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Auditing And Assurance Question Paper

Auditing And Assurance

Course:Cpa Part Ii

Institution: Strathmore Business School question papers

Exam Year:2009

Answer any FIVE questions. ALL questions carry equal marks.

QUESTION ONE
(a) What is an “interim audit”? (2 marks)
(b) Identify any four circumstances under which an interim audit would be ideal.
(4 marks)
(c) List and briefly explain five disadvantages of an interim audit. (10 marks)
(d) Suggest solutions to any four disadvantages you have identified in (c) above.
(4 marks)
(Total: 20 marks)

QUESTION TWO
(a) Outline the professional guidelines that would assist the external auditor in avoiding being unduly dependent on a single client. (5 marks)
(b) Identify and briefly explain the statutory and ethical matters you would consider before accepting appointment as an auditor of a company. (10 marks)
(c) In the context of the Companies Act (Cap. 486), state the rights of an auditor.
(5 marks)
(Total: 20 marks)

QUESTION THREE
An internal control system is designed to provide reasonable assurance that all the control objectives are being achieved.

Required:
What purpose does an internal control system serve in an organization? (6 marks)
Identify and briefly explain the three key elements of a good internal control system.
(6 marks)
Identify and briefly explain any four inherent limitations of an internal control system.
(8 marks)
(Total: 20 marks)

QUESTION FOUR
You are in charge of a group of audit trainees who have just been employed by your audit firm. This is the audit trainees’ first assignment and they are aware that they are supposed to prepare audit working papers but they do not know how to do so or what information they should include in the audit working paper.’

Required:
(a) Explain the importance of audit working papers. (4 marks)
(b) Provide the audit trainees with guidelines on how they should prepare audit working papers. (4 marks)
(c) Identify the type of information that the audit trainees should include in the audit working papers. (8 marks)
(d) List any four advantages of standardized audit working papers. (4 marks)
(Total: 20 marks)

QUESTION FIVE
Bafu Ltd., a private limited company, manufactures a wide range of bathroom fittings. These fittings are made from steel components which are chromed in small vats. The steel components are sourced from outside suppliers. The year end stock mainly consists of these steel components and finished items. As at 31 October 2004, the total stock was valued at Sh. 6,048,000 out of total assets of Sh. 19,200,000. This stock figure was obtained by a physical count as at 31 October 2004, and valuation by reference to purchase invoices and manufacturing cost estimates.

Required:
With reference to each of the matters listed below, state the work you would do to conclude whether the amount attributed to stock is fairly stated.
(a) Quantities (5 marks)
(b) Identification of stock items (3 marks)
(c) Condition of stock items (2 marks)
(d) Cut-off procedures (5 marks)
(e) Valuation of stock (5 marks)
(Total: 20 marks)

QUESTION SIX
(a) Briefly explain the following terms as used in auditing:
(i) Vouching audit (2 marks)
(ii) Inherent risk. (2 marks)
(iii) Control risk (2 marks)
(iv) In depth audit tests. (2 marks)

(b) Explain the assurances that an auditor seeks to obtain in the audit of tangible fixed assets. (6 marks)
(c) Suggest six control measures that would help reduce the control risk associated with tangible fixed assets. (6 marks)
(Total: 20 marks)

QUESTION SEVEN
(a) (i) What is an audit peer review? (2 marks)
(ii) State and briefly explain the objectives of an audit peer review (6 marks)

(b) You are the auditors of Mount Elgon Ltd. You are carrying out a review of the accounts for the financial year ended 31 October 2004 with a view of signing the audit report. During this review, you have noted the following matters:
1. No depreciation has been provided on plant and machinery for the financial year ended 31 October 2004. This is because the directors of Mount Elgon Ltd. feel that the value of the plant and machinery is in excess of the amount at which it is stated in the financial statements.
2. Some sections of the company’s stocktaking records were accidentally destroyed. Consequently, the value attributed to stocks as at 31 October 2004 is only an estimation by the directors of Mount Elgon Ltd.

Required:
(i) What would be your audit opinion with regard to the matter referred to in (1) above? (6 marks)
(ii) Draft an audit report expressing your specific reservations with regard to (2) above (6 marks)
(Total: 20 marks)

QUESTION EIGHT
(a) State and briefly explain an auditor’s responsibilities with regard to the detection of errors and frauds. (8 marks)
(b) In the context of the audit of a computerized accounting system;
i. State and control objectives generally associated with the processing of data in a computerized accounting environment.’ (6 marks)
ii. Identify the program controls which should be inbuilt in a computerized accounting system. (6 marks)
(Total: 20 marks)

Auditing And Assurance Question Paper

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