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a) Examination of statements received from suppliers of goods and services:
• To ensure that all the liabilities are included for both services and goods
• To ensure that where a service or a good has been received before the year end the corresponding liability has been set up. This is called checking the cut-off.
• It also helps in establishing the reasonableness of the liability which may put him upon enquiry
• It also gives him the chance to compare the current liabilities with previous years liabilities
• He examines the statements to establish the terms and conditions when accepting a liability between the client and his creditor.
• The auditor also wants to ensure that the description in the accounts is adequate.
• This statements will show the materiality of the supplies which has to be taken into consideration.
• The auditor will examine the statements in order to match the physical goods to the statement.
Ensuring that all goods and received by a client were included in both inventories and credit balances:
• Checking they use pre-numbered goods received notes and if they match the goods received notes with suppliers statements and invoices.
• The use of pre-numbered purchase orders and their subsequent matching with goods received notes.
• The auditor should investigate the matched goods received notes.
• Regular reconciliation between the creditors ledger and the suppliers statements, having a list of approved suppliers.
Ensuring that the amounts accrued for wages and salaries due but unpaid were properly calculated and recorded in the books.
• Check if a proper independent record of employees is maintained so as to find out dummy employees on the payroll. Fictitious names may be invented or employees who have left or retired may be retained on the payroll. This is usually done by the wages officer.
• Improper calculation of pay can occur when there is collusion between employees and wages officer so this should be directed as well.
• Check if they cast the payroll at the time of approval.
Tests undertaken in order to ensure that capital commitments at the year end were fairly stated in the books.
• Check authorisation of capital commitments this should be prepared by very senior level management and those responsible should have no connection with cash or the custody of title.
• Maintenance of investment register; check if it is done by a clerk with no access to documents of title and responsibility for authorisation of purchase or sales .
• Ensure that an independent clerk should be given the duty of comparing contract notes with purchase and sales authorisation and for ensuring that charges have been correctly calculated.
• Adequate custody procedures must be maintained for documents of title and two senior officials should have responsibility for them.
Musyoxx answered the question on March 16, 2018 at 16:43
- The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete...(Solved)
The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete and detailed to enable an experience auditor with no previous connection with the audit subsequently to ascertain from them what work was performed and to support the conclusions reached.’
Required:
a) Describe four benefits that the auditor will obtain from working papers that meet the above requirement.
b) If the auditor has discovered that a claim for damages is a significant item requiring exercise of judgement in the financial statements, show what type of evidence on the matter the auditor must record in the current file. Give reasons for the inclusion of such evidence in the current file.
c) List three types of information which is normally retained in the audit file and state why such information should be available for reference in the course of an audit.
d) Comment on the desirability of using standardised working papers and give an example of such working paper and its use.
Date posted: March 16, 2018. Answers (1)
- a. The external auditor of a company uses the system of internal control to determine the nature, extent and timing of his audit tests.
Required:
• Whose responsibility is...(Solved)
a. The external auditor of a company uses the system of internal control to determine the nature, extent and timing of his audit tests.
Required:
• Whose responsibility is it to ensure the existence of a strong system of internal controls?
• What value does a client obtain from the external auditor with respect to internal controls? Explain how the auditor provides that value.
b.
• What is the main role of the internal auditor with respect to internal controls?
• How does the external auditor assure himself that internal audit is effective?
Date posted: March 16, 2018. Answers (1)
- Three important aspects of an audit which must be planned for well in advance are:
a. Audit staffing requirements;
b. The timing of the audit field visits;
c. Clients use of...(Solved)
Three important aspects of an audit which must be planned for well in advance are:
a. Audit staffing requirements;
b. The timing of the audit field visits;
c. Clients use of computerised systems.
Required:
a. Explain the importance of each of the above matters for the successful conduct and completion of the audit.
b. Identify and list in point form the inputs to the planning process in respect of each of the three items stated above.
Date posted: March 16, 2018. Answers (1)
- Integrated Consulting Engineers Ltd. has undergone a period of substantial growth since its establishment ten years ago. Due to lack of accounting expertise within the...(Solved)
Integrated Consulting Engineers Ltd. has undergone a period of substantial growth since its establishment ten years ago. Due to lack of accounting expertise within the company, it has traditionally instructed its auditors, Shah & Company (CPA) to perform the two functions of accountancy and auditing. Shah & Company have also provided consultancy services to the company.
Arising from these responsibilities, Shah & Company earn 20% of their gross fees from Integrated Consulting Engineers Ltd.
Required:
a) Discuss the acceptability and desirability of Shah & Company continuing to act as accountants, auditors and consultants for the company.
b) If, despite having been re-elected as the company’s auditors, Shah & Company decide to resign during the year, state the procedures they should follow.
c) What action should Integrated Consulting Engineers Ltd. take on receipt of the letter of resignation from Shah & Company?
Date posted: March 16, 2018. Answers (1)
- Circumstances under which wages are treated as a capital expenditure(Solved)
Circumstances under which wages are treated as a capital expenditure.
Date posted: March 16, 2018. Answers (1)
- Advantages of maintaining control accounts(Solved)
Advantages of maintaining control accounts.
Date posted: March 16, 2018. Answers (1)
- Why should the name of a limited company contain the word limited?(Solved)
Why should the name of a limited company contain the word limited?
Date posted: March 15, 2018. Answers (1)
- Write brief notes on the following:
a. Final or completed audit:
b. Interim audit
c. Continuous audit;
d. Balance Sheet audit
(Solved)
Write brief notes on the following:
a. Final or completed audit:
b. Interim audit
c. Continuous audit;
d. Balance Sheet audit
Date posted: March 14, 2018. Answers (1)
- During the course of the audit, the auditor may need to consider audit evidence in the form of reports, opinions, valuations or statements from specialists.
Required:
a) List...(Solved)
During the course of the audit, the auditor may need to consider audit evidence in the form of reports, opinions, valuations or statements from specialists.
Required:
a) List four examples of situations where an auditor may wish to rely upon the report of a specialist.
b) Describe the principles or factors which the auditor should consider when placing reliance on audit evidence provided by specialists.
Date posted: March 14, 2018. Answers (1)
- Petty Shops Ltd. operates a large number of small retail outlets selling newspapers, sweets, cigarettes and sundry items. The internal control system provides for...(Solved)
Petty Shops Ltd. operates a large number of small retail outlets selling newspapers, sweets, cigarettes and sundry items. The internal control system provides for all books to be kept at head office with a branch stock account at selling price. Each outlet is required to bank receipts daily and intact; and to make a weekly stock report. All stock other than newspapers and magazines required by an outlet must ordered from the company’s central warehouse and is delivered twice weekly. Each outlet receives daily deliveries of newspapers and magazines direct from the supplier.
There are usually two members of staff on duty at each outlet at any one time with a considerable number of the staff being employed on a part-time basis. Petty Shops Ltd. employs a small internal audit department who visit each outlet at least twice each year.
Required:
a) State and explain four criteria which should be employed in assessing the effectiveness and the relevance of an internal audit function.
b) Identify three types of fraud to which Petty Shops Ltd. may be particularly vulnerable in operating a large number of small outlets. In circumstances where the auditors have identified high risk areas within an audit, give five keyelements which should exist in the general audit approach to these areas.
c) State with reasons whether the external auditors would be expected to visit outlets every year.
Date posted: March 14, 2018. Answers (1)
- Explain the following terms: a. Materiality; b. The duty of confidentiality; c. Professional indemnity insurance;...(Solved)
Explain the following terms:
a. Materiality;
b. The duty of confidentiality;
c. Professional indemnity insurance;
d. Peer review;
e. Quality Control;
Date posted: March 14, 2018. Answers (1)
- a. Describe the principal purpose of a management letter. b. Your audit firm has acted for many years as auditors of Western Fishing Products Ltd. In the course of your audit(Solved)
a. Describe the principal purpose of a management letter.
b. Your audit firm has acted for many years as auditors of Western Fishing Products Ltd. In the course of your audit, you have come across the following matters, which you believe should be brought to the attention of the directors through a management letter.
• 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)
- You are the auditor of a manufacturing company which makes and sells ladies clothing. While checking the accounts at the date of the balance...(Solved)
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)
- 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)
- 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...(Solved)
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:
• 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)