Nature and purpose of an audit

​​Highlight SIX inherent limitations of an audit of historical financial statements.

​​There are circumstances where auditors may be held responsible for failure to detect errors and frauds depending on certain factors. 

​​Highlight FIVE inherent limitations of an audit.

​​Private companies are not required by law to have their financial statements examined by an auditor. However, all public entities are required by law to have their financial statements audited. 

​​Highlight THREE benefits that may be derived from independently audited financial statements.

​​Distinguish between a “financial statement audit” and a “fraud examination”.

​ ​​Your firm has been engaged in auditing small entities for the last five years. In a recent development, your firm has been appointed to conduct an audit on a large entity, which is the first assignment of such magnitude. You are required to undertake an interim audit and a final audit of the large entity.

Required:
(i) Explain the objective of an external audit.

(ii) Highlight five audit procedures you could undertake during the interim audit of the large entity.

(iii) Describe five audit procedures you would undertake during the final audit of the large entity.

(iv) Present two drawbacks of conducting an interim audit

​Highlight two features of a non-statutory audit.

​​In some organisations, the internal audit function is involved in the provision of a broad range of services that can either be classified as assurance services or consulting services.

Required:
Discuss four distinguishing features between assurance services and consulting services provided by the internal audit function in an organisation.

​​Your friend James Nyakemincha has recently purchased some shares from ABC Ltd., a listed company at the Securities Exchange. You questioned him on whether he had investigated the company before purchasing the shares. He replied: "Not really, I chose ABC Ltd.'s shares because I read in the newspaper that ABC is externally audited, of which not all companies are, and that their auditors are an international auditing firm hence it must be a good investment". 

​​(i) Explain the term "reasonable assurance" as used in auditing.

(ii) The internal audit function of an entity should have an internal audit charter approved by the Board to govern its activities:

Required:

As an internal auditor of Zed Ltd., discuss six matters contained in an internal audit charter of an entity. 

​​Explain the following terms:

(i) Reasonable assurance.

(ii) Opinion shopping. 

​ ​​ Discuss four capabilities and competencies expected of the engagement team as espoused in the International Standards of Auditing (ISA) 220 "Quality Control for Audit of Financial Statements".

​​Highlight two limitations of external audits.