Concluding and reporting

April 2025

5 Questions

Question 5b

International Standards on Auditing (ISA) 720 provides guidance on the auditor’s responsibilities relating to other information in documents containing audited financial statements. You are the audit engagement partner in audit of Afucako Ltd. You have an audit trainee assigned to you, who has read the notes taken at your meeting with the managing director of Afucako Ltd. The audit trainee is seeking to know from you about the implications of corporate social responsibility (CSR) expenditure being disclosed as a different figure in the financial statements compared with other information published in the annual report.

Required:

(i) Explain to the audit trainee THREE responsibilities of the auditor in relation to other information in documents containing audited financial statements.

(ii) Analyse FOUR actions that the auditor could take if the figure relating to the CSR expenditure figure disclosed in the financial statements is different from the other information published in the annual report and the management has not amended this even after the matter having been highlighted to them.

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Question 3b

You are the audit manager in John Bosco and Associates, a firm of Certified Public Accountants, responsible for the audit of Cider hospital for the year ended 31 March 2025. You recently visited the audit team, who are currently on site performing the field work, to review the work performed and to discuss their progress. During your visit the audit senior brought forward the following matter for your action.

During the review of medical inventories, which included medicines used in a variety of treatment at the hospital, it was noted that a number of medicines had passed their recommended use by dates. These were recorded on an inventory spreadsheet maintained by the financial controller and were easy to spot because they were highlighted in red. One of the audit team members inspected a sample of the inventories in question and confirmed that their use by date had expired. The audit team requested to look at the spreadsheet again, but they were denied access.

The following day, the finance director confronted the audit team accusing them of extending their investigation ‘beyond their scope of audit’. He also threatened to remove them from the premises if they continued to ask questions which were not relevant to the audit of the hospital’s financial statements. Since then, the audit team was unable to complete their audit of medical inventories. They also noted that the room where the inventories were previously kept had been emptied.

Required:

With reference to the above matter raised by the audit senior, describe:

(i) TWO ethical and professional issues surrounding this matter.

(ii) THREE ways that you could report the non-compliance to the management of Cider hospital.

(iii) The impact of the matter on the financial statements of Cider Hospital.

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Question 2b

You are the audit manager responsible for the audit of Zambalau Ltd. For the year ended 31 December 2024. The final audit for the year is almost complete and you are reviewing the audit working papers. The draft financial statements recognise profit before tax of Sh.110 million. The following matters have been raised by the audit senior for your attention.

1	In January 2025, one of the major customers of Zambalau Ltd. was declared bankrupt. The customer had a balance of Sh.950,000 which is included in the financial statements under accounts receivable.
2	In December 2024, a case against the company by a competitor, with claims of defamation because of an advertisement that the company placed in the media, is yet to be determined. The company’s legal lawyers have estimated the damages that are probable to be Sh.1,000,000. The following extract from the draft auditor’s report has been given to you for your review: Basis for opinion and disclaimer of opinion We have performed our audit based on a materiality level of Sh.15 million. Our audit procedures have proven conclusively that trade receivables are materially misstated. The finance director of Zambalau Ltd., John Kigen, has refused to adjust the accounts receivable to write off the uncollectible amount from a significant customer who has been declared bankrupt. Therefore, in our opinion, the financial statements are materially misstated and consequently we express a disclaimer of opinion. Emphasis of the matter paragraph Zambalau Ltd. has a current legal case with claims of Sh.1,000,000 from a competitor. In our opinion, this amount should be recognised as a provision of which the financial statements have not provided for.
Required:
(i)	In relation to the ongoing legal claim against Zambalau Ltd., recommend FIVE additional audit procedures that may need to be performed.
(ii)	Without redrafting the auditor’s report, critique the proposed auditor’s report for Zambalau Ltd. for the year ended 31 December 2024.

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Question 2a

Summarise SEVEN auditor’s responsibilities with regard to subsequent events.

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Question 1c

You are the audit manager of Kiki and Kiki Associates, a firm of Certified Public Accountants, responsible for the audit of ABC Manufacturing Company for the year ended 31 December 2024. The audit work has been completed and reviewed and the audit report is going to be issued in three days. The following is the summary extract data from the financial statements:

	Sh.
Revenue	150,000,000
Net profit after tax	50,000,000
Total assets	120,000,000

You have just been informed that a resolution has been passed to close one of the factories and relocate the largest factory in the next 6 months. These changes will lead to lay off of staff and the estimated cost of redundancies is Sh.30,000,000. The financial statements have not been amended to reflect the changes.

Required:

(i) Comment on the implications of the above changes in the financial statements.

(ii) Describe FOUR further audit procedures that you might need to perform.

(iii) Recommend the actions to be taken by the auditor if the financial statements are not amended.

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December 2024

1 Questions

Question 2b

After completing the audit of Maneno Company Ltd. for the year ended 31 December 2023, the auditor identified several material misstatements in the financial statements that management has refused to correct. Some of these misstatements could lead to a qualification of the audit opinion.

Required:

(i) Explain TWO types of audit opinion that the auditor is likely to give in this case.

(ii) Describe SIX ways on how the auditor would communicate the misstatements in his audit report.

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August 2024

1 Questions

Question 3a

You are the Audit Manager of Mateo and Associates, a firm of Certified Public Accountants who are the auditors of Miradi Group of Companies Ltd. for the year ended 31 December 2023. Miradi Group of Companies Ltd. is a financial services company. The group has three subsidiaries namely; Kasi Ltd. which provides capital markets services, Taurus Ltd. which provides brokerage, investment and wealth management services and Gold Crowns Ltd. which undertakes asset management and other related services. The year-end is almost complete and the following matters have been raised by the audit senior for your attention:

1	Kasi 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, Kasi Ltd. will be unable to continue in operation in the foreseeable future. No disclosure of the going concern problems have been made. The audit senior has suggested that, due to the seriousness of the situation, the audit opinion should be qualified ‘except for’.
2	Taurus Ltd. has changed its accounting policy on buildings 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 2023 is the same as at 31 December 2022. The buildings figure is material in the context of the financial statements. The audit senior is satisfied with the carrying value of the buildings in the statement of financial position. The audit senior has concluded that a qualification is not required but suggests that attention can be drawn to the change in accounting policy by way of an emphasis of matter paragraph.
3	The directors’ report of Gold Crowns Ltd. states that the company’s revenues have grown from 1.2 % to 4% in the last one year. However, analytical review procedures revealed 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.
Required: For each case mentioned above:
(i)	Comment on the appropriateness or otherwise of the audit senior’s proposals regarding the auditors’ reports.
(ii)	Where you disagree, indicate what audit modification (if any) should be given instead.

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April 2024

1 Questions

Question 4a

You are the audit engagement partner in the audit of Cologne Ltd. You have an audit trainee assigned to you who has read the notes taken at your meeting with the managing director of Cologne Ltd. The audit trainee is seeking to know from you the implications of corporate social responsibility (CSR) expenditure being disclosed as a different figure in the financial statements compared with other information published in the annual report.

Required:

Describe FOUR actions that the auditor could take if the figure relating to the CSR expenditure disclosed in the financial statements is different from the other information published in the annual report and the management has not amended this even after the matter having been highlighted to them.

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August 2023

1 Questions

Question 2b

Discuss FIVE types of audit opinions, specifying the circumstances under which each opinion may be ideal.

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April 2023

3 Questions

Question 5

Your firm is the current auditor of Safi Limited, a renowned wholesale business. You have been asked to carry out audit checks on the cut off and verifying inventory quantities at the year end.

The company maintains the details of the inventory quantities on its computer. These inventory quantities are updated from the goods received notes and the sales invoices. The company carries out the inventory count each month when all the fast moving and high value inventory is counted, and a third of the remaining inventory is counted in rotation so that all the items are counted at least four times a year. You attended the inventory count on the second Sunday of October 2022 and a further inventory count on the first Sunday of November 2022.

The company’s year-end was 31 October 2022 and the inventory quantities as at that date as shown by the computer had been used in the valuation of the inventory. No inventory was counted at the year end.

Required:

(a). Describe the principal matters that you should have checked and the matters you should have recorded when you attended the company’s inventory count on the second Sunday of October 2022.

(b). Explain the checks you will perform in confirming the sales and purchases cut offs have been correctly carried out at the year end.

(c). Discuss the work you will carry out to check that the book inventory records have been correctly updated from the inventory count.

(d). Summarise the work you will carry out to satisfy yourself that the inventory quantities used in the relation of the inventory at the year end is correct.

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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 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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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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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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August 2022

2 Questions

Question 2b

You are in charge of the audit of Sawala Ltd. and are planning the audit of financial statements for the year ended 31 December 2021. Sawala Ltd. has suffered decline in sales and profits in the last two years mainly due to loss of key customers. Many of Sawala Ltd.’s non-current assets are impaired in value and substantial receivables have been written off in the last six months.

Sawala Ltd’s. management have decided to restructure the business by reducing the manufacturing capacity by 75% and investing in new technology to make operations more efficient and widen the variety of components produced. Sawala Ltd. has applied for a bank loan to finance the restructuring. Without the loan, Sawala Ltd. is unlikely to restructure successfully raising doubts on its ability to continue as a going concern.

Your firm has been asked to advise on forecasts and projections that the bank would need to decide on the finance requested. Management has also requested your firm to attend a meeting with the bank during which the forecasts would be discussed.

Required:

Advise on ethical and other implications to guide your firm on the request to provide advice on forecasts and attend the meeting with the bank.

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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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April 2022

1 Questions

Question 5a

Describe the circumstances that could lead to each of the following audit opinions and the implications of each opinion:

(i) Adverse opinion.

(ii) Emphasis of matter.

(iii) Disclaimer of opinion.

(iv) 'Except for' opinion.

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Pilot December 2021

1 Questions

Question 5

As the lead auditor in the audit of XYZ Limited, a company with sole distributorship rights of a new brand of vehicles, the following issues are raised at the closing meeting with management:

The company’s working capital has been negative for the last 3 years and financing of company operations has been through an overdraft facility.
The financing bank is reluctant to extend further credit to the company due to its’ inability and long delays in servicing the overdraft which has fallen into huge arrears running into Sh.900 million.
The supplier of the vehicles is only providing vehicles upon receipt of full payment.
Three suppliers have moved to court to have the company put under administration for its’ inability to pay their debt totalling to Sh.800 million.
Senior management staff in finance and human resource have recently quit for reasons they were not willing to provide.
Salaries to staff are in arrears for over five months and staff are demotivated.

Required:

(a) Draft the audit opinion you would give under the circumstances.

(b) What audit risks are evident from the narration above and what further audit procedures would you perform for each of the issues discussed above.

(c) From the issues identified above, draft a management letter clearly highlighting the issue, implication and recommendation to management.

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December 2021

1 Questions

Question 2b

You are the Audit Manager at ABC & Co., a firm of Certified Public Accountants. Currently, you are responsible for the audit of two companies, L Ltd. and M Ltd. The year end for each of the companies is 30 June. You are currently reviewing the audit working papers, files and the audit seniors' recommendations for the auditors' reports. The details are as follows:

1

L Ltd. is a subsidiary of K Ltd. Serious going concern problems have been noted during this year's audit. L Ltd. will be unable to trade for the foreseeable future unless it continues to receive financial support from the parent company. L Ltd. has received a letter of support (comfort letter) from K Ltd.

The Audit Senior has suggested that due to the seriousness of the situation, the audit opinion must at least be qualified "except for".

2

M Ltd. has changed its accounting policy for goodwill during the year from amortisation over its estimated useful life to annual impairment testing. No disclosure of this change has been made in the financial statements. The carrying amount of goodwill in the statement of financial position as at 30 June 2021 is the same as at 30 June 2020 as management's impairment test shows that it is not impaired.

The Audit Senior has concluded that a qualification is not required but suggests that attention could be drawn to the change by way of an emphasis of matter paragraph.

Required:

Discuss, with justification, whether you would agree with the Audit Senior's conclusions in each of the cases above.

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September 2021

1 Questions

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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May 2021

2 Questions

Question 5b

Madini Ltd. is a company involved in buying and exportation of minelite, a newly discovered type of mineral. The mineral is mined and purchased when still wet. As the newly appointed auditor for the year ended 30 September 2020. you gather the following from the Managing Director of Madini Ltd.:

It takes about two months by sea to transport the mineral to company X, the major buyer based in country Z. During transportation, the mineral loses some weight due to evaporation.
Company X tests the quality of the mineral and pays based on the quality determined, not the invoice generated by Madini Ltd.
Madini Ltd. pays 4% to its home country's revenue authority as export levy based on the invoice to Company X and other buyers.
Of late, Madini Ltd. has experienced heavy losses due to currency fluctuations, inadequate supplies of the mineral and falling prices in the international market. The major shareholder is contemplating closing down the business.

Required:

(i) Explore the key audit risks that the auditor is exposed to in auditing the financial statements of Madini Ltd.

(ii) Formulate a realistic audit plan to determine the gross profit of Madini Ltd.

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Question 4a

You are the auditor of Tambaa Mattresses Ltd., a company involved in bulk production of mattresses for sale to individual consumers. The company's year end is 31 December 2020.

Assume further that the following information has just been availed to you before the audit report is signed:

"The springs in a new type of mattress have been found to be defective, making the mattresses unsafe for use. There have been no sales of this type of mattress. It was due to be marketed in the next four weeks. The company's insurers estimate that inventory to the value of Sh.75 million has been affected. The insurers also estimate that the mattresses were now only worth Sh.22.5 million. No claim can be made against the supplier of the springs as the supplier is in liquidation with no prospect of any amounts being paid to third parties. The insurers will not pay Tambaa Mattresses Ltd. the reduction in value of the inventory as the company was under insured. All of this inventory was in the finished goods store at the end of the year and no movements of inventory have been recorded post year-end".

Required:

With reference to applicable International Standards on Auditing:

(i) Determine whether the above event is an adjusting or non-adjusting event.

(ii) Discuss the auditors' responsibility and the audit procedures and actions that should be carried out in the above scenario.

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November 2020

2 Questions

Question 2

You are the manager responsible for the audit of Food Supremo Limited and its subsidiaries. The group mainly operates a chain of national restaurants and provides vending and other catering services to corporate clients. All restaurants offer "eat-in"; "take-away" and "home delivery" services.

The draft consolidated financial statements for the year ended 30 September 2019 show revenue of Sh.422 million (2018- Sh.418 million), profit before taxation of Sh.18 million (2018-Sh.22 million) and total assets of Sh.307 million (2018-Sh.234 million).

The following issues arising during the final audit have been noted on a schedule of points for your attention:

In September 2019, the board announced plans to cease offering "home delivery" services from the end ofthat month. The sales amounted to Sh.6 million for the year to 30 September 2019 (2018-Sh.8 million). A provision of Sh.2 million has been made as at 30 September 2019 for the compensation of redundant employees (mainly drivers). Delivery vehicles have been classified as non-current assets held for sale as at 30 September 2019 and measured at fair value less cost to sell, that is, Sh.8 million (carrying amount, Sh.5 million).

Historically, all owned premises have been measured at net book value and depreciated over 10 to 50 years. The board has decided to revalue these premises for the year as at 30 September 2019. At the statement of financial position date, two properties had been revalued upwards by a total of Sh.17 million. Another 15 properties have since been revalued upwards by Sh.54 million and there remain a further three properties which are all expected to be revalued during year 2020. A revaluation surplus of Sh.71 million has been credited to equity.

Required:

(a) For each of the matters listed under 1 and 2 above, discuss four factors that would influence the auditors approach to the audit and opinion, including assessment of materiality.

(b) As the auditor of Food Supremo Group, describe the evidence that you would expect to find in your audit.

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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 5

ISA 580 "Management representations" recognises that management representations form an important source of audit evidence. Management ordinarily provide their representations to the auditor in the form of a letter of representation.

Required:

(a) Explain why it is important for the auditors to discuss the contents of the letter of representation at an early stage of the audit.

(b) Discuss two reasons why standard letters of representation are becoming less frequently used in the auditing profession.

(c) ISA 260 (Revised) - Communication with those charged with governance, states that:

"The auditor should consider audit matters of governance interest that arise from the audit of the financial statements and communicate them with those charged with governance".

Required:

Describe four audit matters of governance interest that the auditor should consider.

(d) The auditor's communication with those charged with governance may be made orally or in writing.

Discuss two matters that influence the auditor's decision to communicate orally or in writing.

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May 2019

2 Questions

Question 2a

For the first time, the accounts of Mzalendo Ltd. have been presented as part of an integrated report. Included in the integrated report are several key indicators, one ofwhich states that the company's profit before tax has increased by 20% from the previous year. However, in the profit and loss account, the increase is 12.5%.

Required:

Discuss the implications of the matter described above on the completion of the audit and on the auditor's report, recommending any further actions which would be taken by the auditor.

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Question 4a

Your audit of Wasiwasi Ltd. indicates that one or more material uncertainties exist regarding the company's ability to continue as a going concern.

In view of the above circumstance, discuss four matters that should be considered in forming your final audit opinion and the potential impact on the auditor's report.

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November 2018

1 Questions

Question 1

Assume that you are an audit senior in the audit of Fashion Trends Ltd., a manufacturer of fashion dresses. You have been presented with the full draft annual report and financial statements of the company for the year ended 30 September 2018.

From the Chairman's statement and the Directors' report, you discover that:

1	The Directors' report, in discussing developments, states that the company intends to close down the factory in Town X and shift production to a newly built extension in Town Y. The financial statements include Sh.48 million as the unamortised cost of the plant in Town X. The factory in Town X is on leasehold with only one year remaining of the lease contract.
2	The dividend per share is stated in the Directors' report to be Sh.0.45 against Sh.0.40 in the previous year. However, you further note that the total dividend has decreased from Sh.0.63 to Sh.0.62 per share.
3	The Chairman's statement indicates that the company is poised for a large increase in turnover and profit. However, the budgeted accounts and forecasts for the next year and further projections in a long range forecast and plan depict a short-term decline in business and profit and a very low recovery in the long term. The company's turnover is Sh.6 billion, profit before tax Sh.450 million and net assets Sh.4 billion. You have further discussed these items with the Board and they have refused to make any changes to the report. The Directors have lost the confidence of institutional shareholders and fear a take-over bid.

Required:

(a) Discuss the above scenario from an audit perspective and indicate the action (s) you would take.

(b) Draft the sections of the auditor's report that would be modified with respect to these items assuming that there were no other challenges.

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December 2017

1 Questions

Question 5a

You are the engagement partner of Kitabu Ltd. The financial statements for Kitabu Ltd. for the year ended 30 September 2017, show total assets of Sh.749 million and profit before tax of Sh.57.4 million.

Required:

Discuss the potential implications of the following matters on the audit report:

(i). The basis of accounting note states that financial statements have been prepared in compliance with International Financial Reporting Standards (IFRSs). However, the accounting policy note for development costs states that all development costs are expensed as incurred. Results of audit tests showed that of the Sh.25.9 million development costs expensed during the year, Sh.9.8 million should have been recognised as an asset, in accordance with International Accounting Standard (IAS) 38 "Intangible Assets". (4 marks)

(ii). The management of Kitabu Ltd. has informed you that, for the first time, the company's annual report is to be published on the company's website.

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May 2017

1 Questions

Question 1

You are the audit manager responsible for the audit of Tamasha Ltd. for the year ended 30 June 2016. The audit fieldwork has been completed and the general manager in charge of finance is seeking to finalise the financial statements.

You are reviewing the audit file and the financial statements and have noted the following issues:

An investment held at the year end has since declined by Sh.1,250,000 in market value.
A tangible asset with a net book value of Sh.800,000 was sold on 29 June 2016. The final selling price was contingent on a valuer's report which was not received until 15 July 2016. As a result of this report, the profit recorded on this sale should be reduced by Sh.300,000.
A number of minor control points were noted and reported to management by way of a formal management letter.
Trade payables include a balance of Sh.700,000 owing to the parent company of Tamasha Ltd. The parent company has assured the general manager that it will not seek repayment of the amount for two years from the date the audit report is signed. The general manager will confirm this in the letter of representation.
A legal case which was ongoing at the year end has just been concluded. The case is disclosed and a provision of Sh.350,000 included in the draft financial statements. The outcome of the case was that Tamasha Ltd. should pay damages amounting to Sh.1,450,000 to the other party.

The draft financial statements, which do not contain any adjustments and some relevant disclosures relating to the above matters, show the following:

	Sh. "000"
Turnover	34,500
Profit before tax	2,900
Net current liabilities	(1,400)
Net assets	2,100

Required:

(a). For each of the issues noted from your review, summarise the potential implications on the audit report. Treat each issue independently.

(b) Explain the overall audit opinion that you would express taking into consideration that no further adjustments or disclosures were made for the issues noted.

(c) Describe one other significant audit issue likely to arise from the above information.

(d) Outline further audit work you would perform arising from the potential audit issue identified in (c) above.

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November 2016

1 Questions

Question 4

You are the audit manager responsible for the audit of Ixcel Group, an audit client for several years. All group companies had a financial year that ended on 31 March 2016. You are currently in the final phase of the group audit. The following matters were discussed during your review with their engagement partner:

1.Karen Ltd is a subsi iary of Ixcel Group. During the audit, the audit team observed several issues in relation to the entity's ability to continue as a going concern, as follows: .

Karen Ltd. will not be able to continue without continuous support from 1xcel Group.
Ixcel Group has issued a letter of support also referred to as a "comfort letter" to Karen Ltd.

2.The directors' report for Ixcel Group stated that the group has maintained a gross profit margin of 30%. This percentage did not tally with the income statement. During your review, you observed that some "other income" items were considered when calculating the gross profit margin in the directors' report. The audit senior ignored this deviation in the directors' report observing that it was not relevant to the financial statements.

3.The audit senior has prepared a draft qualified audit opinion on the going concern issue considering the seriousness of the situation.

Required:

(a). Describe the purpose of support letters (comfort letters) as evidence in the audit of financial statements.

(b) (i) Critique the draft audit opinion by the audit senior justifying the opinion you would recommend.

(ii) Suggest with justification the audit opinion you would recommend based on the misstatement of the gross profit margin in the directors' report.

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May 2016

2 Questions

Question 1

You are the audit manager assigned the audit of the financial statements of Himaya Ltd. for the year ended 31 December 2015. You have come across three material items in the course of your audit which need to be concluded in order to form an audit opinion on the financial statements.

Required:

(a) In the context of the above scenario, describe the audit work to be performed on the following matters:

(i) The allowance for doubtful debts for the current financial year is Sh.15 million which represents 2.5% of the accounts receivable as at 31 December 2015. The allowance for doubtful debts for the three previous years was 5% of the accounts receivable. The credit controller has advised that the reduction in allowance was due to the measures undertaken to improve on debt collection and credit check procedures.

(ii) The directors' emoluments amounting to Sh.70 million during the year have not been disclosed in the financial statements.

(iii) Circularisation of a debtor owing the company Sh.68 million had not been done due to what the financial controller justified as "strained relations with the debtor". No cash has been received from the debtor and some documents regarding shipment to the customer are missing.

(b) Explain how the three matters outlined in (a)(i), (ii) and (iii) above would impact on the auditors report, assuming that your best estimate of the appropriate allowance for doubtful debts is Sh.30 million and that no adjustments had been made in the financial statements in respect of the matters set out in items (a)(i), (ii) and (iii) above.

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Question 4

You are responsible for the audit of Superior Packaging Ltd. for the year ended 31 March 2016. The principal activity of Superior Packaging Ltd. is the provision of high quality packaging services for manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year. Historically, the packaging process was labour intensive. However in December 2015, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over 4 years. The loan agreement includes a covenant specifying that the company's debt equity ratio should not exceed 1:1.

A comparison of the draft financial statements for the year ended 31 March 2016 with the previous year's financial statements indicates a significant increase in the turnover (revenue) with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. The management of the company has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumption that the anticipated increase in efficiency and reduction in labour costs will be achieved. The company has struggled to meet its wage bill obligations and fallen behind with PAYE, NHIF and NSSF remittances. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last three months instalments.

Required:

(a). Explain from the information provided above, factors which could indicate that Superior Packaging Ltd. might not be a going concern.

(b) Describe the duties of the directors in respect of going concern basis of a company.

(c) Where events have been identified which cast doubt on the appropriateness of the going concern basis, management should demonstrate to the auditors that they have identified the problem and have plans to deal with it.

Propose the procedures the auditors must carry out on the management plans and the possible impact to the auditors report.

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November 2015

3 Questions

Question 1b

With respect to item (a) (iv) above, justify three audit opinions you could issue in respect of the financial statements of Solo Ltd. for the year ended 30 June 2015.

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Question 3

You are a member of the audit team assigned to audit the financial statements of Elite Trading Co. Ltd., a listed company, for the year ended 31 August 2015. The detailed audit work was completed on Friday, 30 October 2015. The audit assignment partner has requested you to consider the auditor's responsibilities for identifying subsequent events and the audit procedures for examining subsequent events.

With respect to the financial statements of Elite Trading Co. Ltd., it is tentatively proposed as follows:

The audit report be signed on Thursday, 12 November 2015.
The financial statements be sent to the shareholders on Wednesday, 2 December 2015.
The annual general meeting of the company be held on Wednesday, 30 December 2015, in which meeting the shareholders will vote to approve the financial statements.

Required:

(a) Assess the responsibility of the auditors for detecting material subsequent events in the following periods:

(i) 31 August 2015 to 30 October 2015.

(ii) 30 October 2015 to 12 November 2015.

(iii) 12 November 2015 to 2 December 2015.

(iv) 2 December 2015 to 30 December 2015.

(b) Explain the audit procedures that you could use in the examination of subsequent events.

(c) Describe the work you would carry out for the period listed in (a) (ii) above.

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Question 4b

Describe the audit procedures that an auditor could perform to assess whether or not a client entity is a going concern.

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Concluding and reporting

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