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i).Audit risk is the risk that the auditor may give an inappropriate audit opinion,for example he may
report that the financial statements show a true and fair view while in reality they are materially
misstated.
ii).Inherent risk is the risk that financial statements could be materially misstated.
iii). Control risk.This is the risk that the management through its internal control system(ICS) will not
be able to prevent or detect the material misstatements.
iv). Detection risk. Is the risk that the auditor will fail to detect or prevent such material
misstatements through both his substantive and compliance tests.
john Ochi answered the question on April 14, 2018 at 17:07
- (a) Define the term recurring audit (b) State the circumstance under which the auditor may send a new engagement letter to the existing ...(Solved)
(a) Define the term recurring audit (b) State the circumstance under which the auditor may send a new engagement letter to the existing ...
Date posted: April 14, 2018. Answers (1)
- Explain the procedures an auditor should follow before and after accepting nomination. (Solved)
Explain the procedures an auditor should follow before and after accepting nomination.
Date posted: April 10, 2018. Answers (1)
- (a) Internal controls over non-current assets are designed to ensure the
orderly and efficient running of the business, adherence to management
policies, safeguarding of assets,...(Solved)
(a) Internal controls over non-current assets are designed to ensure the
orderly and efficient running of the business, adherence to management
policies, safeguarding of assets, the prevention of fraud and error and
the completeness and accuracy of the accounting records.
Required:
List the internal controls that a small printing company with office
equipment, motor vehicles and plant and machinery should have in place
to achieve the objectives described above.
(b) Audit sampling is a technique for drawing conclusions about the
characteristics of a population by testing a sample drawn there from.
Internal and external auditors use it for both tests of controls, and
substantive testing.
Required:
Describe the following:
(i) Judgement sampling and statistical sampling;
(ii) A representative sample;
(iii) Tolerable error;
(iv) Two different methods of selecting a representative sample;
(v)The extrapolation of errors.
Date posted: April 3, 2018. Answers (1)
- Your firm is the newly appointed external auditor to a large company that
sells, maintains and leases office equipment and furniture to its customers
and...(Solved)
Your firm is the newly appointed external auditor to a large company that
sells, maintains and leases office equipment and furniture to its customers
and you have been asked to co-operate with internal audit to keep total
audit costs down. The company wants the external auditors to rely on
some of the work already performed by internal audit.
The internal auditors provide the following services to the company:
(i) A cyclical audit of the operation of internal controls in the company’s
major functions (operations, finance, customer support and
information services);
(ii) A review of the structure of internal controls in each major function
every four years;
(iii) An annual review of the effectiveness of measures put in place by
management to minimise the major risks facing the company.
During the current year, the company has gone through a major internal
restructuring in its information services function and the internal auditors
have been closely involved in the preparation of plans for restructuring,
and in the related post-implementation review.
Required:
a) Explain the extent to which your firm will seek to rely on the work of
the internal auditors in each of the areas noted above.
b) Describe the information your firm will seek from the internal auditors
in order for you to determine the extent of your reliance.
c) Describe the circumstances in which it would not be possible to rely on
the work of the internal auditors.
d) Explain why it will be necessary for your firm to perform its own work
in certain audit areas in addition to relying on the work performed by
internal audit.
Date posted: April 3, 2018. Answers (1)
- Why would a company not share all its profits to shareholders?(Solved)
Why would a company not share all its profits to shareholders?
Date posted: March 30, 2018. Answers (1)
- You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997.
The senior partner of your audit firm has...(Solved)
You are auditing the financial statements of Newbridge Trading plc, for the year-ended 31 October 1997.
The senior partner of your audit firm has asked you to consider the auditor‟s responsiresponsibilities for identifying subsequent events. Also, he has asked you to describe the audit procedures, which examine subsequent events. He has suggested that an example of one point in answer to part (b) below would be:
„Checking sales ledger cash received after the year-end to determine the realisability of debtors at the year-end and highlight doubtful debts.‟
The detailed audit work was completed on Friday 5 December 1997. It is proposed that:
a) The audit report will be signed on Friday 19 December;
b) The financial statements will be sent to shareholders on Monday 5 January 1998; and
c) The company‟s annual general meeting will be held on Wednesday 28 January 1998.
Required:
a) Consider the auditor‟s responsibilities for detecting material subsequent events in the periods:
i) 31 October to 5 December 1997 ii) 5 December to 19 December 1997 iii) 19 December 1997 to 5 January 1998
iv) 5 January 1998 to 28 January 1998
v) After 28 January 1998
b) List and briefly explain audit procedures, which involve examination of subsequent events.
c) Describe the audit work you will carry out in period (a) (ii) above.
Date posted: March 28, 2018. Answers (1)
- (a) What is meant by the term "fraud"? Give four examples of fraudulent activities.(Solved)
(a) What is meant by the term "fraud"? Give four examples of fraudulent activities.
(b) What do you consider to be the auditor?s responsibilities in the course of
the normal annual audit in relation to the detection of fraud?
(c) Explain the way in which the auditor should approach and perform his work in order to meet these responsibilities.
Date posted: March 28, 2018. Answers (1)
- Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith &...(Solved)
Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith & Co. Associates, a tow-partner firm of Certified Public Accountants were re-appointed as auditors. However, Smith & Co. Associates have decided that they do not have the necessary resources to audit the enlarge company.
Required:
a) Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting.
b) How any a casual vacancy arising from the resignation of present auditors be filled and what procedures are necessary before the company‟s next annual general meeting at which the appointment will be presented for ratification?
c) Outline the steps the prospective auditor must take before deciding whether or not to accept the nomination as an auditor.
Date posted: March 28, 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 scrutinizing the replies to the debtors circularisation and in confirming whether the debtors balances are collectable in the following situations:
i. where the debtor does not agree with the balance and states a difference; (6 marks)
ii. where the debtor reports that he cannot confirm the balance
iii. where no reply is received from the debtor
Date posted: March 28, 2018. Answers (1)
- You have been asked by the partners of your firm to prepare a draft memorandum on materiality which will provide guidance to members of...(Solved)
You have been asked by the partners of your firm to prepare a draft memorandum on materiality which will provide guidance to members of staff in conducting the audit of the accounts of limited companies.
Required:
a)Define materiality.
b) Explain the importance of this concept to the auditor.
c) Suggest some criteria for determining cut-off point in order to assess the materiality of an error.
Date posted: March 28, 2018. Answers (1)
- John Mutiso bought shares of Sh.2 million six months ago in Kenya Company Limited which has since gone into liquidation. He intends to sue...(Solved)
John Mutiso bought shares of Sh.2 million six months ago in Kenya Company Limited which has since gone into liquidation. He intends to sue XYZ & Co. Certified Public Accountants for the imminent loss of Sh. 2 million which he is likely to suffer. XYZ & Co. had audited the Kenya Company Ltd. The previous year and issued an unqualified report. John Mutiso claims that he solely relied on the audit report when he took that investment decision.
Required:
a) Do the auditors, XYZ & Co. have any liability to Mr. John Mutiso?
b) What circumstances must Mr. John Mutiso demonstrate if he has to succeed against the auditors?
c) State the measures XYZ & Co. should undertake to minimize potential liability for professional negligence.
Date posted: March 28, 2018. Answers (1)
- Distinguish between Accrual concept and Prudence concept(Solved)
Distinguish between Accrual concept and Prudence concept.
Date posted: March 23, 2018. Answers (1)
- Explain the following concepts a).Depreciationb) Amortizationc) Depletion(Solved)
Explain the following
a) Depreciation
b) Amortization
c) Depletion
Date posted: March 23, 2018. Answers (1)
- The auditing guideline on ‘recording’ requires audit working papers to be sufficient complete and detailed so that an experienced auditor who has no previous connection...(Solved)
The auditing guideline on ‘recording’ requires audit working papers to be sufficient complete and detailed so that an experienced auditor who has no previous connection with the audit is able to subsequently ascertain from working papers the work performed and to further support the conclusions reached thereon.
Required:
(a) State four benefits that the auditor will obtain from the working papers that meet the above requirements.
(b) Outline the contents of a typical:
(i) Current audit file;
(ii) Permanent audit file.
Date posted: March 22, 2018. Answers (1)
- You are the audit manager in charge of Car Alarms Ltd. Whose financial year ended on 31 March 1993. Due to the tight schedule...(Solved)
You are the audit manager in charge of Car Alarms Ltd. Whose financial year ended on 31 March 1993. Due to the tight schedule of your programmes you are unable to devote anytime at the client‟s premises. Therefore you have delegated the responsibility to the audit senior.
(a) State the procedures you would follow to control the audit up to completion stage.
(b) Explain the matters you would pay attention to in order to achieve you firm‟s quality control targets.
Date posted: March 22, 2018. Answers (1)
- Give four examples of internal audit work that may be used by the external auditor (Solved)
Give four examples of internal audit work that may be used by the external auditor
Date posted: March 22, 2018. Answers (1)
- Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the...(Solved)
Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the work of the internal audit department of your client
Date posted: March 22, 2018. Answers (1)
- Distinguish between internal audit and internal check ...(Solved)
Distinguish between internal audit and internal check
Date posted: March 22, 2018. Answers (1)
- What are the similarities between internal and external audits? (Solved)
What are the similarities between internal and external audits?
Date posted: March 22, 2018. Answers (1)
- Describe the following types of Audits:
i. Statutory Audits;
ii. Internal Audits;
iii. Private Audits;
iv. Management Audits;
(Solved)
Describe the following types of Audits:
i. Statutory Audits;
ii. Internal Audits;
iii. Private Audits;
iv. Management Audits;
Date posted: March 22, 2018. Answers (1)