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Auditing Question Paper

Auditing

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 203: AUDITING I (SATURDAY)
DATE: APRIL 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and Any other TWO Questions
QUESTION ONE
(a) Explain the importance of the concept of professional independence to an auditor
(2 Marks)
(b) State and explain five specific guidelines regarding independence given to members of the Institute of Certified Public Accountants of Kenya. (5 Marks)
(c) Explain any five ways in which the independence of the auditor could be compromised, in
the course of his duties. (8 Marks)
(d). Describe the principal purposes of management letter. (3 Marks)
(e). Your Audit firm has acted for many years as auditors of Maringo Traders Ltd.. In the course of your audit you have come across the following matters, which you believe should be brought to the attention of the directors through a management letter.
1. The company banks all its cheques and cash once a week, usually on Friday afternoon.
Unbanked cash is held in a petty cash box which is kept in the drawer of a desk in the general office. Only the financial controller and the general manager have access to the keys for the drawer and petty cash box.
2. The company’s stock taking instructions require that pre-numbered stock sheets be issued by and returned to the financial controller. During the stock take attendance you noted that the stock sheets in use were not pre-numbered as required.
3. Suppliers statements once received are passed on to the purchases ledger clerk for checking against the creditors account and subsequent filing. No further controls are implemented after the filing.
Required: Write a management letter to the management of marigo Traders ltd explaining the
weaknesses and advice them of how to deal with above issues. (12 Marks)
QUESTION TWO
“The auditor should obtain relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions there from”.
(a) Explain any five categories of evidence that an auditor might use, giving an example for each. (10 Marks)
(b) Explain the factors that would enable an auditor to assess the reliability of evidence that he/she has collected. (4 Marks)
(c) Summaries the types of evidence that an auditor would ordinarily collect in respect of
Lands and Buildings. (6 Marks)
QUESTION THREE
a) ABC Co. Ltd is a new firm which has traded for two years. In the 2009 the directors thought it
was necessary to appoint a new auditor.
(i) Explain the various ways an auditor can be appointed. (2 Marks)
(ii) Explain the rights associated with the removal and resignation of an auditor
(4 Marks)
(iii) Explain any five ways in which an auditors’ independence may be impaired
(4 Marks)
b) (i) Explain the agency theory in relation to auditing. (4 Marks)
(ii) Explain what is meant by Auditing Standards. Explain any two General Auditing
Standards. (6 Marks)
QUESTION FOUR
a) You have been appointed the external auditor of Amani Co. Ltd for the year ended 31st Dec 2009.
(i) Explain four reasons why you would have to prepare adequate Audit working papers.
(4 Marks)
(ii) State the documents and information you would gather for the permanent Audit file for
your new client. (6 Marks)
b) You have been requested by KCA University management to design a system of internal
control, in the University materials procurement department.
What purpose is a system of internal control intended to serve? Include the basic features of a system of internal control. (10 Marks)
QUESTION FIVE
a) The following is stated in the audit report on the accounts of a company “in view of our
comments made we are of the opinion that the balance sheet and the profit and loss account
give a true and fair view” Under what circumstances can an auditor express such an opinion? (8 Marks)
b) Explain the steps that independent auditor needs to take before commencement of any audit.
(6 Marks)
c) XYZ have been trading as partners for many years. X suggests the need for an audit but Y and Z argue that that’s expensive to engage an auditor and it is not necessary since 80 % of their time is spent on management of the firm in turns. Explain the advantages of a such an audit.
(6 Marks)

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