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Caa 203 Auditing I Question Paper
Caa 203 Auditing I
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2011/2012
YEAR II EXAMINATION FOR THE BACHELOR OF COMMERCE
CAA 203 AUDITING I (DAY + EVE)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION ONE:
You are the auditor of Biashara Company which manufactures and sells toys by mail order.The
company is managed by Mr.Kyoto and two assistants .Mr Kyoto authorizes important transactions
such as wages and large orders ,one assistant maintains the payables ledger orders inventory and pays
suppliers and the other assistant receives customer orders and dispatches toys. Due to other
commitments Mr.Kyoto only visits the office once per week.
At any time about 100 different types of toys are available for sale.All sales are made cash with orderthere
are no receivables. Customers pay using credit cards and occasionally by sending cash. Turn
over is over 5.2 million
You are planning the audit of Biashara Ltd and are considering using some of the procedures for
gathering audit evidence recommended by ISA 500 as follows;
Analytical procedures
Inquiry
Inspection
Observation
Required:
2
a) For EACH of the above procedures:
i. Explain its use in gathering audit evidence (4 Marks)
ii. Describe one example for the audit of Biashara Ltd (6 Marks)
b) Discuss the suitability of each procedure for Biashara ltd explaining the limitations of each
(10 Marks)
c) Tabulate FIVE key features of small companies such as Biashara and the impact these may
have on your audit work (10 Marks)
QUESTION TWO
a) Explain the situations where an auditor may disclose confidential information about a client
(8 Marks)
b) You are the audit manager in Roy & Co an audit firm.You are preparing the engagement letter
for the audit of Ancients a public limited company for the year ending June 2006.
Ancients has grown rapidly over the past few years and is now one of your most important
clients.
Ancients has been an audit client for eight years and Roy & Co has provided taxation and
management consultancy advice during this time.The client has been satisfied with the services
provided, although the taxation fee for the period to 31st Dec 20065 remains unpaid.
Audit personnel available for this years audit are the most of the staff from last year including
Mrs Grace ,an audit partner and Mr.Jones an audit senior Mrs.Grace has been the audit partner
since Ancients became an audit client.You are aware that Allyson Grace , the daughter of Mrs
Grace ,has recently been appointed the financial director at Ancients.
To celebrate her new appointment, Allyson has suggested taking all the audit staff out to an
expensive restaurant prior to the start of the audit work for this year.
Required:
c) Identify and explain the risks to independence arising in carrying out your audit of Ancients for
the year ending 30th June 2006 (6 Marks)
d) Suggest ways of mitigating each of the risks you identify (6 Marks)
3
QUESTION THREE
a) The purpose of an external audit and its role are not well understood.You have been asked to
write some material for inclusion in your firm ‘s training materials dealing with these issues in
the audit of large companies.
Required:
i. Draft an explanation dealing with the purpose of an external audit and its role in the the audit
of large companies, for inclusion in the firms training materials (10 Marks)
b) For salaries and wages system of A/Cs and internal controls of your clients Maji Mazuri Ltd a
large company with over 5,000 employees ,you are aware that certain frauds could take place
and you are attempting to evaluate the system using an internal control evaluation form:
Required:
i. Identify and explain the implication of 5 ways that wages fraud could occur (5 Marks)
ii. For each way identified above ,list the control measure you would expect your client to have
established to minimize the occurrence of frauds (5 Marks)
QUESTION FOUR
You have been doing an auditing of Rock Co and are nearing the completion of the audit of for the
year ending 31st Dec 2004.Draft financial statements have been produced.You have been given the
responsibility of performing an review of the audit files before they are passed to the audit manager
and the audit partner for their review.You have been asked to concentrate on the proper completion of
the audit working papers.Some of the audit working papers have been printed out for you.
Required:
a) Describe the types of audit working papers you should expect to see in the files and the
features of those working papers that show that they have properly completed (10 Marks)
b) Identify the advantages of having an audit programme (5 Marks)
c) Distinguish between a continous audit and an interim audit (5 Marks)
4
QUESTION FIVE
Explain the purpose of a management representation letter (5 mks)
A letter of representation has been sent by the auditors to the directors of a Umoja company.The
directors have stated that they will not sign the letter of representation this year on the grounds that
they believe the additional evidence that it provides is not required by the auditor.
Required:
a) Discuss the actions the auditor may take as a result of the decision made by the directors not to
sign the letter of representation (7 Marks)
b) Compare the responsibilities of the directors and the auditors regarding the published financial
statements of Umoja company (8 Marks)
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