Certificate in Accounting and Finance Stage Examination
8 May 2025
55 minutes – 29 marks
Additional reading time – 05 minutes
CAF 8 – AUDIT AND ASSURANCE [TEST – 5]
Syllabus [Chapter 5]
Instructions for Candidates
1. Answer ALL FIVE questions, in BLACK pen only. You can attempt multiple questions on same page.
2. After attempting, convert your answer script to PDF using CamScanner and upload on your LMS.
3. Take CLEAR pictures, in sequence i.e. first Q. 1 then Q. 2. First part a then part b.
Q. 1 (a) Identify and briefly describe four key matters that an incoming auditor should inquire about in the
Professional Clearance Letter sent to the predecessor auditor. (02 Marks)
(b) Outline the steps an outgoing auditor should follow when responding to an incoming auditor's request
for professional clearance. (02 Marks)
Q. 2 Mr. Rizwan is the audit partner at Reliable Auditors, a well-established audit firm in Lahore. The following
matters have arisen regarding accepting audit engagements:
(a) Reliable Auditors have been approached by InnovateTech Limited, a rapidly growing software
development firm. During initial discussions, InnovateTech’s CEO insists that the audit be conducted with
minimal disturbance, suggesting that the auditors should heavily rely on the company's advanced internal
control software powered by artificial intelligence. He indicates that prior auditors were overly skeptical,
unnecessarily prolonging the audit.
(b) Reliable Auditors are considering the audit of Punjab Steel Mills Ltd. Initial communications with the
predecessor auditor revealed that there was a severe disagreement concerning the accounting treatment for
environmental liabilities arising from regulatory actions taken by the Punjab Environmental Protection
Agency. The previous auditor had issued a qualified opinion in their last audit report due to this issue.
(c) One of Reliable’s existing audit clients, Sunshine Textiles Ltd, plans to expand into manufacturing
medical textiles requiring stringent quality and health compliance standards set by the Drug Regulatory
Authority of Pakistan (DRAP). Reliable Auditors have considerable experience auditing textile companies
but have limited experience auditing businesses regulated by DRAP.
Required:
In each of the scenarios outlined above, discuss the issues Reliable Auditors must consider while deciding
whether or not to accept these audit engagements. (06 Marks)
Q. 3 Aslam & Co., Chartered Accountants, has been approached by FastTech Industries Ltd to provide a second
opinion on accounting treatment of lease contracts. FastTech Industries Ltd currently employs Rahim &
Co. Chartered Accountants as their primary auditors and advisors.
Required:
(a) Identify the ethical threat arising in the above scenario. (01 Mark)
(b) Suggest two safeguards Aslam & Co. should implement before accepting the engagement. (02 Marks)
Audit and Assurance Page 2 of 2
Q. 4 Ms. Sana is an audit partner at Integrity Chartered Accountants based in Karachi. The following matters
have arisen regarding potential audit appointments:
(a) Integrity Chartered Accountants have been approached by Karachi Food Industries Ltd, a well-known
company. Management promises significant audit fees, but during informal background checks, Sana
discovers several recent news reports accusing senior management of unfair labor practices and potential
legal actions initiated by employee unions.
(b) Integrity Chartered Accountants have been invited to audit Sindh Paper Mills Ltd, replacing their
existing auditor. Upon inquiry, the previous auditor responds mentioning a significant outstanding audit fee
of PKR 3 million and a persistent disagreement concerning impairment charges on certain fixed assets.
Management assures Sana that the previous auditor’s view was overly conservative and incorrect.
(c) An existing audit client of Integrity Chartered Accountants, Green Energy Pakistan Ltd, is launching a
new subsidiary dedicated exclusively to large-scale solar and wind energy projects in remote areas. The
company will use specialized financial instruments (green bonds) for funding. Integrity Chartered
Accountants has limited experience auditing companies heavily reliant on complex financial instruments
and alternative energy accounting standards.
Required:
In each scenario outlined above, discuss the issues Integrity Chartered Accountants must consider before
accepting these audit engagements. (06 Marks)
Q. 5 Your firm, Javed & Associates, Chartered Accountants, has recently been invited to submit a tender for
auditing Lahore Motors Limited, a well-established automobile company currently audited by another
reputable chartered accountant firm.
Required:
In the light of the Code of Ethics for Chartered Accountants, identify the threats to the fundamental
principles and discuss how your firm would evaluate these threats in the context of accepting the
engagement. Also, briefly discuss the safeguards available to your firm to address the identified threats.
[Note: You can combine safeguards] (10 marks)
[THE END]
