auditing and assurance mid-diet mock questionsstarrygoldservices.com/icanaa2016/aamockquest.pdf ·...

STARRY GOLD ACADEMY +2348023428420, +2347038174484, [email protected] , www.starrygoldacademy.com

AUDITING AND ASSURANCE

MID-DIET MOCK QUESTIONS

SECTION A: Attempt All Questions

PART I: MULTIPLE-CHOICE QUESTIONS (20 Marks)

Write only the alphabet (A, B, C, D or E) that corresponds to the correct option in each of the following questions.

1. Which one of the following options is NOT a type of working paper?

A. Audit plan and programmes

B. Working trial balance

C. Account analysis and listings

D. Auditing standards and guidelines

E. Audit memoranda.

2. Which of the following is NOT a type of general controls in an information technology environment?

A. Organizational control

mailto:[email protected]

http://www.starrygoldacademy.com/


B. Systems development and evaluation controls

C. Master file control

D. General security

E. Operations and data controls

3. The following Audit Procedures are used as tests of control EXCEPT

A. Inquiry of appropriate client’s personnel

B. Observation of the application of the policies and procedures

C. Observation of the client’s personnel

D. Inspection of documents, reports and electronic media indicating the performance of policies and procedures

E. Re-performance of the application of the policy or procedure by the auditor

4. Which of the following is the principal function of forensic auditors?

A. Audit the accounts

B. Issue report to the shareholders

C. Give expert evidence at the eventual trial

D. Observe court proceeding

E. Give judgement relating to qualified report.

5. An audit principally seeks to provide which of the following objectives?

A. Audit explanations




B. Good Audit Working Papers

C. Fraud detection

D. Reasonable Assurance

E. Fraud deterrence

6. The following are letters concerning material weaknesses in internal control and terms of engagement EXCEPT

A. Letter of Internal Control Weaknesses

B. Management letter

C. Letter of representation

D. Domestic report

E. Internal control memorandum

7. Which of the following poses no threat to auditor’s independence?

A. Self-Interest

B. Significant shareholding

C. Advocacy

D. Familiarity

E. Authority




8. Which of the following year(s) is a normal tenure for those appointed as Audit Committee members?

A. One

B. Two

C. Three

D. Four

E. Five

9. What action should an auditor take if he discovers that his firm lacks the competence for an audit engagement?

A. Rely on competence of the client personnel

B. Consult other professional colleagues who are competent in that line

C. Disclaim an opinion

D. Issue an Adverse Opinion

E. Carry out the audit engagement and issue a clean report

10. Which of the following is NOT a contribution by Institute of Chartered Accountants of Nigeria to the development of Auditing?

A. Review of Accounting Standards

B. Review of the existing Auditing Standards

C. Ensuring that the tenure of its President is one year

D. Adherence to the Ethical Codes by members

E. Establishment of Disciplinary Committee to deal with complaints against Accountants and Auditors




11 Which of the following is NOT a quality assurance safeguard created by the accounting/auditing profession?

A. Education, training and experience.

B. Continuing education requirements

C. Professional standards, monitoring and disciplinary process

D. External review of a firm’s quality control system

E. Competent staff employed by the assurance client to make managerial decisions

12. Which of the following is NOT a benefit of environmental audit to a company?

A. Promotion of good environmental citizenship

B. Improvement of business efficiency

C. Improvement of reporting requirements to the members

D. Improvement of the company’s image and community relationship

E. Revelation of cost savings opportunities

13. Which of the following is NOT a factor in determining sample size?




A. The level of confidence

B. The population size

C. The tolerable error

D. Sampling unit

E. Materiality

14. In the process of instituting a system of internal control in an organization, which of the following is NOT an issue to be

considered?

A. The nature, size and volume of transactions.

B. The public perception of the controls

C. The cost of setting up the controls and the expected benefits

D. The nature of production process

E. The geographical distribution of branches

15. Computer Assisted Auditing Techniques (CAATs) CAN perform the following functions EXCEPT




A. Stratification

B. Application development

C. Selection of samples

D. File manipulation

E. Advanced statistical analysis

16. The existence of a computer system will cause the auditor to consider the following special factors EXCEPT

A. The cost of the computer

B. The need to use staff with specialized knowledge and skills. The possible problem of loss of visible evidence and systematic

errors

D. The form in which the accounting records are maintained

E. The timing of his audit

17. Which of the following audit procedures is most useful for the detection of fraudulent activities?

A. Interim audit

B. Analytical review

C. Operational audit

D. Compliance audit

E. Forensic audit

18. Which of the following is a disadvantage of using audit programmes?

A. Initiative may be stifled

B. They provide a clear set of instructions on the work to be carried out

C. Work can be reviewed by supervisor’s manager




D. Work will not be duplicated

E. No important work will be overlooked

19. The Accounting firm appointed to act as auditors can also provide the following services EXCEPT

A. Accounting

B. Systems advisory

C. Executive accounting functions

D. Taxation

E. Share valuations

20. Which of the following is NOT a right of statutory auditors?

A. Access to books, accounts and vouchers

B. Membership of audit committee

C. Indemnity

D. Lien on books of accounts and other related documents

E. Receipt of remuneration




PART II: SHORT-ANSWER QUESTIONS (20 Marks)

Write the answer that best completes each of the following questions/statements.




1. Fee calculated on a predetermined basis depending on the outcome of a transaction is known as………..

2. The state of mind that permits the provision of an opinion without being affected by influences that compromise professional

judgement, allowing an individual to act with integrity and exercise objectivity and professional skepticism is..............................

3. In a computerized accounting environment, controls designed to ensure that correct master files and current data files are used

are called............................

4. An obligation relating to some past events or transactions, which may arise depending on the outcome of some future events is

known as...........................

5. The official that has the power to conduct periodic audit checks of all federal parastatals, including all persons and bodies

established by an Act of the National Assembly is...........................

6. The series of tasks and records of an entity by which transactions are processed as a means of maintaining financial records is

known as...............................................

7. The overall attitude and actions of directors and management regarding internal controls and their importance in the entity is

referred to as………………

8. The committee that receives and reviews the reports of the Auditor-General for the Federation and invites any indicted person in

the report for public hearing is known as……………………….

9. A situation when an auditor becomes sympathetic to the client’s interest, because he has a close relationship with an assurance

client, its directors, officers and employees, occurs where there is a....................................

10. What is the penalty for an officer of a company who makes misleading, false or deceptive statements in a material particular to a

company’s auditors as specified by Companies and Allied Matters Act CAP C20 LFN 2004?

11. A form of audit qualification where there is uncertainty regarding a specific item which is material but not fundamental in the

financial statements is referred to as…........................

12. The document sent to customers to obtain valuable third party evidence about the completeness and accuracy of the sales

ledger is ……………




13. A document which is designed to enable the auditors to review and assess the adequacy of the internal control system

is…………….

14. The audit file containing documents relating to matters of continuing importance to the auditor is......................................

15. The transfer of management’s day-to-day functions to service providers is called..............................

16. A process to ensure that cost of goods sold is recorded in the period when the sales are made is known

as....................................

17. A way of concealing cash shortage caused by defalcation, such as misappropriating cash receipts and covering same with

subsequent collections is called....................................

18. A written scheme of the exact details of the work to be done by the auditor in connection with a particular audit

is............................

19. A documentary evidence which supports a transaction appearing in the books of account is referred to as..............................

20. In a computer-based system, a test designed to ensure that valid transaction codes and characters fit within a valid field size

is...............................

SECTION A COMPULSORY QUESTION (30 Marks) QUESTION 1




a. the Nigerian Standards on Auditing (NSA) 14 on Audit Evidence (ISA 500) deals with the auditors’ responsibility to design and perform

audit procedures to obtain audit evidence to be able to draw reasonable conclusion on which to base the auditors’ opinion.

Required: i. Explain the term “audit evidence”. (2 Marks)

ii. Illustrate with ONE example each FIVE sources of audit evidence. (5 Marks)

Iii. State THREE qualities of good audit evidence. (3 Marks)

b. You are in charge of the audit of Chino International Limited. While trying to conclude the audit for the year ended December 31, 2013,

the following issues arose:

(i) The Ultimate Bank of Nigeria Limited had dispatched its letter of confirmation in respect of Chino International Limited for the year

ended December 31, 2013 directly to your firm but was lost in transit. The Financial Controller who wanted the audit completed soonest

brought his own copy of the bank confirmation urging you to accept it.

(ii) A debtor who accounts for 40% of the entire receivables in the books of Chino

International Limited sent a confirmation which is materially lower than the balance stated in the books. The Financial Controller is unable

to provide an acceptable reconciliation.

(iii) The Managing Director/Chief Executive tells you that the inventories have been physically counted and valued using the most

appropriate basis of valuation at year-end.

(iv) At the final audit meeting, the Managing Director and the Finance Director refused to sign the letter of representation because of a

material disagreement with your opinion on the inadequacy of disclosure of the company’s accounting policies in accordance with

International Financial Reporting Standards. Their explanation was that the Directors have statutory responsibility to prepare the company’s

financial statements and not the independent auditors, who have been provided with all the relevant information required to enable them

form their opinion.

Required: i. Identify and analyse one relevant audit matter in respect of each of the above issues. (8 Marks)

ii. Explain how you will treat these issues in your summary of significant audit matters in the audit report. (12 Marks)

SECTION B: ATTEMPT ANY TWO OUT OF THREE QUESTIONS IN THIS SECTION (40 Marks)

QUESTION 2




a. Assurance engagement is an assignment in which a practitioner expresses a conclusion designed to enhance the degree of confidence of

the intended user, other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

Required: i. Describe the TWO categories of assurance engagement. (4 Marks)

ii. State and explain briefly the FIVE elements of an assurance engagement. (5 Marks)

b. i. Describe the term “expectation gap” in the context of an audit. (3 Marks)

ii. State THREE examples of the misunderstanding inherent in the public expectation of the role of external auditors. (3 Marks)

iii. State how the expectation gap can be bridged. (3 Marks)

c. State the authority that appoints the auditors for the audit of Nigerian National Petroleum

Corporation (NNPC). (2 Marks)

(Total 20 Marks)

QUESTION 3 Ahmed, Biodun and Chukwu are partners in a firm of builders specializing in house alteration, improvements and redecoration. Since

commencement of business four years ago, they have been fairly successful. The firm’s turnover now is about N120 million. In the fourth

year, Chukwu introduced his sister Eucharia to the firm as a dormant partner. She brought in N80million as her own capital as against

Ahmed’s N40million, Biodun’s N20million and Chukwu’s N60million. Eucharia lives abroad and only comes over once a year.

The books are kept by Biodun who has HND in Business Administration. There has never been a proper audit of the accounts but the firm’s

financial advisor reviewed the books once without giving any form of opinion on the accounts. At a recent partners’ meeting, Ahmed raised

issues on Biodun’s interpretation of the partnership agreement which is a fairly complicated document. Eucharia who has been told that the

other partners are living sophisticated lifestyles, suggested that they should have the firm’s accounts audited.

Required: a. Justify the benefits the partners would derive from engaging the services of an independent auditor. (5 Marks)

b. Describe other services accountants provide in addition to auditing. (5 Marks)

c. State the differences between statutory and non-statutory audits. (5 Marks)

d. Describe briefly FIVE fundamental principles of independent auditing. (5 Marks)

(Total 20 Marks)




QUESTION 4 a. List TWO control objectives and THREE control activities that should be put in place for each of the following:

i. Cash sales (5 Marks)

ii. Lodgements into bank (5 Marks)

b. Internal controls are essential features of any organization that is run effectively.

However, it is important to realize that internal controls have inherent limitations.

Required: State FIVE inherent limitations of internal controls. (5 Marks)

c. In a medium size trading organization, the accountant was given additional responsibility of making recoveries from debtors. On one

occasion, when an insurance claim of N10million was received, he credited it to the account of a debtor and misappropriated an amount of

N10million he had recovered in cash from the debtor.

Required: Describe the weaknesses in the internal control system which led to this situation. (5 Marks)

(Total 20 Marks)

SECTION C: ATTEMPT ANY TWO OUT OF THREE QUESTIONS IN THIS SECTION (30 Marks)

QUESTION 5 a. A. Y. Rollys and Co., is a medium size firm of Chartered Accountants that acts as auditors to two major competing telecommunication

companies.

Required: Comment on the above scenario in line with ICAN’s Professional Code of Conduct and

Guide for Members in the context of ethical conflict. (8 Marks)

b. It was discovered that the engagement partner has been a major shareholder in one of the telecommunication companies before the firm

commenced the audit of the company and the engagement partner’s wife is also a major distributor to one of the companies.

Required: Evaluate the above situation and advise the firm accordingly. (7 Marks)

(Total 15 Marks)




QUESTION 6 The independent auditor must evaluate the validity of audit evidence obtained before it is relied upon.

Required: a. In the course of an audit, the auditor makes many enquiries from clients’ directors and employees.

i. State the factors an auditor should consider in evaluating oral evidence provided by officers and employees. (3 Marks)

ii. Assess the sufficiency, appropriateness and limitation of oral evidence. (2 Marks)

b. An auditor’s tests may include re-computation of various accounting ratios for comparison with prior years and industry averages.

Discuss the sufficiency, appropriateness and limitation of ratio analysis as audit evidence. (5 Marks)

c. An auditor observes the physical inventory count of a manufacturing company’s finished goods which consist of expensive and highly

complex equipment.

Discuss the sufficiency, appropriateness and limitations of the audit evidence provided by such observation. (5 Marks)

(Total 15 Marks)

QUESTION 7 It is said that internal control forms the bedrock of reliable financial reporting. In every audit, the auditor should obtain sufficient

understanding of the internal control of an entity to enable him adequately plan the audit.

Required: Illustrate the objectives of the auditor in considering an entity’s

a. Control Environment. (3 Marks)

b. Risk Assessment. (3 Marks)

c. Control Activities. (3 Marks)

d. Information and Communication. (3 Marks)

e. Monitoring. (3 Marks)




(Total 15 Marks)

Question 8. An ISA (UK and Ireland) has been issued on Subsequent Events (ISA 560).

You are carrying out the audit of Richmond Engineering Limited for the year-ended 31 March 2009, and you have been asked by the

partner in charge of the audit to consider the work you would perform on post balance sheet events during the audit.

You expect the detailed audit work to be completed by 20 June 2009 but the directors have informed you that they will not approve the

financial statements until their board meeting on 25 July 2009 - your partner will sign the audit report on the same day.

In your audit of trade receivables you found that one customer, Nasser Manufacturing Limited, had a receiver appointed on 25 May 2009.

The following amounts, relating to that customer, have been included in the balance sheet at the year-end:

(a) A balance on the sales ledger amounting to €300,000;

(b) Goods included in inventory, valued at cost, amounting to €400,000.

These goods had been ordered by Nasser Manufacturing plc and were held in inventory by Richmond Engineering Ltd. at 31st March 2009.

However, due to the appointment of the receiver, they were not shipped as planned on 31st May 2009. It appears as if these goods will now

have to be sold at a material discount in order to recover some value.

No provision has been made in the accounts (for the year-ended 31 March 2009) for these items - an appropriate note has been included in

the notes to the accounts. In answering the question you should assume:

(a) The potential bad debt relating to Nasser Manufacturing is material in the accounts of Richmond Engineering;

(b) Richmond Engineering continues to be a going concern.

Required:

(a) Describe the audit work you would perform to decide whether the transactions relating to Nasser Manufacturing have been correctly

treated in the financial statements, and in particular whether:

(i) The item has been correctly treated as a non-adjusting post balance sheet event;

(ii) The provision for the bad debt is correctly stated;

(iii) Disclosure of the loss in the value of the inventory is correctly stated. (4 marks)

(b) List and briefly describe seven general audit procedures relevant to this client which you would carry out during the main part of the

audit (i.e. to 20 June 2009) which involve consideration of post balance sheet events. (4 marks)

(c) List and briefly describe four audit procedures you would carry out immediately before the partner signs the audit report on 25 July

2009, which will cover the period from 20 June 2009 to 25 July 2009. (7 marks)

(Total: 15 marks)



auditing and assurance mid-diet mock questionsstarrygoldservices.com/icanaa2016/aamockquest.pdf ·...

Documents