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- Generally it is more appropriate to use a combination of compliance and substantive tests as it results in an overall saving in audit time. This occurs when the client has sufficient staff to allow an effective system of internal control to operate (usually
with proper segregation of duties which will prevent or detect fraud and error) and there a large number of transactions. In such a situation using a substantive approach will not be effective since the auditor will require to test a large volume of transactions, whereas the auditor can rely on controls to reduce the level of substantive testing.
- It is not appropriate to check internal controls when they are weak, as checking these will only confirm that control risk is high, so performing compliance tests will be a waste of time. Internal controls may be weak in small organizations where there are too few staff for a proper segregation of duties. Also in small organizations the owner will operate the system of internal check, but usually there is no control over his actions and this will create a weak system of control.
- In very small organizations it is not appropriate to perform compliance tests, as it is quicker to check all, or a substantial proportion of the transactions during the year.
-For large organizations with proper controls in place, auditors usually rely heavily on internal controls, which allows them to perform limited substantive tests. This reduces the audit time, compared with undertaking only substantive tests, and thus results in a cost effective audit.
Wilfykil answered the question on February 22, 2019 at 06:48
- State the specific representations you, as an auditor, would wish to obtains from the management in respect of :
(i) Assets.
(ii) Liabilities.(Solved)
State the specific representations you, as an auditor, would wish to obtains from the management in respect of :
(i) Assets.
(ii) Liabilities.
Date posted: February 22, 2019. Answers (1)
- State and briefly explain the action auditors should take if the management refuses to provide a letter of representation.(Solved)
State and briefly explain the action auditors should take if the management refuses to provide a letter of representation.
Date posted: February 22, 2019. Answers (1)
- You have completed your audit of Tinga Tinga Ltd. You have issued a management letter to
the Chief Accountant which identifies weaknesses in the controls over...(Solved)
You have completed your audit of Tinga Tinga Ltd. You have issued a management letter to the Chief Accountant which identifies weaknesses in the controls over sales. Cash is received over the counter, from salesmen and also through the post. Tinga Tinga Ltd‘s Chief Accountant has asked you for recommendations as to the type of controls you would wish to see in operation in a sales system.
Required:
Outline the controls you would expect to find in Tinga Tinga Ltd‘s sales system with regard to:
a) Cash receipts by post
b) Cash collected by salesman
c) Cash sales within Tinga Tinga Ltd‘s premises
d) Banking of cash received
Date posted: February 22, 2019. Answers (1)
- Identify the audit procedures which would need to be carried out in order to identify material post – balance sheet events.(Solved)
Identify the audit procedures which would need to be carried out in order to identify material post – balance sheet events.
Date posted: February 22, 2019. Answers (1)
- Explain the nature and purpose of a post-audit review(Solved)
Explain the nature and purpose of a post-audit review
Date posted: February 22, 2019. Answers (1)
- Distinguish between a procedural audit and a balance sheet audit(Solved)
Distinguish between a procedural audit and a balance sheet audit
Date posted: February 22, 2019. Answers (1)
- The internal control system encompasses all the policies and procedures adopted by the
management of an entity to assist it in achieving management objectives.(Solved)
The internal control system encompasses all the policies and procedures adopted by the management of an entity to assist it in achieving management objectives.
Required:
a) Identify and explain five management objectives that an internal control system over sales aims to achieve
b) List and briefly explain five control objectives that an internal control system over sales aims to achieve
c) Explain the inherent limitations of an internal control system
Date posted: February 22, 2019. Answers (1)
- Identify and list the responsibilities of company directors in relation to the company‘s
accounting system(Solved)
Identify and list the responsibilities of company directors in relation to the company‘s
accounting system
Date posted: February 22, 2019. Answers (1)
- Explain how auditors distinguish their responsibility from those of the directors in respect of financial statements(Solved)
Explain how auditors distinguish their responsibility from those of the directors in respect of financial statements
Date posted: February 22, 2019. Answers (1)
- State the basic element of the scope paragraph of an audit report(Solved)
State the basic element of the scope paragraph of an audit report
Date posted: February 22, 2019. Answers (1)
- State the evidence, which you, as the auditor, would like to find in place and pay attention
to when vouching the following payments made by RR...(Solved)
State the evidence, which you, as the auditor, would like to find in place and pay attention to when vouching the following payments made by RR Paper Mills Ltd., during the financial year ended 31 October 2002.
a) Loans to three employees totaling Sh. 6 million.
b) The last call on 5, 000 ordinary shares at Sh, 15 per share.
c) Fire insurance premiums amounting to Sh. 10, 000 paid for the office block.
d) A loan amounting to Sh. 30 million obtained from a local bank and secured by the factory building.
e) Salesmen‘s commissions amounting to Sh. 3, 000, 000.
Date posted: February 22, 2019. Answers (1)
- What is the form of audit opinion you would give if you concluded that the
client company was experiencing going concern problems and:
i. you have established...(Solved)
What is the form of audit opinion you would give if you concluded that the client company was experiencing going concern problems and:
i. you have established that the financial statements give sufficient disclosure of the going concern problems?
ii. you have established that there is no disclosure of the going concern problems in the financial statements?
Date posted: February 21, 2019. Answers (1)
- Explain five factors which would indicate to the auditor that the going concern assumption of the business entity he is auditing is threatened(Solved)
Explain five factors which would indicate to the auditor that the going concern assumption of the business entity he is auditing is threatened
Date posted: February 21, 2019. Answers (1)
- The National Metal Works Limited manufactures and retails door and window frames. The
company recently dismissed their external auditors. The directors have approached your
firm of accountants...(Solved)
The National Metal Works Limited manufactures and retails door and window frames. The company recently dismissed their external auditors. The directors have approached your firm of accountants to act as their auditors and the directors have proposed a fee of KShs. 1,000,000 plus a bonus of 1% of profits after tax.
Required:
a) Describe the steps you would take before advising the partners of your firm whether to accept the appointment as auditors or not.
b) State with reason whether professional auditors should accept the method of remuneration as proposed by the directors of the client company.
c) Explain the implications of fixing the audit fee by negotiation between the directors and the external auditors on the independence of the auditor.
Date posted: February 21, 2019. Answers (1)
- Inspection and monitoring of quality control by a firm of auditors involves both in-house
and external procedures. The internal procedures include the post-audit review,
sometimes known as...(Solved)
Inspection and monitoring of quality control by a firm of auditors involves both in-house and external procedures. The internal procedures include the post-audit review, sometimes known as a ―cold review. The external procedures are sometimes known as ―external practice inspections or ―peer reviews
Required:
a) Write explanatory notes on the ―cold-review
b) Explain the advantages and disadvantages of the ―peer review
Date posted: February 21, 2019. Answers (1)
- Control procedures consist of practices and procedures in addition to the control
environment, established to achieve certain specific objectives. For each of the procedures
listed below, explain...(Solved)
Control procedures consist of practices and procedures in addition to the control environment, established to achieve certain specific objectives. For each of the procedures listed below, explain the purpose of the control procedures and state the tests of control you would perform to confirm that the control objective was being achieved
a) The preparation of a reconciliation statement.
b) The maintenance of a fixed assets register.
c) The existence of passwords in a micro-computer accounting system
Date posted: February 21, 2019. Answers (1)
- Many auditors now use laptops computers to perform various audit tasks. However, if audit
firms use laptop computers they risk data being corrupted and appropriate controls...(Solved)
Many auditors now use laptops computers to perform various audit tasks. However, if audit firms use laptop computers they risk data being corrupted and appropriate controls must therefore be put in place to prevent the corruption of data.
a) Explain six ways which auditors can use laptop computers in their audit work (other than computer-assisted audit techniques).
b) Explain the computer assisted audit techniques listed below:
i. Embedded audit facilities.
ii. Integrated test facilities.
c) Briefly describe two types of software that might be used by auditors in their work other than Computer Assisted Audit techniques.
d) Describe the controls that auditors should implement when using laptop computers on audits.
Date posted: February 21, 2019. Answers (1)
- One of the responsibilities of the directors of a company is to establish strong internal controls to safeguard the assets of the firm.(Solved)
One of the responsibilities of the directors of a company is to establish strong internal controls to safeguard the assets of the firm.
Required:
a) State the audit objectives of internal controls on fixed assets.
b) Set out the audit procedures you would follow to verify directors‘ fees.
c) What procedures would you apply to verify the extension of a building that has been constructed by the client during the year?
Date posted: February 21, 2019. Answers (1)
- An auditor is required to state whether, in his opinion proper books of account have
been kept and whether the financial statements give a true and...(Solved)
An auditor is required to state whether, in his opinion proper books of account have been kept and whether the financial statements give a true and fair view of the state of the financial affairs of the company being audited.
What are the consequences, to the auditor, for giving an unqualified opinion, when he knows that there are material inaccuracies in financial statements
Date posted: February 21, 2019. Answers (1)
- Your client, ABC Ltd. has a system for inputting purchase and expense invoice where the operator inputs the following from each item.(Solved)
Your client, ABC Ltd. has a system for inputting purchase and expense invoice where the operator inputs the following from each item.
-Order number (a code 2221 is used for items like electricity)
-Supplier name
-Supplier code number
-First four letters of nominal account name (entered on invoice by purchase department manager)
-Nominal account code (entered by purchase department manager) Date
-Goods inward note
-number Net amount
-VAT amount
-Gross amount
Required:
a) Suggest manual operation and controls which might previously have applied to these invoices.
b) Suggest input controls that might be applied by the program to these items.
c) List some audit tests that could be applied to these items indicating the purpose of each test and the relevant audit evidence obtained.
Date posted: February 21, 2019. Answers (1)