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Auditing I Question Paper

Auditing I

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 203 A: AUDITING I (SATURDAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
Question One
You have recently been appointed auditor of Hagard Ltd. a quoted company which owns several hotels
in the EastAfrican region. The company has an established audit department which is based at the
head office in Mombasa, Kenya, and makes regular audit visits to the Company branches in the region.
Required:
a) Describe the work you would expect to be carried out by the internal audit staff of Hagard Ltd.
(5 Marks)
b)The appropriateness of the audit evidence is determined by its quality that relates to its:
?? Relevance.
?? Reliability.
?? Consistency.
Illustrate what is meant by the three terms giving examples. (3 Marks)
c) Highlight the factors you would consider when assessing the extent to which you would rely on
the work of the internal audit department. (4 Marks)
d)State why its important for an incoming auditor to hold conversation with an outgoing auditor
(4 Marks)
2
e) Audit Planning is preceded by auditor knowledge of the client business. Explain the general
matters to be considered by an auditor while taking up an engagement and the major sources of
obtaining information about the client’s business. (6 Marks)
f) Outline the need of an engagement letter in a re-appointment audit. (1 Mark)
g)Outline the fundamental principles of The Code of Ethics (4 Marks)
h)Describe the types of representations that may be obtained from the management by an auditor.
(3 Marks)
Question Two
Marende Ltd. is an import and export company located in Thika . The company deals in the
importation and exportation of various goods for direct sales to retailers on both credit and cash terms.
You are employed as an audit Manager by Muka & Company Auditors currently engaged in the
statutory audit of the company’s books.
Required:
a) Describe the main internal controls that you would expect to find in operation with regard to the
company’s sales and receivables. (6 Marks)
b)Briefly explain the inherent limitations that might hinder the effective operation of an internal
control system over sales and receivables in Marende Ltd (6 Marks)
c) Audit risk is the product of Inherent Risk, Control Risk and Detection Risk.
i.Define Inherent Risk, Control Risk and Detection Risk (3 Marks)
ii. Discuss these in the context of Marende Ltd sales and receivables. (5 Marks)
Question Three
a) State and explain the circumstances in which an auditor may give a qualified audit report.
(8 Marks)
b)State and explain the type of opinion that should be expressed in the auditor’s report in each of
the following situations:
i.A debtor owing a large amount of money is unable to pay a client company and the directors
have not made an allowance for bad and doubtful debts. (4 Marks)
ii. A client company has changed its accounting policy during the current financial year and
there is no retrospective adjustment. (4 Marks)
iii.There is disagreement over treatment of a material amounts in the accounts (4 Marks)
3
Question Four
a) Describe the various procedures of obtaining audit evidence giving an example of each by way
of illustration. (10 Marks)
b)Discuss the auditor’s responsibilities with regards to the detection and prevention of frauds and
errors. (2 Marks)
c) State what actions an auditor would take if the director refused to provide him with a letter of
representation (4 Marks)
d)Outline the benefits that can be derived by an audit from the successful employment of
statistical sampling techniques as opposed to non-statistical sampling. (4 Marks)
Question Five
Threats to independence of an auditor can broadly be categorized into 5 types.
a) Identify these threats and give examples (10 Marks)
b) Using examples outline the possible safeguards that an auditor can apply against these threats.
(5 Marks)
c) Outline the factors that an auditor will consider prior to accepting re-appointment. (5 Marks)

Auditing I Question Paper

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