a) Materiality is defined in ISA 320 to be the expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission or misstatement would reasonably influence the decisions of an addressee of the auditors report. Materiality is not capable of general mathematical definition as it has both quantitative and qualitative aspects. The auditors? responsibility is to plan and perform their audit to obtain reasonable assurance that the financial statements are free of material misstatement and give a true and fair view. Thus anything that would distort the view given by accounts must lead to a qualification, but only if it is material.
b)The duty of confidentiality requires that information acquired in the course of professional work should not be disclosed except where consent has been obtained from the client, employer or other proper source, or where there is a legal or professional right or duty to disclose. A member acquiring information in the course of professional work should neither use nor appear to use that information for his personal advantage or for the advantage of a third party. Where a member is in any doubt, the matter if appropriate should initially be discussed fully within his firm or organization. If not appropriate, or if it fails to resolve the problem, he should consider taking legal advice and/or consult ICPA (K) Confidentiality in practice An accountant should only act for a client on the understanding that the client will make full disclosure to him. In the absence of such an understanding the accountant should decline the appointment. If during the course of an engagement, the client fails to furnish all the information considered necessary, the accountant should disclose this in his report. The accountant should also consider whether he can continue to act. Sometimes in the course of his work an accountant may obtain information from a client that has a bearing on information supplied to him by another client. In such circumstances, it would be breach of confidence to reveal the information to the second client without the permission of the first client. The accountant should instead endeavour to substantiate the information with evidence obtained directly from the books and records of the second client. This may necessitate direct confirmation. Ultimately he may have to qualify his report or resign.
c)A part of gross income of the auditing firms is paid to insurance firms as part of professional indemnity insurance (PII) such that when negligence claims are brought against the audit firm, then the insurance will settle these claims. Some professional bodies require their members in public practice to hold PII covering all civil liability incurred in connection with the conduct of the firm?s business by partners, directors or employees. This means that if a client or other party successfully sues the firm for negligence, then the firm will not meet the claim but the insurer will. So if the firm is unable to pay a very large claim, the insurance will have the required resources.
d)Peer review: A system where one firm of auditors reviews the working practices of another. The work of the review is limited to: -
a) Professional aspects of the practice.
b) Overall quality control policies
c)Professional aspects of firm?s accounting and auditing practices like maintenance of working papers work products such as financial statements.
(e) Quality controls ISA 220, “Quality control for audit work requires that all firms implement quality control policies and procedures at the levels of the audit firm, and on individual audits. Those policies and procedures should be communicated to staff, via formal policy statements, audit manuals and informal briefings, and monitored to ensure that they are implemented. Quality controls ensure the audit is carried out: - - In accordance with international accounting standards. ? In conformity with statutory and contractual requirements ? In accordance with ethnical standards.
johnson mwenjera answered the question on August 13, 2018 at 12:59
- (a) Do you believe that the auditors should be responsible to users other than the shareholders? Give reasons to support your answer. (b) Does the...(Solved)
a) Do you believe that the auditors should be responsible to users other than the shareholders? Give reasons to support your answer.
b) Does the auditor require a codified definition of “reasonable care and skill” or should this be left to professional judgment? Explain.
c) Why should the auditor be unwilling to take full responsibility for the detection of fraud during the annual audit? Explain.
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Date posted: August 13, 2018. Answers (1)
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Date posted: August 10, 2018. Answers (1)
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c)...(Solved)
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b) Bank balances.
c) Contingent liabilities.
d) Petty cash balances.
Date posted: August 8, 2018. Answers (1)
- Audit planning process allows the audit senior to acquire adequate knowledge about the entity. This process ensure an effective control of audit work. ...(Solved)
Audit planning process allows the audit senior to acquire adequate knowledge about the entity. This process ensure an effective control of audit work.
Required:
a) Explain the auditor's planning process when planning for an audit of a new client. b) How does audit planning assist in the conduct of an audit?
c) Explain the following controlling procedures in a well planned audit:
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Date posted: August 8, 2018. Answers (1)
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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
Date posted: August 4, 2018. Answers (1)
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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
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Date posted: August 4, 2018. Answers (1)
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(b) What is the importance of...(Solved)
(a) Briefly explain the meaning of the term "control procedures".
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(ii) Trade creditors in a company's financial statements.
Date posted: August 4, 2018. Answers (1)
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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;
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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.
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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
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reporting of fraud.
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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:
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Date posted: August 4, 2018. Answers (1)
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Required:
Describe the errors and misappropriations that may occur if the following are not
properly...(Solved)
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misappropriation.
Required:
Describe the errors and misappropriations that may occur if the following are not
properly controlled:
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(ii) Payments made out of bank accounts;
(iii) Interest and charges debited and credited to bank account
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no receivables. Accounting records are held at shops. Shops make returns to head
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external auditor to the company for many years and has offices near to the
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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
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Required:
Explain why auditors write to companies’ bankers and list the matters you would
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Date posted: August 4, 2018. Answers (1)
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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
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work in progress 6,000
carriage on raw materials 42,000
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