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Accf 434: Auditing Ii Question Paper

Accf 434: Auditing Ii

Course:Bachelor Of Commerce

Institution: Kenya Methodist University question papers

Exam Year:2011

KENYA METHODIST UNIVERSITY

END OF 3''RD ''TRIMESTER 2011 EXAMINATIONS
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : BUSINESS ADMINISTRATION
UNIT CODE : ACCF 434
UNIT TITLE : AUDITING II

TIME: 2 HOURS

Instructions: Answer Question ONE and any Other TWO Questions.

Question One (30 Marks)

Distinguish between a statutory audit and a management audit.

(10 Marks)

Recently firms with unqualified audit reports are collapsing shortly after the release of their financial reports. Discuss how the accounting profession can reverse this worrying trend.

(10 Marks)

Auditors operate in an environment that is extremely regulated. State and give relevant examples of the different frameworks governing the auditors profession in Kenya.

(10 Marks)

Question Two (20 Marks)

You are the manager in the audit firm of Wakenya & Co; and this is your first time to have worked on one of the firm’s established clients Rafiki Company. The main activity of Rafiki Company is providing investment advice to Venture Capitalist. You have been asked to start the audit planning for Rafiki Co; by Mr. Binamu, a partner in Wakenya & Co.

Mr Binamu has been the engagement partner in Rafiki Company for the previous nine years and so has excellent knowledge of the client. Mr. Binamu has informed you that he would like his daughter Zina to be part of the audit team this year. Zina is currently studying for her first set of fundamental papers for her CPA qualification. Mr. Binamu also informs you that Mr. Farah, the senior auditor received investment advice from Rafiki Company during the year and intends to the same next year.

In an initial meeting with the finance director of Rafiki Company, you learn that the audit team will not be entertained on Rafiki Company’s Yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes that this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved and trusts that your firm will accept a fixed fee for representing Rafiki Company in a dispute regarding the amount of sales tax payable to the taxation authorities.

Required:

Explain the ethical threats which may affect the auditor of Rafiki Company.

(6 Marks)

For each ethical threat, discuss how the effect of the threat can be mitigated.

(6 Marks)

ISA 570 going concern provides guidance to auditors in respect of ensuring that an entity can continue as a going concern.

Required:
Explain the actions that auditors should carry out to try and ascertain whether an entity is a going concern. (8 Marks)

ISA 260 (Revised and Redrafted) communication with those charged with governance deals with the auditors responsibility to communicate with those charged with governance in relation to an audit of financial statement.

Describe FOUR specific responsibilities of those charged with governance.

(10 Marks)

Explain FOUR examples of matters that might be communicated to them by the auditor.

(10 Marks)

Question Four (20 Marks)

Explain the matters that an auditor should take into account when planning a social audit.

(10 Marks)

Define a forensic audit and explain how the definition applies to a fraud investigation.

(10 Marks)

Question Five (20 Marks)

A registered charity constituted as a trust has recently commenced operating in Nairobi to provide accommodation and other social amenities to elderly citizens. The charity has been granted a license by the City Council to occupy a social centre free of charge; although all maintenance and running costs are to be borne by the charity.

The charity receives income from the following sources;

Door-to-door collections by volunteers with boxes.
Donations in the form of cheques and cash maintenance received through the postal system.
Donations under deeds of covenant entered into by individuals.
Harambee fund raising events organized from time to time.
Sale refreshments at the social centre.

In addition, some local businesses have donated equipment and maintenance material to the charity. The trustees have appointed you as Auditor of the trust.
You are required to write a formal letter to the trustee setting out the control over the abuse income which you would expect the trust to operate.

(10 Marks)

Highlight the need for an internal audit department in an organization.

(10 Marks)

Accf 434: Auditing Ii Question Paper

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