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Auditing Question Paper

Auditing

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2005

Orbit School of Management Studies.

AUDITING
CPA PART I

Answer any FIVE questions.
All questions carry equal marks.

QUESTION ONE
a. List and briefly explain four objectives of an audit of financial statements. (8mks)

b. Outline and explain four ways in which the objectives of an audit of financial statements have changed over the years (8mks)

c. It is often argued that "The external auditor adds credibility to the financial statements produced by a business entity".
Briefly comment on this statement (4mks)

QUESTION TWO
a. Clearly outline the statutory responsibilities of an external auditor in relation to the audit of a company''s financial statements. (6mks)

b. What are the responsibilities of the directors of a company in relation to a company''s financial statements (6mks)

c.
i. Briefly explain the nature and purpose of a letter of engagement (4mks)

ii. Under what circumstances would it be appropriate for an external auditor to issue a new letter of engagement? (4mks)

QUESTION THREE
a. What are the objectives of an internal control system? (4mks)

b. Identify the basic division of duties one would expect to find in an internal control system (4mks)

c. List the main control features one would expect to find in the following activities related to the buying function in an organisation.
i. Buying of goods (4mks)
ii. Receipt of goods (4mks)
iii. Payment of outstanding balances (4mks)

QUESTION FOUR
a. Identify and explain four factors that would influence the size of a sample selected by an external auditor to enable him carry out a compliance test (8mks)

b. In the context of audit sampling, distinguish between the following terms:
i. Sampling risk and non-sampling risk (4mks)
ii. Tolerable error and expected error. (4mks)
iii. Audit risk and detection risk (4mks)

QUESTION FIVE
a. Explain the importance of preparing regular bank reconciliation statements. (4mks)

b. Explain the reliability of bank statements as audit evidence (4mks)

c. Outline the audit work you would undertake to obtain reasonable assurance that the following items appearing in the balance sheet of Ujuzi Ltd. are not materially misstated:
i. Trade creditors. (6mks)
ii. Specific provision for bad and doubtful debts (6mks)

QUESTION SIX
a. What are "errors and irregularities" in the context of an external audit of a limited company? (2mks)

b. Briefly explain the ways in which the directors of a company discharge their duties with regard to the prevention and detection of errors and irregularities (8mks)

c. You have recently been appointed external auditor of ABC Ltd. What typical planning procedures would you undertake when planning the audit of ABC Ltd? (6mks)

d. Identify four common problems that may hinder the proper implementation of an audit plan. (4mks)

QUESTION SEVEN
a. What is the purpose of an audit report? (2mks)

b. List six contents of an unqualified audit report (6mks)

c. Identify and briefly explain four situations under which an auditor would consider qualification of his audit report (8mks)

d. Explain the meaning of the following terms in relation to audit reports:
i. Limitation in the scope of the audit (2mks)
ii. Emphasis of matter (2mks)

QUESTION EIGHT
a. What are computer assisted audit techniques (CAATs)? (3mks)

b. Briefly explain the following terms in relation to the audit of computerized accounting systems:

i. Lack of visible evidence (3mks)
ii. Systematic errors (3mks)
iii. Test data (3mks)

c. Explain how you would use a computer audit programme to verify the year-end debtors balances (8mks)

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