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Auditing Question Paper



Institution: Strathmore University question papers

Exam Year:2010

Answer all the questions

What is an internal control system and what is the importance (Total 20 Marks)

The following questions have been selected from an internal control questionnaire for wages and salaries.
Internal control questionnaire-wages and salaries

i. Does an appropriate official authorise rate of pay?
ii. Are written notices required for employing and terminating
iii. Are formal records such as time cards used for time keeping?
iv. Does anyone verify rates of pay, overtime hours and
computations of gross pay before the wage payments are made?
v. Does the accounting system ensure the proper recording
of payroll costs in the financial record?
a) To describe the internal control objective being fulfilled if the controls set out in the above questions are in place. (5 marks)
b) Describe the audit tests, which would test the effectiveness of each control. (10 marks)
To identify the potential consequences for the company if the above controls were not in place. (5 marks)
(Total 20 Marks)
a. Who is charged with the responsibility for the prevention and detection of frauds and errors? (10 marks)
b. What action should the auditor undertake if he detects errors and frauds while carrying out a review of the client’s financial statements? (10 marks)
(Total 20 Marks)
a. Distinguish between internal audit and internal check. (4 marks)
b. Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the work of the internal audit department of your client (12 marks)
c. Give four examples of internal audit work that may be used by the external auditor. (4 marks)
(Total 20 Marks)
State the main features you would expect to find in the system of internal control in the following areas:
1. Approval of customers orders
2. Approval of sales prices and quantity discounts
3. Authorisation of despatch of goods to customers
4. Writing of bad debts;
5. Issue of credit notes.
(Total 20 Marks)

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