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Auditing Question Paper

Auditing

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2007

Orbit School of Management Studies

Auditing

Answer any FIVE questions.

QUESTION ONE
Your audit firm, Wanjiku and Associates (Certified Public Accountants), has recently been re-appointed the auditor of Telel Bank Ltd. for the financial year ending 30 September 2008. The bank has its head office in Nairobi, Kenya and ten branches located in different parts of the country. Your firm is currently engaged in planning the audit for the financial year ending 30 September 2008.

Required:
a. Briefly explain the matters which would be addressed by the audit firm when preparing an audit planning memorandum. (6mks)

b. Outline the role of an audit programme in the implementation of the overall audit plan. (5mks)

c. State and explain three possibilities that the audit firm would consider at the planning stage, in relation to the timing of audit work. (6mks)

d. Identify the reasons that might lead to a failure in the firm''s audit planning process. (3mks)

QUESTION TWO
a. In accordance with the Accountants Act:
i. State the circumstances in which an auditor would be permitted to disclose confidential information of a client to third parties. (4mks)

ii. Outline five circumstances in which an auditor would be guilty of professional misconduct. (5mks)

b. The auditors of Excel Ltd. have recently been removed by the company. Consequently, the company''s directors have approached your audit firm, Kosgei and Associates (Certified Public Accountants), to be their auditors for the financial year ending 31 July 2008. The directors have proposed to pay your audit firm Sh. 1 million as audit fees in addition to a bonus of 2% of the profits after tax for the year.

Required:
i. Highlight the steps your audit firm should take before accepting the appointment as the company''s auditors (5mks)

ii. Giving reasons, explain whether you agree with the method of remuneration proposed by the directors of the company. (6mks)

QUESTION THREE
Audit sampling involves the application of audit procedures to less than 100% of the items in a population in order to form a conclusion about the population.

Required:
Define the following terms:
i. Confidence level (2mks)
ii. Tolerable level (2mks)
iii. Sampling risk (2mks)

b.
i. Distinguish between statistical and non-statistical sampling (2mks)
ii. Explain the conditions that should be fulfilled in order for an auditor to use statistical sampling. (8mks)

c. Identify four situations where sampling would not be appropriate. (4mks)

QUESTION FOUR
a. Auditors are increasingly obtaining audit evidence using analytical review procedures.

i. Briefly describe the purpose of performing analytical review procedures at the different stages of an audit. (6mks)

ii. Explain two advantages and two disadvantages of performing analytical review procedures during an audit (4mks)

b. Outline the auditor''s responsibility with respect to the valuation of a company''s assets. (4mks)

c. Highlight the information that an auditor would seek to verify in relation to the following documents:
i. Register of debenture holders (3mks)
ii. Lease agreement on the company''s premises. (3mks)

QUESTION FIVE
In the context of International Standards on Auditing (ISA) 560 (Subsequent Events):

a. Outline the audit objectives of reviewing subsequent events (6mks)

b. Describe the audit procedures an auditor should perform to identify relevant subsequent events (10mks)

c. Summarise an auditor''s duties with respect to subsequent events discovered between the date of the audit report and the date that the financial statements are presented at the company''s annual general meeting. (4mks)

QUESTION SIX
a. Briefly explain an auditor''s duties on the discovery of errors in a client''s financial statements (6mks)

b. Describe the substansive procedures that an auditor would perform with regard to a company''s sales expenses. (8mks)

c. Outline an auditor''s responsibility on the detection of a false claim submitted by a salesman to customers. (6mks)

QUESTION SEVEN
Automation and rapid information technology developments are affecting all aspects of life and the accountancy profession is not an exception. Until fairly recently, computers were mainly used in the administrative functions of the office rather than the actual conduct of audit.
Discuss the benefits arising from the automation of audit procedures. (20mks)

c.

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