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Auditing Question Paper

Auditing 

Course:Cpa Part I

Institution: Orbit School Of Management Studies question papers

Exam Year:2006



Orbit School of Management Studies.

AUDITING

Answer any FIVE question.

QUESTION ONE
a. What is the purpose of a letter of representation? (4mks)

b. State and briefly explain the action of auditors should take if the management refuses to provide a letter of representation. (4mks)

c. State the specific representations you, as an auditor, would wish to obtain from the management in respect of:
i. Assets (4mks)
ii. Liabilities (4mks)

d. Identify any four contents of an audit engagement letter. (4mks)

QUESTION TWO
a. Write brief explanatory notes on each of the following terms:
i. Audit risk (2mks)
ii. Inherent risk (2mks)
iii. Control risk (2mks)
iv. Detection risk (2mks)

b. Identify the circumstances when it is appropriate to use only a substansive approach in an audit and when a combination of compliance and substansive tests should be used (4mks)

c. List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies. (8mks)

QUESTION THREE
The owner of a retail hardware shop has approached you for assistance in designing appropriate control procedures that would help in safeguarding the assets of the business against possible losses through theft and fraud. He is more particularly concerned about loss of cash and stocks. All sales are made across the counter and in cash only.

Required:
For each of the following assets, suggest ten practical control procedures that the owner of the retail hardware shop should implement to minimise possible losses through theft or fraud:
a. Cash (10mks)
b. Stocks (10mks)

QUESTION FOUR
a. Briefly explain the meaning of the term "control procedures" (4mks)

b. What is the importance of segregation of duties as a control procedure? (4mks)

c. In carrying out an audit, the auditor appraises and tests the system of internal control in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately. The auditor further carries out substansive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded.

Required:
List and briefly explain the substansive tests the auditor would carry out to verify the values attributed to:
i. Trade debtors in a company''s financial statements. (6mks)
ii. Trade creditors in a company''s financial statements (6mks)

QUESTION FIVE
a. Briefly explain how an audit firm may use third party confirmations to provide evidence in relation to six different balance sheet items. (12mks)

b. List two advantages and two disadvantages of using standardised audit programmes during audit assignments. (4mks)

c. Identify four factors that should be taken into consideration by an audit firm when allocating staff to audit assignments. (4mks)

QUESTION SIX
Auditors may be liable to shareholders and other parties who may have relied on the financial statements upon which the auditors have expressed an opinion. This is because the auditors are generally taken as owing a "duty of care" to those parties and they could be liable in the tort of negligence if they failed in that duty.

Required:
a. With reference to the external audit assignment, explain the meaning of the term "duty of care" (4mks)

b. Briefly explain the auditors'' general responsibility with regard to the prevention and detection of fraud and errors. (6mks)

c. State and briefly explain five possible measures that auditing firms should take in order to avoid legal actions for negligence against them (10mks)

QUESTION SEVEN
a. Explain the factors that external auditors should consider in determining whether the financial statements of a limited company show a true and fair view. (8mks)

b. Identify six basic elements of the auditor''s report containing an unqualified opinion on the financial statements (6mks)

c. Briefly explain the types of audit opinion that would normally arise from a limitation in the scope of an audit. (6mks)

QUESTION EIGHT
a. Identify five ways in which information technology can be used to enhance the administration procedures and controls over an audit. (5mks)

b. Identify five audit benefits that could be derived from using Computer Assisted Audit Techniques (CAATs) when carrying out testing of computer records. (5mks)

c. Briefly explain, giving an example in each case, five functions of an audit software interrogation programme. (10mks)






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