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Auditing 1 Question Paper

Auditing 1

Course:Bachelor Of Commerce In Accounting

Institution: Kca University question papers

Exam Year:2010

SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 203-A: AUDITING I (SATURDAY)
DATE: AUGUST 2010
TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) Members of the accounting profession in common with other profession have taken steps to reduce
professional risk as far as possible.
Required:
i.) With reference to accounting profession, what is meant by audit risk?
ii.) Suggest specific actions an individual auditor or audit firm could take to minimize
liability arising from audit risk
(3 Marks).
(4 Marks)
b) All worthy professional bodies impose a code of conduct on those who practice as members in the
public eye.

Explain the importance of the concept of professional independence to an auditor
(5 Marks).
Outline the ways in which auditors’ independence may be compromised in the course of his
duties.
(7 Marks).
c) The companies Act ( Cap 486) sets out the duties of the auditors for a company in respect of his
report and other matters.

Required;

Explain four situations under which the Act requires auditors to qualify their report.
(4 Mark
Explain the circumstances in which the auditors may qualify their report owing to
inherent uncertainty

(3 Marks)
Explain four circumstances in which the auditors may qualify their report as a
result of disagreement with the directors.
(4 Marks)
QUESTION TWO
Matrine Lee Ltd was formed on August 1st.2009 in order to export craft products to American
Markets. The directors are unsure as to their responsibilities and nature of their relationship with the
external auditors. The audit partner has asked you to visit the client and explain to the directors, the
aspects of the accountability of the directors and their relationship with the auditor.
Required;
Explain to the directors of Matrine Lee Ltd.
The need for an audit.
Procedures for the appointment of an auditor of a public company under the Companies Act.
(6 Marks)
Directors responsibilities in relation to the accounting function of the company.
(6 Marks)
d) Auditors’ responsibilities in relation to the audit of the company’s financial statements
(5 Marks)
QUESTION THREE
Audit planning process allows the audit senior to acquire adequate knowledge about the entity. This
process ensures an effective control and review of audit work.
Required
Explain the auditors’ planning process when planning assist in the conduct of an audit?(8 Marks)
How does audit planning assist in the conduct of an audit?
(6 Marks)
Explain the following controlling procedures in a well planned audit:
Direction of supervisors; work
Review and co-ordination of work
Quality controls
(6 Marks)
QUESTION FOUR
a) Your firm has been approached by the directors of XL Bank Ltd. a newly formed
commercial bank to undertake the audit for its first complete financial year ended 31 December
2009. Your manager has assigned you the responsibility for leading the audit team. You have had
various discussions with the directors about the audit timetable and the respective responsibilities of
management and the auditor. You have drafted a letter of engagement and have sent it to the
managing director for approval and acceptance but the management has not yet responded to your
letter.
Required:
Explain why a letter of engagement is sent before any new audit appointment is
accepted.
(3 Marks)
Set out the main contents of a letter of engagement. (3 Marks)

Beta Co. Ltd has undergone a period of substantial growth following its establishment
five years ago. At the last annual general meeting, Delta & Co. Associates, a two-partner
firm of Certified Public Accountants were re-appointed as auditors. However, Delta &
Co. Associates have decided that they do not have the necessary resources to audit the
enlarged company.
Required:
Briefly, explain how Delta & Co. Associates may resign from its appointment before the next
annual general meeting
( 4 Marks)
How may a casual vacancy arising from the resignation of present auditors be filled and what
procedures are necessary before the company’s next annual general meeting at which the
appointment will be presented for ratification?
(5 Marks)

Outline the steps the prospective auditor must take before deciding whether or not to accepts
the nomination as an auditor.
(5 Marks)
QUESTION FIVE
Auditors usually refer to “auditing standards”, “guidelines and procedures”.
Required:
a) Explain the scope and purpose of auditing standards and auditing guidelines.
(10 Marks)
b) Describe briefly the nature and reliability of each of the following techniques of audit testing
giving an example of each.
i) Inspection (4 Marks)
ii) Observation (3 Marks)
iii) Inquiry

Auditing 1 Question Paper

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