QUESTION ONE

The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

Required:
(a) State four benefits that an auditor would obtain from working papers that satisfy the above requirement. (4 marks)
(b) List five items of information you would expect to be contained in a permanent audit file and explain why each of these items of information should be readily available. (10 marks)
(c) In the audit of purchases, list four examples of the type of information that would be contained in the detailed audit working papers. (4 marks)
(d) Give any two reasons why an auditor should examine the directors’ minute book.
(2 marks)
(Total: 20 marks)

QUESTION TWO
(a) Cash in hand and cash at bank are commonly referred to as liquid assets. Because of this liquidity, these assets represent the most vulnerable of all the assets of an entity. You have recently been employed by Korir and Associates (Certified Public – Accountants) as an audit assistant. During your first audit assignment at Viwanda Ltd you have been allocated the audit of cash in hand and cash at bank.

Required
(i) State and explain the audit procedures you would undertake in order to
determine whether or not there has been any misappropriation of cash.
(6 marks)
(ii) Explain any five controls over cash you would expect to be instituted by a business entity in order to minimize cases of embezzlement of cash.
(5 marks)

(b) List the procedures you would follow to verify the following items:
(i) Petty cash balance. (3 marks)
(ii) Revaluation reserve. (3 marks)
(iii) Copyrights. (3 marks)
(Total: 20 marks)

QUESTION THREE
In the context of ISA 240 (The Auditor’s Responsibility to Consider Fraud and Error in, an Audit of Financial Statements):

(a) Define: –
(i) Fraud (3 marks)
(ii) Error (3 marks)

(b) Outline the respective responsibilities of an entity’s management and the external auditor with respect to the prevention and detection of fraud and error. (8 marks)

(c) Outline the procedures an external auditor should follow if he suspects that fraud; or error have been perpetrated. (6 marks)
(Total: 20 marks)

QUESTION FOUR
Your are currently engaged in planning the audit of the payroll system of Ujenzi Ltd a manufacturing company, for the year ending 30 June 2005, Ujenzi Ltd’s payroll system is fully computerized.

Required:
(a) Explain four ways in which the use of a computerized payroll system by Ujenzi Ltd would affect your work as the auditor. (8 marks)
(b) Explain three controls which should be instituted by Ujenzi Ltd to ensure that only authorized persons are allowed access to information on personal files and to input updates for the calculation of wages. (6 marks)
(c) Outline how audit tests could be performed “around the computer” in relation to Ujenzi Ltd’s payroll (4 marks)
(d) List any two fraudulent activities likely to be perpetrated in relation to Ujenzi Ltd’s payroll (2 marks)
(Total: 20 marks)

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