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Auditing Ii (Day Class &Amp; Evening) Question Paper
Auditing Ii (Day Class &Amp; Evening)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 300: AUDITING II (DAY CLASS & EVENING)
DATE: APRIL 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer QUESTION ONE and Any other TWO Questions
QUESTION ONE
a) List five internal control weaknesses you are likely to find in a big purchasing and stores
department of an organization which does not have a sound internal control system. In each case,
explain how the organization will suffer if the weakness is not corrected. (5 Marks)
b) As a direct result of rapid advancement made in technology in recent years, there has been a
marked increase in the level of sophistication of computers used in business operations. In
particular, the express needs for speed of access to data held on file, quicker updates of files and
feedback using visual display units have led to the development of ‘on- line’ and ‘real- time’
processing systems.
Required:
i. Explain briefly what is meant by ‘on-line and ‘real-time’ systems. (6 Marks)
ii. Briefly describe the major problems, which ‘on-line’ and ‘real-time’ systems can present
from the point of view and suggest how the auditor can overcome these problems
(10 Marks)
c) Describe any five indicators of errors and fraud in an accounting system (5 Marks)
d) (Briefly explain the types of audit reports that may be issued by external auditor (4 Marks)
QUESTION TWO
Kenya electrical Ltd, sells electrical goods, which are assembled from a wide range of bought –in components. Computerized continuous stock records are maintained for all types of components. Data
from goods received notes and work requisitions are input daily in batches to provide up to date stock
listing.
The management of Kenya Electricals Ltd has experienced some problems with the stock system.
Periodic test-counts of stock were made during the year and a significant number of discrepancies
between the stock records and the physical stock counts are discovered. You have been asked by
management, as part of your audit procedures to investigate this matter and establish reasons for the
discrepancies.
Required:
a) Describe the audit work that you would carry out to establish the reasons for the discrepancies
between the stock records and the physical stock counts. (12 Marks)
b) Explain why the audit of stock and work in progress can pose particular challenges (8 Marks)
QUESTION THREE
(a) What are the main reasons for audit sampling and where is it applied? (5 Marks)
(b) In relation to the roles of the Audit committees in modern firms, discuss the following
(i) The objectives of an audit committee (5 Marks)
(ii) The composition of an audit committee (4 Marks)
(iii)Responsibilities of an audit committee (6 Marks)
QUESTION FOUR
In the context of international standard of Auditing (ISA) 560 (subsequent events):
‘A major influence on whether financial statements disclose a true and fair view depends upon the ultimate outcome of events or transactions which have not been completed at the date of signing the audit report. Accordingly, the auditor should have no responsibility arising from the consequences of such events or transactions’
Required
Discuss and reach a conclusion upon the implications of such an approach to the auditor’s
responsibility;
(a) At the date of signing the report (8 Marks)
(b) After signing the audit report but before the annual general meeting (6 Marks)
(c) After the annual general meeting (6 Marks)
QUESTION FIVE
Planning refers to developing a general strategy and a detailed approach for the expected nature, timing
and extent of the audit. The auditor should plan his work to enable him to conduct an effective auditing
in an efficient manner.
Required
(i) Outline the advantages of a good audit planning (5 Marks)
(ii) Discuss the factors to consider when formulating the audit plan (10 Marks)
(ii) Differentiate between compliance testing and substantive testing (5 Marks)
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