Audit Practise And Investigation Question Paper

Audit Practise And Investigation

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 401: AUDIT PRACTICE AND INVESTIGATIONS
DATE: FRIDAY, 23RD JULY 2010 TIME: 2.00 P.M. - 4.00 P.M.

INSTRUCTIONS: ANSWER ANY FOUR QUESTIONS.

1.
You have recently been appointed auditor of one of the colleges of an old established university.
(a)
List eight sources of revenue which you would expect to be disclosed in the accounts: (8 marks)
(b)
Mention four internal controls which you would expect to be operative, in relation to the college’s revenues. (4 marks)
(c)
Describe five audit tests which you would apply the accounts submitted to you for audit. (10 marks)
(d)
What is internal control? (3 marks)

2.
You have been asked by your firm to compile a standard internal control checklist; in question form, suitable for use on each computer audit assignment. Prepare the section of the checklist which covers input controls over transactions and master data. (25 marks)

3.
Mr. W. Minge is the managing director of Eternal Optimists Ltd.; a client company of which you have recently been appointed auditor. He has requested you to audit the three-year profit forecasts which the chief accountant has prepared for the purpose of circularizing those amongst the company shareholders.
Describe seven mattes on which you would initially seek clarification from Mr. Minge, prior to commencing any work on this assignment. (25 marks)

4.
The essential stages in an audit have been summarized respectively as “Ascertain; Test; Compare; Review; Report”. Outline the purpose of each stage and indicate briefly how you, as the recently appointed auditor of a large industrial concern, would approach each of the stages mentioned. (25 marks)

5.
Paul Mwangi, a partner in Messrs Mwaura and Co. is the auditor of a sole trader Regina Mwende who runs a retail shop. Recently, at Ruiru golf club Regina introduced Mr. Mwangi to Benson Maina, the managing director of Flashy Products Ltd. Benson indicated that he is disappointed with the poor services given by his company’s present auditors Messrs Omari and Njuma. “Mr. Mwangi, he said, if you will take on the audit of my company’s account I will sack Messrs Omari and Njuma immediately”. “Certainty” said Mwangi, “I shall come round to your office and start work on Monday morning on auditing the books of the company.”
Required:
(i)
Comment upon Mr. Mwangi’s decision to start audit work on Flashy Products Limited on Monday next, stating why he should or should not take up the audit that day. (5 marks)
(ii)
Explain how Benson Maina can sack his company’s auditors Messrs Omari and Njuma. What rights do Messrs Omari and Njuma have in this situation. (5 marks)
(iii)
Explain how an auditor is appointed to audit the accounts of a limited company detailing what qualifications and experience the persons so appointed must have. (5 marks)
(iv)
In what ways does the audit of the accounts of a sole trader differ from the audit of the accounts of a limited liability company? Why do these differences exist? (5 marks)
(v)
When taking up an appointment, an auditor is advised to send his client a letter of engagement. Explain what a letter of engagement is, and specify the main points which should be included in such a letter. (5 marks)

6.
A client whom you have known for several years is interested in the purchase of a business which will involve his full-time participation and will provide him with a modest but secure return on his investment. He has been advised by his agents that a small, well-established shop selling newspapers, cigarettes, tobacco and confectionery in South B is on offer for sale, and he has accordingly asked you to carry out an investigation.
(i)
Set out the steps you would take prior to commencing your detailed enquiries;
(ii)
Describe the work you would carry out in connection with the accounts of the business;
(iii)
Specify any other matters which will call for your investigation prior to submitting a final report to your client. (25 marks)

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