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. a) Auditors duties with regard to stock.
• Ascertaining the accounting policies adopted by the entity for valuing stocks.
• Auditor must consider suitability of accounting policy adopted for valuation of stock by the organisation.
• The auditor should test check the stock sheets or the continuous stock records with relevant documents such as invoices and costing records to determining cost has been correctly arrived at.
• The auditor must examine and test the treatment of overheads
• The auditor must test the treatment and examine the available evidence for items valued at net realisable value.
• The auditor must check the arithmetical accuracy of the calculations made and the disclosure of the accounting policies adopted.
• The auditor must consider the adequacy of the description used in the accounts and the disclosure of the accounting policies adopted.
Review Tests
• Quantity reconciliation of changes in stocks at successive periods ends with records of movements i.e. receipt and issues.
• Comparison of quantities of every kind of stock held at one year end with those held at a previous year end and the related receipts and issues.
• The gross profit ratio is compared to that of the previous year, other companies and budget.
• Review of rate of stock turnover with previous year.
• Comparison of stock figures and budgets sales and particulars
• Consideration of standard costing records, the treatment of variances in the valuation of stocks and work in progress.
Work-in-progress
• Enquiry into the costing system from which work in progress is ascertained
• Enquiry into how reliable the costing system is. A costing system integrated with the financial system will be more reliable because of the discipline of double entity and the inherent checks imposed by external data such as creditors statements.
• Enquiry into checks that are made as part of the system or statistical data concerning inputs of materials and outputs of products and expectations.
• Enquiry into the system of inspecting and reporting on work done so that allowance is made for scrapping and rectification of work.
• Determining the basis in which overheads are included in costs and ensuring that this is based on international accounting standards.
• Making enquiry into the basis on which any profit elements are dealt with. Profits should be eliminated from work in progress.
• Where the organisation constructs internally some of its own fixed assets, the auditor must make sure that such items as are under construction at the year end are not accounted for twice i.e. in fixed assets and in work in progress.
Factors affecting accuracy of figures given by management.
• Incompetent staff
• Wastage/consumption without proper recording
• Possibility of management bias
• Loss or pilferage of stock
• Change of the stock valuation method.
Musyoxx answered the question on March 14, 2018 at 16:21
- Tamu Tamu Limited is a general trading company. It has presented its annual accounts for audit for the year ended 31 December 1996.
Required:
a) State how you...(Solved)
Tamu Tamu Limited is a general trading company. It has presented its annual accounts for audit for the year ended 31 December 1996.
Required:
a) State how you would verify the following assets:
• Short term deposit with the bank:
• Motor vehicles;
• Disposal of plant;
• Loans given to employees;
b) With reference to the annual general meeting of the company, list the items that you woulbe recorded in the resolutions of the shareholders.
Date posted: March 14, 2018. Answers (1)
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a. Briefly explain two practical circumstances when the auditor may be liable for damages arising from material misstatements in published financial statements on which the auditors have expressed an audit opinion.
b. List the classes of persons who may make a successful legal action against the auditors negligence.
c. Explain how an audit firm can minimise its potential legal liability for professional negligence.
Date posted: March 14, 2018. Answers (1)
- Restmount Kenya Ltd. was formed on 1 October 2002 in order to export tea and coffee to European markets. The Directors are unsure as...(Solved)
Restmount Kenya Ltd. was formed on 1 October 2002 in order to export tea and coffee to European markets. The Directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor.
Required:
Explain to the directors of Restmount Kenya Ltd.
a. The need for an audit
b. Procedures for the appointment of an auditor of a public company under the Companies Act.
c. Directors responsibilities in relation to the accounting function of the Company
d. Auditors’ statutory responsibilities in relation to the audit of the company’s financial statements
Date posted: March 14, 2018. Answers (1)
- 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)
- 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...(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)
- During the final stages of the first audit of Nairobi National Bank Ltd. you request the client to provide you with...(Solved)
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:
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• 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:
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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;
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• Organisation charts;
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Date posted: March 14, 2018. Answers (1)
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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.
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Date posted: March 14, 2018. Answers (1)
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