QUESTION ONE Emali Co. Ltd. has undergone a period of substantial growth following its establishment five...

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QUESTION ONE Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith & Co. Associates, a tow-partner firm of Certified Public Accountants were re-appointed as auditors. However, Smith & Co. Associates have decided that they do not have the necessary resources to audit the enlarge company. Required: a) Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting. (4 marks) b) How any a casual vacancy arising from the resignation of present auditors be filled and what procedures are necessary before the company's next annual general meeting at which the appointment will be presented for ratification? (7 marks) c) Outline the steps the prospective auditor must take before deciding whether or not to accept the nomination as an auditor. (9 marks) (Total: 20 marks) QUESTION TWO Restmount Kenya Ltd. was formed on 1 October 1997 in order to export tea and coffee to European markets. The Directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor. Required: Explain to the directors of Restmount Kenya Ltd: - a) The need for an audit. (6 marks) b) Procedures for the appointment of an auditor of a public company under the Companies Act. (5 marks) c) Directors' responsibilities in relation to the accounting function of the Company. (4 marks) d) Auditors' statutory responsibilities in relation to the audit of the company's financial statements. (5 marks) (Total: 20 marks) QUESTION THREE (a) What is meant by the term 'fraud'? Give four examples of fraudulent activities. (6 marks) (b) What do you consider to be the auditor's responsibilities in the course of the normal annual audit in relation to the detection of fraud? (6 marks) (c) Explain the way in which the auditor should approach and perform his work in order to meet these responsibilities. (8 marks) 20 marks) (Total: (Total: 20 marks) QUESTION FOUR During the final stage of the first audit of Nairobi National Bank Ltd. You request the client to provide you with a letter of representation. The Client reads 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) (6 marks) Describe the nature of the content of a letter of representation. Your answer should be illustrated with specific examples of items which may appear in a letter of representation. (6 marks) c) Explain the reliability of a letter of representation as audit evidence and the extent to which the auditors could rely on this evidence. (5 marks) d) Explain the consequences of your client's refusal to furnish a letter of representation. (3 marks) (Total: 20 marks) QUESTION FIVE You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997. The senior partner of your audit firm has asked you to consider the auditor's responsibilities for identifying subsequent events. Also, he has asked you to describe the audit procedures, which examine subsequent events. He has suggested that an example of one point in answer to part (b) below would be: 'Checking sales ledger cash received after the year-end to determine the realisability of debtors at the year-end and highlight doubtful debts.' The detailed audit work was completed on Friday 5 December 1997. It is proposed that: a) The audit report will be signed on Friday 19 December; b) The financial statements will be sent to shareholders on Monday 5 January 1998; and c) The company's annual general meeting will be held on Wednesday 28 January 1998. Required: a) Consider the auditor's responsibilities for detecting material subsequent events in the periods: i) 31 October to 5 December 1997 ii) 5 December to 19 December 1997 iii) 19 December 1997 to 5 January 1998 iv) 5 January 1998 to 28 January 1998 v) After 28 January 1998 marks) b) List and briefly explain audit procedures, which involve examination of subsequent events. (10 marks) c) Describe the audit work you will carry out in period (a) (ii) above. (3 marks) (Total: 20 marks) QUESTION SIX (a) Define tests of controls, substantive procedures and walk-through tests. (6 marks) (a) Explain how assessment of systems and controls impacts upon the main stages of the audit process (9 marks) (c) Explain the role that internal control questionnaires and internal control evaluation questionnaires play in determining the effectiveness of the systems of internal control. (5 marks) QUROLO QUESTION ONE Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith & Co. Associates, a tow-partner firm of Certified Public Accountants were re-appointed as auditors. However, Smith & Co. Associates have decided that they do not have the necessary resources to audit the enlarge company. Required: a) Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting. (4 marks) b) How any a casual vacancy arising from the resignation of present auditors be filled and what procedures are necessary before the company's next annual general meeting at which the appointment will be presented for ratification? (7 marks) c) Outline the steps the prospective auditor must take before deciding whether or not to accept the nomination as an auditor. (9 marks) (Total: 20 marks) QUESTION TWO Restmount Kenya Ltd. was formed on 1 October 1997 in order to export tea and coffee to European markets. The Directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor. Required: Explain to the directors of Restmount Kenya Ltd: - a) The need for an audit. (6 marks) QUESTION ONE Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith & Co. Associates, a tow-partner firm of Certified Public Accountants were re-appointed as auditors. However, Smith & Co. Associates have decided that they do not have the necessary resources to audit the enlarge company. Required: a) Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting. (4 marks) b) How any a casual vacancy arising from the resignation of present auditors be filled and what procedures are necessary before the company's next annual general meeting at which the appointment will be presented for ratification? (7 marks) c) Outline the steps the prospective auditor must take before deciding whether or not to accept the nomination as an auditor. (9 marks) (Total: 20 marks) QUESTION TWO Restmount Kenya Ltd. was formed on 1 October 1997 in order to export tea and coffee to European markets. The Directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor. Required: Explain to the directors of Restmount Kenya Ltd: - a) The need for an audit. (6 marks) b) Procedures for the appointment of an auditor of a public company under the Companies Act. (5 marks) c) Directors' responsibilities in relation to the accounting function of the Company. (4 marks) d) Auditors' statutory responsibilities in relation to the audit of the company's financial statements. (5 marks) (Total: 20 marks) QUESTION THREE (a) What is meant by the term 'fraud'? Give four examples of fraudulent activities. (6 marks) (b) What do you consider to be the auditor's responsibilities in the course of the normal annual audit in relation to the detection of fraud? (6 marks) (c) Explain the way in which the auditor should approach and perform his work in order to meet these responsibilities. (8 marks) 20 marks) (Total: b) Procedures for the appointment of an auditor of a public company under the Companies Act. (5 marks) c) Directors' responsibilities in relation to the accounting function of the Company. (4 marks) d) Auditors' statutory responsibilities in relation to the audit of the company's financial statements. (5 marks) (Total: 20 marks) QUESTION THREE (a) What is meant by the term 'fraud'? Give four examples of fraudulent activities. (6 marks) (b) What do you consider to be the auditor's responsibilities in the course of the normal annual audit in relation to the detection of fraud? (6 marks) (c) Explain the way in which the auditor should approach and perform his work in order to meet these responsibilities. (8 marks) 20 marks) (Total: (Total: 20 marks) QUESTION FOUR During the final stage of the first audit of Nairobi National Bank Ltd. You request the client to provide you with a letter of representation. The Client reads 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 (Total: 20 marks) QUESTION FOUR During the final stage of the first audit of Nairobi National Bank Ltd. You request the client to provide you with a letter of representation. The Client reads 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) (6 marks) Describe the nature of the content of a letter of representation. Your answer should be illustrated with specific examples of items which may appear in a letter of representation. (6 marks) c) Explain the reliability of a letter of representation as audit evidence and the extent to which the auditors could rely on this evidence. (5 marks) d) Explain the consequences of your client's refusal to furnish a letter of representation. (3 marks) (Total: 20 marks) QUESTION FIVE You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997. The senior partner of your audit firm has asked you to consider the auditor's responsibilities for identifying subsequent events. Also, he has asked you to describe the audit procedures, which examine subsequent events. He has suggested that an example of one point in answer to part (b) below would be: 'Checking sales ledger cash received after the year-end to determine the realisability of debtors at the year-end and highlight doubtful debts.' 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) (6 marks) Describe the nature of the content of a letter of representation. Your answer should be illustrated with specific examples of items which may appear in a letter of representation. (6 marks) c) Explain the reliability of a letter of representation as audit evidence and the extent to which the auditors could rely on this evidence. (5 marks) d) Explain the consequences of your client's refusal to furnish a letter of representation. (3 marks) (Total: 20 marks) QUESTION FIVE You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997. The senior partner of your audit firm has asked you to consider the auditor's responsibilities for identifying subsequent events. Also, he has asked you to describe the audit procedures, which examine subsequent events. He has suggested that an example of one point in answer to part (b) below would be: 'Checking sales ledger cash received after the year-end to determine the realisability of debtors at the year-end and highlight doubtful debts.' The detailed audit work was completed on Friday 5 December 1997. It is proposed that: a) The audit report will be signed on Friday 19 December; b) The financial statements will be sent to shareholders on Monday 5 January 1998; and c) The company's annual general meeting will be held on Wednesday 28 January 1998. Required: a) Consider the auditor's responsibilities for detecting material subsequent events in the periods: i) 31 October to 5 December 1997 ii) 5 December to 19 December 1997 iii) 19 December 1997 to 5 January 1998 iv) 5 January 1998 to 28 January 1998 v) After 28 January 1998 marks) b) List and briefly explain audit procedures, which involve examination of subsequent events. (10 marks) c) Describe the audit work you will carry out in period (a) (ii) above. (3 marks) (Total: 20 marks) QUESTION SIX (a) Define tests of controls, substantive procedures and walk-through tests. (6 marks) (a) Explain how assessment of systems and controls impacts upon the main stages of the audit process (9 marks) The detailed audit work was completed on Friday 5 December 1997. It is proposed that: a) The audit report will be signed on Friday 19 December; b) The financial statements will be sent to shareholders on Monday 5 January 1998; and c) The company's annual general meeting will be held on Wednesday 28 January 1998. Required: a) Consider the auditor's responsibilities for detecting material subsequent events in the periods: i) 31 October to 5 December 1997 ii) 5 December to 19 December 1997 iii) 19 December 1997 to 5 January 1998 iv) 5 January 1998 to 28 January 1998 v) After 28 January 1998 marks) b) List and briefly explain audit procedures, which involve examination of subsequent events. (10 marks) c) Describe the audit work you will carry out in period (a) (ii) above. (3 marks) (Total: 20 marks) QUESTION SIX (a) Define tests of controls, substantive procedures and walk-through tests. (6 marks) (a) Explain how assessment of systems and controls impacts upon the main stages of the audit process (9 marks) (c) Explain the role that internal control questionnaires and internal control evaluation questionnaires play in determining the effectiveness of the systems of internal control. (5 marks) QUROLO (c) Explain the role that internal control questionnaires and internal control evaluation questionnaires play in determining the effectiveness of the systems of internal control. (5 marks) QUROLO