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a) Audit evidence; it will constitute or consist any information used by the auditor to enable him to arrive at conclusion necessary for his opinion. Auditing is concerned with the verification of accounting data and with determining the accuracy and reliability of accounting statements and reports.
b) (i.) Relevant audit evidence.
It depends on whether it assists the auditor to form an opinion on some
aspect of the financial statements. For example evidence that indicates that a
recorded asset exists is relevant to audit objectives.
(ii) Reliable audit evidence
Reliability of audit evidence can be assessed to some extent on the following presumptions:
• Documentary evidence is more reliable than oral evidence.
• Evidence from outside the enterprise is more reliable than that secured solely from within the enterprise.
• Evidence originated by auditor by such means as analysing and physical inspection is more reliable than evidence obtained from others.
• Evidence for a figure in accounts is usually obtained from several sources. The cumulative effect of several evidential sources which give a consistent view is greater than that from a single source.
• Original documents are more reliable than photocopies or facsimiles.
iii) Sufficient audit evidence
• The auditor’s judgement is influenced by:
• His knowledge of the business and its industry.
a. The degree of audit risk. Assessment of this is helped by considering:
b. Nature and materiality of items of account.
c. The auditor’s experience of the reliability of the management and the staff and records.
d. The financial position of the enterprise.
e. Possible management bias but also the management may wish to “even out” profits for stock market image or taxationpurposes.
f. The persuasiveness of the evidence.
g. The nature of the accounting and internal control system and the control environment.
(c) i) Written confirmation of a trade debtor circularised at year end.
Evidence from outside the enterprise is more reliable than that secured solely from within the enterprise. Though debtor circularisations may not be sufficient evidence depending on the case in question.
ii) Work in progress stocks identified during annual physical stock count. If the auditor was
present during the stock taking process then as the evidence has originated as a means of analysis and physical inspection by the auditor it is more reliable than if obtained from others. The auditor however needs to refer to other materials and statement so as to collect sufficient evidence.
(iii) Solicitors letter confirming pending legal action. It is more reliable evidence than evidence from management. However it will be sufficient on its own because the solicitor is the one who solely with the ease.
Musyoxx answered the question on March 14, 2018 at 16:11
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During the final stages of the first audit of Nairobi National Bank Ltd. you request the client to provide you with a letter of representation. The client reads the representations you are requesting and refuses to furnish the letter. The client states its position to be as follows:
“You are asking us to tell you all manner of things which we appointed you to find out. You are requesting us to say such things as ‘all the transactions undertaken by the bank have been properly reflected in the accounting records’ and yet we pay you to carry out the audit. You should know whether these statements are true or not.”
Required:
a. Explain to the client the purpose of the letter of representation
b. Describe the nature of the content of a letter of representation. Your answer should be illustrated
c. With specific examples of items which may appear in a letter of representation
d. Explain the reliability of a letter of representation as audit evidence and the extent to which the
e. auditors could rely on this evidence.
f. (d) Explain the consequence of your client’s refusal to furnish a letter of representation.
Date posted: March 14, 2018. Answers (1)
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b. Distinguish between ‘positive’ and ‘negative’ debtors circularisation procedures
c. Describe in...(Solved)
a. Explain why auditors carry out circularisation of debtors
b. Distinguish between ‘positive’ and ‘negative’ debtors circularisation procedures
c. Describe in detail the work you would carry out in scrutinising the replies tothedebtors circularisation and in confirming whether the debtors balances are collectable in the following situations:
• Where the debtor does not agree with the balance and states a difference;
• Where the debtor reports that he cannot confirm the balance;
• Where no reply is received from the debtor
Date posted: March 14, 2018. Answers (1)
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Required:
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Members of the accounting profession in common with other professions have taken steps to reduce professional risk as far as possible.
Required:
a. With reference to accounting profession, what is audit risk?
b. Outline the steps that the Institute of Certified Public Accountants of Kenya as taken to reduce the individual auditor’s exposure to risk.
c. Suggest specific actions an individual auditor or audit firm could take to minimise liability arising from audit risk.
Date posted: March 14, 2018. Answers (1)
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Your firm is the auditor of Mavoko Engineering Company Ltd. and you have been asked to suggest the audit work you would carry out in verifying trade creditors at the end of the financial year. You also attended the company’s annual stock take at the end of the year 31 December 1996.
Required:
Describe in detail the audit work you would carry out to verify:
a. The suppliers statements against the balances on the purchase ledger;
b. That purchases cut-off has been correctly carried out at the end of the year.
Date posted: March 14, 2018. Answers (1)
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b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit...(Solved)
a) Describe the reasons for maintaining proper audit working papers.
b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit file.
In each case indicate the importance of maintaining the respective document, record and
information.
• Memorandum and articles of association:
• Principal activities and locations;
• Specific legislation and regulations
• History including summary of results;
• Key staff;
• Description of accounting systems and internal control
• Organisation charts;
• Copy of letter of engagement
Date posted: March 14, 2018. Answers (1)
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Your firm has been approached by the directors of UB Bank Ltd. a newly formed commercial bank to undertake the audit for its first complete financial year ended 31 December 1996. Your manager has assigned you the responsibility for leading the team. You have had various discussions with the directors about the timetable and the respective responsibilities of management and the auditor. You have drafted a letter of engagement and have sent it to the managing director for approval and acceptance but the management has not yet responded to your letter.
Required:
a) Explain why a letter of engagement is sent before any new audit appointment is accepted.
b) Set out the main contents of a letter of engagement.
c) Itemise the actions you would take in response to the non-reply by the management to your draft engagement letter.
d) State when it might be necessary to re-draft an engagement letter and have it re-affirmed by the client’s management.
Date posted: March 14, 2018. Answers (1)
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