Get premium membership and access questions with answers, video lessons as well as revision papers.
a) You are required to briefly explain the meaning of the term "control
procedures".
Control procedures are the detailed policies and procedures established by
management within the control environment. Control procedures put together
constitute an internal control system. For example the requirement that all
purchase orders must be authorised by a senior responsible company official is an
example of a control procedure. Control procedures are aimed at achieving a
desired control objective. For example the above requirement that purchase orders
should be authorised is an example of a preventive control aimed at ensuring that
all purchase transactions have received the necessary approval which will assist in
the prevention of errors and frauds.
b) You are required to discuss the importance of segregation of duties as a
control
procedure.
Segregation of duties refers to the separation of the various duties and
responsibilities such that one person cannot process and record complete
transactions from beginning to the end without being checked by another person.
E.g. in the purchase of a company’s fixed assets a single individual should not
authorise the purchase, place the order, receive the asset and record the transaction
in the accounting records, to minimise the risk of error and/or intentional
manipulation of information.
Segregation of duties is important because:
? It helps detect errors in processing transactions. This is because the work of
one individual will be checked by another. Errors made will be detected;
? Helps in deterring fraud. Segregation of duties would help in deterring people
from perpetrating frauds. This is because the work of every individual is
counter checked by another person.
c) You are required to List and briefly explain the substantive tests the auditor
would carry out to verify the values attributed to:
i) Trade debtors in a company's financial statements.
Substantive tests are the tests that the auditor carries out to obtain evidence as
to the completeness and validity of the balances reported in the financial
statements i.e. procedures carried out to test the management assertions.
In regard to debtors the following substantive procedures will be necessary:
? To carry out a trend analysis on the level of debtors by comparing the current
year debtors with the previous two years and obtaining explanations for the
reported trend. The evidence obtained from this analysis will assist the
auditor in identifying circumstances that could lead to the misstatement of
debtors balances;
? Compute the debtors’ days, debtors’ turnover and the ratio of provisions for
doubtful debts to trade debtors’ balances. Compare the ratios with the
previous year and obtain explanations for any significant variations. Such an
analysis will assist the auditor in evaluating the recoverability of the debtors’
balances and whether an adequate provision has been made;
? Obtain a listing of balances as at the year end and agree the total to ledger
balance;
? Select a sample of debtors’ balances and perform circularization. This will
assist in confirming existence of the balances;
? Obtain a sample of significant balances and verify if any payments have been
received after the year-end. This will provide good evidence as to the
recoverability of debtors balances;
? Discuss with management accounts that appear doubtful. This will include
accounts above the authorised credit limits, accounts with disputed balances
and balances that have been outstanding for a long period of time. Ensure
that an adequate provision has been made for these balances;
? Test the operation of the cut-off procedures by obtaining details of the last
dispatch note processed during the year and ensure that all transactions that
relate to the current financial period have been recorded.
(ii) Trade creditors in a company's financial statements.
a) Compare the current years creditors balance with the previous year and
obtain explanations for any significant movements. Such an analysis will
give indications for example on the completeness on creditors.
b) Compute the creditors days and compare with the previous years and
obtain explanations for any significant movements. Creditors days give an
indication of the number of days it takes on average to pay creditors.
c) Obtain a creditors listing and verify that the total per the listing agrees with
the total per the ledger.
d) From the listing select a sample of creditors and carry out the following
procedures:
? Obtain or prepare a reconciliation of the creditors balance per the ledger
to the suppliers’ statements;
? Obtain explanations for all the reconciling items and where appropriate
ensure that the reconciling items have been adjusted in the books of
account. The reconciling items will mainly include suppliers invoices not posted in the clients ledger or payments not reflected in the suppliers
statements.
e) Obtain a sample of payments made to suppliers after year- end and verify
that all the invoices that related to the period under review had been accrued
for.
f) Obtain all the pending invoices that relate to the fi
johnson mwenjera answered the question on August 4, 2018 at 12:16
- Your firm is the auditor of Shah Engineering Ltd, and you have been...(Solved)
Your firm is the auditor of Shah Engineering Ltd, and you have been asked to suggest the audit work you will carry out in verifying trade creditors and purchase accruals at the company’s year-end of 31 December 2003. You attended the stock take at the year-end. The Company operates from a single site and all raw materials for production are received by the goods inwards department. When the materials are received they are checked for quantity and quality to the delivery note and purchase order, and a multi—part goods received note is made out and signed by the storekeeper. If there are any problems with the raw materials, a discrepancy note is raised which gives details of the problems (e.g., incorrect quantities or faulty materials) The purchase accounting department receive the purchase invoice, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a microcomputer. The main sundry creditors and accruals at the year-end include:
a) Wages accruals and PAYE;
b) VAT;
c) Interest on loans overdrafts, telephone and electricity. Most employees’ wages are paid weekly in arrears.
You are required to describe in detail the audit work you will carry out to:
a) Check suppliers’ statements to the balances on the purchases ledger;
b) Verify that purchases cut-off has been correctly carried out at the year end.
c) Ensure that sundry creditors and accruals are correctly stated;
Date posted: August 4, 2018. Answers (1)
- You are carrying out the audit of ACB Computers limited for the year...(Solved)
You are carrying out the audit of ACB Computers limited for the year ended 31 December 2003. The company assembles microcomputers purchased from the Far East and sells them to retailers, and to individuals and other businesses. In the current year, there has been a recession and strong competition, which has resulted in a fall in sales and the profits. This has led to a trading loss and the company is experiencing going concern problems.
Required:
a) Describe the factors, which indicate that a company may not be a going concern. Your list should include all factors and not just those, which relate to ACB Computers Limited.
b) Consider the form of audit report (i.e. qualified or unqualified) you would issue of ACB Computers limited if you conclude that the company is experiencing serious going concern problems, in the following two situations: I) You conclude that the financial statements give sufficient disclosure of the going concern problems.
II) There is no disclosure of the going concern problems in the financial statements and you believe there is a serious risk that the company will fail in the foreseeable future.
c) State the parties who may successfully sue you as auditor for negligence, and consider the arguments you could include in your defense when: I) The financial statements of ACB Computers Limited for the year ended 31 December 2003 do not mention any going concern problems and your audit report on these financial statements was unqualified and II) The company fails on 15 February 2004
Date posted: August 4, 2018. Answers (1)
- The responsibilities of external auditors are not always well understood, especially
with regard to the detection and reporting of fraud. When external auditors provide
non-audit...(Solved)
The responsibilities of external auditors are not always well understood, especially
with regard to the detection and reporting of fraud. When external auditors provide
non-audit services to their audit clients, it is essential that the auditors make a clear
distinction between their audit and non-audit responsibilities.
Required:
a) Explain the responsibilities of external auditors to directors and shareholders
b) Describe the limitations of the external audit in relation to the detection and
reporting of fraud.
c) Explain why it is essential for external auditors to be independent of their clients.
d) Explain the advantages and disadvantages of external auditors providing
consulting services to their audit clients.
Date posted: August 4, 2018. Answers (1)
- Towards the end of an audit, it is common for the external auditor to seek a letter of
representation (written representations) from the management of the...(Solved)
Towards the end of an audit, it is common for the external auditor to seek a letter of
representation (written representations) from the management of the client company.
Required:
(a) Explain why auditors seek letters of representation.
(b) List the matters commonly included in the letter of representation.
(c) Explain why it is important to discuss the content of the letter of representation at
an early stage during the audit.
(d) Explain why management is sometimes unwilling to sign a letter of representation
and describe the actions an external auditor can take if management refuses to sign
a letter of representation.
Date posted: August 4, 2018. Answers (1)
- a) Internal control systems are designed, amongst other things, to prevent error and
misappropriation.
Required:
Describe the errors and misappropriations that may occur if the following are not
properly...(Solved)
a) Internal control systems are designed, amongst other things, to prevent error and
misappropriation.
Required:
Describe the errors and misappropriations that may occur if the following are not
properly controlled:
(i) Receipts paid into bank accounts;
(ii) Payments made out of bank accounts;
(iii) Interest and charges debited and credited to bank account
(b) A book-selling company has a head office and 25 shops, each of which holds cash
(banknotes, coins, and credit card vouchers) at the balance sheet date. There are
no receivables. Accounting records are held at shops. Shops make returns to head
office and head office holds its own accounting records. Your firm has been the
external auditor to the company for many years and has offices near to the
location of some but not all of the shops.
Required:
List the audit objectives for the audit of cash and state how you would gain the audit
evidence in relation to those objectives at the year-end.
c) The external auditors of companies often write to companies’ bankers asking for
details of bank balances and other matters at the year-end.
Required:
Explain why auditors write to companies’ bankers and list the matters you would
expect banks to confirm.
Date posted: August 4, 2018. Answers (1)
- Citing six reasons, justify why an accounting officer of a procuring entity, may, at any time, prior to notification of tender award, terminate or...(Solved)
Citing six reasons, justify why an accounting officer of a procuring entity, may, at any time , prior to notification of tender award, terminate or cancel procurement or asset disposal proceedings without entering into a contract.
Date posted: July 23, 2018. Answers (1)
- What is cost accounting?(Solved)
What is cost accounting?
Date posted: July 11, 2018. Answers (1)
- List the purposes of the trial balance(Solved)
List the purposes of the trial balance
Date posted: June 25, 2018. Answers (1)
- What are the setbacks associated with group incentive schemes?(Solved)
What are the setbacks associated with group incentive schemes?
Date posted: June 24, 2018. Answers (1)
- From the following information prepare a cost statement clearly showing the various components of the cost of production (20 Marks)
Sh.
stock on 1st January 2007 48,000
Raw materials 9,800
work in...(Solved)
From the following information prepare a cost statement clearly showing the various components of the cost of production (20 Marks)
Sh.
stock on 1st January 2007 48,000
Raw materials 9,800
work in progress 120,000
finished goods 148,000
wages paid to the factory workers 52,000
factory insurance 400,000
plant balance on 1st January 2007 180,000
factory rent 200,000
cleaning costs 350,000
purchase of raw materials
stocks at 31st December 2007
Raw materials 21,000
work in progress 6,000
carriage on raw materials 42,000
return of raw materials to suppliers 6,200
salary of marketing manager 200,000
fixed admission expenses 140,000
salesman commission 60,000
Date posted: June 20, 2018. Answers (1)
- Define managerial accounting(Solved)
Define managerial accounting
Date posted: June 16, 2018. Answers (1)
- What are the transactions to be excluded in computing national income?(Solved)
What are the transactions to be excluded in computing national income?
Date posted: June 11, 2018. Answers (1)
- What are the differences between ledger entries of cash transaction and ledger entries for credit transactions?(Solved)
What are the differences between ledger entries of cash transaction and ledger entries for credit transactions?
Date posted: May 25, 2018. Answers (1)
- Auditors carry out various audit assignments. In relation to the above statement, explain four non-assurance assignments that auditors undertake(Solved)
Auditors carry out various audit assignments. In relation to the above statement, explain four non-assurance assignments that auditors undertake.
Date posted: May 22, 2018. Answers (1)
- Discuss the problems of Cross Sectional Analysis in accounting.(Solved)
Discuss the problems of Cross Sectional Analysis in accounting.
Date posted: May 22, 2018. Answers (1)
- Outline the limitations of financial ratios.(Solved)
Outline the limitations of financial ratios.
Date posted: May 22, 2018. Answers (1)
- Discuss the uses of financial ratios.(Solved)
Discuss the uses of financial ratios.
Date posted: May 22, 2018. Answers (1)
- Outline the agency costs incurred by shareholders in trying to control management behavior and actions.(Solved)
Outline the agency costs incurred by shareholders in trying to control management behavior and actions.
Date posted: May 22, 2018. Answers (1)
- Outline the actions that a shareholder may take which may conflict the interest of the government as the principal.(Solved)
Outline the actions that a shareholder may take which may conflict the interest of the government as the principal.
Date posted: May 22, 2018. Answers (1)
- Examples of actions by shareholders through management that could lead to a conflict between them and creditors
(Solved)
Examples of actions by shareholders through management that could lead to a conflict between them and creditors
Date posted: May 22, 2018. Answers (1)