AUDITING AND ASSURANCE
CPA INTERMEDIATE LEVEL
WEDNESDAY: 24 April 2024. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.
QUESTION ONE
(a) Private companies are not required by law to have their financial statements examined by an auditor. However, all public entities are required by law to have their financial statements audited.
Required:
Explain SIX reasons why an audit is considered necessary for limited liability companies and other public entities.
(6 marks)
(b) Enumerate FIVE elements of an assurance engagement. (5 marks)
(c) Explain THREE internal control procedures that an organisation should have in place for each of the following:
(i) Unclaimed wages. (3 marks)
(ii) Credit sales. (3 marks)
(iii) Inventory in transit. (3 marks)
(Total: 20 marks)
QUESTION TWO
(a) Joe and Kim Associates, an audit firm, has been the auditor of Pikcha Ltd. for the past five years. The management of Pikcha Ltd. have been searching for a company to offer them tax consultancy services. They recently approached Joe and Kim Associates for these services.
Required:
(i) Enumerate FOUR types of tax consultancy services that Joe and Kim Associates might be able to offer Pikcha Ltd. (4 marks)
(ii) Discuss THREE possible threats to independence that Joe and Kim Associates might be exposed to by offering tax services to Pikcha Ltd. (6 marks)
(b) Summarise FIVE ways in which the management could detect and prevent errors and fraud. (5 marks)
(c) Explain FIVE challenges that an auditor could face when performing an audit in a computerised information systems environment. (5 marks)
(Total: 20 marks)
QUESTION THREE
(a) Auditors obtain knowledge about the audit client through the planning process, which also ensures an effective control and review of audit work.
Required:
Summarise FOUR ways through which audit planning assists in the conduct of an audit. (4 marks)
(b) Auditors are required to perform risk assessment procedures to provide the basis for identification and assessment of risks of material misstatement at the financial statement assertion levels.
Required:
Analyse THREE risk assessment procedures that the auditors might perform. (6 marks)
(c) Discuss FIVE roles played by public sector audits in good governance in public sector entities. (10 marks)
(Total: 20 marks)
QUESTION FOUR
(a) You are the audit manager at Jirani and Associates, Certified Public Accountants. Your firm has been appointed to audit Madawa Ltd., a company that deals with manufacture and distribution of pharmaceutical equipment, for the year ended 31 December 2023. The company has been the main supplier of pharmaceutical equipment in the region. During the last one year, a competitor who is a low-cost producer has emerged and has taken up most of the customers of Madawa Ltd. Pona Ltd., who is the main supplier of raw materials to Madawa Ltd., has been declared bankrupt by a court of law. Due to the stiff competition the company has been facing, the directors have issued a profit warning to the shareholders. During the year ended 31 December 2023, three top level managers resigned. The company has since, not managed to replace them due to the specialist nature of their roles. It is anticipated that a new manufacturing tax of 10% per annum will take effect from 1 July 2024.
Required:
(i) Explain FIVE matters that could cast doubt on the going concern of Madawa Ltd. (5 marks)
(ii) Examine FIVE audit procedures your audit firm would perform to assess whether the company is a going concern. (5 marks)
(b) International Standard on Auditing (ISA) 500 – Audit Evidence, requires the auditor to obtain sufficient and appropriate audit evidence to support his conclusions on test of transactions and therefore his report. Appropriate evidence is reliable evidence.
Required:
Describe FIVE factors that could influence the reliability of audit evidence. (5 marks)
(c) In the case of recurring audits, the auditor may decide not to send a new engagement letter or other written agreement each period.
Required:
State FIVE factors that might make it appropriate to revise the terms of audit engagement. (5 marks)
(Total: 20 marks)
QUESTION FIVE
(a) International Standard on Auditing (ISA) 230 – Audit documentation, requires the auditor to maintain all information, records and documents gathered during the audit.
Required:
Analyse FOUR matters the auditor could record in the audit working papers during the annual stock take.
(4 marks)
(b) Describe FOUR types of audits that an internal auditor might conduct. (8 marks)
(c) The directors of Kiatu Ltd., a shoe manufacturing company, have been advised to employ the services of a forensic accountant. This is in an effort to stop rampant cases of theft in the company that involves employees in the production department and finance department. In a few cases, the company has had problems with insurance claims.
Required:
(i) Explain the term “forensic accountant”. (2 marks)
(ii) Advise the directors on THREE expected roles of the forensic accountant in the case of Kiatu Ltd.
(6 marks)
(Total: 20 marks)
……………………………………………………………………
