Audit Practice And Investigation Question Paper

Audit Practice And Investigation

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2007

KENY ATTA UNIVERSITY
UNIVERSITY EXAMINATIONS
2007/2008
FIRST SEMESTER EXAMINATION
FOR THE DEGREE OF BACHELOR
OF COMMERCE
BAC 401 : AUDIT PRACTICE AND INVESTIGATION
DATE: Wednesday zs" November 2007
TIME: 8.00 - 10.00 a.m.
INSTRUCTIONS:
Answer ALL questions
WI
'.
Question 1
Your firm is the auditor of Springfield Nurseries, a company operating three large
garden centres which sell plants, shrubs and trees, garden furniture and gardening
equipment (such as lawnmowers and sprinklers) to the general public. You are
involved in the audit of the company's fixed assets. The main categories of fixed
assets are as follows:
(i)
Land and buildings (all of which are owned out right by the company, non of which are leased).
(ii)
Computers (on which an integrated stock control and sales system is operated)
(iii)
A number of large and small motor vehicles, mostly used for the delivery of stock to customers.
(iv)
Equipment for packaging and pricing products.

The company holds records of these assets on a computerised fixed asset register.
The depreciation rates used are as follows:
(i)
Buildings 5% each year as cost
(ii)
Computers and motor vehicles 20% each year as the reducing balance
basis.
(iii)
Equipment 15% each year on cost.

Your are concerned that these depreciation rates may be inappropriate.

Required:
(a)
Explain the main risks associated with financial statement assertions relating to fixed assets. [4 marks]
(b)
List the sources of evidence available to you in verifying the ownership and cost of:
(i)
the land and buildings
(ii)
the computers and motor vehicles.
[10 marks]
(c)
List the procedures you would perform to check the appropriateness of the depreciation rates on each of the three categories of fixed assets. [6 marks]

Question 2
In carrying out an audit the auditor appraises and tests the system of internal control
in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately, the auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records, upon which the figures in the financial statements are based, are in fact completely and accurately recorded.
Required
List the substantive tests the auditor would carry out to verify the values attributed to
trade debtors in a company's financial statements.

Question 3
Stock is a major asset which is relatively easily manipulated. Good stock taking procedures are required by a client and the auditor should attend the stock take to assess the effectiveness of the procedures.
Required
(a)
List the prime risks associated with stock; [8 marks]
(b)
What procedures are necessary for the auditor to check the valuation of raw material stock? [12 marks]

Question 4
Sampling is a necessary and valid means of forming conclusions on audit evidence.
The sampling process involves sample design, selection of the sample and evaluation
of the sample. Sampling may either be by statistical or non-statistical methods.
Required
(a)
Explain the main advantages that can be derived by an auditor from the successful employment of statistical sampling techniques, as opposed to non-statistical sampling. [8 marks]
(b)
Under what conditions is statistical sampling likely to prove most successful in an audit. [7 marks]

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