Hbc2215:Auditing Ii Question Paper
Hbc2215:Auditing Ii
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE (30 MARKS) The following information relates to Kogero Limited as at 30th November 2013 presented to the auditor for audit and approval.
Assets Costs Shs.’000’
Depreciation Shs.’000’
Net book value Shs.’000’ Land 15,000 - 15,000 Plants & Machinery 80,000 70,000 10,000 Equipments 12,000 9,000 3,000 Computers 7,000 6,000 1,000 Software 3,000 2,700 300 Furnitures 2,000 1,700 300 Goodwill 1,500 1,300 200 Motor Vehicles 18,000 16,000 2,000 Buildings 35,000 9,000 26,000 56,000 Working Capital 10,000 66,000 Financed by: Ordinary Share capital 30,000 Share premium 5,000 Capital Reserves 10,000 Reserves & Surpluses 3,000 15% Bank Loan 18,000 66,000
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Operations and Trading Performance
30/11/13 Shs. ’Million’
30/11/12 Shs. ’Million’
30/11/11 Shs.’Million’ Sales Turnover 180 168 154 Less: Operations costs Cost of sales & operating expenses before interest 156 152 152 Interest 2.7 2.7 2.7 Net profit before tax 21.3 13.3 (0.7) Tax 30% 6.39 3.99 0 Profits available for distribution 14.91 9.31 0 10% dividends on equity 2.00 2.00 - Retained Earnings 12.91 7.31 0
You have been appointed as the auditor for Kogero Limited of which you have accepted the audit engagement.
Required:
a) If the above accounts and financial statements were to be published for distribution to shareholders, highlight the disclosure requirements that you as the auditor would verify for compliance before release of such documents (5 marks) b) Highlight at least FIVE factors or issue or matters that may cast audit doubts as to the going concern status of Kogero Limited. (5 marks) c) Elucidate some of the audit procedures and verifications that you would do in order to obtain sufficient audit evidence as to form an opinion on the going concern status of Timau Limited. (6 marks) d) Discuss at least FOUR other audit matters you would consider before approving the accounts and financial statements of Kogero Limited presented to you as a true and fair view, in line with ISA 200, ISA 240 and ISA 315. (6 marks) e) Given the financial position and performance of Kogero Limited. Does the company have a chance of recovering. Advice the directors by way of a management letter, you audit observations and remedial actions that you deem prudent for the recovery of the enterprise. (8 marks)
QUESTION TWO (20 MARKS)
In the year 2000, ICPA (K) fully opted for International Accounting and auditing standards as well as for improved corporate governance for all accounting activities, of all companies quoted in the Nairobi Securities Exchange.
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Required:
a) Explain the reasons behind the shifts from Kenya Accounting & Auditing Standards to International Standards. (5 marks) b) Critically explain the role of auditing and accounting standards in financial management and reporting at a corporate business level. (5 marks) c) Precisely, evaluate the threats to auditors independence, highlighting the legal liabilities on the part of the auditor if found liable. (5 marks) d) Highlight with clear explanations the role of audit committees of among board of directors, to audit and oversight functions in the enterprise. (5 marks)
QUESTION THREE (20 MARKS)
a) The following two events both of which are material occurred after the balance sheet date of Sagwaa Limited but before the completion of your audit of its accounts: Kiambaa Limited which owed Shs.2,000,000 to Sagwaa Limited as at Balance sheet date was declared bankrupt and granted immediate liquidation orders by the court of appeal sitting at Eldoret. Information from the liquidator of Kiambaa Limited shows no prospects of any payments or dividends for unsecured creditors like Sagwaa Limited at the date of winding up order. The liquidator of Kamatut Limited announced his intention to pay dividend /settlement amounting to Shs.9 million (50cts for 1 shilling debt) to Sagwaa Limited. Three years previously, the company Sagwaa Limited had made full provision of Shs.18 million of debt owed by Kamatut at that time.
Required:
i) State to what extent the two events would affect the Balance sheet of Sagwaa Limited which you are in the process of auditing and approval for publication and release to shareholders and to the markets. (10 marks)
b) Amayo and Wagacha have just completed their BCOM with upper class honours and have partially qualified as CPA . The office of the Auditor general has hired them to audit Mutindwa university projects accounts and casuals payments transactions. The institution due to its infancy stage has been carrying out several capital expenditure projects for the last four years which have been very labour intensive with high capital expenditures.
Required
Outline the specific problems likely to arise in the course of audit in relation to:
i) Ascertainment of creditors. (2 marks) ii) Ascertainment of debtors. (2 marks) iii) Ascertainment of outstanding claims of casuals and contractors (3 marks)
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iv) Ascertainment of number of 7 casuals employed and work satisfactorily done. (3 marks)
QUESTION FOUR (20 MARKS)
It is the duty of the auditor to gather evidence from the books of accounts and from all other sources, certify, evaluate it and satisfy his or herself before making audit judgements. One way to gather evidence is conduct audit sampling and aided by statistical sampling and probability theory determine sample size of the population. At times he or she may use nonstatistical sampling depending on the nature, frequency of transactions and client environment.
Required:
a) Explain THREE circumstances where the auditor is likely to use non-statistical audit sampling approach/techniques. (3 marks) b) Highlight the extent or merits in which statistical sampling techniques enhance the quality of evidence. (6 marks) c) Elucidate clearly and concisely significant factors that an auditor will consider when determining the size of audit sample. (5 marks) d) Highlight the tests auditors would use to minimize audit risks. (6 marks)
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