Acct 412: Audit Practice And Investigation Question Paper
Acct 412: Audit Practice And Investigation
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2009
Instructions:
1. This paper comprise of five questions
2. Question one is compulsory
3. From the other four questions, answer two questions only
4. Question one carry thirty marks the other questions carry twenty marks each
5. Marks for each question are indicated at the end of each question
QUESTION ONE
a) The auditor client relationship is contractual. The auditor has no contractual
relationship with third parties, yet the auditor owes a duty to third parties and the
government of Kenya in respect of his audit reports.
Required
I) Use decided cases to demonstrate the circumstances under which the auditor
would be liable for damages to third parties who may incur losses for relying
on an auditor’s report (10 marks)
II) State and clearly explain circumstances under which an auditor would be
criminally liable for an audit report filed by him. (5 marks)
III) Give the case for and against an auditor being liable to third parties as a result
of an audit report filed by him. ( 5 marks)
b) Clearly explain the following terms as used in audit reports so as to distinguish them,
I) Emphasis of the matter paragraph ii) qualified report iii) adverse opinion iv) disclaimer
of opinion v) unqualified report (10 marks)
QUESTION TWO
In the course of an audit commissioned by a client, you came across the following;
a) The figures in the cheque counterfoils, bank statement obtained from the bank and
bank statements filed by the employees of the client were not in agreement and
the persons in charge could not explain.
b) Asset records are unreliable and incomplete making it impossible to ascertain,
their existence, valuation and even existence
c) The stock records were found to be incomplete, unreliable and deliberately
manipulated to reflect a distorted view.
d) The pay roll is also suspected to contain ghost workers
In a meeting with the client, the client has requested for
1) A detailed explanation of the distinguishing features between auditing and
investigation
2) A clear explanation of what needs to be done so that the auditor can give an
unqualified audit report
Required
i) Write a memo addressing the client’s concerns (5 marks)
ii) Imagine that you were commissioned to carry out the above investigation.
write a detailed investigation report that would address the above findings
(Imagine that you have carried out the investigation and made your findings)
(15 marks)
QUESTION THREE
The audit of banks and insurance companies is in the category of audits referred to as
specialized audits
Required
Compare and contrast the audit of banks and insurance companies (20 marks)
QUESTION FOUR
The accounts of Mlachake na Mbinu limited were audited by Turu, Fea and associates
certified public accountants of Kenya. You are a partner in the firm. The audit
brought up the following issues;
i) There was an overprovision of bad debts of 5 million shillings
ii) Sales that were not yet realized amounting to 10 million shillings were
included in the sales for the year
iii) The closing stock were exaggerated by 2.5 million shillings
iv) Directors are remunerated through a complex scheme where directors
instead of getting their pay directly are remunerated through benefits
like un-official use of company cars, unaccounted for bonuses, loans
which are included in debtors and have not been repaid for the last 10
years, heavy sitting allowances that are written off as expenses, and
directors take goods which are included as sales but are not paid for.
v) The books of accounts contain some errors which have not been
captured by the financial reports.
Required
The partners have asked you to handle the matter to the final report.
(NB. Analyze each aspect and the different approaches that would be appropriate and
write the corresponding report) (20 marks)
QUESTION FIVE
As a senior partner of an auditing firm you have been appointed to handle an assignment
involving a large company that has requested your firm to carry out a management audit.
The partners will be holding weekly partners’ meeting in which you are expected to
present a summary of how you intend to carry out the assignment.
Required
Prepare a write up for presentation to the partners’ meeting, detailing; how you will
organize your work, the main areas of concern, issues to address and the type of report
that will need to be prepared. (20 marks)
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