Acct 412: Auditing And Investigation Question Paper
Acct 412: Auditing And Investigation
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2010
INSTRUCTIONS
1. Do not write on the question paper.
2. Give precise and concise answers.
3. Marks are shown at the end of the question.
4. Answer all questions in section A and any two questions in section B
QUESTION 1
Micro cables ltd is an up coming blue chip company. Th eman who came up with the idea, Mr.
Jifanyie Mwenyewe, is in his early twenties and lucks accounting and auditing knowkedge. The
company has expanded so first that he has a feeling of loosing control of the company. He has sa
group of other young men who are both ambitious and gifted in their area of specialization which
include engineering, design, management science and accounting. They are all computer
professionals. In a recent seminar which he attended, the issues of the theft by employees,
foolproof accounting systems, audit risks, auditor’s liabilities to third parties, share holders and
management and reasons why businesses should carry out an external audit were disused.
The business has expanded so fast that currently they have more than fifty branches in the
country, they are doing more than fifty percent of their business on line, they have more than
three hundred employees and the numbers are still growing.
Micro cable ltd deal in developing electronic gadgets that are problem specific and used to truck
animals, people, vehicles, mobile phones, laptops, office equipment etc. the main stay of this
gadget is it cost effectiveness, it’s cheap to produce easily portable and very easy to install
especially in animals and people. Mr. Jifanyie is worried that this great innovation may be stolen
from him.
Required:
a) Address each of the issues discussed in the seminar by clearly explaining their meaning
and advice Mr. Jifanyie on how they can help him control his business. (20 mks)
b) As an auditor advice Mr. Jifanyie on what he should do concerning his trucking device.
(10 mks)
QUESTION 2
Kabarak forth year auditing students have formed a consortium where they have contributed
money to invest in an auditing firm. They all are qualified accountants except two who have
promised to be qualified by the time the consortium will be taking over the audit including South
Africa. They have contracted you to carry out an investigation on their behalf and make a report
to them in two weeks time. They have given you the following instructions:
(i) Ascertain the profitability of the firm.
(ii) Establish the stability of their client base in each country independently.
(iii)Reconstruct the profit and loss account for the last four fears and isolate any non
recurrent items of income.
(iv) Ascertain the bad debts over the said period.
(v) Carry out an investigation as to the integrity of the partners and their credit worthiness.
(vi) Establish the professional standing of the firm noting any disciplinary problem that the
firm experienced in the past including any disciplinary action that the umbrella body that
control the profession took as a punitive measure.
Required:
Considering the issues raised above, and assuming that you have carried out the investigations,
write a detailed report to the consortium. (20 mks)
QUESTION 3
An auditor’s independence is important in carrying out an audit. The meaning of the term auditor’s
independence is not clearly defined and in many instances it can proof very difficulty to prove. An
auditor’s independence has been delineated from other ethnical issues by an attempt by ICPAK to issue
guidelines on situations when an auditor’s independence is likely to be compromised.
Required:
a) Clearly identify the situation under which an auditors independence is likely to be compromised
as outlined by ICPAK and illustrate how easy of difficult it would be to prove loss of
independence under each circumstance. ( 15 mks)
b) Should professionals advertise their services? (15 mks)
QUESTION 4
Your audit firm has landed a lucrative assignment to audit a local bank which has branches in the
country and has recently opened branches in neighboring countries. Your audit firm which is not
very old in the business is a bit apprehensive and they have assigned you, as a senior partner the
duty of organizing, coordinating and developing system to ensure that the audit is done
professionally and in accordance to audit standards. The partners have organized a partners
meeting in which they intend to review progress of the assignment.
Required:
a) Write a report to the partners outlining the major areas of concern in the assignment
detailing what needs to be accomplished. (10 mks)
b) Bank like other companies are audited in accordance to the requirements of company
auditing, however due to the unique and sensitive nature of their business, they under
strict control by central bank. Write explanatory note to the partners explaining how the
audit will be different from other company audits. (10 mks)
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