You are the manager responsible for the audit of ABC Company, which has...

      

You are the manager responsible for the audit of ABC Company, which has a turnover of KShs 750 million. The company has been audited by your firm for a number of years and this is the second year you have been responsible as manager for the audit. However, owing to your responsibilities for other audits you are only intending to make periodic visits to the company during the course of the audit and you will not be involved in any of the detailed audit work.
Required
a) State the matters you would consider in planning the audit, prior to the commencement of the detailed audit work. b) Describe the way in which you would control the audit from the commencement of the work by the audit staff to the review stage by the partner immediately prior to him signing the audit report

  

Answers


johnson
a) Matters to consider when planning the audit
In planning the audit the auditor will need to consider the following:
1. Understanding the accounting and internal control systems
The auditor’s cumulative knowledge of the accounting and internal control
systems and the relative emphasis expected to be placed on tests of control and
substantive procedures.
2. Reviewing matters raised in the previous year’s audit, which may have continuing
relevance in the current year. This is done by reviewing previous year’s working
papers. The auditor will be able to identify areas noted as having weak controls or
specific accounting problems. Attention should be paid to such areas in the audit
plan.
3. Assessing the effects of any changes in legislation or accounting practice affecting
the financial statements of the company. The audit plan should include a review of
these changes and whether the client has complied.
4. The auditor should consult with management and staff of the organization about
current trading circumstances and any significant changes in the business carried
on and the management of the enterprise. E.g. changes in management might
weaken the internal control system.
5. Identify any significant changes in the clients accounting procedures such as
installation of a new computer information system. Changes to a computerized
system could result in weak controls.
6. Conditions requiring special attention such as the existence of related parties.
7. Consider any current or impending financial difficulties, which could face the
company. E.g. shortage of raw materials or failure to raise working capital.
8. The auditor should check the nature and timing of reports and other
communications with the client so that the audit plan accommodates such timings
e.g. he should consider the dates of the annual general meeting, stock taking, dates
when management reports are available.
9. Set materiality levels for audit purposes and in particular identify areas with
material transactions, which call for more audit work.
10.The assessment of internal audit department and level of reliance to be place on its
work. The auditor should also determine the number of audit staff required,
experience and special skills required and the timing of the audit visits.

b) Ways to control the audit
1. Scoping of the work and delegation
First I would determine the scope of the work to be carried out and our client’s
expectation. Basing on this I will identify the staff that I will require to carry
out the work. In doing this I will need to consider, the complexity of the
assignment and the level of experience required of the staff. I will delegate the
work to a team that has appropriate training and experience to carry out the
work
2. Direction
I would give appropriate instructions/directions to the staff I have delegated
the work to. This involves informing assistants of their responsibilities and the
objectives of the procedures they are to perform. This also involves informing
them of matters such as the nature of the entity’s business and possible accounting and auditing problems that may affect the nature, timing and extent
of audit procedures to be performed. I would summarise such instructions in
an audit programme.
3. Supervision of the work
I would supervise the work being carried out by the audit team. This will
include:
? Monitoring the progress of the audit to consider whether assistants have the
necessary skills and competence to carry out their assigned tasks;
? Establish whether assistants understand the audit instructions as
documented in the audit programme;
? Ensure that work is being carried out in accordance with the overall audit
plan and the audit program;
? To identify and address any significant accounting and auditing questions
raised during the audit;
? Resolve any differences of professional judgment between the audit team.
4. Review
Before submitting the work to the partner I will need to review the work done.
This is to ensure that:
? The work has been performed in accordance with the audit program
? The work performed and the results obtained have been adequately
documented.
? All significant audit matters have been resolved or are reflected in audit
conclusions.
? The objectives of the audit procedures have been achieved; and
? The conclusions expressed are consistent with the results of the work
performed and support the audit opinion.
? I would then submit the work done to the audit partner for review.
johnson mwenjera answered the question on August 4, 2018 at 12:26


Next: a) In the context of a computer based accounting system, explain the meaning of the following terms: i. Application controls; ii. ...
Previous: Advantages of telephone as means of communication

View More Accounting Questions and Answers | Return to Questions Index


Exams With Marking Schemes

Related Questions


  • a) In the context of a computer based accounting system, explain the meaning of the following terms: i. Application controls; ii. ...(Solved)

    a) In the context of a computer based accounting system, explain the meaning of the following terms:
    i. Application controls;
    ii. General controls
    b) Explain the importance of having proper systems documentation
    c) A Company wishes to change from an old computerised system to a new computer based accounting system. Explain how and why both systems should run parallel prior to the change over to the new system.

    Date posted: August 4, 2018.  Answers (1)

  • (a) Briefly explain the meaning of the term "control procedures". (b) What is the importance of...(Solved)

    (a) Briefly explain the meaning of the term "control procedures".
    (b) What is the importance of segregation of duties as a control procedure'? (c) In carrying out an audit, the auditor appraises and tests the system of internal control in order to ascertain that it is capable of processing transactions or determining quantities and values completely and accurately. The auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded. Required: 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.
    (ii) Trade creditors in a company's financial statements.

    Date posted: August 4, 2018.  Answers (1)

  • 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)