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. a) The need for an audit
• These are the requirements of the Companies Act Cap 486.
• To prove the true and fair view of the companies state of affairs as at a given date.
• To find out whether the company has kept proper books of account.
• To write a report to be used by stakeholders.
• To provide advice to management on areas of internal weaknesses.
• Detection of errors and frauds.
b) Procedures for the appointment of an auditor
• Upon registration of a company (30 days after) the Board of Directors or the Registrar of Companies appoints an auditor.
• He can also be appointed at the AGM. If this approach is used the outgoing auditor must be given a 28 days notice.
• Automatic reappointment. This occurs if:
o There is no resolution to remove the existing auditor.
o He has not given in writing a notice to resign.
o He has not committed any act to disqualify automatic re-appointment.
• Casual vacancies may arise and should be filled by the directors of the company except if he resigned in which case it is filled by shareholders. Casual vacancies arise if:
o The auditor dies.
o He is incapacitated.
o He resigns.
• Directors duties with regard to accounting function:
o They should ensure that proper books of accounts are kept to aid in the decision making process.
o They should also oversee that it is continuous i.e. done through-out the financial period.
• These are outlined in s.162 of Cap 486.
o Auditor should make a report to members on accounts examined by them and laid before company in AGM. It must contain statements as to matters mentioned in the 7th schedule. They include:
o Whether or not they have obtained all information and explanations which to the best of their knowledge and belief were necessary for the audit.
o Whether in their opinion proper books of account have been kept and proper returns adequate for the purpose of the audit have been received from branches not visited.
o Whether the P & L Account and Balance Sheet are in agreement with the books of account and returns.
o Whether in their opinion and to the best of their knowledge and according to explanations given to them financial statements give information required by companies act in the manner so required and give the true and fair view.
? In the balance sheet, the state of affairs at the end of its financial year.
? In the P & L a/c the profit or loss for the year.
o In case of a holding company submitting group financial statements, whether in their opinion group financial statements have been properly prepared in accordance with the provisions of the Act so as to give a true and fair view of the state of affair and profit and loss of its subsidiaries.
Musyoxx answered the question on March 14, 2018 at 16:16
- a. Explain the meaning of the following phrases:-
• Qualified audit report
• Fundamental uncertainty
b. State the matters that the Companies Act requires to be...(Solved)
a. Explain the meaning of the following phrases:-
• Qualified audit report
• Fundamental uncertainty
b. State the matters that the Companies Act requires to be contained in an audit report
c. What types of audit opinion would normally follow from a limitation in the scope of the audit?
Date posted: March 14, 2018. Answers (1)
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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:
• Written confirmation of a trade debtor circularised at year end;
• Work-in-progress stocks identified during the annual physical stock count;
• Solicitor’s letter confirming pending legal action;
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)
- a. Explain why auditors carry out circularisation of debtors
b. Distinguish between ‘positive’ and ‘negative’ debtors circularisation procedures
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:
• Where the debtor does not agree with the balance and states a difference;
• Where the debtor reports that he cannot confirm the balance;
• Where no reply is received from the debtor
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.
c. Suggest specific actions an individual auditor or audit firm could take to minimise liability arising from audit risk.
Date posted: March 14, 2018. Answers (1)
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Your firm is the auditor of Mavoko Engineering Company Ltd. and you have been asked to suggest the audit work you would carry out in verifying trade creditors at the end of the financial year. You also attended the company’s annual stock take at the end of the year 31 December 1996.
Required:
Describe in detail the audit work you would carry out to verify:
a. The suppliers statements against the balances on the purchase ledger;
b. That purchases cut-off has been correctly carried out at the end of the year.
Date posted: March 14, 2018. Answers (1)
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b) The documents, records and related information listed below are normally maintained in ‘permanent’ audit...(Solved)
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.
• Memorandum and articles of association:
• Principal activities and locations;
• Specific legislation and regulations
• History including summary of results;
• Key staff;
• Description of accounting systems and internal control
• Organisation charts;
• Copy of letter of engagement
Date posted: March 14, 2018. Answers (1)
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Your firm has been approached by the directors of UB Bank Ltd. a newly formed commercial bank to undertake the audit for its first complete financial year ended 31 December 1996. Your manager has assigned you the responsibility for leading the team. You have had various discussions with the directors about the timetable and the respective responsibilities of management and the auditor. You have drafted a letter of engagement and have sent it to the managing director for approval and acceptance but the management has not yet responded to your letter.
Required:
a) Explain why a letter of engagement is sent before any new audit appointment is accepted.
b) Set out the main contents of a letter of engagement.
c) Itemise the actions you would take in response to the non-reply by the management to your draft engagement letter.
d) State when it might be necessary to re-draft an engagement letter and have it re-affirmed by the client’s management.
Date posted: March 14, 2018. Answers (1)
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