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Hbc2215:Auditing Ii Question Paper
Hbc2215:Auditing Ii
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE (25 MARKS)
The institute of certified public accountants opts for international accounting and auditing standards and as well as for improved corporate governance for all companies in Kenya, quoted in the stock exchange.
a) Explain the main reasons behind the adoption of international accounting and auditing standard. (5 Marks) b) Highlight the benefits of good corporate governance to the audit function. ( 3Marks) c) List and briefly explain three circumstance when an auditor can be held legally liable. ( 3Marks) d) Highlight the benefits of auditing standard to the audit function. ( 3Marks) e) Highlight the role of the audit committees to the audit and oversight functions in an organization. (5Marks) f) Critically, evaluate the threats to auditors independence and suggest how such threats can be overcome for improved oversight in enterprises financial management. (6Marks) QUESTION TWO (25 MARKS) The following information relates to Timau Ltd as at 31st July 2012.
Assets Costs Depreciation/ Net Book Value Armotisation Shs. 000 Shs 000 Shs. 000 Land 15,000 15,000
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Plants & Machinery 80,000 70,000 10,000 Equipments 12,000 9,000 3,000 Computers 7,000 6500 500 Software 3000 2700 300 Furnitures 2000 1700 300 Goodwill 1500 1300 200 Motor vehicles 18,000 16,000 2000 56,300 Working capital 10,000 66,300 Financed by: Ordinary share capital 20,000 Ordinary share premium 5,000 Capital reserves 15,000 Profit and loss account 2,000 15% long-term bank loan 18,000 General reserves 6,300 66,300
Analysis of 2010, 2011 and 20122 trading and operations performance
31.7.10 31.7.11 31.7.12 Shs Million Shs. Million Shs, Million
Sales turnover 180 160 140 Operating costs including cost So sales and expenses before interest. 140 145 140 Interest Charges 2.7 2.7 2.7 Net profit 37.3 12.3 92.7) Tax, 30% 11.19 3.69 - Profit available for distribution 26.11 8.61 0
a) If the above accounts and financial statements were to be published for distribution to shareholders, highlight the disclosure requirements the auditors would verify for compliance before release of such documents. (5 Marks) b) Explain the term going concern and with respect of Timau Ltd. Highlight atleast five factors that may cast doubt of company as a going concern. (6 Marks) c) Highlight some of the audit procedures and auditor is required to perform in order to obtain sufficient audit evidence so as to form an opinion on the going concern status of Timau Ltd. (5 Marks)
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d) If Timau Ltd has going concern problems is there a reasonable chance of the company recovering? Explain. ( 3Marks) e) Highlight atleast four other factors an auditor would have to consider before approving accounts and financial statements as a true and fair view of the enterprise financial position for the period reported, incline with ISA 200, ISA 240 and IASNoI ( 4Marks) f) Explain briefly why auditors pay attention to some post balance sheet events. (2Marks)
QUESTION THREE (20 MARKS) a) Explain the following aspects of audit test and evidence gathering; (i) Compliance test (4 Marks) (ii) Walk through tests ( 3Marks) (iii) Substantive tests (4Marks)
pplication control audit context and illustrate your answer by describing one relevant text of control on: (i) an application control (5Marks) (ii) a general control (4Marks)
QUESTION FOUR (20 MARKS) Modern auditing recognizes that audit sampling may be constructed on a non-statistical approach. If the auditor is used to statistical sampling, probability theory will be used to determine the sample size and random selection methods to ensure each item or one shilling in value of population has the same chance of being selected. Non-statistical sampling is more subjective and in certain circumstance statistical sampling techniques more difficult to use and is up to the auditor to review each of the techniques before deciding which one to use.
Required: a. Explain three circumstance where the auditor is unlikely to use non-statistical audit sampling techniques/approach. (3 Marks) b. Highlight with brief details factors which the auditor should consider when determining the size of audit sample. ( 6Marks) c. Highlight the extent to which statistical sampling techniques enhance the quality of evidence. (5Marks) d. Explain why modern auditors are increasingly using risk based auditing approach. Highlight reasons are behind this preferences of risk based auditing approach by modern auditors. ( 6 Marks)
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