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Hbc 2214: Auditing1 Question Paper
Hbc 2214: Auditing1
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2011
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DEDAN KIMATHI UNIVERSITY OF TECHNOLGY UNIVERSITY EXAMINATION 2010/2011 EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE AND PURCHASING AND SUPPLIES MANAGEMENT HBC 2214: AUDITING 1/ HPS 2105 AUDITING PRINCIPLES AND PRACTISE DATE: APRIL 11, 2011 TIME: 8.30 – 10.30AM INSTRUCTIONS: Answer question ONE and any other TWO questions QUESTION ONE
a. List and explain FOUR factors that will influence the auditor?s judgement regarding the sufficiency of audit evidence obtained. (8 marks)
b. State the prescribed circumstances in which an auditor under the Companies Act is required to qualify the report (6 marks)
c. After performing tests of controls, the auditor is of the opinion that audit evidence is not sufficient to support the audit opinion. Explain three actions that the auditor may now take in response to this scenario. (6 marks)
d. Discuss the Criteria for assessing effectiveness and relevance of an internal audit function (6 Marks)
e. An auditor is required to obtain an understanding of the entity and its environment and assessing the risks of material misstatement, including its internal control. Explain why obtaining an understanding of the entity and its environment is important for the auditor.
(4 marks) QUESTION TWO Avenue Kenya Limited was formed on 1 March 2011 in order to export Flower roses to European markets. The Directors are not sure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor.
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Required: Explain to the directors of Avenue Kenya Ltd the following key issues;
a. The need for an audit (6 marks)
b. Procedures for the appointment of an auditor of a public company under the Companies Act. (5 marks)
c. Directors responsibilities in relation to the accounting function of the Company (4 marks)
d. Auditors? statutory responsibilities in relation to the audit of the company?s financial statements (5 marks)
(Total: 20 marks) QUESTION THREE
a) In accordance with ISA 200, “the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework??. Explain the basic elements of the auditor?s report. (10 Marks)
b) ISA 700 The auditor?s report on financial statements explains the form and content of audit reports. State three ways in which an auditor?s report may be modified and briefly explain the use of each modification (6 marks)
c) With the help of four practical examples, explain what is meant by „analytical review? as used in audit work (4 marks)
(Total: 20 marks) QUESTION FOUR You are the audit manager in the audit firm of Irungu & Associates. One of your audit clients is Sports centre Kenya Ltd, a company specialising in the manufacture and supply of sporting equipment. Sports centre have been an audit client for five years and you have been audit manager for the past three years while the audit partner has remained unchanged. You are now planning the audit for the year ending 31 December 2010. Following an initial meeting with the directors of Sports centre, you have obtained the following information. (i) Sports centre is attempting to obtain a listing on the Nairobi stock exchange. The directors have established an audit committee, as required by corporate governance regulations, although no further action has been taken in this respect. Information on the listing is not yet public knowledge. (ii) You have been asked to continue to prepare the company?s financial statements as in previous years.
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(iii) As the company?s auditors, Sports centre ltd would like you and the audit partner to attend an evening reception in a hotel, where Sports centre will present their listing arrangements to banks and existing major shareholders. (iv) Sports centre ltd has indicated that the fee for taxation services rendered in the year to 31 December 2008 will be paid as soon as the taxation authorities have agreed the company?s taxation liability. You have been advising Sports centre ltd regarding the legality of certain items as “allowable” for taxation purposes and the taxation authority is disputing these items. Finally, you have just acquired about 5% of Sports centre?s share capital as an inheritance on the death of a distant relative. Required:
(a) Identify and explain the relevance of any factors which may threaten the independence of Irungu and associate?s audit of Sports centre Co?s financial statements for the year ending 31 December 2010. Briefly explain how each threat should be managed. (10 Marks)
(b) Explain the actions that the board of directors of Sports centre ltd must take in order to meet corporate governance requirements for the listing of Sports centre ltd (6 Marks)
(c) Explain why your audit firm will need to communicate with Sports centre Co?s audit committee for this and future audits. (4 Marks)
(Total: 20 marks) QUESTION FIVE (a) ISA 210 Terms of audit engagements explains the content and use of engagement letters. Explain SIX items that could be included in an engagement letter. (12 marks) (b) ISA 500 Audit evidence explains types of audit evidence that the auditor can obtain. State and briefly explain four methods of obtaining audit evidence by the auditor. (8 marks) (Total: 20 marks)
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