QUESTION ONE Working papers provide the audit evidence. They can be categorized into: i. Auditors' prepared...
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QUESTION ONE Working papers provide the audit evidence. They can be categorized into: i. Auditors' prepared working papers. ii. Client's schedules used as working papers. Audit programmes. Working papers are then organized into files usually referred to as either current files of permanent files. Required: a) What details should each working paper which is prepared by an auditor indicate? (5 marks) b) What details should each client schedule used as a working paper indicate? (4 marks) c) What details should an audit programme indicate? (5 marks) d) With appropriate illustrations, differentiate the use and contents of a permanent file from a current file and write brief notes on the evidence that is provided by working papers. (6 marks) (Total: 20 marks) QUESTION TWO The matter listed below are always included in the internal control of a firm. You are required to explain the purpose of each of the items listed as (a), (b) and (c) below. Indicate the compliance tests you would carry out in order to ensure that the intended controls were operating properly. a) A requirement that mail is opened by two responsible employees who must promptly make listings of all receipts. marks) b) A rule that a fixed asset register must be maintained and updated promptly. (6 marks) c) A requirement that a bank reconciliation statement is prepared on monthly basis. (7 marks) (Total: 20 marks) QUESTION THREE a) b) 11. Write brief notes on the following auditing techniques: i. Inspection; ii. Observation; iii. Enquiry. (4 marks) (3 marks) (3 marks) Define the term audit programme. (2 marks) Write in point form an audit programme to cover salary and wages of a small size firm. (8 marks) (Total: 20 marks) QUESTION THREE The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: a) Explain the responsibilities of external auditors to directors and shareholders. (5 marks) b) Describe the limitations of the external audit in relation to the detection and reporting of fraud. (5 marks) c) Explain why it is essential for external auditors to be independent of their clients. (5 marks) d) Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients. marks) (Total: 20 marks) QUESTION FOUR You are carrying out the audit of ACB Computers limited for the year ended 31 December 2003. The company assembles microcomputers purchased from the Far East and sells them to retailers, and to individuals and other businesses. In the current year, there has been a recession and strong competition, which has resulted in a fall in sales and the profits. This has led to a trading loss and the company is experiencing going concern problems. Required a) Describe the factors, which indicate that a company may not be a going concern. Your list should include all factors and not just those, which relate to ACB Computers Limited. Marks) (10 b) Consider the form of audit report (i.e. qualified or unqualified) you would issue of ACB Computers limited if you conclude that the company is experiencing serious going concern problems, in the following two situations: I) You conclude that the financial statements give sufficient disclosure of the going concern problems. II) There is no disclosure of the going concern problems in the financial statements and you believe there is a serious risk that the company will fail in the foreseeable future (6 marks) c) State the parties who may successfully sue you as auditor for negligence, and consider the arguments you could include in your defense when: I) The financial statements of ACB Computers Limited for the year ended 31 December 2003 do not mention any going concern problems and your audit report on these financial statements was unqualified and II) The company fails on 15 February 2004 (4 marks) QUESTION FIVE Your firm is the auditor of Shah Engineering Ltd, and you have been asked to suggest the audit work you will carry out in verifying trade creditors and purchase accruals at the company's year-end of 31 December 2003. You attended the stock take at the year-end. The Company operates from a single site and all raw materials for production are received by the goods inwards department. When the materials are received they are checked for quantity and quality to the delivery note and purchase order, and a multi-part goods received note is made out and signed by the storekeeper. If there are any problems with the raw materials, a discrepancy note is raised which gives details of the problems (e.g., incorrect quantities or faulty materials) The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees' wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to: a) Check suppliers' statements to the balances on the purchases ledger; marks) b) Verify that purchases cut-off has been correctly carried out at the year end (5 (7 marks) marks) c) Ensure that sundry creditors and accruals are correctly stated; QUESTION SIX Briefly explain the meaning of the term "control procedures". marks) (4 (b) What is the importance of segregation of duties as a control procedure? (4 marks) (8 (c) In carrying out an audit, the auditor appraises and tests the system of internal control in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately. The auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded. Required: List and briefly explain the substantive tests the auditor would carry out to verify the values attributed to: (1) Trade debtors in a company's financial statements. QUESTION ONE Working papers provide the audit evidence. They can be categorized into: i. Auditors' prepared working papers. ii. Client's schedules used as working papers. Audit programmes. Working papers are then organized into files usually referred to as either current files of permanent files. Required: a) What details should each working paper which is prepared by an auditor indicate? (5 marks) b) What details should each client schedule used as a working paper indicate? (4 marks) c) What details should an audit programme indicate? (5 marks) d) With appropriate illustrations, differentiate the use and contents of a permanent file from a current file and write brief notes on the evidence that is provided by working papers. (6 marks) (Total: 20 marks) QUESTION TWO The matter listed below are always included in the internal control of a firm. You are required to explain the purpose of each of the items listed as (a), (b) and (c) below. Indicate the compliance tests you would carry out in order to ensure that the intended controls were operating properly. a) A requirement that mail is opened by two responsible employees who must promptly make listings of all receipts. marks) b) A rule that a fixed asset register must be maintained and updated promptly. (6 marks) c) A requirement that a bank reconciliation statement is prepared on monthly basis. (7 marks) (Total: 20 marks) QUESTION THREE a) b) 11. Write brief notes on the following auditing techniques: i. Inspection; ii. Observation; iii. Enquiry. (4 marks) (3 marks) (3 marks) Define the term audit programme. (2 marks) Write in point form an audit programme to cover salary and wages of a small size firm. (8 marks) (Total: 20 marks) QUESTION ONE Working papers provide the audit evidence. They can be categorized into: i. Auditors' prepared working papers. ii. Client's schedules used as working papers. Audit programmes. Working papers are then organized into files usually referred to as either current files of permanent files. Required: a) What details should each working paper which is prepared by an auditor indicate? (5 marks) b) What details should each client schedule used as a working paper indicate? (4 marks) c) What details should an audit programme indicate? (5 marks) d) With appropriate illustrations, differentiate the use and contents of a permanent file from a current file and write brief notes on the evidence that is provided by working papers. (6 marks) (Total: 20 marks) QUESTION TWO The matter listed below are always included in the internal control of a firm. You are required to explain the purpose of each of the items listed as (a), (b) and (c) below. Indicate the compliance tests you would carry out in order to ensure that the intended controls were operating properly. a) A requirement that mail is opened by two responsible employees who must promptly make listings of all receipts. marks) b) A rule that a fixed asset register must be maintained and updated promptly. (6 marks) c) A requirement that a bank reconciliation statement is prepared on monthly basis. (7 marks) (Total: 20 marks) QUESTION THREE a) b) 11. Write brief notes on the following auditing techniques: i. Inspection; ii. Observation; iii. Enquiry. (4 marks) (3 marks) (3 marks) Define the term audit programme. (2 marks) Write in point form an audit programme to cover salary and wages of a small size firm. (8 marks) (Total: 20 marks) QUESTION THREE The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: a) Explain the responsibilities of external auditors to directors and shareholders. (5 marks) b) Describe the limitations of the external audit in relation to the detection and reporting of fraud. (5 marks) c) Explain why it is essential for external auditors to be independent of their clients. (5 marks) d) Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients. marks) (Total: 20 marks) QUESTION FOUR You are carrying out the audit of ACB Computers limited for the year ended 31 December 2003. The company assembles microcomputers purchased from the Far East and sells them to retailers, and to individuals and other businesses. In the current year, there has been a recession and strong competition, which has resulted in a fall in sales and the profits. This has led to a trading loss and the company is experiencing going concern problems. Required a) Describe the factors, which indicate that a company may not be a going concern. Your list should include all factors and not just those, which relate to ACB Computers Limited. Marks) (10 b) Consider the form of audit report (i.e. qualified or unqualified) you would issue of ACB Computers limited if you conclude that the company is experiencing serious going concern problems, in the following two situations: I) You conclude that the financial statements give sufficient disclosure of the going concern problems. II) There is no disclosure of the going concern problems in the financial statements and you believe there is a serious risk that the company will fail in the foreseeable future (6 marks) c) State the parties who may successfully sue you as auditor for negligence, and consider the arguments you could include in your defense when: I) The financial statements of ACB Computers Limited for the year ended 31 December 2003 do not mention any going concern problems and your audit report on these financial statements was unqualified and II) The company fails on 15 February 2004 (4 marks) QUESTION THREE The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: a) Explain the responsibilities of external auditors to directors and shareholders. (5 marks) b) Describe the limitations of the external audit in relation to the detection and reporting of fraud. (5 marks) c) Explain why it is essential for external auditors to be independent of their clients. (5 marks) d) Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients. marks) (Total: 20 marks) QUESTION FOUR You are carrying out the audit of ACB Computers limited for the year ended 31 December 2003. The company assembles microcomputers purchased from the Far East and sells them to retailers, and to individuals and other businesses. In the current year, there has been a recession and strong competition, which has resulted in a fall in sales and the profits. This has led to a trading loss and the company is experiencing going concern problems. Required a) Describe the factors, which indicate that a company may not be a going concern. Your list should include all factors and not just those, which relate to ACB Computers Limited. Marks) (10 b) Consider the form of audit report (i.e. qualified or unqualified) you would issue of ACB Computers limited if you conclude that the company is experiencing serious going concern problems, in the following two situations: I) You conclude that the financial statements give sufficient disclosure of the going concern problems. II) There is no disclosure of the going concern problems in the financial statements and you believe there is a serious risk that the company will fail in the foreseeable future (6 marks) c) State the parties who may successfully sue you as auditor for negligence, and consider the arguments you could include in your defense when: I) The financial statements of ACB Computers Limited for the year ended 31 December 2003 do not mention any going concern problems and your audit report on these financial statements was unqualified and II) The company fails on 15 February 2004 (4 marks) QUESTION FIVE Your firm is the auditor of Shah Engineering Ltd, and you have been asked to suggest the audit work you will carry out in verifying trade creditors and purchase accruals at the company's year-end of 31 December 2003. You attended the stock take at the year-end. The Company operates from a single site and all raw materials for production are received by the goods inwards department. When the materials are received they are checked for quantity and quality to the delivery note and purchase order, and a multi-part goods received note is made out and signed by the storekeeper. If there are any problems with the raw materials, a discrepancy note is raised which gives details of the problems (e.g., incorrect quantities or faulty materials) The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees' wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to: a) Check suppliers' statements to the balances on the purchases ledger; marks) b) Verify that purchases cut-off has been correctly carried out at the year end (5 (7 marks) marks) c) Ensure that sundry creditors and accruals are correctly stated; QUESTION SIX Briefly explain the meaning of the term "control procedures". marks) (4 (b) What is the importance of segregation of duties as a control procedure? (4 marks) (8 (c) In carrying out an audit, the auditor appraises and tests the system of internal control in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately. The auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded. Required: List and briefly explain the substantive tests the auditor would carry out to verify the values attributed to: (1) Trade debtors in a company's financial statements. QUESTION FIVE Your firm is the auditor of Shah Engineering Ltd, and you have been asked to suggest the audit work you will carry out in verifying trade creditors and purchase accruals at the company's year-end of 31 December 2003. You attended the stock take at the year-end. The Company operates from a single site and all raw materials for production are received by the goods inwards department. When the materials are received they are checked for quantity and quality to the delivery note and purchase order, and a multi-part goods received note is made out and signed by the storekeeper. If there are any problems with the raw materials, a discrepancy note is raised which gives details of the problems (e.g., incorrect quantities or faulty materials) The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include: a) Wages accruals and PAYE; b) VAT; c) Interest on loans overdrafts, telephone and electricity. Most employees' wages are paid weekly in arrears. You are required to describe in detail the audit work you will carry out to: a) Check suppliers' statements to the balances on the purchases ledger; marks) b) Verify that purchases cut-off has been correctly carried out at the year end (5 (7 marks) marks) c) Ensure that sundry creditors and accruals are correctly stated; QUESTION SIX Briefly explain the meaning of the term "control procedures". marks) (4 (b) What is the importance of segregation of duties as a control procedure? (4 marks) (8 (c) In carrying out an audit, the auditor appraises and tests the system of internal control in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately. The auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded. Required: List and briefly explain the substantive tests the auditor would carry out to verify the values attributed to: (1) Trade debtors in a company's financial statements.
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Related Book For
Auditing An International Approach
ISBN: 978-1259087462
7th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley
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