Pakistan Institute of Public Winter Exam-2020

Finance Accountants [11.Dec.2020] [09:30 am – 12:15 pm]

Additional time – 15 min for Paper Reading

Audit & Assurance (PS) (Application)

AGP | PG | Public Sector
Marks-80 Subjective Duration: 02 Hours 30 Minutes
[Instructions]
 Ensure that the question paper delivered to you is the same, in which you intend to appear.
 Read the instructions given on the title page of Answer Script.
 Start each question from fresh page.

Books Allowed:
 Financial Audit Manual with Appendices
 Audit Working Paper Kit
 Quality Management Framework

Attempt FOUR questions, Question No. 1 is compulsory

Q.1. You are a Director General Audit of a Field audit office of DAGP, responsible for the
audit of various Government Departments and Public Sector Enterprises and their field
offices and you have become aware of the following information:
The Field Audit Team who is responsible for the audit of XYZ Division has been in place
for approximately eight years and one of ex member of this audit team has just been
offered a role with XYZ Division as a section officer. This role would entitle him to pay
and allowances and other benefits available to any officer working in XYZ Division as
part of his remuneration package.
Internal audit function:XYZ Division is considering establishing an internal audit
function, and the Deputy Secretary XYZ has asked your team about the differences in the
role of internal audit and external audit. If the internal audit function is established, the
XYZ Division has suggested that they may wish to engage all the staff from field audit
office of DAGP on deputation.
Auditor characteristics:
Following management’s request for information regarding the different roles of internal
and external auditors, the field audit team has collated a list of key characteristics.
1. Appointed by Audit committee of XYZ Division
2. Reports are publicly available to public
3. Review effectiveness of internal controls to improve operations
4. Express an opinion on the truth and fairness of the financial statements
DAGP Employees:
The Finance Director has suggested to the XYZ Division that if staff of DAGP is
appointed on deputation in XYZ Division internal as well as external auditors, then they
will be entitled for all the pay and allowances to staff of DAGP as are available to any
other employee of XYZ Division. DAGP may continue to audit XYZ Division through
its other employees.
Contd…….
 (2)

(a) Field Audit Team has highlighted some of the potential risks to independence in respect
of the audit of an entity:
1. Length of time the audit execution
2. Entity’s request for advice regarding internal audit
3. Possible provision of internal audit services
4. DAGP employees working on deputation
Required: 05
Which of the following options correctly identifies the valid threats to independence and
allocates the threat to the appropriate category?
Self-interest Self-review Familiarity
(i) 1 only 2 and 3 4 only
(ii) 1 only 2 only 4 only
(iii) 2 only 3 and 4 1 only
(iv) 4 only 3 only 1 only

(b) In relation to the Field Audit Team holding the role for eight years and their colleague’s 05
offer of appointment on deputation with XYZ Division:
Required:
Which of the following safeguards should be implemented in order to comply with
DAGP’s Code of Ethics and Conduct?

(i) Same Field Audit Team should be removed from the audit team
(ii) an Independent quality control reviewer should be appointed
(iii) A third party such as a professional body should be consulted on key audit
judgments
(iv) Person offered Deputation should resign from the DAGP

(c) In line with DAGP’s Code of Ethics, which of the following factors must be considered 05
before the sending any audit officer on deputation for internal audit engagement?

1) Whether the external audit team has the expertise to carry out the internal audit work
2) If the assignments will relate to the internal controls over financial reporting
3) If management will accept responsibility for implementing appropriate
recommendations
4) The probable timescale for the outsourcing of the internal audit function
(i) 1, 2 and 3
(ii) 2 and 3 only
(iii) 1 and 4 only
(iv) 1, 3 and 4

Contd…….
 (3)

(d) Which of the following options correctly allocates the auditor characteristics 05
collated by the audit assistant to the role of internal and external auditors?

1) Appointment by Management
2) To look at the operating effectiveness of internal controls on which they may rely for
audit evidence
3) To review the effectiveness and efficiency of internal controls to improve operations
4) To provide an opinion on the truth and fairness of the financial statements

External Internal
Audit Audit
(i) 2, 3 and 4 1 only
(ii) 1 and 4 2 and 3
(iii) 2 and 4 1 and 3
(iv) 2 only 1, 3 and 4

Q.2. (a) Define and explain the term mandate of AGP in terms of AGP Ordinance 2001. 08

(b) What is excluded from scope of Audit by DAGP keeping in view AGP Ordinance 12
2001?

Q.3. What is Entity Communication Letter? Explain the importance and benefits of Entity 20
Communication Letter.

Q.4. During execution of audit, auditors are faced with certain unanticipated matters. Explain 20
any three of these with illustrations.

Q.5. What are the key dimensions of audit quality considered for any Audit Quality 20
Management approach? Explain in detail?

Q.6. Define Materiality and explain with examples how materiality is applied for evaluation of 20
identified misstatements?

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