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Auditing And Investigation Theory Question Paper
Auditing And Investigation Theory
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 306-A : AUDITING AND INVESTIGATION THEORY (day+ evening)
DATE: AUGUST 2010
TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
Richman Ltd, operate a chain of department stores located in western Kenya that has steadily grown to
its present size of 44 stores. Two years ago, the board of directors of Richman approved a large scale
remodeling of its stores to attract a more upscale clientele.
Before finalizing these plans, two stores were remodeled as a pilot. Linda Mutua, assistant controller,
was asked to oversee the financial reporting for these test stores, and she and other management
personnel were offered bonuses based on the sales growth and profitability of these stores. While
competing the financial reports Mutua discovered a sizable inventory of outdated goods that should
have been discounted for the sale or returned to the manufacturer. She discussed the situation with her
management colleagues; the consensus was to ignore reporting this inventory as obsolete, since
reporting it would diminish the financial results and their bonuses.
Required
(a) Discus the standards of Ethical conduct for auditors and other practitioners.
(8 Marks)
(b) In applying the standard ethical conduct, auditors may encounter problems in identifying unethical
behavior or in resolving an ethical conflict. Discuss the possible courses of action an auditor should
consider
(10 Marks)
(c) According to statement of Ethical conduct to auditors, would it be Ethical for Mutua not to report
the inventory as obsolete? would it be easy for Mutua to take the ethical action in this scenario?
(4 Marks)
(d) State the reasons for an auditor to use standards of ethical conduct in the course of his duty.
(8 Marks).
{Total 30 Marks}
QUESTION TWO
Risk – based auditing is the modern approach to auditing and investigation discipline
Required
(a) Explain the term risk – based Auditing
(3 Marks)
(b) List the factors which the auditors should bear in mind when assessing the inherent risk and
control risk of company.
(8 Marks)
(c) Explain why there has been increased use of risk – based auditing approach in recent years and
what are the advantages of risk – based auditing.
(5 Marks)
(d) Explain why risk – based auditing and statistical sampling techniques are associated (4 Marks
{Total 20 Marks}
QUESTION THREE
It has been argued that an auditor’s independence may be compromised by the provision of other non –
audit services such as calculating the company’s income tax liability, and the directors income tax
liability and negotiating with the Kenyan Revenue Authority (KRA), preparing the company’s
financial statement for audit and advising on the internal control system.
Required
a) Discuss this statement.
(10 Marks)
b) should the external auditors be allowed to provide other services to the listed companies they
audit, why and why not?
(10 Marks)
{Total 20 Marks}
QUESTION FOUR
You’re the audit manager at Wafula and associates responsible for the audit of the books of Wekesa
spares Ltd. In the course of the audit of financial statements for the year ended 30th June 2009, your
preliminary evaluation of the internal controls indicated that the reliance could be placed on the
system. However compliance tasks carried out during the audit disclosed that the system was not
operating effectively. The situation has necessitated amendments and additions to the original plan.
Required
Describe the changes to be effected during the interim audit and after end of financial year.
{20 Marks}
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