a) Criteria for assessing effectiveness and relevance of an internal audit function.
• Independence.
• Competence.
• Due professional care.
• Staffing.
• Evidence.
• Reporting.
b) Three types of frauds.
• Sabotage of goods/stock during delivery to the outlets.
• Collusion between the suppliers manager and the supplier to overstate the value of
newspapers and magazines.
• Misappropriation of cash receipts.
c) Five key elements which should exist in the general audit approach of high
risk areas.
• Sceptical.
• Use high calibre audit staff.
• Collection of wide range of audit evidence in each area.
• Meticulous preparation of audit working papers.
• Extreme care in drafting audit report.
The external auditor does not have to visit outlets every year. For example if he does not to do a stock take he must certify himself on the stock take by:
• Using rotational verification methods.
• Intensifying other verification methods
• Using perpetual inventory records more thoroughly
• Appointing agents.
Musyoxx answered the question on March 14, 2018 at 16:29
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Explain the following terms:
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c. Professional indemnity insurance;
d. Peer review;
e. Quality Control;
Date posted: March 14, 2018. Answers (1)
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a. Describe the principal purpose of a management letter.
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• The company banks all its cheques and cash once a week; usually on a Friday afternoon.
• Unbanked cash is held in a petty cash box which is kept in the drawer of a desk in the general office. Only the financial controller and the general manager have access to the keys for the drawer and petty cash box.
• Suppliers statements once received are passed on to the purchases ledger clerk for checking against creditors account and subsequent filing. No further controls are implemented after the filing.
• The company’s stock taking instructions require that pre-numbered stock sheets be issued by and returned to the financial controller. During the stock take attendance you noted that the stock sheets in use were not pre-numbered as required.
Required.
Draft a management letter to the managing director highlighting the above weakness, their implications and suitable recommendations to overcome them.
Date posted: March 14, 2018. Answers (1)
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You are the auditor of a manufacturing company which makes and sells ladies clothing. While checking the accounts at the date of the balance sheet you receive from management a certificate showing the value of stock and work in progress. You feel that additional work is necessary to confirm the correctness of the figures.
Required:
a. Describe the procedure you would carry out when checking the stock sheets.
b. Indicate the additional work that must be carried out on the work in progress.
c. State three factors that could affect the accuracy of the figures given by the management.
Date posted: March 14, 2018. Answers (1)
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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)
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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)
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b. State the matters that the Companies Act requires to be...(Solved)
a. Explain the meaning of the following phrases:-
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• 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:
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• Solicitor’s letter confirming pending legal action;
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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
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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:
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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?
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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.
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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
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Date posted: March 14, 2018. Answers (1)
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Required:
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