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Auditing 1 Question Paper

Auditing 1

Course:Accf 432

Institution: Kenya Methodist University question papers

Exam Year:2008

KENYA METHODIST UNIVERSITY

END OF FIRST TRIMESTER 2008 EXAMINATION

FACULTY : BUSINESS AND MANAGEMENT STUDIES
DEPARTMENT : BUSINESS ADMINISTRATION
COURSE CODE : ACCF 432
COURSE TITLE : AUDITING 1
TIME : 3 HOURS

INSTRUCTIONS
• Answer Any Four Questions

Question 1
a) M.C shah, a sole trader operating a spares shop in Thika has appointed your firm to audit the books of account for the year ended 31 December 2008.
i) Explain the benefits that will accrue from the audit.
ii) State and comment on the practical problems likely to be encountered when auditing this type of business. (15 marks)

b) Distinguish between external audit and internal audit. (10 marks)

Question 2
a) It is important that an auditor’s independence is beyond question and that he should behave with integrity and objectivity in all professional and business situations. The following is a series of questions which were asked by auditors at a recent update seminar on professional ethics.
a) Can I audit my brother’s company? (4 marks)
b) A B and Co. the previous auditors, will not give my firm professional clearance or the usual handover information because they are still owed fees. Should I accept the clients offer for appointment? (4 marks)
c) Can I prepare the financial statements of a public company and still remain as an auditor? (4 marks)
d) My client has threatened to sue the firm for negligence. Can I still continue to act as auditor? (3 marks)
e) Currently am registered as a student with KASNEB. Am I bound by the ethical standards of the body of accountants? (2 marks)
f) Currently I am planning to have an illuminated advert hanging over my office door. Can I go ahead and insert the sign? (3 marks)

Required:
Discuss the answers you would give the above questions posed by the auditors.

b) Explain the procedure for the appointment of an auditor by a limited company.
(5marks)

Question 3
You are currently engaged in planning the audit of financial statements of Elba electronics as at 30 December, 2006. The company runs a wholesale electrical business buying directly from national and overseas suppliers and selling to both large and small retailers. This will be the first accounting period during which all transactions relating to sales, purchases, wages and general ledger systems will be processed and recorded by computer. Your firm of certified accountants has experience of auditing computerized accounting systems and has decided as a matter of policy that during this year’s audit of the financial statements of Elba it will be essential to test all controls over the computerized accounting systems and to use computer audit programs to test the accounting records.
Required:
a) Outline how an audit is affected by the accounting transactions and records being processed by computer and being held in a computer file. (5 marks)
b) Describe what is meant by;
(i) application controls
(ii) general controls (6 marks)

c) Give two examples of specific application controls over data being processed through Elba’s purchase system describing the purpose of each control. (5marks)
d) Outline what you understand by the term computer assisted audit techniques and the benefits that may be derived from using them. (6 marks)
e) Give three examples of how CAATs might effectively be used in the audit of Elba’s year end trade debtors. (3 marks)

a) Fraud is an intentional act by an individual in the organization, with collusion to third parties, to defraud the business off its resources. Explain briefly five types of fraud that may be perpetrated in a business. (15 marks)

b) Explain the implication of errors and fraud in financial statements. (10 marks)

Question 5
a) What is audit evidence? What are the various techniques of gathering audit evidence?
(10marks)

b) Explain the qualities the qualities of a good internal control system. (15 marks)

Auditing 1 Question Paper

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