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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
a. An auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

Required:
i. Explain three ways in which audit working papers enhance quality control in the auditing process (6mks)

ii. List the contents of a current audit file (4mks)

iii. Outline the advantages and disadvantages of using standardised working papers in undertaking audit assignments. (6mks)

b. State the reasons why an auditor refers to the previous year''s audit file. (4mks)

QUESTION TWO
a. Your audit firm, Kariuki and Associates (Certified Public Accountants) has been the auditor of Greenstar Company Ltd. for the last eight years. The company has been experiencing tremendous growth and has opened five new branches across the country in the current financial year.

Required:
i. Explain the reasons why it may be necessary for your audit firm to review the letter of engagement (6mks)
ii. List the contents to be included in a letter of engagement (6mks)

b. In relation to the Companies Act:
i. State the requirements of statutory audits (4mks)
ii. Identify the statutory books that should be maintained by a company. (4mks)

QUESTION THREE
a. In the audit of a company''s accounts receivables, an auditor relies on external confirmations in order to form an audit opinion.

Required:
i. Differentiate between positive and negative circularisation of debtors. (2mks)
ii. Identify the circumstances under which the auditor should carry out a positive circularisation of debtors (6mks)
iii. Explain why an auditor should perform circularisation of debtors during the interim audit (8mks)

b. Outline the factors that affect the reliability of external confirmations used in obtaining audit evidence. (4mks)

QUESTION FOUR
a. Define the term "compliance tests" (2mks)

b. State and explain the types of internal controls that an organisation could put in place to safeguard its assets (6mks)

c. Goodlife Cinema Ltd. is one of the leading entertainment entities located in the city centre.
The company has established the following internal control system to monitor its revenue from the sale of tickets:
1. A cashier in an office next to the entrance of the building receives cash from customers and issues a serially numbered ticket to the customer. The same serial number is printed on both sides of the ticket.

2. To gain admission to the cinema hall, the customer hands over the ticket to a door attendant stationed at the entrance of the cinema hall.

3. The door attendant tears the ticket into two, one portion is returned to the customer and the other portion is dropped into a locked box.

4. The door is them opened for the customer to enter the cinema hall.

5. At the end of the day, the manager reconciles the day''s collections with the receipts issued.

Required:
i. Explain the weakness of the above system of internal control (6mks)
ii. Suggest recommendations to improve on the above internal control system (6mks)

QUESTION FIVE
An auditor has a duty to verify all the assets and liabilities appearing on a client''s balance sheet. He also has a duty to verify that there are no other assets which have been left out from the balance sheet.

Required:
a. Explain the importance of a fixed assets register to an auditor in the verification of a client''s fixed assets (8mks)

b. With respect to each of the following documents, explain the information that an auditor would verify in relation to a client''s assets and liablities:
i. Motor vehicle registration document (3mks)
ii. Supplier''s statement (3mks)
iii. Hire purchase agreement for the purchase of office equipment (3mks)
iv. Fire insurance policy for property and building (3mks)

QUESTION SIX
When forming an opinion as to whether financial statements give a true and fair view, an auditor should consider whether an entity is a going concern.

a. Identify the financial indicators which may cast doubt on whether an entity is a going concern (6mks)

b. Describe the audit procedures that an auditor would perform with regard to evaluating management''s assessment of going concern (8mks)

c. Outline the auditor''s responsibility where a material uncertainity exists which may cast doubt on the going concern of an entity (6mks)

QUESTION SEVEN
a. An auditor should make special considerations at the planning stage, where a client maintains computerized accounting records.

Required:
State and explain the features inherent in a computer based system which an auditor should consider at the planning stage of an audit. (12mks)

b. Briefly explain the controls that an auditor should put in place when using a computer to carry out his audit assignment. (8mks).

Auditing Question Paper

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