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Auditing And Assurance Question Paper

Auditing And Assurance

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2010

ORBIT SCHOOL OF MANAGEMENT STUDIES

AUDITING AND ASSURANCE

Answer any FIVE questions.
ALL questions carry equal marks.

QUESTION ONE
a. In the context of assurance engagements:

i. Differentiate between the objective of a reasonable assurance engagement and the objective of a limited assurance engagement. (4mks)

ii. Outline the reasons why it is not possible to give an absolute level of assurance (4mks)

b. Summarise the benefits of a private audit to a partnership (6mks)

c. Outline the procedures an audit firm should follow after accepting nomination as the auditors of a company. (6mks)

QUESTION TWO
a. Under the fundamental principle of confidentiality, a professional accountant should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority.

Required:
State and explain the exceptions to the principle of confidentiality (8mks)

b. Explain the reasons why the principle of professional competence and due care is important in an audit (4mks)

c. In the context of the Companies Act, state the duties of the external auditor of a limited liability company (6mks)

d. One of the statutory books maintained by a company is the directors'' minute book.

Required:
Explain the nature and importance of the directors'' minute book to auditors (2mks)

QUESTION THREE
a. "Audit sampling enables the auditor to obtain and evaluate audit evidence about some characteristics of the items selected in order to form or assist in forming a conclusion concerning the population from which the sample is drawn."

Required:
List the steps an auditor would take to test a population of entries for errors (8mks)

b. Highlight the conditions under which statistical sampling techniques should be used in an audit (4mks)

c. Differentiate between the following sets of terms:
i. Sampling risk and non-sampling risk (4mks)

ii. Tolerable error and anomalous error (4mks)

QUESTION FOUR
Investments in the shares of other companies may represent a substantial portion of the total assets of a company or may merely reflect incidental aspects of the company''s operations. However, for an auditor, investments in shares represents assets with high inherent audit risk.

Required:
a. Describe four audit objectives sought by the auditor when examining a company''s investments in the shares of other companies (8mks)

b. Explain the audit procedures that an auditor would carry out when verifying the existence and ownership of a company''s investments in shares. (6mks)

c. Describe how an auditor would determine that all investment income from shares has been properly recorded in the books of account of the company (6mks)

QUESTION FIVE
a. The going concern assumption is one of the fundamental accounting assumptions made in the preparation of financial statements of an entity.

Required:
i. Explain the respective responsibilities of the directors of a company and the auditors of the company regarding the going concern assumption (4mks)

ii. Highlight four matters that an auditor should consider when assessing whether or not an entity is a going concern (4mks)

b. With respect to post balance sheet events:
i. Distinguish between adjusting events and non-adjusting events, giving two examples of each (6mks)

ii. Summarise the accounting and disclosure requirements for post balance sheet events (6mks)

QUESTION SIX
a. A final and overall review of audit evidence and the financial statements of a client by the engagement partner, who has the ultimate responsibility for committing the audit firm, when signing the audit report is an important event in the audit process.

Required:
Indicate the matters that the engagement partner considers during such a review (10mks)

b. Outline the consequences of an unqualified audit report to a company (4mks)

c. State and explain the audit opinion that would be expressed in the following circumstances:
i. Failure by the directors of a company to apply an accounting standard (2mks)

ii. Where the directors of a company did not permit the auditor to carry out debtors'' circularisation (2mks)

iii. Where a company''s motor vehicle was not disclosed in the books of accounts of the company (2mks)

QUESTION SEVEN
"Recent advancements in information communication technology have revolutionized the way business is done. Some organisations are now using e-commerce and therefore conducting their business over the internet by electronic rather than paper based methods".

Required:
a. State and explain the risks faced by a company using e-commerce to conduct its businesses (10mks)

b. Describe the challenges faced by an auditor when auditing a company that is using e-commerce to conduct its business. (10mks)

Auditing And Assurance Question Paper

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