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Auditing And Assurance Question Paper

Auditing And Assurance

Course:Auditing

Institution: Orbit School Of Management Studies question papers

Exam Year:2009

Orbit School of Management Studies

AUDITING AND ASSURANCE

Answer any FIVE questions.
ALL questions carry equal marks.

QUESTION ONE
a.
i. Distinguish between "attestation engagements" and "audit engagements" (4mks)

ii. State the levels of assurance an auditor provides in an attestation engagement and in an audit engagement (2mks)

b. You are the managing partner in Kioko and Associates (Certified Public Accountants). Utopia Ltd. has recently engaged your firm to provide tax consultation services to the company.

Required:
Using the five elements of an assurance engagement, briefly explain whether the above engagement qualifies to be an assurance engagement (6mks)

c. Highlight the role of international standards on auditing (ISAs) in the conduct of an audit (8mks)

QUESTION TWO
a. Define the term "low balling" in relation to audit fees. (2mks)

b. Identify and briefly explain four factors that an auditor should consider when determining the professional fees to charge a client (8mks)

c. You are the audit partner in charge of XYZ Ltd., one of the continuing clients of your audit firm. During the routine annual review of your firm''s clients, aimed at determining which clients to continue with in the current year, two issues have emerged relating to XYZ Ltd.:

1. For the last five years, your firm has been receiving 40% of its total audit fees from XYZ Ltd.

2. XYZ Ltd. has not paid your firm the audit fees for the past two years.

Required:
Explain the impact that these two issues will have on your firm''s decision as to whether to continue being the auditors of XYZ Ltd. (6mks)

d. Your audit firm has recently been reappointed the auditor of Matopeni Commercial Ltd. The company has recently been restructured with a new management. The new managing director Mr. Josephat Kamau has indicated to your firm that two new branches in Eldoret and Kisumu have been opened by the company to facilitate efficient distribution of the company''s products.

Required:
Explain the reasons why it is necessary for your audit firm to review the engagement letter (4mks)

QUESTION THREE
"A practice that is becoming very common in the verification of debtors is to circularise the debtors or some of them for direct confirmation".

Required:
a. Explain three benefits that would accrue to an auditor from carrying out debtors'' circulation (6mks)

b. Identify two types of errors and two types of frauds that may be revealed or detected through the circulation of debtors (4mks)

c. Describe the criteria used when selecting the debtors who should be circularised (6mks)

d. Highlight two limitations of using debtors'' circularisation as an audit procedure (4mks)

QUESTION FOUR
a. Describe the audit procedures you would carry out when verifying the following items appearing in a client''s financial statements:
i. Issue of new ordinary shares (4mks)
ii. Transfer of ordinary shares (4mks)
iii. Ordinary dividends paid. (4mks)
iv. Reserves (4mks)

b. Outline the external auditor''s responsibilities with respect to a client''s internal control system. (4mks)

QUESTION FIVE
a. The auditor should perform audit procedures up to the date of the audit report.
State the audit objectives of reviewing subsequent events. (6mks)

b. In line with the provisions of the international standard on auditing (ISA) 580 (Management Representations), an auditor should obtain a letter of representation from the management on matters material to the audit.

Required:
i. Briefly explain the purpose of the letter of representation. (4mks)

ii. List six matters included in the letter of representation (6mks)

iii. Briefly describe the actions an auditor should take where the client''s management refuses to provide a letter of representation. (4mks)

QUESTION SIX
a.
i. Define the term "materiality" and briefly explain the two stages in which an auditor considers materiality in the course of his audit work. (4mks)

ii. Describe how an auditor assesses an item''s materiality in the client''s financial statements (6mks)

b.
i. Define the term "inherent uncertainty" (2mks)

ii. Describe the matters an auditor takes into consideration when forming an opinion on the financial statements of a company where inherent uncertainty exists (8mks)

QUESTION SEVEN
Your audit client, Maji Mengi Ltd., is considering computerizing their accounting system. They have approached you for advice on the benefits that will accrue to the company and the potential risks of the proposed computerization.

Required:
a. Explain how the company''s internal control system could be improved through the computerization of the accounting system. (8mks)

b. Identify and briefly describe the risks associated with computerized accounting systems (8mks)

c. Explain how the audit trail may be affected by the client''s computerization of the accounting system. (4mks)

Auditing And Assurance Question Paper

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