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Auditing 2 Question Paper

Auditing 2

Course:Bachelor Of Commerce In Accounting

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 300-A: AUDITING II (SUNDAY)
DATE: AUGUST 2010
TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
Your firm is Pathfinder PLC and you have been assigned the audit of the firm’s fixed assets for the
year ended 31st December, 2008.
The fixed assets comprise of:
Freehold land and buildings
Office equipments
Motor vehicles used by the directors and sales staff.
The company uses the following depreciation rates:
Buildings at 2% on cost p.a.
Office equipments including computers at 10% on cost p.a.
Motor vehicles at 25% on cost p.a.
Required
a) State four audit objectives relating to the audit of tangible fixed assets
(6 Marks)
b) Describe how you would verify the ownership of:
i.) Freehold land and buildings (8 Marks)
ii.) Computers and motor vehicles (4 Marks)

c) Describe the investigations you would carry out to determine whether the depreciation rate of
the computers is adequate
(6 Marks)
d) Describe the factors you would consider when deciding whether to modify your audit report on
the understatement of the depreciation of the computers
(6 Marks)

QUESTION TWO
You are a senior member of the audit team at Family City co. Ltd, a company whose business is the
milling of sugar, ethanol and molasses for local consumption. The annual turnover for the year ended
30th September, 2007 amounted to sh.1billion and most of its sales were on credit.The audit team
leader has assigned you the audit of the provision for doubtful debts which has been set at 5.74million,
out of which sh. 2.53million relates to the provision against specific bad and doubtful debts as the
balance of sh.3.19million is a general provision determined as a percentage of overdue debtors with a
higher percentage being applied against the longest overdue accounts.
Required
a) Outline the procedure you would apply in verifying the general provision for bad and doubtful
debts.
(10 Marks)
b) Explain how you would verify the specific provisions for doubtful debts.
(5 Marks)
c) Briefly explain the meaning of the following terms:
i.) Materiality concept
ii.) Going concern
(5 Marks)

QUESTION THREE
a. Auditing standards state that the auditor should plan the engagement so that audit risk will be at a
sufficiently low level before issuing an opinion on the financial statements. However, audit
standards do not provide specific guidance on what is an appropriate level of audit risk.
Consider the following model and explain audit risk component and how the auditor should
deal with them in course of his audit work.
AR= IR x CR x DR
b. How can an auditor use this model to reduce auditor’s liability?
(20 Marks)

QUESTION FOUR
The auditor of a company with an Electronic Data processing (CIS) based accounting system should
remember that if the quality of the input is controlled, the output will “look after itself”.
a) Discuss the application of this statement citing suitable example
(4 Marks)
b) Describe six major procedural controls which the auditor would expect to find in operation,
relating to output
(12 Marks)
c) State any four advantages of using Electronic Data Processing (CIS) based accounting system
while auditing the accounts of a complex business organization.
(4 Marks)

Auditing 2 Question Paper

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