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Auditing And Assurance Question Paper

Auditing And Assurance

Course:Auditing And Assurance

Exam Year:2007

KENYA ACCOUNTANTS AND SECRETARIES NATIONAL EXAMINATION BOARD
CPA PART I
AUDITING
May 2007. Time Allowed: 3 hours.
Answer any FIVE questions. ALL question carry equal marks.

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. (6 marks)

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

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

(b) State the reasons why an auditor refers to the previous year’s audit file. (4 marks)
(Total: 20 marks)

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. (6 marks)

(ii) List the contents to be included in the letter of engagement. (6 marks)

(b)In relation to the Companies Act:
(i)State the requirements of statutory audits. (4 marks)

(ii)Identify the statutory books that should be maintained by a company. (4 marks)
(Total: 20 marks)

QUESTION THREE
(a) In the audit of a company’s accounts receivables, an auditor relies on external confirmations in order to form and audit opinion.
Required:
(i)Differentiate between positive and negative circularisation of debtors. (2 marks)

(ii)Identify the circumstances under which the auditor should carry out a positive circularisation of debtors.
(6 marks)

(iii)Explain why the auditor should perform circularisation of debtors during the interim audit. (8 marks)

(b) Outline the factors that affect the reliability of external confirmations used in obtaining audit evidence. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Define the term “compliance tests”. (2 marks)

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

(ii)Suggest recommendations to improve on the above internal control system. (6 marks)
(Total: 20 marks)

QUESTION FIVE
An auditor has the duty to verify all the assets and liabilities appearing o 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. (8 marks)

(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 liabilities.
(i) Motor vehicle registration document (3 marks)

(ii)Supplier’s statement (3 marks)

(iii)Hire purchase agreement (3 marks)

(iv)Fire insurance policy for property and buildings (3 marks)
(Total: 20 marks)

QUESTION SIX
When forming an opinion as to whether the financial statements give a true and fair view, an auditor should consider whether an entity is a going concern.
(a)Identify the official indicators which may cast doubt on whether an entity is a going concern. (6 marks)

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

(c)Outline the auditor’s responsibility where a material uncertainty exists which may cast doubt on the going concern of an entity (6 marks)
(Total: 20 marks)

QUESTION SEVEN
(a)In the context of International Standard on Auditing (ISA) 240 (the auditor’s responsibility to consider fraud in an audit of financial statements):

(i)Differentiate between errors and fraud (4 marks)

(ii)Outline the auditor’s responsibility towards the prevention and detection of errors and fraud (6 marks)

(iii)Fraud in the tendering of goods and services is a major concern to companies in both the public and the private sectors. Describe the measures that a company may put in place to prevent fraud in its tendering procedures. (10 marks)
(Total: 20 marks)

QUESTION EIGHT
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 (12 marks)

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

Auditing And Assurance Question Paper

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