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Hbc 2214: Auditing1 Question Paper
Hbc 2214: Auditing1
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2011
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DEDAN KIMATHI UNIVERSITY OF TECHNOLGY UNIVERSITY EXAMINATION 2010/2011 THIRD YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE HBC 2214: AUDITING 1/ HPS 2105 AUDITING PRINCIPLES AND PRACTISE DATE: 13TH APRIL 2011 TIME: 8.30AM – 10.30AM INSTRUCTIONS : Answer question ONE and any other TWO questions QUESTION ONE
a) Seremala Co sells garden sheds and furniture from 15 retail outlets. Sales are made to individuals, with income being in the form of cash and debit cards. All items purchased are delivered to the customer using Seremala?s own delivery vans as most sheds are too big for individuals to transport in their own motor vehicles. The directors of Seremala indicate that the company has had a difficult year, but are pleased to present some acceptable results to the members.
The income statements for the last two financial years are shown below:
31 March 2008 Shs.’000
31 March 2007 Shs.’000
Revenue
7,482
6,364
Cost of sales
(3,520)
(4,253)
Gross profit
3,962
2,111
Operating expenses
Administration
(1,235)
(1,320)
Selling and distribution
(981)
(689)
Interest payable
(101)
(105)
Investment income
145
–
Profit/(loss) before tax
1,790
(3)
Required:
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(i) As part of your risk assessment procedures for Seremala Co, identify and provide a possible explanation for unusual changes in the income statement. (9 marks) (ii) Confirmation of the end of year bank balances is an important audit procedure. Explain the procedures necessary to obtain a bank confirmation letter from Seremala Co?s bank. (3 marks) b) Ngarisha Windows Co (NW) is a window cleaning company. Customers? windows are cleaned monthly, the window cleaner then posts a stamped addressed envelope for payment through the customer?s front door. NW has a large number of receivable balances and these customers pay by cheque or cash, which is received in the stamped addressed envelopes in the post. The following procedures are applied to the cash received cycle: 1. A junior clerk from the accounts department opens the post and if any cheques or cash have been sent, she records the receipts in the cash received log and then places all the monies into the locked small cash box. 2. The contents of the cash box are counted each day and every few days these sums are banked by which ever member of the finance team is available. 3. The cashier records the details of the cash received log into the cash receipts day book and also updates the sales ledger. 4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then files, if he misses a month then he catches this up in the following month?s reconciliation. Required: For the cash cycle of NW:
(i) Identify and explain THREE deficiencies in the system; (6marks)
(ii) Suggest controls to address each of these deficiencies; and (3 marks)
(iii) List tests of controls the auditor of NW would perform to assess if the controls are operating effectively. (3 marks)
c) Discuss citing relevant examples the business situations under which it would be ideal to conduct a continuous audit. (6 Marks) QUESTION TWO
a) Describe the various procedures of obtaining audit evidence giving an example of each by way of illustration . (10 Marks)
b) State the FIVE classes of threats to an auditor?s independence and for each threat list ONE example of a circumstance that may create the threat. (10 marks)
QUESTION THREE
a) Discuss any FIVE types of substantive tests that may be employed by an auditor in the course of conduct of the audit work. (10 Marks)
b) Explain FIVE factors that external auditors consider in determining whether the financial statements of a limited company show a true and fair view. (10 Marks)
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QUESTION FOUR
a) Explain the matters upon which the auditors must form an opinion while preparing their report as laid down in the companies Act. (10 Marks)
b) “The auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner.”
Identify and discuss Five important issues that the audit Plans should cover. (10 marks) QUESTION FIVE
a) „Internal Audit is the aim of management?. Discuss any FIVE recent trends in the development of internal auditing and their significance. (10 Marks)
b) Describe any FIVE steps an audit firm should perform prior to accepting a new audit engagement ant the consequence of not adhering to the step. (10marks)
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