Assurance and non- assurance engagements – Questions and Answers

Subject Title: Auditing and Assurance Revision Kit

Topic: Assurance and non- assurance engagements

QUESTION 1
August 2022 Question Two B
Auditors are frequently required to provide assurance for a broad range of non-audit engagements.

Required:
(i) Summarise four elements of an assurance engagement. (4 marks)
(ii) Distinguish between “reasonable assurance engagements” and “limited assurance engagements”. (4 marks)

QUESTION 2
April 2022 Question Five B
You are the managing partner in Odhiambo and Associates (Certified Public Accountants). Wasali Ltd. has recently engaged your firm to provide tax consultation services to the company.

Required:
Using four elements of an assurance engagement, explain whether the above engagement qualifies to be an assurance engagement. (4 marks)

QUESTION 3
January 2022 Question Three D
The directors of XYZ Enterprises Ltd. have prepared a cash flow forecast for submission to the bank. They have asked you as the auditor to provide a negative assurance report on this forecast.

Required:
(i) Discuss two differences between “positive” and “negative” assurance. (4 marks)
(ii) Explain two advantages to the directors of providing a negative assurance report on their cash flow forecast. (4 marks)

QUESTION 4
December 2021 Question Two C
“The form and content of an auditor’s report will depend on the nature of the audit, the intended users, and the applicable standards and requirements”.

In light of the above statement, explain how the auditor’s report may differ between “attestation engagements” and “direct reporting engagements”. (4 marks)

QUESTION 5
December 2021 Pilot Papers Question Four C
In relation to ISA 3000 “Assurance Engagements Other than Audits or Reviews of Historical Financial Information”:

State the difference between:
(i) An audit and an assurance engagement. (4 marks)
(ii) An attestation engagement and a direct engagement. (2 marks)

QUESTION 6
December 2021 Pilot Papers Question Four D
Describe five elements of assurance engagement. (5 marks)

QUESTION 7
September 2021 Question Two A
Distinguish between “reasonable assurance engagement” and “limited assurance engagement”. (4 marks)

QUESTION 8
May 2021 Question Five B
Mali Company Associates (CPA) have been the auditors of Karibu Limited for the past three years. The company is in the business of electricity generation. At the beginning of the current financial year ended 31 December 2020, the company decided to diversify its operations to natural gas supply. The auditors were informed about this decision by the company at the time of planning for the interim audit of the current financial year. The directors of the company have appointed Mali Company Associates as the auditors of the new business line.

Examine five actions that Mali Company Associates should take in respect of the new assignment. (10 marks)

QUESTION 9
November 2019 Question Two B
You work as an audit senior for Kamau Mengo and associates. You have been appointed to be the lead auditor of TamuTamu Ltd. for the financial year ended 31 October 2019. TamuTamu Ltd. specialises in the production of biscuits and cakes.

During preliminary audit work, you noted that the profitability of the company declined, costs increased and prices charged were higher than those of competitors. This was due to low levels of output. In recent years, TamuTamu Ltd. has been financing its operations using a bank overdraft facility. This issue was raised during a meeting between the auditors and TamuTamuLtd’s management

During this meeting , a discussion took place which focused on actions that could be taken by the management to improve the liquidity of the company. The management team informed you of a plan to expand facilities for producing biscuits, as this line of production had maintained its market share. TamuTamu Ltd. has applied for a bank loan to finance this expansion and also maintain the present level of working capital.

To support this request for a loan, the company has prepared a cash flow forecast for the two years from the end of the reporting period. The internal audit department has submitted a report on this forecast to the board of directors. However, the bank has said it would like a report from the external auditors, to confirm the reasonableness of the forecast.

Following this request, the company has requested you to examine the cash flow forecast and write a report to the bank

Required
i) Describe three levels of assurance that could be included in your response to the bank’s request (6 marks)
ii) Assess eight procedures that could be adopted to examine the cash flow forecast
(8 marks)

QUESTION 10
May 2019 Question Two B
The Finance Director of Kijani Industries has requested your firm to undertake a non-audit assurance engagement later in the year. Part of your team includes an audit assistant who has not been involved in such an assignment before and has asked you to explain what an assurance engagement involves.

Required:
Explain three key elements of an assurance engagement. (6 marks)

QUESTION 11
May 2019 Question Five B i
Explain the term “reasonable assurance” as used in auditing. (2 marks)

QUESTION 12
November 2018 Question One C
Explain the term “negative assurance” as used in auditing. (2 marks)

QUESTION 13
November 2018 Question Four B
The finance director of your client, ABC Ltd., has read about review engagements and is interested in the possibility of ABC undertaking these in future. However, he is unsure how these engagements differ from an external audit and how much assurance would be gained from these types of engagement.

Required:
(i) Explain the purpose of review engagements and how they differ from external audits.
(4 marks)
(ii) Describe the level of assurance provided by external audits and review engagements.
(4 marks)
QUESTION 14
May 2018 Question Four C
Distinguish between “assurance engagements” and “non-assurance engagements”.
(4 marks)
QUESTION 15
November 2017 Question One A
Auditors carry out various audit assignments.
In relation to the above statement, explain four non-assurance assignments that auditors undertake. (4 marks)

QUESTION 16
November 2017 Question Five B
Explain the following terms:
(i) Reasonable assurance. (2 marks)
(ii) Opinion shopping. (2 marks)

QUESTION 17
May 2017 Question Two B
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’’. (8 marks)

QUESTION 18
May 2017 Question Three A iv
Explain the following terms as used in auditing:
(iv) Assurance engagement risk. (2 marks)

QUESTION 19
November 2016 Question Five A
Describe four types of assurance engangement (8 Marks)

QUESTION 20
May 2016 Question Two B
Describe the type of assurance report a practitioner would issue in each of the following engagements:
i) Reasonable assurance engagement. (2 marks)
ii) Limited assurance engagement. (2 Marks)

QUESTION 21
November 2015 Question Four B
Explain the following terms as used in auditing:
(i) Audit risk. (2 marks)
(ii) Inherent risk. (2 marks)
(iii) Control risk. (2 marks)
(iv) Attest engagement. (2 marks)
(v) Direct reporting engagement. (2 marks)

QUESTION 22
September 2015 Question Four A
XYZ Ltd.’s directors have expressed an interest in your audit firm Tato & Co. to perform other review engagements in addition to the external audit. However, they are unsure how much assurance would be gained via these engagements and how these differ compared to the assurance provided by an external audit.

Required:
Identify and explain the level of assurance provided by an external audit and other review engagements. (4 marks)

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