3. All Questions carry EQUAL Marks.
QUESTION ONE
A company's management, shareholders and creditors are directly concerned with the auditor's function and performance particularly in the case of publicly traded companies.
(a) Briefly discuss who among the above groups is the most important beneficiary of an auditor's report on a company's financial statements. [13 marks]
(b) Describe the circumstance in which there are potential conficts of interest between these groups. How should the auditors resolve such conflicts in needs of the above parties. [12 marks]
QUESTION TWO
Using audit risk model, compute the detection risk for the following values of audit risk, inherent risk and control risk, then answer the questions (a) - (d)
Point A: Audit Risk (10%), Inherent Risk (25%), Control Risk (50%)
Point B: Audit Risk (5%), Inherent Risk (40%), Control Risk (75%)
Point C: Audit Risk (1%), Inherent Risk (50%), Control Risk (5%)
(a) Which of the 'points' yields the highest required detection risk? What does this imply for evidence gathering by the auditor? [8 marks]
(b) Which of the 'points' yields the lowest required detection risk? What does this imply for evidence gathering by the auditor? [8 marks]
(c) Which point would require more audit effort? Explain. [4 marks]
(d) What factors affect the interpretation of these results? [4 marks]
QUESTION THREE
The audit supervisor has allocated you an area of fixed assets to carry out test of balances. This is an important area since the value of fixed assets are material. Internal control in this area has been determined as very weak. During the assessment of internal control, it was observed that although the controls are in place, they are overlooked by management.
Required:
Describe the procedures you will apply to ascertain the balances in each asset item is reasonably correct. In particular the items concerned are: motor vehicles, land and building, office equipment and furniture and fittings. (25 marks)
QUESTION FOUR
An auditor applies sampling theory in order to gather evidence to confirm or disconfirm management's assertions. In the early days of auditing, it was not unusual for independent auditors to examine all the records of the company being audited. However, as companies grew in size and complexity, it became uneconomical to examine all of the accounting record and supporting documents, thus the use of sampling as a technique of gaining evidence from part of the population.
Required:
(i) List and describe the sampling techniques that are applied by auditors to identify elements to be tested. [18 marks]
(ii) How would you avoid sampling risk? [7 marks]
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