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- One of the principal methods of obtaining corroborative evidence available to auditors is by inquiry. Inquiry involves seeking information from knowledgeable persons inside or outside the entity. Confirmation is the name given to a specific form of inquiry that is particularly widely used. It involves obtaining written confirmation from a third party, typically, although not exclusively, in relation to an account balance in which the third party has an interest. Confirmations can therefore be used for the following balances.
1. Bank balance- the auditor can request the client‘s bankers to confirm the balance they are holding on behalf of the client as at the end of the year. This will confirm existence, completeness and accuracy;
2. Debtors- by carrying out debtors‘ circularization. The replies will provide corroborative evidence to confirm existence of the debtor;
3. Creditors- by carrying out creditors‘ circularization. The replies will provide corroborative evidence, completeness and accuracy of the creditor‘s balance;
4. Investments (such as government securities, shares)- requesting a confirmation from the issuer of the instrument will provide evidence to confirm existence and accuracy of the investment balances. E.g. requesting the Central bank to confirm the amount of investments in government securities held by a client;
5. Loans – requesting the provider of the loan to confirm how much they have granted the company and the terms of such facilities;
6. Contingent liabilities – if the contingency relates to litigation against the company, the auditor could seek confirmation from the lawyers on the facts of the case and the likely outcome. This will assist in evaluating whether the contingency has been properly treated in the financial statements
Wilfykil answered the question on February 22, 2019 at 07:05
- 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...(Solved)
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 and fraud:
(a) Cash
(b) Stocks
Date posted: February 22, 2019. Answers (1)
- List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies(Solved)
List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies
Date posted: February 22, 2019. Answers (1)
- Identify the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of compliance and substantive tests...(Solved)
Identify the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of compliance and substantive tests should be used
Date posted: February 22, 2019. Answers (1)
- 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)