Principles Of Auditing Question Paper

Principles Of Auditing

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2007

KENY ATT A UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
BAC 303:
PRINCIPLES OF AUDITING
DATE: Thursday, 29th November, 2007
TIME: 11.00 a.m. - 1.00 p.m.
INSTRUCTIONS:
Answer ALL questions.
Questions 1
Professional ethics are relevant to both external auditors and internal auditors.
You work for a medium - sized firm of CPAs with seven offices and 150 employees.
Your firm has been asked to tender for the provision of statutory audit and other services
to Pwani Tours, a private company providing discounted package holiday services in the
Indian ocean. The company is growing fast and would represent a substantial amount of
fee income for your firm. The Finance Director has explained to you that the company
would like the successful firm to provide a number of different services.
These include the statutory audit and assistance with the preparation of the financial statements. The company is also struggling with a new computer system and the Finance Director considers that a systems review by your firm may be helpful. Your firm does not have much experience in the travel sector.
i.
Required:
a)
Explain why it is necessary for external auditors to be and be seen to be
independent of their audit clients.
(6 marks)
b)
With reference to the Rules of Professional Conduct, describe the ethical matters
that should be considered in deciding on whether your firm should tender for:
i)
the statutory audit ofPwani Tours.
(7 marks)
ii)
the provision of other services to Pwani Tours.
(7 marks)

Question 2
Rocky Hotels is a listed Company which runs a chain of some 40 hotels. The Company
has an established internal audit department which is based at the head office and which
makes regular visits to the hotels. They provide business and tourist class accommodation. They also provide restaurants, bars, conference and leisure facilities which are open to the general public as well as to residents. The Company operates a computerized central booking and billing system and a stock and asset control system, both of which can be accessed via terminals in the hotels. Access to the system is restricted by the use of passwords and all significant expenditure is authorized through head office. The payroll is operated through head office. Hotel and regional managers are actively involved in the setting of budgets and cash flow forecasting. On average, throughout the year, the chain has a 65% occupancy rate.
Required:
a)
Describe the role of internal audit in ensuring that organizations achieve their corporate objectives. (7 marks)
b)
List the types of activities normally carried out by internal audit departments. (8 marks)

Question 3
a) "It is both statutory and ethical duty of auditors to report whether accounts are prepared according to the Companies Act and show a true and fair view. The expression "true and fair view is central to auditing and yet it is an abstract whose meaning is far
from clear .explain the terms (10 Marks)

b) Define evidential matter in line with sufficiency competence and nature of audit evidence (6 Marks)

c) Explain how the issue of fraudulent cheques can be prevented (4 Marks)

Question 4
a) "Nothing enhances the efficiency with which an audit may be conducted more than the
careful compilation and maintenance of audit files and working papers" Discuss (10 Marks)

b) Explain the general forms of qualifications available to auditors in drafting their
reports and state the circumstances in which each is appropriate (5 Marks)

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