Audit framework and regulations

April 2025

1 Questions

Question 1b

International Standards on Auditing (ISA) 570 Going Concern, highlights both the auditor’s and the management’s responsibility with regard to the company’s going concern.

Required:

Contrast the responsibility of the management with that of the auditor in the assessment of the going concern of a company.

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You are the Audit Manager of Will and Willow Associates, a firm of Certified Public Accountants who are the auditors of Tamtamu Group of Companies Ltd., for the year ended 30 June 2024. Tamtamu Group of Companies specialises in production and sale of healthy food products. The group has three subsidiaries namely; Dominion Delicacies Ltd., Stay Young Ltd. and Pemba Ltd. Your firm audits all components of the group with the exception of Pemba Ltd. which was acquired during the year.

The year-end is almost complete and the following matters have been raised by the audit senior for your attention:

Tamtamu Group of Companies Ltd.

This is a non-trading parent company, for the period under review, the directors decided to diversify the group’s activities in order to reduce risk exposure. Non-controlling interests representing long-term investments were consolidated into two companies. In the consolidated statement of financial position, these investments are accounted for as associates, as Tamtamu Ltd. is able to exert significant influence over the companies. As part of their remuneration, the directors of Tamtamu Ltd. receive a bonus based on the profit before tax of the group. In October 2023, the group finance director resigned from office after a disagreement with the chief executive officer over changes to accounting estimates. A new group finance director is yet to be appointed.

Dominion Delicacies Ltd.

This company mills, blends, packages and distributes healthy flours and natural spices. During the year ended 30 June 2024, the company built a new processing area, at a total cost of Sh.8 million the amount was considered material in the context of the company’s financial statements as well as the Group. A loan of Sh.8 million with an interest rate of 5% per annum had been taken out to finance the construction. The construction took 6 months to complete and the new processing area was ready for use on 1 February 2024. The processing area started operating on 1 May 2024. The estimated useful life of the extended factory is 15 years.

Stay Young Ltd.

This company’s operations involve the manufacture and distribution of peanut butter and other bread spreads. Stay Young Ltd. is involved in a court case with a competitor, Family Foods Ltd., which alleges that a design used by Stay Young Ltd. copies one of Family Foods Ltd.’s designs which are protected under copyright. A verbal confirmation from Stay Young Ltd.’s lawyers that a claim of Sh.2.5million has been made against Stay Young Ltd., which is probable to be paid. Stay Young Ltd. has not made a provision for this.

Pemba Ltd.

This company is a new and significant acquisition purchased in January 2024. It is located in North Africa and has been purchased to supply peanuts and other ingredients for the goods produced by Stay Young Ltd. It is now supplying approximately half of the ingredients used in Stay Young Ltd.’s manufacturing. The country in which Pemba Ltd. is located has not adopted International Financial Reporting Standards (IFRSs), meaning that Pemba Ltd.’s financial statements are prepared using local accounting rules. The company uses local currency to measure and present its financial statements.

Pemba Ltd. is audited by a small local firm, Patel and Company Associates. Audit regulations in that country are not based on International Standards on Auditing.

Required:

Evaluate FIVE audit risks to be considered in your planning of the final audit of the consolidated financial statements for Tamtamu Group for the year ended 30 June 2024.

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April 2024

3 Questions

Question 4c

International Standard on Auditing (ISA) 570, “Going Concern”, provides examples of events that individually or collectively might cast significant doubt on the going concern assumption.

Required:

Summarise SIX events that individually or collectively might cast significant doubt on the going concern of an organisation.

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Question 2b

Describe EIGHT matters highlighted by International Standard on Auditing (ISA) 210 to which an audit engagement letter might make reference.

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Question 5b

Bizmogul Ltd., a manufacturer of tyres, is an audit client of Weste and Associates, a firm of Certified Public Accountants. The financial year of Bizmogul Ltd. ended on 30 June 2023. The audit report and the financial statements were to be signed on 14 September 2023. The following additional information on two material events were brought to the attention of the auditor:

Event 1 – Occurred on 15 July 2023

A new type of tyre innovated by Bizmogul was found to be defective and hence unsafe for use. No sales had been made as the product was scheduled to be launched towards the end of September 2023. The company had an insurance cover for inventories. The affected inventory was estimated to be worth Sh.1,500,000 and was included in the finished goods as at 30 June 2023. The insurers estimated the affected inventory to be worth Sh.500,000. The insurance company did not want to pay for the loss in the value of inventory as the company’s inventory was under insured.

Event 2 – Occurred on 8 August 2023

The equipment used for vulcanisation of rubber got damaged. Leakage of harmful gas into the atmosphere occurred. The environmental agency is investigating the extent of the emission and the breach of environmental legislation arising thereof.

Required:

For each of the events, Event 1 and Event 2:

(i). Explain whether the event is adjusting or non-adjusting according to International Accounting Standard (IAS) 10, “Events after the Reporting Period”.

(ii). Discuss the auditor’s responsibility and the audit procedures that should be carried out.

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August 2023

1 Questions

Question 4b

(i) Explain the THREE components of audit risk.

(ii) Analyse FOUR audit risk procedures that you would employ in a high-risk audit, identifying the sources of information under each procedure.

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April 2023

2 Questions

Question 4

Lavenda Group has been a client of your Audit firm for several years. The group of companies specialises in production and sale of health food products. You are a senior audit manager responsible for the audit of the Lavenda Group. The group companies all have a financial year ended 31 December 2022. Your firm audits all components of the group with the exception of P Ltd. which was acquired during the year. You are currently planning the final audit of the consolidated financial statements. Information about several matters relevant to the group audit is given below. These matters are all potentially material to the consolidated financial statements. None of the companies in the group is listed.

Lavenda Ltd.

This is a non-trading parent company, which wholly owns three subsidiaries: D Ltd., S Ltd. and P Ltd. all of which are involved with the core manufacturing and marketing operations of the group. This year, the directors decided to diversify the group’s activities in order to reduce risk exposure. Non-controlling interests representing long-term investments have been made in two companies. In the consolidated statement of financial position, these investments are accounted for as associates, as Lavenda Ltd. is able to exert significant influence over the companies. As part of their remuneration, the directors of Lavenda Ltd. receive a bonus based on the profit before tax of the group. In April 2022, the group finance director resigned from office after a disagreement with the chief executive officer over changes to accounting estimates. A new group finance director is yet to be appointed.

D Ltd.

This company mills, blends, packages and distributes healthy flours and natural spices. During the year, the factory was extended by the self-construction of a new processing area, at a total cost of Sh.8 million which is material in the context of the company’s financial statements as well as the Group. A loan of Sh.8 million with an interest rate of 5% per annum had been taken out to finance the construction. The construction took 6 months to complete and the new processing area was ready for use on 1 August 2022. The processing area began to be used on 1 November 2022. The estimated useful life of the extended factory is 15 years.

S Ltd.

This company’s operations involve the manufacture and distribution of peanut butter and other bread spreads. S Ltd. is involved in a court case with a competitor, F Foods Ltd., which alleges that a design used in S Ltd. printed material copies one of F Foods Ltd.’s designs which are protected under copyright. A verbal confirmation was made from S Ltd. lawyers that a claim of Sh.2.5 million has been made against S Ltd., which is probable to be paid. S Ltd. has not made a provision.

P Ltd.

This company is a new and significant acquisition, purchased in June 2022. It is located in North Africa and has been purchased to supply peanuts and other ingredients for the goods produced by S Ltd. It is now supplying approximately half of the ingredients used in S Ltd. The country in which P Ltd. is situated has not adopted International Financial Reporting Standards, meaning that P Ltd.’s financial statements are prepared using local accounting rules. The company uses local currency to measure and present its financial statements.

P Ltd. is audited by a small local firm, ABC & Co, also based in North Africa. Assume that Audit regulations in that country are not based on International Standards on Auditing.

Required:

(a) Evaluate the principal audit risks to be considered in your planning of the final audit of the consolidated financial statements for the year ended 31 December 2022.

(b) Describe the procedures that should be performed in deciding the extent of reliance to be placed on the work of ABC & Co.

(c) Recommend the principal audit procedures that should be performed on the classification of non-controlling investments made by Lavenda Ltd.

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Question 1a

As the partner in charge of the internal quality review and control envisaged by International Standard on Quality Management (ISQCM) 1, you are required to prepare a brief for training the engagement team in your firm.

Required:

In light of the above statement:

(i) Explain the difference between “assurance” and “non-assurance” services as provided by external auditors.

(ii) Describe the work of the partner charged with the responsibility of driving the quality agenda in external audits.

(iii) Discuss FOUR principal tenets of ISQM 1.

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December 2022

1 Questions

Question 4

Achievers Holdings Ltd. is a non-trading holding company with several subsidiaries within East Africa. The company is based in Nairobi with investment holdings ranging from 75% to 100% in several subsidiary companies.

You are the audit manager responsible for the audit of the group accounts. One subsidiary company operating in Rwanda is audited by your firm through a branch office in Kigali. The other subsidiaries in Tanzania and Uganda are audited by other audit firms based in the respective countries.

Assume that the financial year end of Achievers Holdings Ltd. is 30 June, but the subsidiary companies based in Uganda and Rwanda are engaged in highly seasonal businesses, and have 31 March as their financial year end. The subsidiary company in Tanzania was acquired during the year ended 30 June 2022.

Required:

(a) Describe the evidence you would expect to obtain in your review of the audit work undertaken in Rwanda, Uganda and Tanzania.

(b) Following the completion of the subsidiary companies audits, discuss the matters that you would address in your review of the consolidated financial statements of Achievers Holdings Ltd. for the year ended 30 June 2022, with specific focus on:

(i) General issues touching on consolidated accounts.

(ii) Audit issues relating to subsidiaries with different year ends.

(iii) Audit issues relating to the newly acquired subsidiary in Tanzania.

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August 2022

3 Questions

Question 3b

Describe the factors to be considered by an auditor in assessing the inherent risk in an organisation.

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Question 2a

Radar Ltd. is a large private company that organises conferences, meetings and celebrations for other companies. The company was set up ten years ago by S and J who are the majority shareholders. The company employs over 300 staff in its 25 offices.

Your firm, XYZ CPA, where you are the Manager - Business Advisory, has been hired to provide internal audit services to Radar Ltd. In discussing with S, you discover that there is a small audit team headed by W, a recently qualified accountant. Before heading the internal audit, W was a junior finance manager in the company. Members of the internal audit team at Radar Ltd. would be redeployed to the finance department once XYZ CPA starts provision of the internal audit services.

S has briefed you of many instances where management policies were ignored. In addition, J has recently discovered a fraud in one office whereby an accounts manager was authorising payments of invoices received from fictitious suppliers, with the payment being channelled to the accounts manager’s personal bank account.

(i). Evaluate the benefits to Radar Ltd. from outsourcing its internal audit function.

(ii). Explain the potential impact on the external audit of Radar Ltd. if the internal audit function is outsourced

(iii). Recommend procedures that could be used by XYZ CPA to quantify any financial loss suffered by Radar Ltd. due to the above fraud.

(iv). Compare responsibilities of external auditors and of management in relation to the prevention and detection of fraud.

(v). Assess two benefits and one limitation that may arise from setting up an audit committee in Radar Ltd.

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Question 1

The Basel Core Principles for Effective Banking Supervision, “Risk Management Processes” require that banks and banking groups must have comprehensive risk management processes, including Board and senior management oversight to identify, evaluate, monitor and control/mitigate all material risks and further to assess their overall capital adequacy in relation to their risk profile.

Required:

(a) With reference to the above statements, discuss six components of an effective risk management programme for banks and similar institutions from an audit perspective.

(b) Describe the specific responsibilities of the Board in overseeing an institution’s strategic risk management process.

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April 2022

4 Questions

Question 1a

The regulatory body for professional accountants in your country has approached you to draft professional standards of practice in conduct and reporting on attestation engagements. These are engagements in which a professional accountant reports on the reliability of information, usually of a financial nature, presented by one party to another to assist the latter make inferences on the former.

Required:

With reference to International Standards on Auditing (ISAs) and any other acceptable standards of global practice, prepare a proposal paper on the required standards of professional practice.

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Question 1b

In the context of international regulation of the auditing profession, discuss the role of the International Forum of Independent Audit Regulators (IFIAR).

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Question 4

Jamaa Manufacturing Ltd. is planning to install an automated sales accounting system. The company's management has requested for your advice on certain matters relating to the proposed sales accounting system.

Required:

(a) Describe the controls that should be incorporated in the new system before it:

(i) Issues an order confirmation to a customer.

(ii) Raises a dispatch note and authorises dispatch of goods to the customer.

(b) Describe the controls which should be exercised over:

(i) Changing customer details including adding new customers, amending their details and deleting customers.

(ii) Changing customer credit limits. (2 marks) (iii) Changing the selling prices of products.

(c) Describe:

(i) The credit control criteria that the automated sales accounting system should use to decide whether to prevent dispatches to customers.

(ii) The manual procedures which should be exercised before the system allows goods to be dispatched to a company where the computer's criteria rejects dispatch of the goods.

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Question 5c

Explain the peculiar risks that an auditor faces when auditing and expressing an opinion on the following:

(i) Holding companies, subsidiaries and associates.

(ii) Related party transactions.

(iii) Branches and segments.

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Pilot December 2021

2 Questions

Question 3

You are responsible for the audit of Mariba and Co. Club and have found some potential causes of concern that could indicate fraudulent activity or financial misconduct within the company.

In particular:

52% of the products on sale by Mariba and Co. Club are supplied through one of the major international companies with a special finance arrangement deal.
Bank reconciliations were last done 11 months ago.
3. There has been a big turnover of staff heading the finance docket with 5 persons having been replaced over the last 6 months.
There are huge unreconciled balances in the accounts receivable and payables running into millions of shillings.
The current head of finance has taken sick leave for the last four weeks due to stress.

Required

(a) Comment on the need for ethical guidance for accountants on money laundering.

(b) Explain the difference between fraud and error and how the issues shown here could be categorised as fraud or error.

(c) Discuss the role of management and the role of the auditor in the prevention and detection of fraud and error.

(d) Describe what steps you would take to further investigate and then report on the matters referred to above.

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Question 2

Your firm has recently been appointed the statutory auditor of Mali Mengi Limited, a large soft drinks company in your country, for the year ended 31 December 2021. The previous auditors, from whom your firm has received professional clearance, did not wish to be re-appointed as auditors. The principal activities of the company are the distribution and retail of soft drinks. All products are imported from suppliers based in USA and delivered to Mombasa central warehouse. The company has its own retail outlets but also supplies national supermarket chains and small independent retailers.

Additional information on the company’s operations:

1	Sales Sales through its own retail outlets are on a cash basis and sales to supermarkets and independent retailers are on a credit basis.
2	Inventory records management The company maintains computerised inventory records for inventories held at the distribution centre and retail outlets. Each sale is recorded and the computer updates the quantity sold and the inventory balance. The manager at each outlet is responsible for banking the takings on a daily basis.
3	Website Development During the year, the company engaged consultants to design and implement the company’s new website with online ordering facilities.
4	Targeted launch date Under the terms of the contract, the website was scheduled to be operational by the end of October 2021 in order to take advantage of the high seasonal demand at this time of the year.
5	Failure to launch and legal suit Due to technical problems, the website was not launched until the end of December 2021. The consultants have been paid in full for their work. However, the company has commenced legal proceedings for breach of contract.
6	Increased revenue in presented management accounts Despite failing to meet its revenue targets in respect of online revenue, the management accounts for the 12 months to 31 December 2021 indicate an increase in revenue of 30 % compared with the same period in 2020.
7	Stocks and receivables Stocks and receivables balances are significantly higher than the previous year as a result of the increased level of activity.
8	Proposed expansion Management is planning to expand the retail activities of the business by opening additional retail outlets in Uganda, Tanzania and Ethiopia.
9	Funding of expansion It is hoping to fund the expansion with a bank loan and has approached the company’s bankers to provide the funding. The bankers require the audited financial statements before making a decision. Management is keen to have the funding in place to progress with the expansion and would like to have the audit completed by 31 December 2021.
Required Identify, from the circumstances described above, the key business risks and for each risk:
(a)	List the factors which have led you to identify that risk.
(b)	Outline the audit work you would perform to address the risk.

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December 2021

1 Questions

Question 3a

An audit strategy sets the direction, timing and scope of an audit. Required: In the context of the statement above:

(i) Explore the salient features that distinguish a systems-based approach from a risk-based approach to an audit

(ii) Describe the factors that influence the choice of an audit strategy.

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September 2021

10 Questions

Question 5c

Identify the practical steps that auditors might take to ensure independence and objectivity in their work.

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Question 1a

Maisha Bora Welfare Group was established in the year 2015. The organisation's aim is to provide support to children from disadvantaged backgrounds who wish to take part in athletics.

The organisation has a detailed constitution which explains how the income of the welfare group can be spent. The constitution also notes that administration expenses should not exceed 10% of income in any one year.

The income ofthe organisation is derived wholly from voluntary donations. The sources of income include:

Cash collected by volunteers seeking donations from the public.
Cheques sent to the welfare group's head office.
Donations from generous individuals. Some of these donations have specific clauses attached to them indicating that the initial amount donated (capital) cannot be spent and that the interest income from the donation must be spent on specific activities, for example, provision of sports shoes.

Required:

In the context of the above information:

(i) Explain the term "audit risk", clearly indicating three elements of risk that contribute to total audit risk.

(ii) Explore the areas of inherent risk in Maisha Bora Welfare Group, explaining the effect of each of these risks on the audit approach to be adopted.

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Question 1b

Suggest the procedures that an auditor should perform in order to gain understanding of a client's business.

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Question 1c

You are a senior audit manager in M and M Associates Certified Public Accountants. Recently, you were assigned specific responsibility for undertaking annual reviews of existing clients. The following situation has arisen in connection with one of the clients, Reward Ltd., an exporter of specialist equipment.

The Chief Executive Officer of Reward Ltd. has requested for advice on the accounting treatment and disclosure of payments being made for security consultancy services. The payments, which aim to ensure that consignments are not impounded in the destination country of a major customer, may be material to the financial statements for the year ending 31 December 2021. Reward Ltd. does not treat these payments as tax deductible.

Required:

Explore the ethical and other professional issues raised by the above matter and indicate the action, if any, that your firm should now take.

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Question 2b

Explain the role of support/comfort letters as evidence in the audit of group financial statements.

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Question 2c

Discuss how horizontal groups (non-consolidated entities under common control) affect the scope of an audit and the audit work undertaken.

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Question 3c

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.

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Question 4a

You are the auditor of Benrose Ltd. which undertakes construction contracts on behalf of its clients.

Last year, you qualified the auditor's report due to lack of evidence to support the client's schedules of estimated costs to completion. During the year, a quantity surveyor joined the management team of Benrose Ltd. His main role is to prepare year end schedules, by contract, of total costs to completion. This includes:

Direct costs incurred to the balance sheet date.
Attributable overheads.
Estimated costs to completion.

You are satisfied that the quantity surveyor is appropriately qualified and experienced.

Required:

(i) Explain the nature and extent of the reliance which you would seek to place on the work of the quantity surveyor.

(ii) Describe the audit work you would perform in respect of total costs to completion.

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Question 4b

Describe the audit work that you would carry out in respect of the following:

(i) Segment information.

(ii) Transfer of shares.

(iii) Dividends.

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Question 5b

Discuss the practical challenges that professional bodies might face in trying to conduct audit quality assurance (AQA) activities in member audit firms.

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May 2021

4 Questions

Question 1a

International Standard on Auditing (ISA) 220 (Quality Control for an Audit of Financial Statements) requires that for audits of financial statements of listed entities, and for those other audit engagements if any, for which the firm has determined that an engagement quality control review is required, the engagement partner shall:

Determine that an engagement quality control reviewer has been appointed.
Discuss significant matters arising during the audit engagement, including those identified during the audit control review, with the engagement quality control reviewer.

In addition, the standard requires that the engagement quality control reviewer shall perform an objective evaluation of the significant judgements made by the engagement team, and the conclusions reached in formulating the auditor's report.

Required:

In the context of the above provisions, and making reference to any other relevant provisions of ISA 220, discuss the key issues that the engagement quality control reviewer should consider during the evaluation of the significant judgements made by the engagement team, with particular reference to listed entities.

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Question 1b

The auditor needs to have a sufficient understanding of the entity and its environment to enable identification of the events, transactions and practices that may result in a risk of material misstatement regarding related parties and transactions with such parties. While the existence of related parties and transactions between such parties are considered ordinary features of business, the auditor needs to be aware of them:

Required:

(i) Evaluate the reasons why, during the course of an audit, the auditor needs to be aware of the existence of related parties.

(ii) Describe the audit procedures that should be carried out to identify the existence of transactions with related parties.

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Question 3c

Outline the importance of the concept of "materiality" as applied in the audit of financial statements.

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Question 5a

You are the audit partner at Utopia Certified Public Accountants operating in country Z. You have been invited to а stakeholders' forum attended by officers from the registrar of companies, the revenue authority, donors, profit making entities, government entities, non-governmental organisations (NGOs), professional institutes and other interested parties. All profit making entities have their financial year end on 31 December and have to file returns (including audited accounts) on or before 31 March of the following year.

Key issues of concern to some of the stakeholders are:

1. The three month period between the year end and filing deadline is too short, limiting entities' ability to provide accurate financial statements.

2.Auditors sometimes issue disclaimers of opinion, which in their opinion is of no value. It would be better if they declined appointment.

3.Audit fees are too high and are charged even when businesses are making losses causing unnecessary financial burden on entities.

4.In an attempt to attract clients, some auditors charge very low fees hence there is need for the institute of accountants to set minimum fees.

5.Whenever clients are penalised for non-compliance with regulations, the auditor goes scot-free even when the penalties are based on audited accounts. There is need for the auditor to bear part ofthe penalties.

6.Some auditors have audited the same clients for too long. There is need for mandatory auditor rotation periods specified by regulators for all clients.

Required:

Evaluate each of the issues raised above and provide an informed opinion, justifying your position with relevant facts and examples.

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November 2020

2 Questions

Question 4a

The audit committee is created as part of the corporate governance process, which is the cornerstone of shareholder protection.

Required:

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

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Question 3

You are the auditor of Synergy Ltd., a medium-sized company which sells a limited range of industrial products. The value of the company's sales orders range between Sh.5,000 and Sh.100,000 depending on the volume and mix of the orders. Recently, the company decided to transfer the sales accounting function to a computer bureau. Synergy Ltd. operates a fixed price list for customers and any changes to the price list must be approved by the sales manager. The specific functions outsourced to the computer bureau regarding the sales function were:

1. Producing invoices.

2. Updating the master file on trade receivables.

3. Analysing sales so as to produce credit entries to stock control accounts.

In order for the computer bureau to discharge its functions, Synergy Ltd. provides the bureau with the following information:

(i) Details of quantities and type of sale transactions.

(ii) Cash receipts.

(iii) Price lists and alterations.

(iv) Bad debts and special credits.

Required:

(a) 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.

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

(c) Explain four drawbacks of outsourcing of the payroll function by the management of Synergy Ltd.

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November 2019

2 Questions

Question 1b

Shanzu Ltd. is audited by Ukweli Associates. Your firm, Nawiri Associates has been asked to accept appointment as joint auditors of Shanzu Ltd. in co-operation with Ukweli Associates. The directors of Shanzu Ltd. are of the view that this would enable your firm to improve group audit efficiency, without losing the cumulative experience that Ukweli Associates has built while acting as auditors of Shanzu Ltd. Eventually your firm can be the sole auditors.

Required:

Discuss two advantages and two disadvantages of conducting a joint audit of Shanzu Ltd.

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Question 4b

International Standard on Auditing (ISA) 220: Quality Control for an Audit of Financial Statements requires audit firms to document and implement a system of policies and procedures to ensure audits are conducted in accordance with ISAs. International Statement on Quality Control (ISQC) 1 requires firms to establish, document and communicate to staff their quality control policies and procedures to provide reasonable assurance that the firm and its staff comply with professional standards, regulatory and legal requirements and that the firm and/or engagement partner issue reports that are appropriate in the specific instances.

Required:

Explain how a firm would address each of the five matters required to meet ISA 220 and ISQC 1 requirements.

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May 2019

1 Questions

Question 2b

(i).Describe the aspects of a client's business which should be considered in order to gain an understanding of the client company and its operating environment.

(ii) Recommend the procedures that an auditor should perform in order to gain business understanding of an entity.

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December 2017

2 Questions

Question 2b

The International Standard on Auditing (ISA) 220: Quality Control for an Audit of Financial Statements provides that audits should be conducted in a manner that ensures the correct opinion is arrived at with due regard to time and other resource constraints. The engagement partner should be satisfied that the engagement team has the appropriate competence and capabilities.

Required:

Evaluate the importance of each of the following qualities in selecting an effective engagement team:

(i) Independence.

(ii) Scope of the assignment.

(iii) Complexity of the assignment.

(iv) Duration of the assignment.

(v) Client expectations and requests.

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Question 2a

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.

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May 2017

1 Questions

Question 5

A newspaper article contains the following:

"The role of statutory auditors is often misunderstood. In particular, there is confusion over the auditor's responsibilities in respect to fraud and the nature of the assurance provided by an audit. Furthermore, following a number of corporate collapses and the revelation of fraud perpetrated by management, it is the auditors who may be sued for large sums of money. This trend is threatening the future of the auditing profession. The majority of auditors would prefer the current legislation to be changed to enable auditors agree on a contractual cap on liability (that is, a limit on the monetary amount which the auditors could pay out in damages)".

Required:

(a) Compare and contrast the responsibilities of auditors and directors of a company in relation to the prevention and detection of fraud.

(b) Explain why the statutory audit cannot provide absolute assurance that the financial statements are free from misstatement whether caused by fraud, error or other irregularity.

(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.

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November 2016

1 Questions

Question 5

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 liability by making a liability limitation agreement with an audit client.

Required:

(a) Discuss the civil liabilities of an auditor under common law.

(b) Assess the potential implications to the audit profession of audit firms that sign a liability limitation agreement with their audit clients.

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November 2015

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Question 4c

Explain the auditor's responsibilities in relation to the prevention and detection of fraud and error.

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Pilot September 2015

1 Questions

Question 5

Public sector auditing refers to the examination of and control of government receipts and payments with a view of assessing the benefits derived from the use of public property, utility or service and evaluate level of responsibility and accountability of government officers to the electorate.

The audit exercise is governed by professional norms of independence, competence and due care and it draws its mandate from the constitution. The client is in principle the government comprising the executive office, ministries, the treasury, county governments, independent departments and government executed projects.

Required:

(a) Describe the comprehensive process in public sector audits.

(b) Briefly describe two main elements of public sector audits.

(c) Outline the status, functions and powers of the Controller and Auditor General.

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Audit framework and regulations

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