KASNEB Certified Public Accountant (CPA) Auditing  Question Paper

Exam Name: Auditing 

Course: Certified Public Accountant (CPA)

Institution/Board: KASNEB

Exam Year:2005

KENYA ACCOUNTANTS AND SECRETARIES NATIONAL EXAMINATIONS BOARD

CPA PART 1

AUDITING

MAY 2005 3 hours

Answer any FIVE questions. ALL questions carry equal marks.

QUESTION ONE
(a) You have recently been appointed as the external auditor of XYZ Ltd. Explain the stages you would take in the conduct of your audit. (4 marks)
(b) In the context of the Companies Act (Cap. 486), outline the procedure for the removal of an auditor. (6 marks)
(c) The auditor should obtain sufficient and appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

Identify and briefly explain any three procedures for obtaining audit evidence.
(6 marks)
(d) Briefly explain the meaning of the following terms in relation to audit reports:
(i) “Except for” opinion. (2 marks)
(ii) Disclaimer of opinion. (2 marks)
(Total: 20 marks)

QUESTION TWO
(a) “The auditor must not only be independent, but must be seen to be independent.” Briefly comment on this statement. (4 marks)
(b) Suggest how the independence of an 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 “the auditor’s duty of due professional care.”
(2 marks)
(Total: 20 marks)

QUESTION THREE
(a) The information acquired by the auditor from his client in the course of his professional work should not be disclosed to any third party except where consent has been obtained from the client.

Required:
Explain five circumstances under which an auditor can disclose such information to an appropriate authority without client’s permission (5 marks)

(b) (i) Explain the meaning of the term “audit committee” (2 marks)

(ii) List and briefly explain the main functions of an audit committee. (8 marks)

(c) Explain the purpose and principal contents of a letter of engagement (5 marks)
(Total: 20 marks)


QUESTION FOUR
(a) Identify and explain the functions of the internal audit department in an organization. (4 marks)
(b) Outline and briefly explain the procedures that the internal auditor can conduct on behalf of the external auditor. (6 marks)
(c) State the factors that the external auditor should consider before placing reliance on the work of the internal auditor. (5 marks)
(d) Briefly explain the methods which an auditor might use to ascertain a client’s internal control system. (5 marks)
(Total: 20 marks)

QUESTION FIVE
The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

Required:
(a) State four benefits that an auditor would obtain from working papers that satisfy the above requirement. (4 marks)
(b) List five items of information you would expect to be contained in a permanent audit file and explain why each of these items of information should be readily available. (10 marks)
(c) In the audit of purchases, list four examples of the type of information that would be contained in the detailed audit working papers. (4 marks)
(d) Give any two reasons why an auditor should examine the directors’ minute book.
(2 marks)
(Total: 20 marks)

QUESTION SIX
(a) Cash in hand and cash at bank are commonly referred to as liquid assets. Because of this liquidity, these assets represent the most vulnerable of all the assets of an entity. You have recently been employed by Korir and Associates (Certified Public – Accountants) as an audit assistant. During your first audit assignment at Viwanda Ltd you have been allocated the audit of cash in hand and cash at bank.

Required
(i) State and explain the audit procedures you would undertake in order to
determine whether or not there has been any misappropriation of cash.
(6 marks)
(ii) Explain any five controls over cash you would expect to be instituted by a business entity in order to minimize cases of embezzlement of cash.
(5 marks)

(b) List the procedures you would follow to verify the following items:
(i) Petty cash balance. (3 marks)
(ii) Revaluation reserve. (3 marks)
(iii) Copyrights. (3 marks)
(Total: 20 marks)

QUESTION SEVEN
In the context of ISA 240 (The Auditor’s Responsibility to Consider Fraud and Error in, an Audit of Financial Statements):

(a) Define: -
(i) Fraud (3 marks)
(ii) Error (3 marks)

(b) Outline the respective responsibilities of an entity’s management and the external auditor with respect to the prevention and detection of fraud and error. (8 marks)

(c) Outline the procedures an external auditor should follow if he suspects that fraud; or error have been perpetrated. (6 marks)
(Total: 20 marks)

QUESTION EIGHT
Your are currently engaged in planning the audit of the payroll system of Ujenzi Ltd a manufacturing company, for the year ending 30 June 2005, Ujenzi Ltd’s payroll system is fully computerized.

Required:
(a) Explain four ways in which the use of a computerized payroll system by Ujenzi Ltd would affect your work as the auditor. (8 marks)
(b) Explain three controls which should be instituted by Ujenzi Ltd to ensure that only authorized persons are allowed access to information on personal files and to input updates for the calculation of wages. (6 marks)
(c) Outline how audit tests could be performed “around the computer” in relation to Ujenzi Ltd’s payroll (4 marks)
(d) List any two fraudulent activities likely to be perpetrated in relation to Ujenzi Ltd’s payroll (2 marks)
(Total: 20 marks)



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