TUESDAY: 6 December 2022. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.
QUESTION ONE
1. During an induction programme to the new auditors, the Audit Senior emphasised on the need for confidentiality of the auditors in execution of their duties.
Required:
Define the principle of confidentiality. (2 marks)
Enumerate FOUR circumstances where professional accountants could be required to disclose confidential information. (4 marks)
2. Explain the following types of audit evidence:
Physical examination. (2 marks)
Documentary. (2 marks)
Oral. (2 marks)
3. Describe FOUR limitations of audit. (8 marks)
(Total: 20 marks)
QUESTION TWO
1. Analyse SIX internal control systems that a company should have in place to prevent and detect errors. (6 marks)
2. Your firm has been appointed as the auditor for ABC Ltd. that deals with the manufacturing of plastic products.
The Audit Manager has assigned you a task of verification of inventory in the warehouse.
Required:
Identify FOUR audit objectives that you would seek to achieve in verification of the inventory.(4 marks)
Suggest SIX challenges you are likely to encounter in verification of the inventory. (6 marks)
3. During an audit assignment in a computerised environment, Ann Muhithe suggested the use of dummy testing instead of live data testing.
Required:
Summarise FOUR disadvantages of adopting dummy testing. (4 marks)
(Total: 20 marks)
QUESTION THREE
1. Differentiate between “current audit file” and “permanent audit file”. (2 marks)
List SIX contents of a permanent audit file. (6 marks)
2. You are at your initial stages of your auditing career. The Audit Manager has presented to you a draft audit report for familiarisation. You realise the usage of the terms “True and fair view” being repeatedly mentioned under the opinion section of the audit report.
Required:
Explain FOUR circumstances under which the auditor would indicate that the financial statements present a true
and fair view of the financial performance and position of the company. (4 marks)
3. ISA 210: Agreeing the terms of engagements provides guidance on the content of engagement letters and deals with the auditor’s responsibilities in agreeing with the terms of the audit engagement with management.
Required:
1. Highlight FOUR purposes of an engagement letter. (4 marks)
2. Enumerate FOUR matters that ought to be included in the engagement letter. (4 marks)
(Total: 20 marks)
QUESTION FOUR
1. State FIVE disadvantages of an audit programme. (5 marks)
2. Name FIVE precautionary measures that could help to overcome the limitations of an audit programme. (5 marks)
3. In the context of an audit, explain FIVE differences between an error and a fraud. (10 marks)
(Total: 20 marks)
QUESTION FIVE
1. A system of controls does not provide absolute assurance that the control objectives of an organisation will be met. Instead, there are several inherent limitations in any system that reduce the level of assurance.
Required:
Explain FOUR inherent limitations of Internal Control. (8 marks)
2. Analyse SIX duties of an Auditor. (12 marks)
(Total: 20 marks)
