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Auditing And Assurance Question Paper

Auditing And Assurance

Course:Auditing And Assurance

Exam Year:2011

KASNEB
CPA PART 1 SECTION 2
AUDITING AND ASSURANCE
ANSWER ANY FIVE QUESTIONS

TUESDAY: 31 MAY 2011

QUESTION ONE
(a) 1) Define the term "assurance engagement" (2 marks)

2) Describe four ways in which an audit engagement differs from an assurance engagement
(8 marks)

(b) Highlight the advantages of outsourcing the internal audit function of a company (10 marks)

QUESTION TWO
(a) With respect to the code of ethics for professional accountants, explain the importance of the following fundamental principles: (8 marks)
1) Integrity
2) Objectivity
3) Confidentiality
4) Professional ethics

b) The conceptual approach to independence requires an auditor to have independence of mind and independence in appearance.

REQUIRED:
1) Differentiate between "independence of mind" and "independence in appearance" (4 marks)

2) Citing suitable examples, explain four circumstances that could pose threats to an auditor's independence (8 marks)

QUESTION THREE
Equity Investment Group is a company listed in the National Stock Exchange. It has two main functional divisions namely; the Investment division and the Insurance division. Due to the nature of the company's transactions, the directors were of the opinion that they should form an audit committee and an internal audit function to oversee the internal control systems of the company.
The auditors of the group, PK Associates (Certified Public Accountants), are in the process of establishing the overall audit strategy which will set the scope, timing and direction of the audit.

REQUIRED:
(a) Describe some of the matters that would be included in the overall audit strategy of the Equity Investment Group (10 marks)

(b) State five matters the auditors of Equity Investment Group should discuss during their engagement team meeting (5 marks)

(c) Summarize five items that the auditors would include in the audit planning memorandum (5 marks)

QUESTION FOUR
(a) Giving two examples in each case, briefly comment on the reliability of the following types of audit evidence:
1) Evidence originated from the auditor (4 marks)
2) Evidence originated from third parties (4 marks)
3) Evidence obtained from management (4 marks)

(b) Summarize the factors that an auditor should take into consideration when assessing the reliability of the work of an expert. (8 marks)

QUESTION FIVE:
In the context of the auditor's report:
(a) Identify the matters included in the following:
1) Introductory paragraph (6 marks)
2) Statement of the auditor's responsibility (6 marks)

(b) Briefly explain the circumstances that could give rise to disagreements between the management and the auditor (8 marks)

QUESTION SIX:
The auditors of Murphy Company Limited are conducting audit testing. The auditors have received a letter from the company's lawyers indicating that the company is a defendant in a law suit alleging infringement of certain patent rights. The company has filed a counter claim and preliminary hearings are in progress. If the company loses the case, it is likely to suffer a loss of sh.500,000. The materiality level of the assignment is sh.458,000. In addition, due to loss of reputation as a result of losing the case, the company's going concern may be put to question.

REQUIRED:
(a) Describe the audit procedures that the auditors would carry out in order to obtain sufficient evidence to be able to form an opinion on the going concern status of the company (8 marks)

(b) Giving reasons, explain the likely impact of the legal case on the opinion of the auditors in their audit report (4 marks)

(c) Discuss any four matters that should be included in the letter of representation by the directors of Murphy Company limited (8 marks)

QUESTION SEVEN:
(a) The use of Computer Aided Audit Techniques (CAATs) has become a critical approach in conducting audits as more organizations are now using computerized systems in processing business transactions. The auditor should consider an appropriate combination of manual techniques and CAATs.
Discuss the factors that an auditor should consider in determining whether CAATs should be used (10 marks).

(b)Outline the substantive audit procedures that an auditor should undertake to confirm the assertions of completeness, occurrence and cut-off for purchases with respect to a partly manual and partly computerized business concern which assembles electronic goods and also procures parts from various suppliers. (10 marks)

Auditing And Assurance Question Paper

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