APPROVED

EXAMINATION PAPER:

ACADEMIC SESSION 2013/2014

Campus

International Collaborations

School

Business

Department

Accounting & Finance

Course Code

ACCO 1125/1152

Course Title

Audit & Assurance

Level

Duration

THREE HOURS

Date

January 2014

Course co-ordinator:

Julian Spencer Wood

INSTRUCTIONS TO CANDIDATES

Answer FOUR questions only: TWO in Section A and TWO in Section B.

All questions carry equal marks.
This is a CLOSED book examination.
You are allowed to use non-programmable calculators.
You are required to discuss answers throughout; bullet point lists are not acceptable.

January 2014
Course Title Audit & Assurance
Course Code ACCO1125/1152

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Section A - Answer TWO of the three questions in this section

Question One
(i)
(ii)
(iii)

Discuss the objectives of a statutory auditor.

(6 marks)
What are the advantages of a non-statutory audit for a partnership?
(7 marks)
Explain and consider the relevance of the following terms in the
context of an audit.
(a) To express an opinion
(b) To provide reasonable assurance
(c) To present audit evidence
(d) To discover a material misstatement
(12 marks)
(Total 25 marks)

Question Two
To plan an audit, risks, systems and controls must be understood and recorded by the
auditor according to ISA 315: Identifying and assessing the risks of material
misstatement through understanding the entity and its environment.
Required:
(i) Describe the procedures followed by the auditor to:
(a) understand a clients risks and systems; and
(15 marks)
(b) record those systems
(5 marks)
(ii) Explain why walk through tests are undertaken?
(5 marks)
(Total: 25 marks)

January 2014
Course Title Audit & Assurance
Course Code ACCO1125/1152

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Question Three
You are a partner in Have, Moore & Co., Chartered Certified Accountants in which
there are five other partners. The partnership focuses on auditing clients in the travel
and logistics industries, although they also conduct audits in other business sectors.
Evade Limited, a company based in London, is seeking a new auditor. Evade Limited
specialises in the purchase, renovation and sale of antique furniture and has been very
successful recently, growing rapidly. It has just appointed a new Finance Director, Joe
Gorman, previously a famous entrepreneur in the motor industry. It is hoped that the
company will float on the Stock Exchange within the next two years.
Your firm have been asked to become the new auditors of Evade Limited.
Required:
(i)

Construct a list of matters that Have, Moore & Co need to consider

before Evade Limited is either rejected or accepted, as an audit client.
(20 marks)

(ii)

Outline the minimum extent of communication that Have, Moore &

Co would need to make with the retiring auditor, should they decide
to take on Evade Limited as an audit client.
(5 marks)
(Total 25 marks)

January 2014
Course Title Audit & Assurance
Course Code ACCO1125/1152

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Section B - Answer TWO of the three questions in this section

Question Four
Rosebud Ltd sells flowers wholesale. Customers telephone the company and their
orders are taken by clerks who take details of the flowers to be delivered, the address
to which they are to be delivered, and account details of the customer.
Required:
i) State five desirable components of an entitys internal control system
explaining each component in detail.
(11 marks)
ii) Describe and explain the purpose of the internal controls you might
expect to see in the sales system at Rosebud Ltd over the:
(a) Receipt, processing and recording of orders.
(8 marks)
(b) Collection of cash.
(6 marks)
(Total 25 marks)

Question Five
Stein & Co LLP, is a firm of statutory auditors. They are busy with an audit of Apex
PLC, a company which assembles fridges, microwaves, washing machines and other
similar domestic appliances procuring parts from a large number of suppliers. As part
of the interim audit work two weeks prior to the company year end, an auditor is
testing the procurement and purchases system and attending the inventory count. The
auditor is considering the use of Computer-Assisted Audit Techniques (CAATs) and
specialised audit software for this years audit.
Required:
i)

State five audit procedures that an auditor would normally carry out on the
purchases system at Apex PLC, explaining the reason for your choice of each
procedure.
(10 marks)

ii) State four procedures that an auditor would normally perform prior to
attending the clients premises on the day of the inventory count. (4 marks)
iii) Explain the difference between statistical and non-statistical sampling and
describe two alternative methods of sample selection.
(5 marks)
iv) List and briefly explain three advantages of Computer-Assisted Audit
Techniques (CAATs) and three potential difficulties of using audit software.
(6 marks)
(Total 25 marks)
January 2014
Course Title Audit & Assurance
Course Code ACCO1125/1152

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Question Six
Biotech Laboratories Ltd provides scientific services to a wide range of clients.
Typical assignments include testing food for illegal additives and providing forensic
analysis on items used to commit crimes.
The annual audit is nearly complete. As audit senior, you have reported to the
engagement partner that Biotech Laboratories is having some financial difficulties. A
cash flow forecast prepared internally shows a significant additional cash requirement
within the next 12 months to maintain even the current level of services. You think
you may have to provide a negative assurance report on this forecast.
Required:
i) Define going concern and discuss the auditors responsibilities in respect of
going concern.
(5 marks)
ii) Explain the directors responsibilities regarding financial statements
prepared on the going concern principle.
(2 marks)
iii) State the audit procedures that may be carried out to try to determine
whether or not Biotech Laboratories is a going concern.
(8 marks)
iv) Explain the audit procedures that the auditor may take to determine whether
Biotech Laboratories is likely to be a going concern.
(5 marks)
v) In the context of the cash flow forecast, define the term negative assurance
and explain how this differs from the assurance provided by an audit report
on statutory financial statements.
(5 marks)
(Total 25 marks)

January 2014
Course Title Audit & Assurance
Course Code ACCO1125/1152

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