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a) Loan to three employees
- Proper authorization for the loan by the responsible official and in accordance with company policy.
- Supporting evidence as to whether the employees are bonafide employees of the organization.
- A repayment schedule of the loans. The period of repayment should not exceed the employees term of office
- Security given by the employees to secure the loan.
- Evidence to satisfy himself that the debt is good and recoverable at the balance sheet date. This will include evidence of repayments by the employee.
-Interest on the loan should be charged on normal commercial basis or where there is a concession that this is within the company‘s policy
(b) Last call on 5,000 ordinary shares at sh.15 per share.
- Verify that the call has been made in accordance with the terms of the issue.
- Inspect paid cheques for cash paid on the last call.
- Inspect any cancelled share certificates for which the company never honoured the last call.
- Verify that proper authority was obtained to make the payment
(c) Fire premiums
- Examine policy documents issued by the insurance company to make sure that the policy relates to the office block.
- Verify the receipt issued by the insurance company to ascertain that the amount paid was indeed sh.10, 000.00
- Ensure that the policy covers the office block against fire adequately i.e. it has not been over or under insured.
- Verify that amount paid in current year compares favourably with the previous years.
(d) Loan amounting to Sh.30 million
- Go through the board of directors‘ minutes to ensure that the loan was acquired with proper authority from the board.
- Ensure that the loan was obtained on behalf of R R Paper Mills and not for a third party. To determine this, seek evidence regarding the utilization of the money within the company.
- Verify that the loan was utilised for the approved purpose
- Determine whether the loan is being properly serviced in terms of interest and principal repayments. If no, consider the impact of the consequences of default to R Paper Mills, e.g. sale of the security, possible liquidation (hence no longer a going concern).
(e) Salesman?s commissions amounting to Sh.3,000,000
Seek evidence that the salesmen are authorized to sell the company‘s products. Their names should appear in the records for salesmen.
- Verify the terms of payment of commission. There should be a clearly laid down policy for the payment of commissions.
- Ensure that commissions are only paid against proof of sale.
- Ensure that commission paid is subjected to taxes as required by the law.
Wilfykil answered the question on February 22, 2019 at 05:33
- What is the form of audit opinion you would give if you concluded that the
client company was experiencing going concern problems and:
i. you have established...(Solved)
What is the form of audit opinion you would give if you concluded that the client company was experiencing going concern problems and:
i. you have established that the financial statements give sufficient disclosure of the going concern problems?
ii. you have established that there is no disclosure of the going concern problems in the financial statements?
Date posted: February 21, 2019. Answers (1)
- Explain five factors which would indicate to the auditor that the going concern assumption of the business entity he is auditing is threatened(Solved)
Explain five factors which would indicate to the auditor that the going concern assumption of the business entity he is auditing is threatened
Date posted: February 21, 2019. Answers (1)
- The National Metal Works Limited manufactures and retails door and window frames. The
company recently dismissed their external auditors. The directors have approached your
firm of accountants...(Solved)
The National Metal Works Limited manufactures and retails door and window frames. The company recently dismissed their external auditors. The directors have approached your firm of accountants to act as their auditors and the directors have proposed a fee of KShs. 1,000,000 plus a bonus of 1% of profits after tax.
Required:
a) Describe the steps you would take before advising the partners of your firm whether to accept the appointment as auditors or not.
b) State with reason whether professional auditors should accept the method of remuneration as proposed by the directors of the client company.
c) Explain the implications of fixing the audit fee by negotiation between the directors and the external auditors on the independence of the auditor.
Date posted: February 21, 2019. Answers (1)
- Inspection and monitoring of quality control by a firm of auditors involves both in-house
and external procedures. The internal procedures include the post-audit review,
sometimes known as...(Solved)
Inspection and monitoring of quality control by a firm of auditors involves both in-house and external procedures. The internal procedures include the post-audit review, sometimes known as a ―cold review. The external procedures are sometimes known as ―external practice inspections or ―peer reviews
Required:
a) Write explanatory notes on the ―cold-review
b) Explain the advantages and disadvantages of the ―peer review
Date posted: February 21, 2019. Answers (1)
- Control procedures consist of practices and procedures in addition to the control
environment, established to achieve certain specific objectives. For each of the procedures
listed below, explain...(Solved)
Control procedures consist of practices and procedures in addition to the control environment, established to achieve certain specific objectives. For each of the procedures listed below, explain the purpose of the control procedures and state the tests of control you would perform to confirm that the control objective was being achieved
a) The preparation of a reconciliation statement.
b) The maintenance of a fixed assets register.
c) The existence of passwords in a micro-computer accounting system
Date posted: February 21, 2019. Answers (1)
- Many auditors now use laptops computers to perform various audit tasks. However, if audit
firms use laptop computers they risk data being corrupted and appropriate controls...(Solved)
Many auditors now use laptops computers to perform various audit tasks. However, if audit firms use laptop computers they risk data being corrupted and appropriate controls must therefore be put in place to prevent the corruption of data.
a) Explain six ways which auditors can use laptop computers in their audit work (other than computer-assisted audit techniques).
b) Explain the computer assisted audit techniques listed below:
i. Embedded audit facilities.
ii. Integrated test facilities.
c) Briefly describe two types of software that might be used by auditors in their work other than Computer Assisted Audit techniques.
d) Describe the controls that auditors should implement when using laptop computers on audits.
Date posted: February 21, 2019. Answers (1)
- One of the responsibilities of the directors of a company is to establish strong internal controls to safeguard the assets of the firm.(Solved)
One of the responsibilities of the directors of a company is to establish strong internal controls to safeguard the assets of the firm.
Required:
a) State the audit objectives of internal controls on fixed assets.
b) Set out the audit procedures you would follow to verify directors‘ fees.
c) What procedures would you apply to verify the extension of a building that has been constructed by the client during the year?
Date posted: February 21, 2019. Answers (1)
- An auditor is required to state whether, in his opinion proper books of account have
been kept and whether the financial statements give a true and...(Solved)
An auditor is required to state whether, in his opinion proper books of account have been kept and whether the financial statements give a true and fair view of the state of the financial affairs of the company being audited.
What are the consequences, to the auditor, for giving an unqualified opinion, when he knows that there are material inaccuracies in financial statements
Date posted: February 21, 2019. Answers (1)
- Your client, ABC Ltd. has a system for inputting purchase and expense invoice where the operator inputs the following from each item.(Solved)
Your client, ABC Ltd. has a system for inputting purchase and expense invoice where the operator inputs the following from each item.
-Order number (a code 2221 is used for items like electricity)
-Supplier name
-Supplier code number
-First four letters of nominal account name (entered on invoice by purchase department manager)
-Nominal account code (entered by purchase department manager) Date
-Goods inward note
-number Net amount
-VAT amount
-Gross amount
Required:
a) Suggest manual operation and controls which might previously have applied to these invoices.
b) Suggest input controls that might be applied by the program to these items.
c) List some audit tests that could be applied to these items indicating the purpose of each test and the relevant audit evidence obtained.
Date posted: February 21, 2019. Answers (1)
- You have been the auditor of Crossborder Trading Company Ltd. for a number of years.
The company‘s head office is in Nairobi, Kenya and if has...(Solved)
You have been the auditor of Crossborder Trading Company Ltd. for a number of years. The company‘s head office is in Nairobi, Kenya and if has considerable overseas operations. At each accounting year end, there are large debts due from overseas agents of the company (Sh. 270 million out of total debts of Sh. 680 million as at 31 December 2000). In the past, these debts have always been settled after year end but you have insisted that the debts be the subject of a specific representation made by the company‘s director.
Required:
a) Outline the purpose of a letter of representation from management to the auditor.
b) Draft a paragraph for a letter of representation appropriate to the circumstances described above.
c) Outline the audit work which should be performed when seeking evidence to substantiate the management‘s representations as drafted and indicated the value of the directors‘ representations in these circumstances. You should present your answer
under the following headings:
- Existence and title.
- Valuation.
- Disclosure
d) State what action you would take if the directors refused to provide you with a letter of representation
Date posted: February 21, 2019. Answers (1)
- List three disadvantages of using standardized audit programmes and how these disadvantages can be avoided.(Solved)
List three disadvantages of using standardized audit programmes and how these disadvantages can be avoided.
Date posted: February 21, 2019. Answers (1)
- In the course of the audit of ABC Stationers Ltd. for the year ended 30 June 2001, you have noted and recorded in the audit...(Solved)
In the course of the audit of ABC Stationers Ltd. for the year ended 30 June 2001, you have noted and recorded in the audit working papers, the following evidential matters:
1. Flowcharts of the company‘s payroll prepared by your audit assistant backed up by tests of controls.
2. An oral statement by the production director that the expected working life of plant acquired during the year is ten years.
3. A letter to the managing director from the company‘s bank manager indicating that the bank intends to extend overdraft facilities for a period of one year.
4. A list of items of inventory counted by a member of your audit team during observation of the company‘s annual stock count.
5. A letter from a customer to your firm in reply to a confirmation request indicating agreement with the balance recorded in the books of ABC Stationers Ltd.
Required:
a) With respect to each matter listed above, explain its relevance to the overall audit objective of forming an opinion and reporting on the financial statements.
b) Explain your judgment on the reliability of the audit evidence obtained in five ways listed above.
Date posted: February 21, 2019. Answers (1)
- Under what circumstances is one ineligible for appointment as an auditor of a company?(Solved)
Under what circumstances is one ineligible for appointment as an auditor of a company?
Date posted: February 21, 2019. Answers (1)
- You have received a request form XYZ Ltd. to accept an appointment as their auditor for the financial year ending 31 December 2001(Solved)
You have received a request form XYZ Ltd. to accept an appointment as their auditor for the financial year ending 31 December 2001
Required:
a) Explain the preliminary procedures you would carry out upon your appointment.
b) What is the importance of a preliminary review?
c) Why is it important for the auditor to hold discussions with the client‘s senior staff?
d) State why it is important for an incoming auditor to hold consultations with the outgoing auditor.
Date posted: February 21, 2019. Answers (1)
- You have been appointed the auditor of United Millers Company Limited, a medium manufacturing company which is quoted on the stock exchange.(Solved)
You have been appointed the auditor of United Millers Company Limited, a medium manufacturing company which is quoted on the stock exchange.
Required:
a) List the important matters which must be included in the letter of engagement.
b) Explain the purpose of such a letter
Date posted: February 21, 2019. Answers (1)
- 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...(Solved)
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 the new system
Date posted: February 21, 2019. Answers (1)
- State six examples of controls to prevent unauthorised changes to data files that you would expect to find in a new computer based accounting system(Solved)
State six examples of controls to prevent unauthorised changes to data files that you would expect to find in a new computer based accounting system
Date posted: February 21, 2019. Answers (1)
- In the context of a computer based accounting system, explain the meaning of the following terms:
i) Application controls
ii) General controls(Solved)
In the context of a computer based accounting system, explain the meaning of the following terms:
i) Application controls
ii) General controls
Date posted: February 21, 2019. Answers (1)
- You have been asked by your firm to examine the payment vouchers of a company to establish the level of errors and then decide whether...(Solved)
You have been asked by your firm to examine the payment vouchers of a company to establish the level of errors and then decide whether better results can be obtained through statistical techniques.
Required:
a) State the steps you would take in order to test the vouchers for the errors.
b) Why is it not satisfactory to pick vouchers from a limited period?
c) State under what circumstances statistical sampling is a good technique
Date posted: February 21, 2019. Answers (1)
- Write brief explanatory notes on the following audit terms:
a) Control procedures;
b) Internal check;
c) Vouching audit;
d) Walk-through tests;
e) Weakness tests;(Solved)
Write brief explanatory notes on the following audit terms:
a) Control procedures;
b) Internal check;
c) Vouching audit;
d) Walk-through tests;
e) Weakness tests;
Date posted: February 21, 2019. Answers (1)