MASENO UNIVERSITY

AUDITING 1

ASSIGNMENT:

QUESTION ONE: (15 MARKS)

(a) State and explain the circumstances in which an auditor may give a qualified
audit report. (5 Marks)

(b)State and explain the type of opinion that should be expressed in the auditor’s
report in each of the following situations:

i. A debtor owing a large amount of money is unable to pay a client

company and the directors have not made an allowance for bad and doubtful
debts. (3 Marks)

ii. A client company has changed its accounting policy during the current
financial year and there is no retrospective adjustment. (3 Marks)

iii.There is disagreement over treatment of a material amounts in the

accounts (4 Marks)

QUESTION TWO: (15 MARKS)

(a) Describe the various procedures of obtaining audit evidence giving an example
of each (6 Marks)

b) Discuss the auditor’s responsibilities with regards to the detection and

prevention of frauds and errors. (2 Marks)
(c) State what actions an auditor would take if the director refused to provide him
with a letter of representation (4 Marks)

(d)Outline the benefits that can be derived by an audit from the successful
employment of statistical sampling techniques as opposed to non-statistical
sampling. (3 Marks)

QUESTION THREE: (15 MARKS)

Threats to independence of an auditor can broadly be categorized into 5 types.

(a) Identify these threats and give examples (5 Marks)

(b) Using examples outline the possible safeguards that an auditor can apply
against these threats. (5 Marks)

(c) Outline the factors that an auditor will consider prior to accepting re-
appointment. (5 Marks)

QUESTION FOUR: (15 MARKS)

Machio Ltd. is an import and export company located in Nairobi. The company
deals in the importation and exportation of various goods for direct sales to
retailers on both credit and cash terms.

You are employed as an audit Manager by Wabwanga & Company Auditors

currently engaged in the statutory audit of the company’s books.

Required:

(a) Describe the main internal controls that you would expect to find in operation
with regard to the company’s sales and receivables.
(6
Marks)
(b)Briefly explain the inherent limitations that might hinder the effective operation
of an internal control system over sales and receivables in Machio Ltd
(4
Marks)

(c) Audit risk is the product of Inherent Risk, Control Risk and Detection Risk.

i.Define Inherent Risk, Control Risk and Detection Risk (2 Marks)

ii. Discuss these in the context of Machio Ltd sales and receivables.
(3
Marks)