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a) Qualified audit report; A qualified report is one where the auditor does not state the auditor’s opinion that the accounts have been properly prepared in accordance with the Act. A qualified report has legal consequences and may lead to accounts being seen as less reliable by contact groups.
b) Fundamental uncertainty; Inherent uncertainties are inevitable in accounting. Suppose that the company is engaged in litigation and the case will not be heard for many months and the verdict cannot be predicted. The only way to determine the uncertainty is to wait on the outcome of the trial but the financial statements must be produced to accord with companies Act time limits and because shareholders need the accounts.
These are uncertainty where the degree of uncertainty and its potential impact on the view given by the financial statements may be very great. In determining whether an inherent uncertainty is fundamental, the auditors consider:-
• The risk that the estimate included in the financial statement may be subject to change.
• The range of possible outcomes
• The consequences of those outcomes on the view given by the financial statement.
Inherent uncertainties are regarded as fundamental when they involve a significant level of concern about the validity of the going concern basis or other matters whose potential effect on the financial statements is unusually great.
b. The Companies Act requirements:
Whether in the auditor’s opinion the financial statements:
• Have been properly prepared in accordance with the Act.
• Give a true and fair view
• The auditor must state these matters in his report
• If in the auditor’s opinion proper accounting records have not been kept.
• If in the auditor’s opinion returns adequate for their audit have not been received from branches not visited by them.
• If in the auditor’s opinion the company individual accounts are not in agreement with the accounting records and returns .
• If in the auditor’s opinion they have failed to obtain all the information and explanation which to the best of their knowledge and belief are necessary for the purpose of their audit.
• If in the auditor’s opinion the information given in the directors’ report is not consistent with the annual accounts.
c. Limitations of scope means a limitation of scope of the auditor’s work that prevents them from obtaining sufficient evidence to express an unqualified opinion.
The qualification if the limitation is:
• Very material and pervasive – the qualification is a Disclaimer
• Less material and not pervasive – qualification is possible adjustments in the accounts.
Musyoxx answered the question on March 14, 2018 at 16:14
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Required:
a. What is audit...(Solved)
The Auditors Operational Standard requires the auditor to obtain ‘relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom.’
Required:
a. What is audit evidence?
b. Explain the meaning of the following terms;
• Relevant audit evidence
• Reliable audit evidence
• Sufficient audit evidence.
c. Explain whether the following types of audit evidence meets the standards of relevancy, reliability
and sufficiency as required by the auditors operational standard with regard to:
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• Work-in-progress stocks identified during the annual physical stock count;
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Date posted: March 14, 2018. Answers (1)
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During the final stages of the first audit of Nairobi National Bank Ltd. you request the client to provide you with a letter of representation. The client reads the representations you are requesting and refuses to furnish the letter. The client states its position to be as follows:
“You are asking us to tell you all manner of things which we appointed you to find out. You are requesting us to say such things as ‘all the transactions undertaken by the bank have been properly reflected in the accounting records’ and yet we pay you to carry out the audit. You should know whether these statements are true or not.”
Required:
a. Explain to the client the purpose of the letter of representation
b. Describe the nature of the content of a letter of representation. Your answer should be illustrated
c. With specific examples of items which may appear in a letter of representation
d. Explain the reliability of a letter of representation as audit evidence and the extent to which the
e. auditors could rely on this evidence.
f. (d) Explain the consequence of your client’s refusal to furnish a letter of representation.
Date posted: March 14, 2018. Answers (1)
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c. Describe in...(Solved)
a. Explain why auditors carry out circularisation of debtors
b. Distinguish between ‘positive’ and ‘negative’ debtors circularisation procedures
c. Describe in detail the work you would carry out in scrutinising the replies tothedebtors circularisation and in confirming whether the debtors balances are collectable in the following situations:
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Date posted: March 14, 2018. Answers (1)
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Required:
a. With reference to accounting profession,...(Solved)
Members of the accounting profession in common with other professions have taken steps to reduce professional risk as far as possible.
Required:
a. With reference to accounting profession, what is audit risk?
b. Outline the steps that the Institute of Certified Public Accountants of Kenya as taken to reduce the individual auditor’s exposure to risk.
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Date posted: March 14, 2018. Answers (1)
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Required:
Describe in detail the audit work you would carry out to verify:
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Date posted: March 14, 2018. Answers (1)
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a) Describe the reasons for maintaining proper audit working papers.
b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit file.
In each case indicate the importance of maintaining the respective document, record and
information.
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• Principal activities and locations;
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Date posted: March 14, 2018. Answers (1)
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Required:
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