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Advanced Auditing

Finance

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21 views4 pages

Advanced Auditing

Finance

Uploaded by

y mugambi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MERU UNIVERSITY OF SCIENCE AND TECHNOLOGY

P.O. Box 972-60200 – Meru-Kenya.


Tel: +254 (0)799529958, +254 (0)799529959, +254 (0)712524293
Website: www.must.ac.ke Email: [email protected]

University Examinations 2020/2021

FOURTH YEAR, FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF


COMMERCE

BFC 3427: ADVANCED AUDITING

DATE: AUGUST 2021 TIME: 2 HOURS

INSTRUCTIONS: Answer question one and any other two questions

QUESTION ONE (30 MARKS)

You are the manager responsible for the audit of BCD Stores Ltd, which has a number of stores
which sell household products to the general public, includigng furniture, electrical equipment,
cooking equipment and carpets. The company has annual sales of about Sh. 1,600 million. In
previous years’ audits, there have been problesm with

1. Misappropriation of inventory by employees and customers

2. Slow moving and damaged goods which are worth less than cost, and

3. Incomplete recording of sales when the customers pay by cash (these represent 55% of all
sales)

The company has a small internal audit department, the staff of which visit branches and perform
appropriate audit work at the head office.

Required:

Meru University of Science & Technology is ISO 9001:2015 Certified


Foundation of Innovations Page 1
a) Describe the work you will carry out and the matters you will consider in planning the audit
prior to the commencement of the detailed audit work, including consideration of the
timetable for the audit. (12 marks)

b) Describe the procedure you will carry out to control the audit including reviewing the work
of the audit staff (8 marks)

c) Describe the liability of an auditor (10 marks)

QUESTION TWO (20 MARKS)

a) Corporate governance has become an issue of world-wide importance. In furtherance to


corporate governance, audit committees have been established by various companies

Required:

Explain six ways in which the establishment of an audit committee would assist in improving
the effectiveness of external audit work (6 marks)

b) The ban on advertising of accountancy services in Kenya is not sustainable. Discuss


(10 marks)

c) The auditors have a legal duty to their clients. This legal duty appears to have, of late, been
extended to cover third parties not in direct contractual relationship with the auditors. State
specific actions an auditor or an audit firm should take to minimize liability deriving from
audit risk (4 marks)

QUESTION THREE (20 MARKS)

Consumer Suppliers Ltd, which has an annual turnover of approximately Sh. 1,500 million,
maintains a computerized sales ledger for approximately 6,000 customers. The existing computer
system is prone to input and processing errors due to insufficient controls being incorporated in the
programs. Consequently the programs are to be rewritten.

Meru University of Science & Technology is ISO 9001:2015 Certified


Foundation of Innovations Page 2
Required:

Describe in note form the controls which could be written into the new program in order to minimize
the occurrence of input and processing errors.

QUESTION FOUR (20 MARKS)

Before accepting other assurance engagements for audit clients, an auditor should consider the
impact of the proposed engagement on the integrity and independence of the audit.

Required:

a) Define the term “assurance engagements for audit clients” and explain its purpose (4 marks)

b) Explain the engagement risk that faces a practitioner who accepts an assurance engagement
(4 marks)

c) Describe the forms of audit assurance reports that a firm involved in assurance engagements
may give to minimize its assurance engagements risk (4 marks)

d) Describe the forms of audit assurance reports that a firm involved in assurance engagements
may give to minimize its assurance engagement risk (4 marks)

e) Identify and explain the potential threats to the independence of a firm involved in assurance
engagements (4 marks)

QUESTION FIVE (20 MARKS)

You have recently been appointed auditor of UPS Hotels Ltd, a company which owns and runs a
number of hotels. The company has an established internal audit department whose staff operate
from the head office and visit the hotels.

Each hotel has a computer which records the bookings of rooms for overnight accommodation and
produces the billing account for each guest

Required

Meru University of Science & Technology is ISO 9001:2015 Certified


Foundation of Innovations Page 3
a) List and briefly describe the work you would expect to be carried out by the internal audit
staff of UPS Hotels Ltd (10 marks)

b) Describe the factors you would consider and the work you would perform to enable you
assess the extent to which you could rely on the work of the internal auditors (6 marks)

c) Assuming that you conclude that the work of the internal audit department is reliable,
describe the effect this would have on your audit work (4 marks)

Meru University of Science & Technology is ISO 9001:2015 Certified


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