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KASNEB SYLLABUS
Topic 1: Assurance and non-assurance engagements
- The concept of assurance and non-assurance engagements
- Engagement letters for assurance and non-assurance engagements
- Agreed upon procedures
- Compilation engagements
- Types of assurance reports
- Key Audit Matters
- Different types of audit opinions based on audit evidence gathered
- Entities/Companies that are exempt from audit in Kenya.
Topic 2: Audit framework and regulations
- Objective and general principles of auditing
- Legal framework
- International, regulatory framework for audit and assurance services
- Auditors’ professional liability and legal responsibilities
Topic 3: Professional and ethical considerations
- Code of ethics for professional accountants in line with International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants
(IESBA Code) - Fundamental principles, threats and safeguards
- Advertising, publicity, obtaining professional work and fees and money laundering
- Professional skepticism (in the context of errors and fraud) – Professional Liability.
Topic 4: Management of audit practice
- Client acceptance and retention
- Tendering for audit services for public listed entities and nonpublic entities
- Professional appointments for public listed entities and nonpublic entities
- Planning and performing audits. The concept of materiality and assessing risk of
Identify significant risks as outlined in International Standards on
Auditing - Methods and techniques of auditing high risk areas.
- Use and evaluation of internal control system by auditors to address audit risks
- Use of technological tools (data analytics) to analyze and evaluate audit evidence
gathered during the audit and how it addresses risk of misstatement. - Preparation and retention of audit working papers as required by the Companies
Act - Archiving of audit files.
Topic 5: Audit evaluation and reviews
- Audit assertions and how to identify the relevant assertions during the audit
process - Subsequent events. Audit work done between financial year end and date of
signing the financial statements. - Going concern assumption as a financial statement risk
- Related parties. Risks associated with related parties. Process of identifying
related parties by management. Disclosure of related parties in the management
representation letter and in the financial statements - Drafting management letter representation
- Group audit/joint/component audit. Preparation of group reporting instructions to component auditors
- Analytical review
- Evidence and testing considerations
- Using the work of others such as internal auditors, other experts (tax, actuaries,
valuers, lawyers etc.) and another auditor - The company audit
- Audit of consolidated financial statements
- Audit of banks and non-banking financial institutions
- Audit of general insurance companies
- Audit of cooperatives societies(SACCOs)
- Audit under taxation laws
- Other special audit assignments
- Role of Audit Committee in the audit process
Topic 6: Audit related assurance services
- Prospective financial information, investigations and due diligence
- Special audit assignments (social and environment audit)
- Operations and internal audit management
- Audit under computerised information systems. Identification and testing of
relevant IT general controls (ITGC) during an audit – Audit of public sector
undertakings – Integrated reporting - Audit of performance information (predetermined objectives) in the public sector
- Special aspects of auditing in an automated environment.
Topic 7: Forensic accounting
- Difference between a statutory audit and a forensic audit
- Conduct of forensic investigations: accepting the investigation, planning, evidence
gathering, reporting - Rules of evidence in court proceedings
- Regulations and standards on forensic accounting
- Applicable codes of ethics
Topic 8: Concluding and reporting
- Quality control and peer review
- Reports to those charged with governance/Board of directors – Management letterissues identified during the audit process
- Reporting on compliance and other information (Chairman’s statement and
directors report) and for listed entities, reporting on remuneration report for the
directors – Auditors report on financial statements – Reporting on other
Topic 9: Regulatory Environment
- International regulatory frameworks for audit and assurance services.
- Money Laundering
- Laws and regulations
- Other Regulators with interest in the audit space in Kenya such as Central Bank
of Kenya, Insurance Regulatory Authority, Capital Market Authority and Retirement
Benefit Authority and their requirements
Topic 10: Contemporary issues and emerging trends
- Professional and ethical developments
- Other current issues
- Effects of pandemics on audit processes. The concept of remote auditing and
additional procedures put in place to obtain sufficient audit evidence.
INTRODUCTION
Following our continued effort to provide quality study and revision materials at an affordable price for the private students who study on their own, full time and part time students, we partnered with other team of professionals to make this possible.
This Revision kit book (Question and answers) contains kasneb past examination past papers and their suggested answers as provided by a team of lecturers who are experts in their area of training. The book is intended to help the learner do enough practice on how to handle exam questions and this makes it easy to pass kasneb exams.
PART A
SAMPLE QUESTIONS
TOPIC 1
ASSURANCE AND NON-ASSURANCE ENGAGEMENTS
QUESTION 1
November 2018 Question Four B
Discuss the objective of a review engagement contrasting the level of assurance provided with that of an audit of financial statements. (4 marks)
QUESTION 2
May 2018 Question Two B
Contrast the scope of due diligence investigations with that of an audit of financial statements. (6 marks)
QUESTION 3
December 2017 Question Two A
The framework for assurance engagements does not permit an auditor to give an absolute level of assurance.
With reference to the above statement, suggest five reasons why it is not possible to give an absolute level of assurance. (10 marks)
QUESTION 4
September 2015 Question One A
Your audit firm has tendered for the audit of Hekima Group of Companies.
Required:
Evaluate six matters that should be considered before accepting the audit engagement in the event your firm is successful in the tender. (6 marks)
TOPIC 2
AUDIT FRAMEWORK AND REGULATIONS
QUESTION 1
December 2021 Question Two B
Management audit calls for an inter-disciplinary approach considering the scope and focus of the audit.
Required:
Discuss the above statement with particular reference to:
(i) Steps involved in a management audit. (3 marks)
(ii) Management functions appraised. (4 marks)
(iii) Audit techniques adopted. (3 marks)
QUESTION 2
December 2021 Question Three B
There is a strong inter-connection between a financial audit and an operational audit. However, differences also exist.
Required:
Discuss the above statement, clearly bringing out any differences between the two types of audit. (4 marks)
QUESTION 3
September 2021 Question Three C
Most auditing practitioners agree that legal liability is part of the risk associated with their work. However, they argue that practising auditors may also take specific action to minimise their liability.
Required:
Evaluate the measures that auditors may take to minimise the possibilities of legal liability. (8 marks)
QUESTION 4
May 2017 Question Five C
Discuss in each case, four arguments for and against changing the legislation to allow auditors to agree on a contractual cap on liability in respect to the statutory audit.
(8 Marks)
QUESTION 5
November 2016 Question Five
You are the partner responsible for providing direction to more junior members of the audit department of your firm on technical matters. Several recent recruits have asked for guidance in the area of auditor’s liability. They are keen to understand how an audit firm can reduce its exposure to claims of negligence. They have also heard that in some countries, it is possible to restrict stability by making a liability limitation agreement with an audit client.
Required:
- Discuss the civil liabilities of an auditor under common law. (12 Marks)
- Assess the potential implications to the audit profession of audit firms that sign a liability limitation agreement with their audit clients. (8 Marks)
QUESTION 6
May 2016 Question Five B
Zakayo and Associates were invited to tender for the audit of Premier Enterprises Ltd. for the financial year ended 31 December 2015. The firm was awarded the tender as it was the most competitive. The firm had used a low balling strategy when submitting their tender. During the course of the audit, the auditors have suspected the company is involved in money laundering activities.
Required:
- Explain the term “low balling” citing the potential threat of low balling to the auditor’s independence. (4 Marks)
- Define the term “money laundering”. (2 Marks)
- With reference to the code of ethics and conduct for professional accountants, advise the action the auditors should take with respect to the suspected money laundering activities by the company. (4 Marks)
QUESTION 7
September 2015 Question Four B
Explain the factors which have contributed to the increased number of lawsuits against auditors from third parties in recent years. (5 marks)
PART B
SAMPLE ANSWERS AND SOLUTIONS
TOPIC 1
ASSURANCE AND NON-ASSURANCE ENGAGEMENT
QUESTION 1
November 2018 Question Four B
Objective of a review engagement contrasting the level of assurance provided with that of an audit of financial statement.
| Review engagement | Statutory Audit |
| 1.It provides limited assurance | 1. It provides reasonable assurance |
| 2.The practitioners opinion in a review engagement is expressed in a negative form | 2. The auditor opinion is expressed in positive form |
| 3.The level of engagement risk is higher | 3. The level of engagement risk is lower |
| 4.It is voluntary | 4. it is a legal requirement |
QUESTION 2
May 2018 Question Two B
Scope of due diligence investigations with that of an audit of financial statements
| Due diligence investigation | Audit of financial statement |
| – The scope of work is determined by the buyer | – The scope of work is determined by ISAS |
| – Carried by accountants experienced in such assignment | – Carried by an independent auditor |
| – Covers the last several years | – Typically covers the result for the year under audit |
QUESTION 3
December 2017 Question Two A
Reasons why it is not possible to give absolute level of assurance
- Use of judgement in gathering and evaluating evidence– there is a room of more than one possible interpretation of requirements.
- Use of selective testing– Sampling procedures affect the evidence collected as audit procedures are applied only to a small population instead of checking each and every item thus affecting the level of assurance
- Inherit limitations of the internal controls – if internal control are weak, the auditor will do extensive substantive which may affect the level of assurance
- Much of the evidence available to the practitioner is more persuasive than conclusive. The is basing on what is probable and not what is exact.
- Possibility of collusion – The evidence may not be sufficient and appropriate enough since the management may collude with the practitioner.
QUESTION 4
September 2015 Question One A
Matter that should be considered before accepting the audit engagement in the event your firm is successful in the tender.
- Consider whether the audit firm has sufficient resources to service the clients needs
- Check to ensure that there is not conflict of interest so that auditors independence is not compromised
- Check to ensure that no audit staff has any blood relations with the officers of the client in the company.
- Consider the availability of the staff for the work ensure that you are not disqualified on any legal grounds.
- Consider the level of risk involved in the engagement
- Find out why the previous auditors were removed
- Consider the integrity of the management.
TOPIC 2
AUDIT FRAMEWORK AND REGULATIONS
QUESTION 1
December 2021 Question Two B
- i) Steps involved in management audit
- Identification of the objectives of the organization and breakdown the objective into detailed targets and plans for various segments
- Reviewing the organization structure to assess whether it can effectively fulfill the overall objectives and detailed targets.
- Examine the performance of each functional area or responsibility and should be compared with the objectives and targets
ii) Management functions appraised
- Quality of management decision making
- Managements efficiency and effectiveness in running a viable business
- The integrity of management
- Quality of the systems implemented by the management
iii) Audit techniques adopted
- Inquiry – A management auditor collects most of the evidence by asking relevant questions and obtaining answers to the questions
- Examination – management auditor may conduct an examination of documents and records.
- Confirmation – Management auditors may confirm information from third parties
- Observation – Management auditors may observe procedures and activities as they are executed.
QUESTION 2
December 2021 Question Three B
Difference between a financial audit and operational audit
Financial audit – Focuses on determining whether the entity’s financial information is presented in accordance with the identified financial reporting framework. The objectives are achieved by obtaining sufficient and appropriate audit evidence to enable the auditor information is free from material misstatement due to fraud and error.
Operational audit – these are future oriented examinations that involve a systematic review of organizations key operations to access performance, identify opportunities for improvement and develop recommendations for further action.
QUESTION 3
September 2021 Question Three C
Measures that auditors may take to minimize the possibilities of legal liability
- Proper client screening before acceptance of an appointment
- Following the auditing standards in audit of financial statements.
- Stating in the report the work carried out, work not done and any limitations to the work
- Stating the purpose of the report in the report and stating that it may not be used for other purpose.
- Identifying the authorized recepients of the report in the report
- Attaching other appropriate disclosures in the reports
- Continious training the audit staff.
- Implementing quality control procedures in the audit
QUESTION 4
May 2017 Question Five C
Arguments for and against changing the legislation to allow auditors to agree on a contractual cap on liability in respect to the statutory audit argument for a contractual cap liability
- Protection from catastrophic litigation needed in an increasing litigation society
- Prevent another large firm disappearing thereby reducing competition.
- It may help publics understanding of liability and responsibility of directors.
- Promotes competitiveness of audit firms
- Unlimited liabilities unfair for innocent parties in firms which have not converted to limited company status
- Directors take their responsibilities more seriously which keeps management on guard.
Arguments against a contractual cap on liability
- Auditors must be accountable for their actions and this compromises quality
- Auditors may be less skeptical if they know that their liability is called
- Caps would encourage settlement of cases to avoid the legal costs of defending cases
- Auditors who do their job properly have an exposure.
- There is already a degree of protection under limited liability companies where innocent partners personal assets are protected
- Agency problem arise as the agreements protect auditors interest at the expense of the company
- Users of the financial statements will have less confidence in the auditors work.
QUESTION 5
November 2016 Question Five
- a) The civil liabilities of an auditor under common law.
- This relates to liabilities to third parties in tort.
- A third party is party that rely on audited financial statements to make an economic decision but does not have any direct relationship with the auditor.
- The auditor has no contractual relationship with the various users of the audited financial statements other than the company as a body corporate.
- However under the law of the Tort, everybody owes their neighbor a duty of care. According to the law of Tort, your neighbor is anyone who may be affected by your omission or commission of an act.
- The auditor may owe third parties a duty of care since they rely on audited financial statements to make economic decisions.
- If a third party suffer a loss, as a result of relying on financial statements that were negligently audited, the third party suffer a loss, as a result of relying on financial statements that were negligently audited. the third party may sue the auditor for damanges.
- For the third party to succeed in suing the auditor for damages, he must prove the following:
- A duty of care existed
- The audited breached duty of care
- The third party suffered a loss as a consequence
- The loss is objectively quantifiable in monetary terms
- There was a direct causal relationship between the loss suffered and the auditors negligence
- b) Potential implications to the audit profession of audit firms that sign a liability limitation agreement with their audit clients
- It will affect the quality of the audit as it may encourage auditors to take less care because of the lowered risk exposure
- Users of the financial statement will have less confidence in the auditors work
- It will force the audit fee in the market downwards as clients will argue that the auditor is not taking on a risk.
- It will create unhealthy competition in the audit market since bigger audit firms will be able to put a higher cap than smaller audit firms.
- Agency problems arise as the agreements protects the auditors interest at the expense of the company.
- Difficulties in determining the amount of cap that fair and reasonable since the agreement is made before the loss has occurred and known by their client and the auditor.
- This arrangement can only apply in the auditor-client relationships and not with third parties.
QUESTION 6
May 2016 Question Five B
i) Low balling and potential threat of low balling to the audit independence
- Low balling is a practical where the auditor charges extremely low audit fee, lower that what the audit firm has charged for similar jobs before and lower than what other professional accounts would charge for the same service
- Ethical issues with low balling
- It creates self interest threat
- May cause the auditor to take less care given the low audit fee charged
ii) Money laundering
This is process through which illegally obtained money is given the appearance of having originated by the company
