THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA (U) EXAMINATIONS

LEVEL TWO

AUDITING & PROFESSIONAL ETHICS & VALUES – PAPER 12

THURSDAY 23 AUGUST, 2018

INSTRUCTIONS TO CANDIDATES:
1. Time allowed: 3 hours 15 minutes.
The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.
2. Section A has one compulsory case study question carrying 30 marks.
3. Section B has four questions and only three are to be attempted. Each
question carries 20 marks.
4. SectionC has two questions and only one is to be attempted.
Eachquestion carries 10 marks.
5. Write your answer to each question on a fresh page in your answer
booklet.
6. Please, read further instructions on the answer booklet, before attempting
any question.

 2018 Public Accountants Examinations Board

 Auditing & Professional Ethics & Values – Paper 12

SECTION A
This section has one compulsory question to be attempted
Question 1
Wired Telecom Limited (WTL) is a telecom service provider that deals in offering
call services, mobile money, airtime, phones and related accessories. Your firm,
PMG & Co. is the auditor of WTL for the year ended 30 June, 2018.
The telecommunication sector is growing rapidly and more services are on
demand by customers. Previously, it was just calls and airtime but now banking
services are the next service on demand. Client bank accounts are now linked to
telecom numbers. Clients are able to transact with banks using their phones and
vice versa. WTL has been forced to expand rapidly to match the competitors.
The sector is also highly regulated by Uganda Communications Commission
(UCC). It is now in the spotlight like never before. WTL has to file reports with
the regulator on a monthly basis, and as and when required.
There are new taxes to be collected by WTL on behalf of government. They are
in the budget for the financial year 2018/2019. Uganda Revenue Authority
requires that these taxes are remitted on time and without fail.
The International Accounting Standard Board (IASB) has issued new accounting
standards. IFRS 15: Revenue from contracts with customers and IFRS 16: Leases
are just some of the new standards. These are key standards to WTL operations.
WTL borrowed Shs 50 billion from off-shore banks and local banks to meet the
increasing demand for both physical and software infrastructure developments
throughout the country.
There are press reports that telecom companies have been under declaring their
revenue to the Uganda Revenue Authority hence paying less tax as required by
the Income Tax Act. WTL attributes this to weak software controls and an effort
will be made to upgrade the controls.
WTL’s inventory includes airtime cards, phone handsets, and data/internet
equipment. Airtime cards are now becoming obsolete as customers now prefer to
buy airtime online using mobile money. WTL has large amounts of inventory in
form of airtime cards.PMG & Co. will be required to attend the inventory count
scheduled for the week starting 1 July, 2018.

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 Auditing & Professional Ethics & Values – Paper 12

Required:
(a) Explain the business risks facing WTL. (6 marks)
(b) Suggest the interventions that can be undertaken to mitigate the risks in
(a) above.
(6 marks)
(c) Advise WTL on the effective software controls that can be put in place.
(8 marks)
(d) Describe the procedures PMG & Co. should carry out before the inventory
count at WTL.
(10 marks)
(Total 30 marks)
SECTION B
Attempt three of the four questions in this section
Question 2
BTS & Co., where you work as an audit senior is the auditor for Traders Saving
Association Limited (TSAL) for the year ended 30 June 2018. TSAL is a registered
Savings and Cooperative Society (SACCO) with over 1,000 members. BTS & Co.
has been auditing TSAL for the last 3 years. They gave a “Qualified opinion
except for” for the first two years. In 2017, they gave an “Unqualified audit
opinion”. The members have expressed concern about the change of audit
opinion and desire to know why this is the case.
TSAL members have also expressed their concern why the auditors have never
communicated to them throughout their three years of audit of TSAL. ISA 260,
however, requires that the auditor determines the appropriate persons within the
organisation governance structure with whom to report relevant audit matters
concerning the organisation. BTS & Co. is, therefore, under no obligation to
communicate with all the members of TSAL. However being a socially
responsive audit which serves public interest, BTS & Co is considering a response
to concerns raised by TSAL members.
Required:
Prepare briefing notes to TSAL members:
(a) explaining the circumstances under which BTS & Co. may issue:
(i) Unqualified audit opinion. (6 marks)
(ii) Qualified opinion-except for. (6 marks)
(b) explaining the objectives the auditor seeks to achieve in determining the
appropriate persons within TSAL to communicate to during an audit.
(8 marks)
(Total 20 marks)

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 Auditing & Professional Ethics & Values – Paper 12

Question 3
In 2017, Uganda Revenue Authority (URA) in partnership with Uganda
Registration Services Bureau (URSB) and Kampala Capital City Authority (KCCA)
commenced a joint field operation within Kampala under the Taxpayer Register
Expansion Project (TREP). This operation was in response to the Uganda Bureau
of Statistics (UBS) report which indicated that Uganda’s informal sector
contributes at least 50 per cent of the country’s Gross Domestic Product (GDP)
but pays less than 20% in taxes.
This prompted URA to organize a tax clinic for Kikuubo tradersto sensitize them
about the benefits of formal business registration, their rights and obligations
with regard to payment of income taxes and trading licenses. The exercise was
seen as a move to improve value and ethics in business while reducing on the
unethical business practices amongst traders in Uganda. While addressing
traders, one of the representatives from URA, CPA John Musisi said “…..tax
compliance helps government raise revenue to meet huge public expenditure for
infrastructure and public services thus creating a favourable business
environment.”
The proprietorof Mapeera Enterprises has approached you to enlighten him on
several business ethical issues talked about at the tax clinic.
Required:
(a) Prepare briefing notes:
(i) explainingto the proprietor of Mapeera Enterprisesthe meaning of
the phrase “Value and Ethics in Business’’.
(2 marks)
(ii) describing the unethical business practices exhibited by traders in
Uganda. (4 marks)
(b) (i) Explainto Kikuubo traders the benefits of adhering to business
ethics. (6 marks)
(ii) Discuss the different myths about business ethics that Kikuubo
traders would encounter when trying to adhere.
(8 marks)
(Total 20 marks)

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 Auditing & Professional Ethics & Values – Paper 12

Question 4
Ms. Teddy Nunda is a new employee in the Finance & Accounts department of
VMC Electronics Limited, a company that deals in the sale of TVs and radios.
Teddy is an Accounts Assistant on probation. For the last three weeks, she has
had work related stress suspecting her immediate supervisor to be stealing funds
from the company. This suspicion arose after getting a variance between the
cashbook balance and the bank balance for last three consecutive months
whenever she prepared a bank reconciliation statement. The supervisor is on a
sick leave.
She wants to disclose the impropriety but fears to be victimised and still the
directors may fail to take action. She also fears making false disclosures.Besides,
her confirmation on the job depends on the supervisor’s recommendations. She
has discussed the matter with her former lecturer of Business Ethics and advised
her that this amounts to void employment contracts as per the Whistleblowers
Protection Act 2010.
Required:
Using the provisions of the Whistleblowers Protection Act 2010:
(a) Describethe:
(i) circumstances under which an employee is considered to be
victimised.
(4 marks)
(ii) steps to be taken to seek redress, if victimised.
(2 marks)
(b) Explainto Teddy the:
(i) details sheshould include in the disclosure of the impropriety.
(6 marks)
(ii) consequences of making false disclosures.
(2 marks)
(iii) consequences of failure to take action on the impropriety disclosed.
(2 marks)
(c) Identify the indicators of void employment contracts at workplace like VMC
Electronics Limited.
(4 marks)
(Total 20 marks)

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 Auditing & Professional Ethics & Values – Paper 12

Question 5
The King Report on Corporate Governance is a ground-breaking guide for the
governance structures and operation of companies in the world today. It was
issued by the King Committee on Corporate Governance. Four reports were
issued in 1994 (King I), 2002 (King II), 2009 (King III) and 2016/2017 (King IV).
The King Report has been cited as "the most effective summary of the best
international practices in corporate governance". Arguments have been
forwarded that in the wake of financial crisis; it is now common practice to
separate the roles of Chairman of the Board and CEO.
Required:
(a) With reference to King III report on corporate governance, discuss the
principles of:
(i) Ethical leadership and corporate citizenship. (3 marks)
(ii) Accountability. (2 marks)
(iii) Governing stakeholder relationships. (4 marks)
(iv) Integrated reporting and disclosure. (3 marks)
(b) Discuss the validity of the view that calls to separate the Chairman of the
Board and CEO roles in corporations.
(8 marks)
(Total 20 marks)
SECTION C
Attempt one of the two questions in this section
Question 6
Being an entrepreneur comes with many challenges and the biggest one is how
to make the business grow. Businesses can either grow organically or externally.
As the firm grows, it will be required to withhold taxes to the government and
one of the requirements for determining tax liability is the need for financial
statements.
Required:
(a) Explain the different ways through which a business can grow.
(5 marks)
(b) Describe the different users of accounting information.
(5 marks)
(Total 10 marks)

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 Auditing & Professional Ethics & Values – Paper 12

Queston 7
JKL Sports sells customized T-shirts, caps and shoes. The owner of the company
could not believe what he was seeing on his computer when he discovered, a
website that was a duplicate of his site DesignAshirt.com. This confirmed that his
intellectual property, such as graphics and images, had been stolen. Despite all
this, the business was growing steadily and this created a large appetite for
cash. With financial resources stretched, the firm is more vulnerable to
unexpected expenses and uncertainties. JKL Sports has been advised to manage
the financial resources effectively to minimize the challenges of business growth.
Required:
(a) (i) Define the term “intellectual property”.
(1 mark)
(ii) Explain the forms of protection a business like JKL Sports can use to
protect its intellectual property.
(4 marks)
(b) Explain how an entrepreneur can manage the financial resources as the
business grows.
(5marks)
(Total 10 marks)

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