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Auditing Question Paper

Auditing

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING (IOL)
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE

BAC 303 - AUDITING

DATE: Thursday, 18th February, 2010

TIME: 8.00 a.m. – 10.00 a.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
Attempt ALL questions.
1.
a)
Auditing has been defined as independent examination of financial
statements in order to form an opinion.
i)
Explain what is meant by auditors independence
(2 marks)
ii)
Outline 6 factors that may compromise auditors independence
(6 marks)

b)
Auditors must comply with Statements of Auditing Standards. They must
also include in their reports, their opinion on whether the financial
statements they report on, give a “true and fair view”.
Required:
i)
Discuss the advantages and disadvantages of auditing standards to
auditors.

(9 marks)

ii)
Give the meaning of the terms “true and fair view” (3 marks)

(Total: 20 marks)

Page 1 of 3
2.
Planning is very important in auditing if the audit objectives are to be met
economically, efficiently and to tight time and cost constraints.

Required:

i)
Discuss the procedures involved in audit planning.
(6 marks)

ii)
Give four reasons why auditors prepare working papers.
(4 marks)

iii)
Describe the items that would appear in a set of audit working papers in a
current file.

(5 marks)

iv)
Describe the minimum criteria that should be met by working papers.

(5 marks)

(Total: 20 marks)

3.
During the course of your audit of fixed assets of Bestwood engineering Plc at
31 December 2009 two problems have arisen.
i)
The calculations of the cost of direct labour incurred on assets in course of
construction by company’s employees have been accidentally destroyed
for the early part of the year. The direct labour cost involved is
Sh.1,000.000.

ii)
The company has received a government grant of Sh.2,500,000 towards
cost of plant and equipment acquired during the year and expected to last
for ten years. The grant has been credited in full to the profit and lost
account as exceptional income.

Required:
a)
List the general forms of qualification available to auditors in
drafting their report and state the circumstances in which each is
appropriate.

(6 marks)

b)
State whether you feel that a qualified audit report would be
necessary for each of the two circumstances outlined above, giving
reasons in each case.

(4 marks)

c)
On the assumption that you decide that a qualified report would be
necessary with respect to treatment of the government grant, draft
the section of the report describing the matter.
(3 marks)
Page 2 of 3

d)
Outline the auditors general responsibility with regard to the
statement in the directors’ report concerning the valuation of land
and buildings.

(2 marks)

(Total: 15 marks)

4.
The examination of evidence is fundamental to the audit process.

Required:

a)
Discuss the quality of the following types of audit evidence, giving one
example of each form of evidence.

i)
Evidence originated by auditors.

(2 marks)

ii)
Evidence created by third parties.

(2 marks)

iii)
Evidence created by the management of the client. (2 marks)

b)
As the auditor to pageant plc, you are considering attending the company’s
annual stock taking.
Required:
What planning of your auditing of the stocktaking would you undertake
BEFORE the annual stocktaking begins.
NB: Do not discuss auditing work during or after the actual stock-
taking.

(9 marks)

(Total: 15 marks)

Page 3 of 3

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