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Auditing Question Paper

Auditing

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2008

Orbit School of Management Studies

CPA PART 1
AUDITING

QUESTION ONE
a.
i. Distinguish between an interim audit and a final audit. (2mks)

ii. State three advantages in each case of an interim audit and a final audit (6mks)

b. "The systems based audit depends on reliance on systems which prevent or detect any variations from correct processing of documents into entries in the financial records and hence their inclusion in the financial statements".

Describe the stages followed by an auditor in a systems based audit. (12mks)

QUESTION TWO
In addition to performing the normal audit, it is customary for an audit firm to provide other services to its clients, especialy when the client is a small company.

Required:
a. Highlight five benefits that accrue to an auditor and three benefits that accrue to a client when an audit firm provides other services to its clients. (8mks)

b. Outline how the auditor''s independence may be compromised where the auditor provides other services to his audit clients. (6mks)

c. Explain the measures that an auditor should put in place to safeguard his independence when providing other services to his clients. (6mks)

QUESTION THREE
International Standard on Auditing (ISA) 500 (Audit Evidence) requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

Required:
a. Name and explain the methods used by an auditor to obtain audit evidence. (6mks)

b.
i. Distinguish between relevance of audit evidence and reliability of audit evidence (2mks)

ii. Identify the presumptions used by an auditor in assessing the reliability of audit evidence (4mks)

c. Outline the factors that influence the auditor''s judgement as to the sufficiency of audit evidence (8mks)

QUESTION FOUR
a. Explain an auditor''s responsibility with respect to a client''s internal control system. (6mks)

b. Axis Ltd., a manufacturing company, operates a system of continuous stock taking using the stock records to determine the level of stock at the end of each financial year. As a member of the team auditing the company''s stock, you have recorded the internal control system and ascertained that it operates as follows:

1. The stores department is managed by the stores supervisor and his two assistants.
2. When goods are delivered to the company, they are put in stores by one of the assistants while the other assistant updates the stock records from the delivery notes.
3. Goods which are partially applied as per the requirements of the purchase order, are kept in the stores and are not recorded in the stock records.
4. Goods which are required for production, including those which were partially supplied are removed from the stores by personnel from the production department who inform the stores supervisor.
5. On receipt of the final delivery of the goods which were partially supplied, one of the stores assistants updates the stock records with the dull delivery.
6. The supplier''s invoice is passed over to the accounts department for payment once the full delivery of goods as per the purchase order is received by the company.

Required:
i. State four weaknesses of the above system of internal control and briefly explain the possible consequences to the company as a result of the weaknesses. (8mks)

ii. Suggest recommendations to improve on the above internal control system. (6mks)

QUESTION FIVE
a. You have recently been employed by Njoki and Associates (Certified Public Accountants) as an audit assistant. During your first audit assignment at Ujenzi Ltd., a manufacturing company with a substantial number of items, plants and machinery, you have been allocated the audit of fixed assets.

Required:
i. Briefly explain the audit procedures you would perform to establish that fixed assets acquired during the current financial year had been properly authorised. (6mks)

ii. Highlight the procedure you would expect the company to follow before scrapping an item of plant and machinery. (4mks)

b. Outline the audit procedures you would carry out to verify the following items:
i. Leased property (3mks)
ii. Goodwill (4mks)
iii. Long term loan (3mks)

QUESTION SIX
It is important for an auditor to consider risk when planning and carrying out an audit assignment and arriving at an opinion on the financial statements of a company.

a. Define the term ''audit risk'' and describe the components of audit risk (10mks)

b. Identify the steps followed by an auditor in a risk based audit approach (4mks)

c. Outline the advantages and disadvantages of a risk based audit approach (6mks)

QUESTION SEVEN
a. Most errors in computerized accounting systems can be traced to faulty input of data.

Describe four types of input controls in each case, that an organisation could put in place to ensure:
i. Completeness of data (8mks)
ii. Accuracy of data (8mks)

b. List four objectives of processing controls in a computerized accounting system (4mks)

Auditing Question Paper

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