ADVANCED AUDITING & ASSURANCE NOVEMBER 2020 - CPA SOLUTION|REVISION KITS|KASNEB

QUESTION 1a(i)

Q Explain four focus areas of fraud audits that distinguish them from financial audits.

A

Solution

Fraud Audit	Financial Audit
The purpose is to establish the accuracy of the account and determine whether fraud has occurred	Its purpose is to enable the auditor to express an opinion on the accuracy and adequacy of the annual financial statements.
No time limit. Covered periods are generally checked in detail for all previous accounts.	The period covered generally refers to all transactions in the relevant fiscal year being audited
The techniques used consist of analysis of historical trends, assurance, ratio analysis, and testing of specific areas	The techniques employed are meaningful tests, risk assessments and compliance procedures covering all areas of financial statements.
Not required by law, as it is done when fraud is suspected	It's a requirement of the law

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QUESTION 1a(ii)

Q Describe six main components of a forensic investigation report

A

Solution

i). The name of the client
ii).Work methods and procedures performed
iii). The findings / observations ...... / Conclusions Made iV)State that the Work may not be used to detect fraudulent activity.
v). Scope of work including investigation period.
vi). Mention restrictions on distribution and use of reports.
vii). Evidence gathered.
viii). Terms of refference
ix). Professional Standards used

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QUESTION 1b(i)

Q Describe four examples of auditable areas that might require an auditor's professional scepticism.

A

Solution

1.Auditing accounting estimates – This includes the assessment of fair value accounting estimates, management's use of significant assumptions in making accounting estimates,...... and management's judgment regarding management bias in making accounting estimates and decision review.

2.Going concern basis assessment – The auditor should consider the feasibility of the going concern assessment and management plan.

3.Legal and Regulatory Considerations – Auditors should be alert throughout the audit for signs of legal and regulatory violations.

4.Conduct a risk assessment - When management explains significant deviations from expectations, receive supporting audit evidence rather than taking management's explanation at face value..

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QUESTION 1b(ii)

Q Evaluate how each of the three elements above rate with professional scepticism.

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Solution

1.) Professional skepticism is the spirit of questioning, the wariness of situations that may indicate the possibility of misrepresentation through error or fraud, and an attitude...... involving critical evaluation or evidence.

2). The auditor plans and performs the audit with professional skepticism, recognizing that circumstances may exist that may cause the financial statements to be materially misstated.

3). Professional sceptism includes being alert to:

a) Audit evidence that contradicts other audit evidence obtained.

b) Information questioning the reliability of documents and answers to questions intended to be used as audit evidence.

c) Conditions indicating possible fraud.

4). Professional skepticism is also related to the application of the auditor's professional judgment. This may result in the auditor ignoring unusual circumstances, oversimplifying the results of procedures, or applying appropriate assumptions when determining the steps necessary to address identified risks. All of these should improve the quality of your warranty.

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QUESTION 2a

Q For each of the matters listed under 1 and 2 above, discuss four factors that would influence the auditors approach to the audit and opinion, including assessment of materiality.

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Solution

(i) The board announces plans to eliminate home delivery services. As a result, sales drop from sh 8 million to sh 6 million. We can try to find out why they stopped offering home delivery...... services

(ii) All owned facilities and depreciation policies. The auditor should confirm the existence of the facility and the depreciation policy established for the facility.

(iii)Appraiser independence and competence in revaluing two properties.

a). Evaluate the assumptions used in re-evaluating the two properties.

b). A review of the fixed asset register to ensure that all such investment properties are included.

(iv) Boards minutes for authorization of revaluation of the premises

a) approving the re-evaluation of the building. Because building reassessments are subject to board approval, auditors should review board minutes to confirm reassessment approval.

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QUESTION 2b

Q As the auditor of Food Supremno Group, describe the evidence that you would expect to find in your audit

A

Solution

1). Going concern basis of accounting for Food Supremo Group. The auditor should request management's assessment...... of going concern and review the assessment.

2). Revenue Recognition - Auditors must ensure that the criteria for revenue recognition are met.

The adequacy of providing Sh2 million in compensation for dismissed workers. The auditor should consider the assumptions used to form the compensation

Criteria for recognizing delivery vehicles classified for sale. The auditor must confirm that the assets meet the definition of assets held for sale.

Cost of the owned promises - The auditor should examine the supplier's invoices to determine the costs at which the building was purchased.

Depreciation Policy - The auditor should discuss the depreciation policy with management. Auditors should consider the assumptions made.

Asset Revaluation – The auditor should review the minutes of the board of directors to confirm approval of the revaluation. The auditor should consider the independence and competence of the revaluer.

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QUESTION 3a

Q Citing ten areas of interest, describe the internal control system you would recommend to the management of Synergy Ltd. covering sales and delivery of input to the computer bureau.

A

Solution

i). Ordering

All customer orders must be recorded at register

All customer orders must be approved

ii). Credit approval......

Credit limits must be assigned to existing customers

Credit limits must be communicated to all new customers

iii) Price lists- Availability of an approved price list

iv) Invoicing

All sales invoices must be numbered

All invoices must be approved by a specific responsible employee

v) Stock control

A re-order quantity and a re-order level must be established
vi) Cash receipt

Security measures must be taken for cash in transit
vii) Alterations of price list

Price changes require approval

viii) Bad Debts - All written off bad debts must be approved.

ix) Special credits - Special credits are subject to credit management approval.

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QUESTION 3b

Q Describe six audit procedures you would carry out to verify the sales of Synergy Ltd.

A

Solution

i. Select a sample sales invoice to review dates, detailed amounts, and approvals.

ii. Match invoices to respective...... bills of lading and customer orders

iii. Track receipt of invoices in general ledger.

iv. Request an invoice without a corresponding attachment. v. Select a credit note pattern to send to your customers and track credit note records in your general ledger.

vi. Test sales interruptions by reconciling bills of lading with relevant sales invoices and sales orders and tracking invoice records in the general ledger.

vii) Checks whether the criteria for revenue recognition are met.

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QUESTION 3c

Q Explain four drawbacks of outsourcing of the payroll function by the management of Synergy Ltd.

A

Solution

i) Confidential information may be exposed

ii) Outsourced...... companies may lack the precise business knowledge that their employees have.

iii) Relationship problems can arise when outsourcing company employees are not immediately accepted by the company's workforce.

iv) Subcontractors are subject to that contract and cannot give instructions like Employee

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QUESTION 4a

Q Citing three areas, discuss the role and place of the audit committee within the corporate governance structure.

A

Solution

1). Monitoring and reviewing effectiveness of internal audits. Companies are not required to have an internal audit department, but their need should be reviewed annually.

2). Monitor the completeness...... of financial statements and review significant judgments made with respect to financial reporting

3). Make proposals to the Board of Directors regarding the appointment/dismissal of outside auditors and agreement on contract terms.

4). Annual evaluation of the independence, objectivity and effectiveness of external auditors. This includes ensuring that confidentiality matters are not self-interested and that partners and staff are properly rotated.

5). Review of company financial and risk management policies.

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QUESTION 4b(i)

Q Illustrate, using suitable examples, three environmental matters which may affect the financial statements

A

Solution

i. Asset Depreciation - The need to depreciate inventory, plant and equipment, or land and buildings, and the resulting book value.

ii. Failure to comply...... with existing requirements or changes in law may result in fines, compensation or legal costs.

iii. If the costs associated with environmental matters cannot be estimated with certainty, an entity may be required to disclose the existence of contingent liabilities in the notes to its financial statements

iv. Failure to comply with environmental laws and regulations can affect the viability of a company and affect the basis for disclosure and preparation of financial statements .

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QUESTION 4b(ii)

Q Describe three general audit procedures that an auditor may carry out when evaluating environmental matters in relation to his audit client.

A

Solution

i. The auditor should receive a copy of the company's environmental policy from the company.

ii. The auditor should...... assess whether the policy is likely to achieve the goals set by the organization.

iii. Auditors are required to test the implementation and compliance with organizational policies.

iv. Auditors are required to perform substantive procedures in accordance with IAS 37.

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QUESTION 4c(i)

Q Describe four audit techniques that an auditor nay employ when conducting a value-for-money audit.

A

Solution

i) Analysis of planning & Control processes.

ii) Management & Systems review .

iii). Efficiency...... Assessment.

iv). Analysis of performance indicators such as financial ratios

v). Reporting on the V.F.M audit.

vi). Effectivness assessment

vii). Economy assessment

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QUESTION 4c(ii)

Q Discuss four challenges associated with value-for-money audits in the public sector.

A

Solution

i) Deficiencies in Accounting and Internal Control Systems in the Public Sector

ii). Lucky to have full visibility...... of reports on public sector activities and conditions

iii) Inadequate means of measuring corporate targets in the public sector

iv). Persistent Gaps in Professional Qualification Requirements for Chartered Accountants

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QUESTION 5a(i)

Q Explain the kind of assurance you could give in the context of the request by the bank.

A

Solution

1) Banks must be informed that the types of reports we can issue are qualified or negative audit reports

2). The auditor...... noted in the report the nature of the work performed and noted anything that might lead to believe that the assumptions do not provide a reasonable basis for focusing on cash flows. We provide a negative form of warranty that

3). The focus is on evaluating future cash flows, but the second year is particularly uncertain

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QUESTION 5a(ii)

Q Explain why the company's apparent liquidity problems will require a focus of the audit plan on the going concern appropriateness in the preparation of the company's financial statements.

A

Solution

The anditors responsibility falls into the following areas
held by the parent copy t have a problem in identifying subsidiar - i). Determining...... the best audit approach or method

ii). Take appropriate steps to determine whether the organization will continue as a going concern.

iii). If you believe the going concern assumption is being used inappropriately, please report it to a member.

iv). Look for evidence that the going concern basis may be inadequate or problematic.

v). Focus the audit plan on the group's ability to continue as a going concern

vi). To ensure that management makes realistic going concern assumptions in preparing its financial statements.

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QUESTION 5a(iii)

Q Describe eight procedures you would adopt in your examination of the cash flow forecast.

A

Solution

1). Check the reliability of the data

2). Determining Assumptions When Creating Cash Flows

3). Consider exactly...... how the company has focused in the past by comparing past focus to actual results

4). Examine the detailed budget of the manager's sales department for two years

5). Examining the validity of the increase in workload due to expansion

6). Watch a management presentation focused on cash flow.

7). Look back at historical periods and compare actual performance to expected numbers

8). Check if the opening cash flow balance is the same as the closing cash flow balance

9) Review of accounting methods used for consistency

10). Recalculate the cash flow focus balance

11). Audit Committee minutes on related topics such as future strategies and plans

12). Verification of management competence in preparing priorities

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QUESTION 5b

Q Explain the role of the International Organisation of Supreme Audit Institutions (INTOSAI).

A

Solution

Has issued various guidelines for the public sector, including

a). Privatization Audit Best Practice Guidelines.

b). Guidelines for Public...... Sector Internal Control Bodies

c). Serve as a globally recognized platform for exchanging experience-based ideas and best practices

d). Guidelines for Planning Public Sector Internal Control Audits

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CPA
Advanced Leval
Advanvced Auditing and Assurance November 2020
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Comments on CPA past papers with answers:

Advanced Taxation

Advanced Financial reporting & analysis

Advanced Financial Managemen

Advanced Management Accounting

Advanced Public finance

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CPA Advanced Leval Advanvced Auditing and Assurance November 2020 Suggested solutions

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Comments on CPA past papers with answers:

Advanced Taxation

Advanced Financial reporting & analysis

Advanced Financial Managemen

Advanced Management Accounting

Advanced Public finance

Comments on:

CPA
Advanced Leval
Advanvced Auditing and Assurance November 2020
Suggested solutions