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Auditing 2 Question Paper

Auditing 2

Course:Bachelor Of Commerce In Accounting

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 300-A: AUDITING II-(Day & Evening)
DATE: AUGUST 2010
TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
Consider the following independent situations, all of which apply to audits of entities for the year
ending 31 December 2009:

(i)Limited, a listed company, has been experiencing declining sales over the last 2 years. Cost
cutting has proved difficult due to the high level of imported machinery used in Slipway’s
operations and consequently margins have been falling. While the bankers are presently happy
to continue providing Slipway with loan facilities, they do expect to see improved results in the
next financial report. Articles about Slipway’s expected financial results appearing in recent
press reports all had quite a pessimistic tone.

(ii)T Falls Limited is a large superMarket chain with offices in all capital cities around Australia.
Until 30 June 2009 data processing relating to payroll transactions will be carried out in each
capital city by an independent computer service bureau.

(iii)Liberty Limited is a long established firm which has been operating a boutique hotel in the
Blue Mountains for over 20 years. During this time, it has adopted a conservative business
strategy that has seen it produce adequate, though slightly unimpressive, results. A new CEO
has been appointed to run the firm from 1 September 2009. He has already released his plans
for renovating the hotel, despite not officially serving as CEO yet. You have also heard him
discuss the implementation of a new Marketing strategy to boost occupancy rates.

(iv)Bonventure Limited is a small primary producer specializing in the production of Bonventure
wool.Bonventure recent display at a trade show has seen orders flood in from overseas buyers.
The accountant, Michael, has done his best to satisfy the orders as quickly as possible while
maintaining the appropriate (foreign currency) accounting records. However, from some of the
questions he has been asking you, you suspect he is out of his depth.

(v)Oddysey Limited has been manufacturing uniforms for the Australian Market for the last 40
years. The government’s recent tariff reduction policy has placed Oddysey in direct
competition with cheaper uniforms manufactured overseas. In a bid to retain Market share,
Oddysey has been selling part of its school uniform range at less than cost. However,
overall profit figures remain buoyant.

Required:
For each of the above independent situations describe the overall impact on audit risk and identify the
specific component(s) of audit risk affected.
[30 Marks]

QUESTION TWO
a) The external auditor of a company uses the system of internal control to determine the nature,
extent and timing of his audit tests
i) What value does the client obtain from external auditor with respect to internal controls?
ii) Explain how the auditor provides this value
(10 Marks)

b) Write brief notes on the following
i.) Final or Complete audit
ii.) Interim audit
iii.) Continuous audit
(6 Marks)

c) State and explain four circumstances under which the Companies Act require the auditor to qualify
their report
(4 Marks)

QUESTION THREE

Analytical procedures means the analysis of significant ratio and trends including the resulting
investigations of fluctuations and relationships that are inconsistent.
a) Briefly describe the purpose of analytical review
b) What extent of reliance should the auditor place on analytical review
(8 Marks)
(12 Marks)

QUESTION FOUR
a) Discuss the relationship between audit risk and materiality
(5 Marks)

b) Audit Committees are BOD of mainly listed company and it usually consist of 2 or more non
executive Directors
Explain the functions of audit committees
(6 Marks)

c) Briefly explain the following audit testing.
i.) Walkthrough checks
ii.) Compliance test
iii.) Substantive test
(9 Marks)

Auditing 2 Question Paper

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