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Auditing Ii Question Paper
Auditing Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE I EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 300: AUDITING II
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE (30 MARKS)
Your firm is Mars international PLC and you have been assigned the audit of the firm’s fixed assets for
the year ended 31st December, 2008.
The fixed assets comprise of:
Freehold land and buildings
Office equipments
Motor vehicles used by the directors and sales staff.
The company uses the following depreciation rates:
Buildings at 2% on cost p.a.
Office equipments including computers at 10% on cost p.a.
Motor vehicles at 25% on cost p.a.
Required
a) State four audit objectives relating to the audit of tangible fixed assets (6Marks)
b) Describe how you would verify the ownership of:
Freehold land and buildings (8 Marks)
Computers and motor vehicles (4 Marks)
2
c) Describe the investigations you would carry out to determine whether the depreciation rate of
the computers is adequate (6 Marks)
d) Describe the factors you would consider when deciding whether to modify your audit report on
the understatement of the depreciation of the computers (6 Marks)
QUESTION TWO (20 MARKS)
a) Auditors are increasingly obtaining audit evidence using analytical review procedures.
i) Briefly describe the purpose of performing analytical review procedures at different stages
of an audit. (6 Marks)
ii) Explain two advantages and disadvantages of performing analytical review procedures
during audit. (4 Marks)
b) Outline the auditors responsibility with regard to the valuation of a company’s assets.
(4 Marks)
c) Highlight the information that an auditor would seek to verify in relation to the following
documents:
i). Register of debenture holders (3 Marks)
ii). Lease agreement on the company’s premises (3 Marks)
QUESTION THREE (20 MARKS)
You are a senior member of the audit team at Sukari co. Ltd, a company whose business is the milling
of sugar, ethanol and molasses for local consumption.
The annual turnover for the year ended 30th September, 2007 amounted to sh.1billion and most of its
sales were on credit.
The audit team leader has assigned you the audit of the provision for doubtful debts which has been set
at 5.74million, out of which sh. 2.53million relates to the provision against specific bad and doubtful
debts as the balance of sh.3.19million is a general provision determined as a percentage of overdue
debtors with a higher percentage being applied against the longest overdue accounts.
Required
a) Outline the procedure you would apply in verifying the general provision for bad and doubtful
debts. (10 Marks)
b) Explain how you would verify the specific provisions for doubtful debts. (5 Marks)
c) Briefly explain the meaning of the following terms:
3
Materiality concept
Going concern (5 Marks)
QUESTION FOUR (20 MARKS)
a) The presence of fraud in corporate collapse often results in litigation against the auditors
involved.
Required
i) Explain the reasons why fraud poses a threat to auditors. (6 Marks)
ii) List the possible indications of the existence of fraud in a clients company. (4 Marks)
b) Describe the audit procedures an auditor would adopt if he suspects that the following types of
frauds have been committed or perpetrated by the client.
i). Pay for fictitious procurements. (5 Marks)
ii). The existence of dummy employees on the payroll. (5 Marks)
QUESTION FIVE (20 MARKS)
a) ‘’The auditor must not only be independent but must be seen to be independent ‘’
Briefly explain on this statement. (4 Marks)
b) Suggest how the independent of the auditor may be strengthened. (4 Marks)
c) Explain the challenges that auditors face in the process of being independent. (4 Marks)
d) Outline the ways in which an auditor may be held criminally liable in the course of his audit
duties . (6 Marks)
e) Briefly explain what is meant by “auditor’s duty of due care’’ (2 Marks).
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