Auditing And Assurance Question Paper

Auditing And Assurance

Course:A-Level

Institution: Nanyuki Institute Of Communication And Advanced Technology question papers

Exam Year:2013

KASNEB
CPA PART I SECTION 2
AUDITING AND ASSURANCE

Time Allowed: 3 hours

WEDNESDAY: 5 June 2013

Answer any five questions All questions carry equal marks
.
QUESTION ONE
(a) Highlight four control objectives that would be essential in a sales cycle (4marks)
(b) Outline three tests of control that should be performed by an auditor in each of the following areas:
i. Cash receipts (3marks)
ii. Cash payments (3 marks)
iii. Bank reconciliations (3 marks)
(c) Summarise seven sources of internal control risks that have an impact on the financial reporting framework in an organization. (7 marks)
(Total: 20 marks)
QUESTION TWO
(a) Outline four audit procedures you would carry out to verify the following items:
i. Leased property (4 marks)
ii. Goodwill (4 marks)
(b) Makau and Associates, an accounting firm, are the auditors of Eastview Petroleum Ltd. For the year ended 31 December 2012. You are a member of the audit team and the following information relates to the client:
1. The company has six petrol stations located in different parts of the country and has a head office in the capital city.
2. Each petrol station sells fuel. In addition, each petrol station has car wash services, a garage, a retail shop for motor accessories and a restaurant.
3. All petrol stations have point of sale micro-computers which are linked to the main computer at the head office.
Required:
i. Identify six risk areas that your firm would consider when developing the audit plan(6mks)
ii. Describe three analytical review procedures you would carry out as part of the substantive testing on the area of sales. (6 marks)
(Total: 20 marks)
QUESTION THREE
(a) Briefly explain why professional skepticism is important to an auditor (2 marks)
(b) The ability of auditors to assess inherent risks improves the efficiency of the audit process
Required:
i. Explain four factors that affect inherent risks at the entity level. (4 marks)
ii. State four factors that affect inherent risks at the account balance and class of transactions level. (4 marks)
(c) Explain five components of an internal control system.
QUESTION FOUR
(a) A number of engineers own Mkwasi Ltd. The Articles of Association of Mkwasi Ltd. Stipulate that “The auditors of the company shall hold office for four years”. The directors of the company have approached you to provide advice on a number of issues.
Required:
i. Appointment of the auditors of the company. (4 marks)
ii. The procedures the directors would follow should they wish to appoint a new auditor to replace an existing auditor whose term has not expired but has disagreements with the directors. (12 marks)
(b) Explain the contents of the main body of an audit report. (4 marks)
(Total: 20 marks)
QUESTION FIVE
Bandari Ltd. Is a company that specializes in manufacturing cement. The company has automated the production, procurement, finance and human resource functions. You have been appointed the auditor of Bandari Ltd.
Required:
(a) Outline the major types of computer assisted audit techniques (CAATs) that could be used when auditing Bandari Ltd.
(b) Describe the potential benefits that would be derived as a result of using CAATs.
(c) (i) Briefly explain three uses that the auditors could make of a test pack when examining a sales ledger system maintained on Bandari Ltd’s computer systems. (6 marks)
(ii) Explain four challenges that might be encountered when using a test pack. (8 marks)
(Total: 20 marks)
QUESTION SIX
(a) The principle audit objective of verifying trade creditors existing at the year end date is to ensure that they have been completely and accurately recorded.
Required:
Describe six audit tests that you would perform to verify the value of trade creditors that have been included in the financial statements. (12 marks)

(b) Auditors are required to obtain written representations when dealing with evidence which is material in the context of financial statements and where knowledge of the facts may only be confined to management.

Required:
i. Highlight four forms of representations which might be obtained by the auditor. (4mks)
ii. Explain two considerations which the auditor might make when issued with the management representations. (4 marks)
(Total: 20 marks)
QUESTION SEVEN
(a) State the inherent limitations in an audit that affect the auditor’s ability to eliminate the engagement risk. (4 marks)
(b) Highlight three distinctions between the auditor’s liability to the client and the auditor’s liability to third parties. (6 marks)
(c) Explain the audit opinion that would be expressed by an auditor in the following circumstances.
i. A situation where a going concern problem exists in an entity but has been properly disclosed by the directors. (2 marks)
ii. A company’s important records have been destroyed by fire before the conclusion of the audit process. (2 marks)
iii. The directors have refused to sign a representation letter for audit purposes. (2 marks)
(d) Highlight four indicators of a going concern problem. (4 marks)
(Total: 20 marks)

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