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Bcom 410: Auditing I Question Paper
Bcom 410: Auditing I
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
FOURTH YEAR EXAMINATION FOR THE AWARD OF
DEGREE OF BACHELOR OF COMMERCE
BCOM 410: AUDITING I
STREAMS: BCOM Y4S1 TIME: 2 HOURS
DAY/DATE: FRIDAY 9/8/2013 2.30 PM – 4.30 PM
INSTRUCTIONS:
1. Answer Question ONE and any other TWO Questions
2. Marks will be awarded for clarity and originality of ideas
3. Do not write on the question paper
1. Mwalimu has been recently promoted to be the procurement manager at Bidhaa Ltd, a manufacturing and distribution company. On taking over the office he discovers that the personnel in the department are always receiving bribes and that the department has been losing the company’s money through fraudulent transactions and overpriced purchases. There have even been payments made to suppliers for goods that they have not delivered. The company is also suffering due to very high raw materials obsolescence and inferior materials. Recently the company was sued over unpaid debts and unfortunately when the accountant was asked how much the company owes, he could not give an objective amount. He finally confessed that the procurement department does not furnish him with information on credit purchases and so he only knows amounts outstanding when he receives invoices from suppliers. Mwalimu has discovered that his predecessor was sacked in a bid to clean up the department. Mwalimu has engaged your audit firm to help in streamlining the procurement department.
(a) Distinguish between auditing and investigation. [5 Marks]
(b) Propose and explain any 5 practical internal controls that you would establish in
the procurement department to improve the handling of purchases and creditors in Bidhaa Ltd. [10 Marks]
(c) ISA 500 requires the auditor to use management assertions for classes of transactions, account balances and presentation and disclosures to form a basis for the assessment of risks of material misstatement and design of audit procedures. Explain any 5 assertions by Bidhaa Ltd’s management over purchases and the method you would use to gather audit evidence to form conclusions on each of the assertions. [10 Marks]
(d) Suggest any 5 activities in this department over which there should be segregation of duties. [5 Marks]
2. (a) Auditor’s independence is one of the most crucial rules of professional conduct.
ICPAK has issued guidelines in a bid to ensure auditor’s independence. However, these guidelines may not be sufficient to guarantee auditor’s independence. Suggest five other ways (apart from ICPAK guidelines) measures that can be adopted by regulators, clients and the profession to enhance auditor’s independence clearly showing why your suggestions will enhance the auditor’s independence. [10 Marks]
(b) You have been appointed as an external auditor for Zenings Enterprises and have discovered that the company has an internal audit department. Explain the factors that you will consider when deciding how much reliance to place on the internal audit department’s work. [10 Marks]
3. (a) You have risen along the ranks to become an audit partner of one of the
prestigious firms in Kenya. Your fellow partner remarks to you that if you want to maintain your success, you must control your audit assignments properly. What is audit control and what factors would you consider in controlling an audit assignment? [10 Marks]
(b) Explain the following terminologies in relation to audit reports showing when they are applicable:
(i) Emphasis of matter paragraph [2 Marks]
(ii) Except for [2 Marks]
(iii) Disclaimer of opinion [2 Marks]
(iv) Material and pervasive [2 Marks]
(v) Inherent uncertainties [2 Marks]
4. (a) One of the audit assistants assigned to you has been brought to you for
disciplinary measures due to insubordination. The manager explains to you that the assistant has consistently failed to document all the information he gathers on audit assignments. The assistant believes that to document everything is a waste of time. Explain to the assistant the how detailed his documentation should be and why good documentation is important. [10 Marks]
(b) You are planning to attend the physical count for inventories by your clients. Explain any five issues you would consider in planning to attend the physical count and why they are important to you as an auditor. [10 Marks]
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