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Caa 203: Auditing I (Sunday) Question Paper
Caa 203: Auditing I (Sunday)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
SECOND YEAR STAGE 3 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 203: AUDITING I (SUNDAY)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) You have been appointed the external auditor of a Harpo Company LTD for the year ended
31st Dec 2008.
i. Give four reasons why you would need to prepare adequate Audit working papers.
(6 Marks)
ii. State the information and documents you would gather for the permanent Audit file
for this new client
(10 Marks)
b) i) Explain the various techniques that are used by an auditor to assess the adequacy of internal
control procedures in operation in a company. (8 Marks)
ii) List the general forms of qualification available in drafting Auditors report and state the
circumstances in which each is appropriate (6 Marks)
QUESTION TWO
Rose Co, a haulage contractor company with sales of $7 million and profits of $1 million for the
financial year ended 31 January 2006, recently dismissed its financial director for is appropriating
company funds. Following his dismissal, the remaining directors of Rose Co asked your firm to carry
out a full review of the company’s internal control system with a view to recommending
improvements as appropriate to guarantee the effectiveness of the controls.
2
An audit partner at your firm has written to the directors of Rose Co confirming that the firm will
review the various components of the company’s internal controls, including control activities
employed. He has explained however that any system of internal control can only provide reasonable
assurance that the company’s financial reporting objectives will be achieved.
The company has over 1,500 customers to whom it sells on credit terms and it employs a manager and
five clerks in its sales accounting function. The circumstances of the financial director’s dismissal
were that in the six month period up to 31 October 2005, he colluded with another senior manager of
the company, to misappropriate individual sums totalling $9,682 received from the company’s
customers. The directors discovered the fraud following a meeting between one of the customers and
the managing director of Rose Co in April 2006, and have subsequently asserted that the auditors of
Rose Co were negligent in not having discovered the fraud whilst auditing the company’s financial
statements for the year ended 31 January 2006. The auditors have stated that the directors are being
unreasonable in making this assertion and are confident that an independent review of their audit
working papers will confirm that they have not been negligent in their audit work.
Required:
a) Explain why it is important that the directors of Rose Co should ensure that the company has
an effective system of internal control. (4 Marks)
b) (i) State FOUR types of control activity; and
(ii) For each type of control activity in (i), provide an example of how it may be employed on a
day to day basis to control the sales accounting function of Rose Co. (8 Marks)
c) Explain why any system of internal control can provide an entity with reasonable assurance
that the entity’s financial reporting objectives will be achieved. (8 Marks)
QUESTION THREE
Auditors employ a wide variety of evidence gathering techniques and an essential part of the process
of planning an audit is choosing appropriate methods of gathering sufficient, good quality evidence.
Required
a) Explain the six techniques for obtaining audit evidence identified in Statement of Auditing
Standard (10 Marks)
3
b) What considerations should the auditor have in mind when choosing an appropriate technique
for gathering evidence (10 Marks)
QUESTION FOUR
Whilst there is a difference between the roles of internal auditors and external (registered) auditors,
they often liaise on various matters and a Certified Public Accountant (CPA) employed in either
capacity has an obligation to adhere to the Fundamental Principles of the Code of ethics as set out in
ICPAK Rules of Professional Conduct.
Required:
a) i) Contrast the objectives and scope of an internal auditor’s work for a limited liability
company with that of an external (registered) auditor auditing its financial statements.
(5 Marks)
ii) Discuss the extent to which each should be expected to detect fraud. (5 Marks)
b) Explain FIVE matters that external auditors should consider when evaluating and testing
work carried out by internal auditors with a view to relying on it to reduce their own
work. (10 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 an efficient manner.
a) Outline the advantages of a good audit planning.
(5 Marks)
b) Discuss the factors to consider when formulating the audit plan (10 Marks)
c) ii) Differentiate between compliance testing and substantive testing (5 Marks)
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