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Auditing Question Paper

Auditing

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2006

AUDITING

QUESTION ONE
a. Differentiate between the following types of audits.

i. Continuous audit and interim audit (2mks)
ii. Procedural audit and management audit (2mks)

b. Explain the importance of a management audit in an organisation (8mks)

c. You have recently been appointed as the auditor of Telex Ltd.
Outline the audit procedures you would perform with regard to the opening balances derived from the financial statements of the preceding period. (8mks)

QUESTION TWO
a. In relation to the Companies Act:
i. State the rights of an auditor (4mks)
ii. Explain the procedure a company should follow when removing an auditor (8mks)

b. State the reasons why a company may change its external auditors. (4mks)

c. Explain the conditions necessary for an auditor to exercise his right of lien over a client''s documents. (4mks)

QUESTION THREE
a. "The auditor should obtain relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom"

List and explain the various techniques an auditor may use to collect audit evidence on the following items appearing in a client''s financial statements:
i. Motor vehicles (4mks)
ii. Contingent liability (4mks)

b. Test checking is an approach to obtaining audit evidence on each type of transaction by examining a representative sample of each type.
i. Explain the importance of test checking to an auditor. (6mks)
ii. Outline the factors that influence the size of the sample to be tested by an auditor (6mks)

QUESTION FOUR
a. Explain the importance of internal controls in a company''s accounting system (4mks)

b. Explain the audit procedures that an auditor would perform in relation to a client''s accounting system. (6mks)

c. Tyrex Ltd. is a manufacturing company that sells goods in bulk to retailers. The retailers place their orders through the post together with a cheque remittance for the goods. In case of over payment by a retailer, a cheque is prepared by the account''s clerk of the company for the excess amount and signed by the chief accountant then forwarded to the retailer on delivery of the goods. During the audit of the company, the management sought your advice on the type of internal controls you would recommend for the company to implement.

Required:
Explain to the management, the internal controls that the company should institute with regard to:
i. Cheque remittance received by post (6mks)
ii. Cheque refunds to retailers (4mks)

QUESTION FIVE
a. Kenam Ltd. is a newly quoted company on the stock exchange. During its initial public offering, investors applied for the company''s shares using an application form accompanied by either a cash or cheque payment for the amount of shares applied for. Your audit senior has assigned you the responsibility of auditing the company''s initial public offering issue.

Required:
Describe the audit procedures you would perform in verifying:
i. Shares paid for in cash (6mks)
ii. Shares paid for by cheque (5mks)
iii. Information in the share application forms (3mks)

b. Outline the audit procedures an auditor should perform if a client company issues ordinary shares at a discount (6mks)

QUESTION SIX
a. In the context of International Standard on Auditing (ISA) 700 (The Auditor''s Report on Financial Statements):

i. Explain the term "emphasis of matter" (2mks)
ii. Identify three situations under which an auditor will include an emphasis of matter paragraph in his audit report (6mks)
iii. Explain the conditions that should be filled before an auditor signs the audit report (6mks)

b. In an engagement to review the financial statements of a company, an auditor will form an opinion as to whether any issue has come to his attention to indicate that the financial statements do not give a true and fair view of the company''s financial position.
Outline the matters an auditor takes into consideration when preparing an engagement letter to review the financial statements of a company. (6mks)

QUESTION SEVEN
"An auditor should plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of audit"

Required:
a. Explain the factors taken into consideration by an auditor when assessing the level of inherent risk in an organisation (6mks)
b. List the possible indicators of the existence of a high audit risk in an organisation (6mks)
c. Summarise the benefits and limitations to an auditor of the audit risk approach to auditing (8mks)

QUESTION EIGHT
a. In a computer based system, the auditor should regularly review and test the programmed controls so that he can obtain adequate evidence regarding the functioning of the controls during the whole period.

Required:
i. Highlight the objectives of programmed controls in a computer based system (4mks)
ii. Identify and explain the types of programmed controls that are designed in a computer based system (8mks)

b. Explain the ways in which an auditor uses a computer to assist in carrying out his audit work (8mks)

Auditing Question Paper

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