Audit related assurance services

April 2025

1 Questions

Question 4a

Describe FIVE areas of focus in an environmental audit.

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Tech Innovators Ltd. is a 2-year-old startup seeking to attract significant venture capital investment. Your firm has been appointed by Tech Innovators Ltd. to conduct a due diligence investigation. You are the partner responsible for the audit of Tech Innovators Ltd. The due diligence process involves reviewing the prospective financial information provided by the client and also a social and environmental audit to assess the company's compliance with sustainability practices.

Required:

(i) Describe FIVE areas of interest you could consider in evaluating the prospective financial information relevant while conducting the due diligence process.

(ii) Analyse FIVE factors you might consider while undertaking the social and environmental audit.

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December 2023

3 Questions

Question 4c

To succeed in business in the modern world, every company must consider investing in some form of Information Technology (IT). The companies that do not have their own systems still have to protect themselves from cyber criminals whenever they use computer systems even for simple communication within and without the organisation. To ensure the security of this computerised information, companies have had to invest in controls that ensure protection and integrity of their data. IT general controls are the most common controls because they are capable of preventing data theft, stop unauthorised access, reduce operational disruption and stop data breaches.

Required:

(i). Explain how the IT general controls protect the company and its information systems from risk.

(ii) Explain the best practice for implementing IT general controls.

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Question 2a

The following is an extract from a speech presented in a recent professional forum:

“In the private sector, going concern is an area of interest to users of financial statements. Shareholders and lenders wish to know that a business will continue into the foreseeable future before they can make investment or lending decisions.

The going concern concept in the public sector differs from that in the private sector. This is because most public bodies, whether government departments, devolved administrations, local public bodies or national funds have a statutory existence that makes technical insolvency almost impossible.

Despite that, stakeholders in the public sector still have an interest in knowing whether these institutions are financially sustainable.”

Required:

In the context of the above statement, discuss EIGHT factors that an auditor would consider in determining the going concern assumption of a public entity.

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Question 2c

Your audit firm, KKCO LLP, has been the auditor of Express Ltd., a leading online retailer that was established a few years ago. At inception, the company had an average delivery time of a week, but has since grown to an average delivery time of between one and five days. The company started with three employees and has grown to 1,000 employees including a 150 customer service team who are available 7 days a week.

It has emerged that an employee stole Sh.20 million by manipulating vendor payment records pointing to the risk of fraud facing their trading platforms.

Required:

Prepare a proposal to the directors of Express Ltd. explaining:

(i). The need for an internal audit function in the company.

(ii). The benefits of outsourcing the internal audit function.

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August 2023

2 Questions

Question 5b

The Government of your country has recently introduced performance contracting in the public sector with the objective of improving service delivery to the public. This has been largely achieved by ensuring the top-level managers are accountable for results and ensuring that resources are focused on attainment of key national policy priorities of the government. Your audit firm has recently won a tender to audit the reliability of feedback provided by state corporations on achievement of performance contracting targets.

Required:

Describe the key audit procedures you would undertake to achieve the above audit objective.

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Question 5a

Exlink Commercial Bank is a mid-size bank with a large pool of customers seeking credit. The bank’s credit activities mainly comprise the following:

Origination and disbursement.
Monitoring.
Collection.

Required:

As the lead auditor of the bank, prepare a checklist of the key internal controls that you would expect under each of the three functions above.

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April 2023

3 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 3

You are the manager in-charge of the audit of Maridadi Fashions Ltd., a private company dealing in the import and sale of fashion wear. The company plans to seek a public quotation for its shares and is required to prepare a prospectus which must incorporate a report by the auditors of the company.

The directors intend to include a profit forecast in the prospectus. You have been approached by the securities exchange to report on the bases and calculations for the forecast.

Required:

(a). Explain the preliminary considerations that you would take into account before you accept responsibility for reporting on the profit forecast.

(b) Discuss the specific audit procedures that you would perform to ensure that the profit forecast is not misleading.

(c) Describe the matters that you would include in your report.

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Question 2b

You are the manager responsible for the audit of four audit clients of M & Associates, a firm of CPAs. The year end in each case is 31 December 2022. You are currently reviewing the audit working paper files and the audit seniors’ recommendations for the auditors’ reports.

Required:

For each of the cases below, comment on the appropriateness or otherwise of the proposition of the audit senior regarding the auditors’ reports. Where you disagree, indicate what audit modification (if any) should be given instead.

Details are as follows:

1	C Ltd. is experiencing going concern problems as noted during this year’s audit. Unless it secures the prospected loan from the bank to finance a contract already won, C Ltd. will likely not continue operating in the foreseeable future. No disclosure of the going concern problems has been made. The audit senior has suggested that, due to the seriousness of the situation, the audit opinion must at least be qualified ‘except for’.
2	P Ltd. has changed its accounting policy on premises from cost model to revaluation model. No disclosure of this change has been given in the financial statements. The carrying amount of the premises in the statement of financial position as at 31 December 2022 is the same as at 31 December 2021. The premises figure is material in the context of the financial statements. The audit senior is satisfied with the carrying value of the premises in the statement of financial position. The audit senior has concluded that a qualification is not required but suggests that attention should be drawn to the change by way of an emphasis of matter paragraph.
3	The directors’ report of AC Ltd. states that the company’s revenue has grown from 1.2 % to 4% in the last one year. However, analytical review procedures showed that revenues had only grown by 1.65%. The audit senior is satisfied that the revenue figures are correct. The audit senior has noted that an unmodified opinion should be given as the audit opinion does not extend to the directors’ report.

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December 2022

3 Questions

Question 1a

The role of auditors in non-financial audits is increasingly coming under scrutiny. One such area of interest is in “green” audits, also referred to as environmental audits. A recent article in a leading accountancy journal highlighted this fact as below:

“In many jurisdictions, corporate auditors are not under any obligation to report to stakeholders of the entities on the impact of social and environmental issues. It is therefore important that regulators of the accountancy profession set prescribed and dedicated standards on social and environmental issues for auditors”. Noting the above trends, the accountancy regulatory body in your country has engaged you to develop a discussion paper to guide policy on conduct of environmental audits by auditors.

Required:

Draft a discussion paper focusing on the following, clearly elaborating on each:

(i) FOUR limitations of financial accounting in reflecting the social and environmental impact of organisations.

(ii) THREE objectives of environmental audits.

(iii) SIX information components that should be disclosed in an environmental status report.

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Question 3

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Question 5b

You are the auditor of Saidia Development Trust (SDT), a not-for-profit entity supporting charitable activities. SDT has three major donors one of whom contributes over 80% of the entity’s budget.

The major donor has placed a condition that operating cost must not exceed 10% of the total budget. Funding from each of the donors is designated and restricted to specific projects. In some instances, donor funds have not been disbursed in time making it necessary for SDT to seek for bank overdrafts to continue meeting fixed costs and ongoing projects. The Executive Director has requested you not to mention the loans in the financial statements or management letter as the donors may raise concerns. Furthermore, the overdraft has been fully repaid by period end.

Two employees have sued SDT for wrongful dismissal and claimed Sh.10 million. In order to demonstrate to the courts that SDT does not have money to meet such a claim, Sh.11 million was withdrawn from the entity‘s account and banked in the Executive Director’s personal account. The director is not ready to give you his bank statement as he claims it is personal.

In an effort to reflect that SDT is not overly reliant on the major donor, a material amount has been included as “other income”. This constitutes cash injections by the Executive Director from his own sources. In order to meet the 10% operating cost requirements, actual operating costs are understated materially by crediting them and debiting the director’s loan account. Most expenses are paid by cash even though the SDT’s policy is that amounts beyond Sh.15,000 should be paid by cheque. To achieve this, two petty cash floats are maintained, one by the receptionist which is subject to stringent controls and general cash maintained by the Executive Director where no cash count is ever done and no independent control is exercised.

Required:

Prepare a memorandum to the non-executive directors of SDT detailing issues noted, their implications and how to correct them.

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August 2022

5 Questions

Question 5a

Explain each of the following concepts, clearly indicating its impact on the work of auditors:

(i) Environmental audits.

(ii) Social reporting.

(iii) Audit disengagement.

(iv) Value for money audits.

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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 4a

Bandari Furniture Ltd. manufactures a wide range of domestic furniture. The main components of the furniture items are wood for the frames, foam filing for the cushions and fabric for the covering. The company’s annual turnover is Sh.700 million while its stock at the end of the year ended 31 December 2021 was Sh.400 million. You attended the stock take and you were happy with the accuracy of the exercise. The cost of raw materials and direct labour are calculated using the standard costing system while overheads are computed from the company’s financial accounting records as a percentage of direct labour cost.

Required:

(i) Describe the audit work that you would perform to check the standard cost per unit of a line of finished stock. Comment on how accurate this standard cost has to be.

(ii) Explain the work that you would perform to confirm that the variances are being determined correctly.

(iii) Comment on the overheads that you would include in the value of stock and those that you would not include, citing relevant examples.

(iv) State two variances that you would include and those that you would exclude when adjusting the value of stock from standard cost to actual cost.

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Question 4b

You are the auditor of Zambezi Ltd., a manufacturer of handcrafts. 40% of the sales are exported to a foreign country. You are about to commence the audit of the accounts for the year ended 31 October 2021. Account receivables are included in the statement of financial position at the year end net of Sh.3,000,000 debt provision (5%) at Sh.57 million. In the past audits, there has been a poor response to the trade receivables circularisation and a decision has been taken not to circularise or circulate them this year. In an attempt to reduce the exposure to the foreign currency, Zambezi Ltd. sells 50% of the foreign currency trade receivable forwards.

Required:

(i) Explain the substantive procedures that you would perform as an auditor to verify the accuracy of account receivables.

(ii) Describe the audit tests you would carry out in order to form an opinion on the doubtful debts provision and the action you would take if you concluded that it was materially misstated.

(iii) State what adjustment, if any, you would make to the foreign currency account receivables on the basis that they have all been recorded at the actual exchange rate ruling on the date of sale.

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Question 5b

Safari Company Limited is a manufacturing company that was established five years ago. The company has attained tremendous growth despite the stiff competition from other companies engaged in the manufacture of similar products. The company’s management is concerned with reducing the harm that may result from fines and the compensation in case of violation of the environmental laws and regulations. At the same time, to maintain its market share, the company intends to give support to the community through social responsibility activities.

Required:

You have been appointed to evaluate the environmental aspects and social support of the company. Describe the audit procedures that you would perform in order to advise accordingly.

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April 2022

3 Questions

Question 2a

During the last year's audit of Mila General Stores (MGS), a large retail chain of shops, you observe that commissions amount to about 25% of total sales, which is higher than in previous years. Further investigation reveals that the sector in which the shop operates on average has larger sales commissions than MGS with significant variation in rates depending on the product sold.

At the time a sale is made, the sales person records his commission rate and the total amount of the commission on the office copy of the sales invoice. When sales are keyed into the computer, a debit to sales commission expense account and a credit to accrued sales commission account are also recorded. As part of recording the sales and sales commission expense, the accounts receivable clerk verifies the prices, quantities, commission rates and all calculations on the sales invoices. Both the accounts receivable and the sales persons' commission master files are updated when the sales and sales commission are recorded. On the 15th day after the end of each month, the sales person is paid for the preceding month's sales commission.

Required:

(i) An audit program to verify sales commission expense, assuming that no audit tests have been conducted in any audit area to this point.

(ii) An audit program to verify accrued sales commission at the end of the year, assuming that the tests you designed in (a) (i) above resulted in no significant misstatements.

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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 3b

Discuss the procedures and nature of reporting adopted by auditors when engaged in compilation engagements of the prospective clients.

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December 2021

2 Questions

Question 5b

Discuss each of the following matters as applied in auditing and assurance:

(i) Due diligence investigations.

(ii) Role of auditors in receiverships and liquidations.

(iii) Integrated reporting.

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Question 3b

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.

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September 2021

4 Questions

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 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 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 5a

Discuss the nature and purpose of the following:

(i) E-Commerce audits.

(ii) Value for money audits.

(iii) Social audits.

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May 2021

1 Questions

Question 2a

In an engagement to examine prospective financial information, the auditor should obtain sufficient and appropriate evidence as to whether management's best-estimate assumptions on which the prospective financial information is based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with the purpose of the information.

Required:

In the context of the above statement:

(i) Explore the difference between a "forecast" and a "projection" with reference to prospective financial information.

(ii) Explain the matters you would consider before accepting an engagement to examine prospective financial information.

(iii) Describe in detail the key areas of focus during the actual audit of prospective financial information.

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November 2020

3 Questions

Question 4b

In the context of environmental audits:

(i) Illustrate, using suitable examples, three environmental matters which may affect the financial statements.

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

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Question 4c

(i) Describe four audit techniques that an auditor may employ when conducting a value-for-money audit.

(ii) Discuss four challenges associated with value-for-money audits in the public sector.

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Question 5a

You are the audit manager in charge of the audit of Mamboleo Ltd. for the year ending 31 December 2020. Currently, you are planning for the year-end audit. Mamboleo Ltd. produces various brands of high quality bread. During the interim audit, you noted that due to the present economic down-turn and the uncertainty in the wheat market, the company has suffered as its costs are increasing and its bread prices are higher than those of its competitors because of lower production runs. One indicator of the problems facing the company is that it has consistently used a bank overdraft facility to finance its activities.

When you discussed with the company management the actions being taken to improve liquidity, you were informed that the company planned to expand its facilities for producing white bread as this line had maintained its market share. The company has approached its bank for a loan to finance the expansion and also to maintain its working capital.

To support its request for a loan, the company has prepared a cash flow forecast for the next two years from the end of the reporting period. The internal audit department has reported on the forecast to the directors. However, the bank has requested for a report from the external auditors to confirm the accuracy of the forecast. Following this request, the directors have asked you to examine the cash flow forecast and then report to the bank.

Required:

(i) Explain the kind of assurance you could give in the context of the request by the bank.

(ii) 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.

(iii) Describe eight procedures you would adopt in your examination of the cash flow forecast.

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November 2019

1 Questions

Question 2

Maisha Bora Services Ltd. receives funding from government health departments as well as several large non-governmental organisations (NGO's). This funding represents 30% of the company's research and development annual expenditure. The amount of funding received is dependent on three key performance indicators (KPIs) targets being met annually. All three of the targets must be met in order to secure the government funding.

A review of the company's operating and financial information shows the following:

KPI target		Draft KРІ 2019	Actual KPI 2018
1	Medicine and other pharmaceutical products donated free of charge to poor families in the country: 1% of revenue	0.9% of revenue	1.3% of revenue
2	Donations to and cost of involvement with local NGO's towards social responsibility: 0.5% of revenue	0.7% of revenue	0.9% of revenue
3	Accidents in the workplace: Less than 5 serious accidents per year	4 serious accidents	3 serious accidents

You are engaged to provide an assurance opinion on the KPIs disclosed in the operating and financial review.

Required:

(a) Discuss three reasons why it might not be possible to provide a high level of assurance over the stated key performance indicators.

(b) Describe three procedures you would use to verify the number of serious accidents in the year ending 31 December 2019.

(c) Explain the matters you would consider to determine whether capitalised development costs are appropriately recognised.

(d) Describe the evidence you would seek to support the assertion that development costs are technically feasible.

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May 2019

3 Questions

Question 3b

Your firm is the auditor of Deluxe Tea Holdings Ltd., a company which is planning to list on the National Securities Exchange within the next six months. The listing rules of the securities exchange require compliance with corporate governance principles to which the directors are unsure as to the company's compliance status. The directors have requested for your firm's advisory on this matter.

Additional information:

The company's board comprises ten members; six executive directors, a non-executive chairman and three other non-executive directors (NEDs). The chairman and one of the NEDs are former executive directors of the company and on reaching the retirement age, were requested to take on non-executive roles.
The company has established an audit committee and all NEDs are members including the chairman of the board who chairs the committee.
All the four members of the audit committee were previously involved in sales or production related roles.
All the directors have been members of the board for at least four years.
As the chairman does not have an executive role, he has the sole responsibility of liaising with the shareholders and answering any of their questions. The company has not established an internal audit function to monitor internal controls.

Required:

Identify four corporate governance weaknesses faced by Deluxe Tea Holdings Ltd. and for each weakness, provide a recommendation to address it.

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Question 4b

You are the audit manager responsible for the audit of Mega Group of Companies. The following information has been brought to your attention regarding two of the companies in the group:

1

Samia Foods Ltd. The company manufactures and distributes cakes and cake ingredients. Towards the year-end, the government paid a grant to the company to assist with costs associated with installing new environmentally friendly packing lines which are aimed at reducing energy usage by 25%. The reduction in energy usage was one of the conditions of the grant. The company began operating the new packaging line three months ago.

2

Lindi Ltd. Your firm audits all companies in the group except for Lindi Ltd. which is audited by a small local firm in the company's country of operation. Audit regulations in Lindi Ltd's country of domicile are not based on International Standards on Auditing (ISAs).

Required:

(i) Recommend five principal audit procedures that should be performed on the conditions attached to the grant received by Samia Foods Ltd.

(ii) Explain three factors that should be considered and the procedures that should be performed in deciding the extent of reliance to be placed on the work of the auditors of Lindi Ltd.

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Question 5b

Bawabu Ltd. seeks to obtain a loan for investment in capital assets. The directors of the company have approached River Bank Ltd. for the loan. To support their loan application, the directors have included a summary of profit forecasts for the next three years which reflect an expected growth in revenue and profits.

Required:

As an audit consultant for Bawabu Ltd., describe six examination procedures that you would use to enable you express a professional view on the profit forecasts.

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November 2018

3 Questions

Question 5a

Mwanza Hotels Ltd. operates a chain of 60 hotels. This year's results show a return to profitability for the company, following several years of losses.

Required:

As the internal auditor for Mwanza Hotels Ltd., recommend seven key performance indicators (KPIs) which could be used to monitor the hotel's social and environmental performance and for each KPI, outline the nature of evidence that should be available to provide assurance on its accuracy.

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Question 4b

Discuss the objective of a review engagement contrasting the level of assurance provided with that of an audit of financial statements.

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Question 3b

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. They range from simple comparisons to the use of complex models involving many relationships and elements of data. They involve comparisons of recorded amounts or ratios developed from recorded amounts to expectations developed by the auditors.

Required:

(i) Describe four broad objectives of analytical procedures.

(ii) Describe two factors that influence the extent to which an auditor will use the results of analytical procedures to reduce detailed tests in meeting audit objectives.

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December 2017

2 Questions

Question 3b

You are the audit manager of Tausi Ltd. You are conducting a review of the financial statements and notice some transactions with the pension fund of the employees. There is no disclosure in the accounts about any related party transactions.

Required:

With reference to the above statement, suggest six procedures that an auditor might carry out in order to establish if the pension fund is a related party.

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Question 4

You are the audit manager in charge of the audit of Vuka Mpaka Ltd., a limited liability company.

On 1 July 2000, Vuka Mpaka obtained the exclusive rights to operate car and passenger ferries across Ziwa Channel, for a period of twenty years. The company refurbished two ferries to service the route. The ferries do not meet the standards of the Environmental Regulation Authority. Each ferry makes an average of ten return crossings every day and has the capacity to carry 2,000 passengers and 400 vehicles per trip.

Vuka Mpaka Ltd. currently receives a subsidy from the local transport authority as an incentive to increase market awareness of the ferry service. The subsidy increases as the number of vehicles carried increases and is based on quarterly returns submitted to the authority.

The company employs fifty full-time crew members who are trained in daily operations, customer service as well as passenger safety in the event of personal accident or breakdown. The management of Vuka Mpaka Ltd. is planning to apply for a safety management certificate at the end of the year. This will require an audit of the ferries including a review of safety documents and evidence that activities are performed in accordance with documented procedures. A safety management certificate, valid for five years, will be issued if no major non-conformities have been found.

Your firm has been asked to provide Vuka Mpaka Ltd. with a business risk assessment as a management assurance service.

Required:

(a) Discuss five business risks that Vuka Mpaka Ltd. might face.

(b) Describe the processes by which the risks identified in (a) above could be managed by Vuka Mpaka Ltd.

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May 2017

1 Questions

Question 2a

Pona Hospital is a referral hospital fully owned by the Government. Two years ago, on recommendation by the hospital's internal audit department, the management reviewed all aspects of hospital operations and implemented a number of measures aimed at improving overall "value for money" for the users of the facility.

Your audit firm has been requested to perform a review of the following measures which have been implemented so far:

1. Pona Hospital has one centralised purchasing department where all purchase requisitions for medical supplies are forwarded. Upon receipt, the procuring team will research on the lowest price from suppliers and a purchase order is raised. This is then forwarded to the purchasing manager who authorises all orders. The small purchasing team receives in excess of 200 requisition forms per day.

2. The human resource department has experienced difficulties in recruiting suitably trained staff. Overtime rates have been increased to incentivise permanent staff performing extra duties due to staffing gaps. This has been popular and reliance on expensive temporary staff has been reduced. Monitoring of staff hours had been difficult. However, the hospital has implemented time card procedures for clocking in and out. The hours clocked are used to calculate payments.

3. The hospital has invested heavily in new surgical equipment. Although the surgical equipment are very expensive, more surgeries can be performed and patient recovery rates are now faster. However, there is a shortage of appropriately trained medical staff and the equipment is underutilised. A capital expenditure committee has been established, made up of senior managers, to authorise future procurement of any significant capital expenditure items.

Required:

(i) Analyse four strengths within Pona Hospital's internal control environment.

(ii) For each of the strengths analysed in (a)(i) above, recommend further improvements in order to provide best value for money.

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November 2016

2 Questions

Question 1

Electronic Solutions Ltd. is a newly incorporated limited liability company. The company provides information technology services to overseas clients. The company relies heavily on information technology for operational activities. Most of the activities are captured online through a monitoring system. The company does not sell any of the systems that it has developed outright but has agreements with clients that permit the company to receive commissions based on the volume of transactions that flows through its system. The rates charged for the transactions vary with the volume of transactions.

The prevailing local taxation laws grant the company an income tax exemption for five years subject to the company complying with specific conditions. One of the conditions is that 90% of the company's income received during the year should be in foreign currency.

In order to grant exemption for the year ending 31 December 2016, the Revenue Authority has requested for an assurance report from the company auditors that 90% of the company's income is received in foreign currency.

Required:

(a) Suggest with reasons the quality control objectives which are likely to be particularly relevant in the audit of Electronic Solutions Ltd.

(b) Describe the additional audit procedures you would request the audit staff to perform in order to issue the assurance report.

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Question 3b

Your audit senior has requested you to undertake a value for money audit during the course of your audit of a public sector organisation:

(i) Explain the importance of a value for money audit in the public sector.

(ii) Summarise six common areas that an auditor would consider when undertaking a value for money audit in an organisation.

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May 2016

2 Questions

Question 5a

Discuss the matters that a professional accountant should consider before accepting an engagement to report on prospective financial information of a company.

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Question 2

Apex Ltd. was incorporated in the year 2012. The company deals with the extraction of sand, gravel and stone materials for residential and commercial building construction as well as for road construction projects. The following information relates to the affairs of the company during its few years of operation:

Apex Ltd. is currently working closely with sports complexes and golf course architects to develop sand of high quality for use in the construction and top dressing of golf courses and sports complex playing fields.
The company's profit has been declining mainly due to intense price competition from several smaller competitors. The managing director hopes that profits would improve in the year 2017 as a significant amount of the company's long term debt is payable by the year 2016. Apex Ltd. is currently involved in discussions with the banks on refinancing.
In late 2015, a significant theft took place at the company's quarry facility. Security was lax because it was believed that there was only low risk of these products being stolen given their nature as high volume low value products.

Required:

(a) Discuss the reviews that could be carried out by the internal audit function in Apex Ltd.

(b) Explain the potential obligations that might accrue to Apex Ltd. arising from an environmental audit.

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November 2015

3 Questions

Question 1a

Your firm has been retained as the auditors of Solo Ltd., a retailer of books, music media and computer software. As part of the audit planning for the year ended 30 June 2015, your audit manager has asked you to assist with drafting of the audit programmes.

Required:

For each of the four (4) items listed below, describe the audit procedures that you would undertake in respect of the matters listed to ensure that the financial statements of Solo Ltd. are fairly stated.

(i). On 1 June 2015, Solo Ltd. relocated from its rented warehouse to a larger property in order to accommodate growth in the business. The lease on the old warehouse, which came to an end on 31 May 2015, contains a dilapidation clause which specifies that Solo Ltd. must carry out repairs to the warehouse in order to restore the property to the same condition it was in when the lease commenced. Work on the dilapidations commenced on the day Solo Ltd. vacated the property and it is expected to take three months to complete. The directors of Solo Ltd. have included the estimated cost of these works in the financial statements for the year ended 30 June 2015 at Sh.20 million.

(ii) In order to cope with its recent expansion, Solo Ltd. installed a new computer system during the year. The old computer system, which has now been disposed of, was replaced after three years, despite its initial useful life being assessed as five years. Solo Ltd. has capitalised the new system at a cost of Sh.60 million and is depreciating it at 20% per annum on a straight line basis.

(iii) Solo Ltd. maintains a perpetual inventory system. Monthly inventory reports analyse the age of items in three-month periods for all inventory up to one year old and as a single figure for all inventory older than one year old. Solo Ltd. has historically included a provision in its financial statements to cover both obsolete and damaged inventory equal to 10% of the total inventory cost.

(iv) Solo Ltd. pays a 5% commission to referees in return for them directing business to the company. The 5% commission is calculated using the retail price as advertised by Solo Ltd. The commission is payable at the end of the month following that in which Solo Ltd. receives payment from its customers. Solo Ltd.'s computer system generates a monthly statement of sales made on this basis together with a calculation of the commission due. However, due to a computer virus, the computer system has not calculated or paid any commission since 31 March 2015. A number of the largest referees have since contacted Solo Ltd. demanding payment of their own estimates of commission due. Solo Ltd. has not made provisions in the financial statements for unpaid commission.

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Question 2a

Maxwel Wamalwa is an audit manager in Ambu and Associates Certified Public Accountants. One of the audit clients, Maridadi Ltd., designs and manufactures wooden tables and chairs for the audit firm. The business of Maridadi Ltd. has expanded rapidly in the last two years after the company employed Patrick Tundo, an experienced Sales and Marketing Manager.

The directors of Maridadi Ltd. intend to obtain a loan of Sh.30 million in order to expand its operations. The directors have approached LCT Bank for the loan. The bank's lending policy requires the loan application to be accompanied by a detailed business plan including an analysis of how the funds will be used. LCT Bank Ltd. must confirm that the loan applied for is adequate for the proposed business purpose.

The business plan must be supported by an assurance opinion on the adequacy of the requested funds. Maridadi Ltd. has projected that the Sh.30 million loan will be used as follows:

	Sh. "000"
Construction of a new factory	12,500
Purchase of new machinery	10,000
Initial supply of timber raw material	2,500
Advertising and marketing of new products	5,000
	30,000

Your audit firm has agreed to review the business plan and to provide assurance on the completion of the loan application. A meeting is scheduled with Maridadi Ltd. to discuss this assignment.

Required:

(i) Appraise the matters relating to the assurance assignment that should be discussed during the meeting with Maridadi Ltd.

(ii) Summarise the enquiries you would make to the directors of Maridadi Ltd. to ascertain the adequacy of the Sh.30 million loan applied for by the company.

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Question 4a

Biashara Ltd. has, as a result of technological developments, adopted sophisticated information systems in its business in order to reduce its operational costs. During the year ended 31 March 2015, the company adopted e-commerce to conduct its business in various countries. The directors of Biashara Ltd. have approached you to advise on managing risks associated with e-commerce.

Required:

Advise Biashara Ltd. on the procedures that the company should put in place to mitigate e-commerce risks.

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