Audit Planning – Questions and Answers

Subject Title: Auditing and Assurance Revision Kit

Topic: Audit Planning

QUESTION 1
April 2022 Question One B
Highlight three shortcomings of using standardised audit programs. (3 marks)

QUESTION 2
January 2022 Question Two A
ISA 320 “Audit Materiality” states that “The auditor should consider materiality and its relationship with audit risk when conducting an audit”.

Required:
Discuss the relationship between materiality and audit risk both when planning for an audit and when evaluating audit evidence. (10 marks)

QUESTION 3
January 2022 Question Four
You are the manager responsible for the audit of Jamii Retail Ltd., a public quoted company, which has a number of stores that sell household products including; furniture, electrical equipment, iron sheets, cement, vehicle spare parts, cooking equipment and carpets to the general public. Jamii Retail Ltd. is highly respected by investors across East Africa.

The company has an average annual turnover of Sh.20 billion. In the previous year’s audit, there have been problems, some of which were highlighted in recent media coverage. The problems related to:

1. Pilferage of stock by employees and customers.
2. Slow moving and damaged stock which was worth less than cost.
3. Incomplete recording of sales when the customer pays in cash (these represent 65% of all sales).

The company has a small internal audit department. The internal audit staff occasionally visit branches and perform appropriate audit work at the head office.

Required:
(a) Describe the work you would carry out and the matters you would consider in planning the audit prior to the commencement of the detailed audit work, including consideration of the timetable for the audit. (12 marks)
(b) In the context of ISA 240 “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements”, explain the auditor’s responsibilities in relation to the prevention and detection of fraud and error in the course of an audit assignment.
(8 marks)
QUESTION 4
December 2021 Question Two B
Planning for a specific audit includes strategic and operational aspects. Distinguish between strategic” and “operational” aspects of audit planning. (4 marks)

QUESTION 5
September 2021 Question Three B
Your firm has diverse clientele from various sectors. You have been allocated the task of planning for an audit of Tamuko Creameries Ltd., a company that manufactures a variety of milk products. This will be the second year your firm is providing audit services to Tamuko Creameries Ltd.

The following information is available:
1. The company’s finance manager has informed you that the company has recorded fast growth. The company’s financial accounting systems have been changing rapidly and appropriate control systems are proving challenging to maintain. Additional services in terms of review and implementation of control systems have been requested.
2. The company has recently established an internal audit unit and the finance manager wants you to ensure that external audit work is limited by using this unit.
3. The company plans to produce and market a new brand of yoghurt specifically for export to neighbouring countries. This has not been approved by the Export Licencing Agency.
4. The granting of the export licence is dependent on the financial stability of the company.
5. The finance manager has indicated that the company will be required to provide a report to the Export Licencing Agency on cash flow forecasts for the upcoming financial year to support licence application.

Required:
As part of your risk assessment procedures for the audit of Tamuko Creameries Ltd., evaluate five items to be considered when providing services to this client. (10 marks)

QUESTION 6
November 2020 Question Two A
An overall audit strategy guides the auditor in developing an audit plan.

Required:
Examine four matters that might be taken into consideration by an auditor when developing the overall audit strategy. (8 marks)

QUESTION 7
November 2018 Question Three B
Identify three main areas, other than audit risk, which should be included within the audit strategy document for an audit of a client and for each area, provide a relevant example.
(6 marks)
QUESTION 8
November 2018 Question Four A
During the audit of Health Care Limited, the audit team discovers that intangible assets balance includes Sh.4,000,000 related to one of their ten development projects. This expenditure does not meet the criteria for capitalisation. As this project is ongoing, the finance director has suggested that no adjustment should be made in this year’s financial statements. He is confident that the project will meet the criteria for capitalisation in the following year.

Materiality considerations have established that the amount represents 7% of profit before tax and 1.2% of net assets.

Required:
Discuss the audit issues applicable in the above case. (6 marks)

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