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Auditing And Assurance Section 2 Year 2003 Question Paper

Auditing And Assurance Section 2 Year 2003

Course:Cpa

Exam Year:2003

Answer any FIVE questions
QUESTION ONE
(a) (i) Briefly explain the meaning of the term “audit”(2 marks)
(ii) What are the objectives of an audit according to the Companies Act? (3 marks)
(b) List four advantages to a company of having its accounts audited(4 marks)
(c)Identify and list the responsibilities of company directors in relation to the company’s accounting system.(6 marks)
(d) List five limitations of an audit (5marks)
(Total: 20marks)
QUESTION TWO
The internal control system encompasses all the policies and procedures adopted by the management of an entity to assist it in achieving management objectives.
Required:
a) Identify and explain five management objectives that an internal control system over sales aims to achieve (10 marks)
b) List and briefly explain five control objectives that an internal control system over sales aims to achieve (5 marks)
c) Explain are the inherent limitations of an internal control system(5 marks)
(Total: 20marks)
QUESTION THREE
a) Distinguish between a procedural audit and a balance sheet audit.(8 marks)
b) Explain the nature and purpose of a post-audit review(4 marks)
c) Identify the audit procedures which would need to be carried out in order to identify material post – balance sheet events.(8 marks)
(Total: 20 marks)
QUESTION FOUR
You have completed your audit of Tinga Tinga Ltd. You have issued a management letter to the Chief Accountant which identifies weaknesses in the controls over sales. Cash is received over the counter, from salesmen and also through the post. Tinga Tinga Ltd’s Chief Accountant has asked you for recommendations as to the type of controls you would wish to see in operation in a sales system.
Required:
Outline the controls you would expect to find in Tinga Tinga Ltd’s sales system with regard to:
a) Cash receipts by post (5marks)
b) Cash collected by salesman (5marks)
c) Cash sales within Tinga Tinga Ltd’s premises (5 marks)
d) Banking of cash received (5marks)
(Total: 20 marks)
QUESTION FIVE
Audit working papers should always be sufficiently complete and detailed to enable an auditor with no previous connection with the audit to subsequently ascertain from them what work was performed and to support the conclusions reached by the auditor
Required;
a) List four benefits that the auditor would obtain from working papers that meet the above requirements (4 marks)
b) For each of the situations listed below, give one form of audit evidence which is relevant and explain in each case whether that form of evidence is reliable and sufficient:-
i) A trade debtor shown in the balance sheet(4 marks)
ii) A batch of work-in-progress on the shop floor at the yearend(4 marks)
iii) A contingent liability disclosed in the notes to the accounts(4 marks)
c) Briefly explain giving two examples, the quality of audit evidence generated by third parties (4 marks)
(Total: 20 marks)
QUESTION SIX
State the evidence which you, as the auditor, would like to find in place and pay attention to when vouching the following payments made by RR Paper Mills Ltd. during the financial year ended 31 October 2002.
a) Loans to three employees totaling Sh.6 million (4 marks)
b) The last call on 5,000 ordinary shares at Sh.15 per share (4 marks)
c) Fire insurance premiums amounting to Sh.10, 000 paid for the office block (4 marks)
d) A loan amounting to Sh.30 million obtained from a local bank and secured by the factory building (4 marks)
e) Salesmen’s commissions amounting to Sh.3, 000,000 (4 marks)
(Total: 20 marks)
QUESTION SEVEN
a) State the basic elements of the scope paragraph of an audit report (4 marks)
b) Explain how auditors distinguish their responsibilities from those of the directors in respect of financial statements.(4 marks)
c) Explain the meaning of each of the following terms in relation to audit reports:
i) Circumstances of uncertainty (4 marks)
ii) Circumstances of disagreement (4 marks)
d) Distinguish between the “except for” and the “subject to” audit opinions (4 marks)
(Total: 20marks)
QUESTION EIGHT
a) Your firm of accountants has been the auditors of Leather Merchants Limited, a company that exports both raw and semi-finished leather products to European and Asian markets. The company has decided to introduce a comprehensive computerized system to manage its accounting and administrative functions.
Required:
a) Outline the practical difficulties you would encounter as an auditor as a result of the proposed introduction of a computerized accounting system. (10 marks)
b) Explain how you would overcome the difficulties identified in (a) above (5 marks)
c) Identify and explain the benefits that the company would derive as a result of putting in place a comprehensive computerized accounting system ( 5 marks)
(Total: 20marks)

Auditing And Assurance Section 2 Year 2003 Question Paper

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