Get premium membership and access revision papers, questions with answers as well as video lessons.

Auditing Question Paper

Auditing

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2008

Orbit School of Management Studies

AUDITING

QUESTION ONE
Threads Ltd. is a tyre manufacturing company based in industrial area. The company carries out a physical stock count, at the end of each financial year, on 31 December.

Your audit senior has assigned you the task of attending the company''s physical stock count for the financial year ending 31 December 2008.

Required:
a.
i. State the importance of preparing working papers to an auditor. (4mks)

ii. Briefly explain the information you would include in the working paper relating to the company''s physical stock count. (10mks)

b. Giving reasons, explain whether the physical stock count would assist your audit firm in verifying ownership of the company''s stock. (6mks)

QUESTION TWO
a. In the context of the Companies Act:
i. Describe the procedure for appointing an auditor of a public company. (6mks)

ii. State the duties of an auditor. (4mks)

b. "If an auditor fails in his duty to protect the interests of the various users of the financial statements or if he does not carry out his work with due care and skill them various parties can bring action against the auditor for negligence"

Required:
i. Briefly explain the circumstances under which an auditor could be held criminally liable under the Companies Act. (4mks)

ii. Summarise the steps an auditor could take to minimise potential liabilities in the course of his audit work. (6mks)

QUESTION THREE
a. Identify one advantage and two disadvantages in each case, of the following methods used by an auditor to obtain audit evidence:
i. Inspection (3mks)
ii. Observation (3mks)
iii. Inquiry (3mks)

b. In the financial statements of Utopia Ltd., the balance sheet disclosed that via stock as at 30 September 2008 amounted to Sh. 500 million.
State the assertions made by the company''s management with respect to the stock disclosed in the balance sheet. (5mks)

c. Outline the factors that could limit the quality and quantity of audit evidence obtained by an auditor. (6mks)

QUESTION FOUR
Ujenzi Cement Ltd. is one of the leading cement manufacturing companies in the country. The company has a workforce of 300 staff comprising 250 workmen all of whom are paid weekly wages and 50 management staff who are paid salaries at the end of each month.

Required:
As an audit assistant engaged in the audit of the company''s payroll:

a. Identify and briefly describe tin internal control procedures you would expect to find in the company''s payroll system (10mks)

b. Highlight the test of controls that you would carry out to review the effectiveness of the internal control procedures identified in (a) above (10mks)

QUESTION FIVE
Your audit firm, Ndetei and Associates (Certified Public Accountants), are the auditors of Fuel Link Ltd. for the financial year ending 30 June 2009. The company has its head office in Nakuru town and operates 5 petrol stations within the town. In addition to the sale of fuel, the company has established a car wash service, a garage and a retail shop for the sale of motor accessories, food and other household products in each of the petrol stations. The petrol stations have also installed point of sale micro-computers which are linked to the mainframe computer at the head office.

Required:
a. Identify the likely risk that your firm may encounter in the audit (4mks)

b. Describe the analytical review procedures you would carry out, as part of your substansive testing, on the following:
i. Revenue (8mks)
ii. Gross profit (8mks)

QUESTION SIX
a. Outline the matters which are included in the "basis of opinion" paragraph of an auditor''s report (6mks)

b. Explain the audit procedures an auditor would perform when evaluating whether an entity is a going concern (8mks)

c. State and explain the opinion that an auditor would express in the following circumstances:

i. There is adequate disclosure of the going concern assumption but a material uncertainity exists (2mks)

ii. The management''s assessment of an entity containing its operations as a going concern covers a period of less than 12 months from the balance sheet date and the management have no intention of extending it even after a request is made by the auditor. (2mks)

iii. In the opinion of the auditor the entity may not be able to continue its operations as a going concernn. (2mks)

QUESTION SEVEN
a. Citing an example in each case, define the following terms:
i. Fraud (2mks)
ii. Error (2mks)

b. Briefly explain an auditor''s responsibility with respect to reporting of fraud discovered during a client''s audit (6mks)

c. Describe ways in which management can discharge their duty towards preventing and detection of errors and fraud in an organisation (10mks)

QUESTION EIGHT
"The most appropriate method to audit computerized information systems is through the use of computer assisted techniques"

Required:
a. Distinguish between an audit software and test data (4mks)
b. Discuss the functions an auditor could perform using an audit software (16mks)

Auditing Question Paper

More Question Papers

Popular Exams