Audit evidence – Questions and Answers

Subject Title: Auditing and Assurance Revision Kit

Topic: Audit evidence

December 2022 Question One B
Smart Elec Ltd., one of your new clients, deals in locally manufactured and imported electric appliances targeting middle level income customers. Your Audit Manager has assigned you the task of verification of inventory which includes attending a stock take at your client’s premises.

Discuss SIX possible challenges that you are likely to encounter in the verification of inventory. (6 marks)

December 2022 Question Five B
Mahindi Safi Millers operates a milling business that procures maize supplies from local farmers as a community empowerment program. The company also recruits permanent and casual labour from the community who are paid salaries and wages respectively. You have been requested to undertake a verification of salaries and wages paid in the month of November 2022.
Propose NINE procedures that you would review to verify the salaries and wages before proceeding to verify payments made on account of salaries and wages. (9 marks)
August 2022 Question One C
Your audit team is planning to adopt statistical sampling to analyse big data from a client operating in the banking sector.

Highlight six factors that the audit team should consider before adopting statistical sampling. (6 marks)

August 2022 Question Four A
Your firm is in the process of auditing a client dealing in actuarial services. Your audit team lacks sufficient expertise in the field of actuarial services. In this regard, the Audit Manager has recommended engaging a management expert as a source of audit evidence. You are also required to maintain the working papers for the exercise.

(i) Analyse six factors that would affect the reliability of the information produced by the management expert. (6 marks)

April 2022 Question Two A
Analyse three categories of financial statements assertions that may be used by the auditor to test the financial statements of a company. (9 marks)

April 2022 Question Two B
International Standards on Auditing 500, “Audit Evidence”, permits an auditor to place reliance on information produced by a management’s expert in the course of audit work.

Propose six factors that the auditor might consider before relying on the work of a management’s expert. (6 marks)

April 2022 Question Five C
The financial accountant of Afiah Ltd. has provided you with the following breakdown of movements on the company’s non-current assets for the year ended 31 December 2021:

Sh."000" Equipment
Sh."000" Total
Balance as at 1 January 2021 320,000 240,000 560,000
Additions - 32,000 32,000
Revaluation 48,000 - 48,000
Disposals (12,000) (12,000)
Balance as at 31 December 2021 368,000 260,000 628,000
Accumulated depreciation
Balance as at 1 January 2021 - 144,000 144,000
Charge for the year - 54,400 54,400
Disposals - (10,000) (10,000)
Balance as at 31 December 2021 - 188,400 188,400
Net book value as at 31 December 2021 368,000 71,600 439,600
Additional information:
1. The company does not depreciate its land and you, the company’s auditor, agree that this is appropriate.
2. Depreciation on equipment is charged at the rate of 20% per annum with full year’s depreciation charged in the year of acquisition and none in the year of disposal.
3. This is the company’s first time revaluing the land. The revaluation was carried out by a reputable firm of auctioneers and valuers, known to you.
4. The company maintains a non-current asset register.

(i) Describe four internal controls that could be present regarding the non-current asset register before you could place reliance on it as a source of audit evidence. (4 marks)
(ii) Assess four audit work procedures that could be carried out on the depreciation charge and on the accumulated depreciation balance. (4 marks)
(iii) Explain four tests that could be carried out to audit both the additions and the disposals of the equipment. (4 marks)

January 2022 Question Two C
Describe six substantive tests that you would undertake over accounts receivable.
(6 marks)
December 2021 Question One A
International Standard on Auditing (ISA) 500 -Audit Evidence” requires auditors to obtain sufficient, appropriate audit evidence.
Discuss five matters that auditors should consider with regard to the reliability of audit evidence. (5 marks)

December 2021 Pilot Papers Question Four A
State the key financial statement assertions applicable to tangible non-current assets.
(4 marks)
December 2021 Pilot Papers Question Four B
List the audit procedures which auditors should carry out when planning a company’s physical inventory count. (5 marks)

September 2021 Question One B
Examine six factors that might be taken into consideration by an audit engagement team when determining the extent of tests of control to be performed. (6 marks)

May 2021 Question Three A
Discuss five factors which an auditor should consider when assessing the quality of audit evidence. (10 marks)

May 2021 Question Three B
You are the audit manager of Bev and Associates. You are currently briefing your team on the approach to adopt in gathering evidence for the audit of inventory. During the briefing, you inform the team that the auditor is required to design audit procedures to obtain sufficient and appropriate evidence from the sample items. You also explain to the team that the auditor could rely on the work of internal auditors.

In accordance with International Standard on Auditing (ISA) 610, Using the Work of Internal Auditors, describe five factors Bev and Associates should consider when placing reliance on the work of internal auditors. (10 marks)

November 2020 Question One A
International Standard on Auditing (ISA) 505 — External confirmations, considers a number of different types of external confirmations including accounts receivable confirmations.

(i) Distinguish between a “positive confirmation” and a “negative confirmation”.
(4 marks)
(ii) Evaluate four circumstances, other than the confirmation of accounts receivable, where external confirmations might be used by the auditor to obtain audit evidence.
(4 marks)

November 2020 Question Four A
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”.

Citing five reasons, justify why you would agree or disagree with James’ view with regard to his purchase of shares. (10 marks)

November 2020 Question Five A
In terms of International Standard on Auditing (ISA) 700 – Forming an opinion and reporting on financial statements; in evaluating whether the financial statements are presented fairly in the context of the financial reporting framework, the auditor should evaluate important aspects of the financial statements.

Identify five aspects of the financial statements which the auditor should evaluate.
(5 marks)
November 2020 Question Five B
Describe five audit assertions you would test in the conduct of an audit of office furniture and equipment. (10 marks)

November 2019 Question Two A
The completeness assertion is always the most difficult for the auditor to assess, particularly in relation to provisions and contingent liabilities.

Describe six steps that might be undertaken by the auditor to confirm unrecorded liabilities (6 marks)

November 2019 Question Three C
Distinguish between “tolerable error” and “expected error” (4 marks)

May 2019 Question Two C
In the context of modifying an audit opinion, the auditor might either conclude that:

(i) Based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement;
(ii) As a result of being unable to obtain sufficient and appropriate audit evidence, the financial statements as a whole are not free from material misstatement.

Differentiate between the two audit conclusions above. (4 marks)

May 2019 Question Three A
In the context of International Standard on Auditing (ISA) 620 relating to reliance on the work of an expert:
(i) Describe two situations where an auditor might need to rely on the work of an expert.
(2 marks)
(ii) Explain three factors taken into consideration by an auditor when placing reliance on the work of an expert. (6 marks)

November 2018 Question Two A
Auditors should obtain written confirmation of representations from management on matters material to the financial statements.

(i) Explain four reasons why an auditor should discuss the contents of the letter of representation with the directors of a client at an early stage in the audit. (8 marks)

(ii) Analyse three responsibilities of an auditor on receipt of written representations from management. (6 marks)

November 2018 Question Two B
Some companies have a substantial portion of their total assets comprising investments in stocks and shares of other entities.

Outline three audit objectives sought by an auditor when examining a client’s investments in stocks and shares. (6 marks)

November 2018 Question Five A
With reference to International Standard on Auditing (ISA) 520 – “Analytical Procedures”, explain four different types of analytical procedures available to the auditor.
(8 marks)
November 2018 Question Five C
Describe two types of errors that could arise from sampling risk. (4 marks)

May 2018 Question Three B
Highlight the substantive procedures that might be performed by an auditor to verify the payroll. (8 marks)

November 2017 Question One C
Kisomo Kizuri is a charity organisation that raises funds for educational projects. Charities in the country from which Kisomo Kizuri operates have recently become subject to new audit and accounting regulations.

Your firm has been appointed as Kisomo Kizuri’s new auditors.

Analyse five audit tests you might carry out on the income and expenditure from fund raising events. (10 marks)

May 2017 Question Three A ii
Explain the following terms as used in auditing:
(ii) Contingent liability. (2 marks)

May 2017 Question Five B
Discuss four factors that might influence the extent of substantive tests carried out during an audit. (8 marks)

May 2017 Question Five C
Highlight four substantive procedures you would perform on the year end trade payables.
(4 marks)
November 2016 Question Four A
Explain four factors which might influence an auditor while assessing the reliability of evidence gathered during an audit. (8 marks)

May 2016 Question Three A
(i) Define the term “sampling risk”. (2 marks)
(ii) Discuss two types of errors that could arise from sampling risk. (4 marks)

May 2016 Question Three B
Describe the impact of each of the following situations on the sample size:
(i) An increase in the extent to which the auditor’s risk assessment takes into account relevant controls. (2 marks)
(ii) An increase in the use of other substantive procedures directed at the same assertion.
(2 marks)
(iii) An increase in the auditor’s assessment of the risk of material misstatement.
(2 marks)
November 2015 Question Two A
Explain four assertions relevant to accounts payable at year end. (8 marks)

November 2015 Question Two B
You are the auditor responsible for the audit of Yummy Foods Ltd., a company that operates a chain of fast food outlets. It has come to your attention that a customer has sued the company claiming an amount of ten million shillings for food poisoning. The amount is material, but management believes there is good defence against the claim and thus no provision or disclosure has been made in the books.

(i) Evaluate five items of evidence that might enable you form a conclusion on the likelihood of the claim being successful. (10 marks)
(ii) Describe how the matter could be reported in the financial statements if your conclusion is that there is a possibility, but not a probability that the claim would be successful. (2 marks)

November 2015 Question Three B
Discuss five factors that could influence the extent to which an auditor might use analytical review to collect audit evidence. (10 marks)

November 2015 Question Five B
During the audit of Faida Ltd you noticed the following:
1. There were material deposits in the bank just before the year end and subsequent withdrawals thereafter.
2. Many debtors disputed the amount alleged by management after circularisation. There were also inconsistencies between the dates when the debtors made their payments and the dates when the records were updated, noting that all the payments were in cash.
(i) Explain the impact of each of the two aspects above. (2 marks)

(ii) Examine four audit procedures that could help you in arriving at an audit opinion in each of the two aspects above. (8 marks)

September 2015 Question One A and B
You are an audit manager in Ujima& Co. One of your audit clients, Shangilia Africa Ltd. is a specialist supplier of African literature books with over 120,000 customers. The company owns one large warehouse which holds about 1 million books of up to 80,000 different titles. Customers place orders for books either over the internet, or by mail order. Books are dispatched on the day of receipt of the order.

Returns are allowed up to 30 days from the dispatch date provided the books look neat and unread.
Due to high inventory turnover, Shangilia Africa Ltd. maintains a perpetual inventory system using standard purchased software. Ujima Co. has audited the system for the last five years and has found no error within the software.

Continuous inventory checking is carried out by Shangilia Africa Ltd.’s internal audit department.

You are currently reviewing the continuous inventory checking system with an audit junior. The audit junior needs experience in auditing continuous inventory checking systems and some basic knowledge on the code of ethics for professional accountants.

(a) Explain four advantages of using a perpetual inventory system. (4 marks)

(b) Summarise the audit procedures you would perform to confirm the accuracy of the continuous inventory checking at Shangilia Africa Ltd. justify each of the procedures.
(7 marks)

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