CPA INTERMEDIATE LEVEL

AUDITING AND ASSURANCE

WEDNESDAY: 23 August 2023. Afternoon Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on
this paper.

QUESTION ONE
(a) International Standard on Auditing (ISA) 300 Planning an Audit of Financial Statements, provides guidance to assist
auditors in planning an audit.
Required:
In the context of International Standard on Auditing (ISA) 300, summarise FIVE benefits of audit planning.
(5 marks)

(b) In the recent past, many market regulators and organisations have adopted the risk-based audit model.

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Required: .c
Explain THREE advantages and TWO disadvantages of the above model. (5 marks)

(c) Your firm has been auditing Arial Bank which is listed in the securities exchange. As a policy, you are required to
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evaluate the independence of the firm and all the team members involved in the audit engagement. The audit team is
assessing its independence in relation to Arial Bank’s audit.
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Required:
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Discuss FIVE factors that might compromise independence of the team members involved in this audit. (10 marks)
(Total: 20 marks)
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QUESTION TWO
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(a) Brenda Tuli is the petty cashier for Bahari Ltd. On 20 July 2023, Brenda was short of cash for her travel for the week.
She took out a small amount of cash from the petty cash at work to cover her fare. She had intended to return this
amount at the end of the month, as soon as she was paid. Brenda had not obtained permission from her supervisor to
pick the cash and she forgot to replace the cash when she received her salary.

Required:
(i) Indicate the type of fraud that Brenda Tuli was involved in. (1 mark)
(ii) Explain FOUR steps that Bahari Ltd. could take in order to improve controls over petty cash. (4 marks)

(b) Kilimo Bora Ltd. is an agricultural company that mainly deals with the export of horticultural products. The
company’s Board of Directors would like the company to be listed in the Securities Exchange. Kilimo Bora Ltd.
recently established an internal audit department to assist the board of directors in enhancing good corporate
governance in the company. One of the resolutions was the creation of an audit committee of the board. The
Managing Director understands the principles of good corporate governance with respect to internal audit. However,
the other board members lack sufficient understanding of corporate governance and International Standards Auditing
(ISA).

Required:
(i) Discuss FIVE areas that the internal audit department could assist the board of directors of Kilimo Bora Ltd.
in fulfilling their obligations under the principles of good corporate governance. (10 marks)
(ii) Explain FIVE benefits that Kilimo Bora Ltd. would yield upon constituting an audit committee of the board.
(5 marks)
(Total: 20 marks)
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QUESTION THREE
(a) Sheila Limo is the audit senior of K and R Associates. She is the one responsible for the audit of Kula Ltd, a
manufacturing company. Sheila has called for a meeting with her junior auditors to discuss how they will go about
carrying out tests of control and substantive tests on salaries and wages of Kula Ltd.
Required:
(i) Distinguish between “tests of control” and “substantive tests”. (4 marks)
(ii) Summarise FOUR tests of control in relation to salaries and wages of Kula Ltd. (4 marks)
(iii) Propose THREE substantive tests that Sheila Limo might perform on salaries and wages of Kula Ltd.
(6 marks)
(b) Your new client Haraka Upesi Ltd. assembles and sells tuk tuks in the local market. The average selling price per unit
in the year ended June 2023 was Sh.450,000 each. The company sold 500 units during the year thus generating an
equivalent number of sales invoices. Sales invoices were completed manually with the director signing all invoices to
confirm the sales value is correct. You are the Audit Manager of the audit exercise working together with an Audit
Senior and Audit Junior; as part of the audit team.
During the planning meeting, suggestions were made about how to select a sample of sales invoices for testing.
As the Audit Manager, you proposed to check all the sales invoices, the Audit Senior proposed selecting a sample
using statistical sampling techniques whereas the Audit Junior proposed taking a random sample of invoices by
reviewing the invoice file and manually choosing a few important invoices
Required:
Analysing each of the proposals by the team members, advise on the most suitable technique to use. (6 marks)
(Total: 20 marks)
QUESTION FOUR

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(a) Auditors use assertions in assessing risks by considering potential misstatements that might occur and thus designing
audit procedures that respond to each risk. .c
Required:
Evaluate FIVE financial statement assertions about classes of transactions and events for the period ended.
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(10 marks)
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(b) Jamila and Juma Associates have been appointed as the incoming auditors for Kibuyu Kirefu Ltd., a company that
manufactures and sells various plastic items in East Africa. The client is the largest the firm has ever engaged in
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offering their audit services. Jamila and Juma Associates are required to conduct the interim audit and the final audit
for the client’s financial internal control system.
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Required:
Propose FIVE audit procedures the auditors could undertake during each of the following:
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(i) Interim audit (5 marks)

(ii) Final audit (5 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Kenneth Muli, an auditor at P and M Associates is in charge of auditing Mali Traders. Kenneth Muli is planning the
audit with his team. The team is unsure on whether to use computer assisted audit techniques (CAATs) or manual
techniques.
Required:
Advise Kenneth Muli on FIVE factors to consider when choosing between the two techniques in an audit
engagement. (5 marks)
(b) Enumerate SEVEN benefits of data analytics in audit. (7 marks)
(c) In accordance with International Standard on Auditing (ISA)-700 Forming an Opinion and Reporting on Financial
Statements, the auditor is required to evaluate whether the financial statements are prepared, in all material respects,
with the applicable financial reporting framework.
Required:
Explain EIGHT matters that the auditor could evaluate before forming the audit opinion on the financial statements.
(8 marks)
(Total: 20 marks)
……………………………………………………………………
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 CPA INTERMEDIATE LEVEL

AUDITING AND ASSURANCE

WEDNESDAY: 26 April 2023. Afternoon Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on
this paper.

QUESTION ONE
(a) Highlight THREE benefits that may be derived from independently audited financial statements. (3 marks)

(b) International Standard on Auditing (ISA): 560 - Subsequent Event defines subsequent events as events occurring
between the date of the financial statements and the date of the auditor’s report, and facts that become known to the
auditor after the date of the auditor’s report.

Required:

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Propose FOUR audit procedures that an auditor should perform as near as possible to the date of the Auditor’s
Report. .c (4 marks)

(c) Elimu Yetu Trust is a charitable institution that sponsors needy students to seek tertiary education in Europe. The
organisation raises finances from cash donations at annual fund-raising events, telephone and online appeals from
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well-wishers. Elimu Yetu Trust has employed a part-time bookkeeper since it is still at an early formative stage and
the trustees cannot afford to hire a qualified accountant.
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Following a recent review of the Finance Act, charitable institutions will be subjected to new audit and accounting
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regulations. Due to this, your firm has been appointed as first-time auditors of Elimu Yetu Trust. You have been
informed by the trustees of Elimu Yetu Trust that the unaudited financial statements for the year have been prepared
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by a volunteer who is a recently retired qualified accountant.

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Required:
(i) Describe TWO examples of each of the following risks associated with the audit of Elimu Yetu:

• Inherent risks. (2 marks)

• Control risks. (2 marks)

• Detection risks. (2 marks)

(ii) Propose FOUR audit tests that you could perform on income from fund raising events. (4 marks)

(iii) Evaluate THREE substantive audit tests that you might undertake to verify the expenditure during the fund
raising events. (3 marks)
(Total: 20 marks)

QUESTION TWO
(a) Explain the following terms as used in computerised audit environment:

(i) Cloud computing. (2 marks)

(ii) Encryption. (2 marks)

(iii) Embedded audit module. (2 marks)

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(b) During the annual audit evaluation exercise by the Internal Audit Committee of Limau Ltd., the Head of Internal
Audit presented the internal audit plan for the upcoming financial year. He requested for additional members of staff
to enhance the skill set in the audit team to match planned audit activities for the year. The committee, citing
budgetary constraints of the company, resolved to adopt either co-sourcing or out-sourcing of the skills lacking in the
current internal audit staff team.

Required:
(i) Distinguish between “co-sourcing” and “out-sourcing” of the skills lacking in the current internal audit staff
team. (4 marks)

(ii) Outline FOUR matters that the Head of Internal Audit could ensure are included in the engagement letter
with the outsourced service provider of the internal audit activity. (4 marks)

(iii) Evaluate SIX areas that the Head of Internal Audit might review to ensure that the external service provider
possesses the necessary knowledge, skills and competencies to undertake the task. (6 marks)
(Total: 20 marks)

QUESTION THREE
(a) Contrast the responsibilities of the external auditors and internal auditors in detection of fraud. (4 marks)

(b) Kezzia Karimi has recently been appointed as the head of internal audit function in one of the Government Entities.
The entity has never had an internal audit function. In this regard, Kezzia has the responsibility of developing an audit
charter for approval by the Audit Committee.

Required:
Advise Kezzia on four matters for inclusion to the audit charter to ensure independence of the internal audit function.

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(8 marks)

(c)
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International Standard of Auditing (ISA) 315 - Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and its Environment, requires the auditor to perform risk assessment procedures which
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include obtaining an understanding of the entity and its environment, including its internal controls.
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Required:
(i) Citing a relevant example, explain the term “negative assurance”. (3 marks)
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(ii) Explain the purpose of undertaking risk assessment procedures. (2 marks)

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(iii) Outline THREE sources of audit evidence that the auditor can use as part of risk assessment procedures.
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(3 marks)
(Total: 20 marks)

QUESTION FOUR
(a) An efficient wage system is important for most companies however, there is no single wage system which suits all
companies. Some companies have a completely manual system, others a partially computerised system while others
have a system which is completely computerised. Broadly speaking, a company with a completely manual system
will use a clock and a clockcard system to record hours, prepare the payroll manually and conduct a physical wage
payout. A fully computerised system may include biometric time keeping, processing of the payroll by the computer
and payment of the amount owed to the employee by electronic funds transfer.

Required:
In the context of the above information:

(i) Explain the major advantage of biometric scanning technology over other methods of recording hours
worked. (2 marks)

(ii) Discuss whether the use of biometric scanning technology to record hours worked, might eliminate the risk
of fictitious employees being used to perpetrate wage fraud. (5 marks)

(iii) Evaluate FOUR characteristics of an organisation which could influence the management in deciding on a
suitable wage system. (8 marks)

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(b) Joyce Jamila runs an audit firm that recently completed the audit of SofaSeti Ltd., a manufacturer of exclusive home
furniture. The audit fee amounted to Sh. 4,800,000. Having recently purchased a new house, Joyce proposed the
following to SofaSeti Ltd. as a mode of settlement:

1. Instead of invoicing SofaSeti Ltd. a fee of Sh. 4,800,000, she would invoice the company an amount of
Sh.2,800,000 for the audit fees.
2. SofaSeti Ltd. would then supply Joyce Jamila with free furniture with a cost value of Sh.2,000,000 for her
new house.
3. SofaSeti Ltd. would not raise a sale in the company’s accounting records and would write off the amount of
Sh.2,000,000 off as part of the allowance for obsolete inventory.

Required:
Discuss FIVE issues in terms of the code of professional conduct applicable in the situation above. (5 marks)
(Total: 20 marks)

QUESTION FIVE
(a) You are a senior auditor in the audit of Baisiko Ltd., a company which manufactures bicycles. The company has
numerous suppliers due to the fact that its products are manufactured from a wide range of materials and components.
During discussion with the audit team about further audit procedures to be adopted, one of the trainees raised the
question of whether it would be appropriate to circularise creditors to confirm their balances.

Although your firm had not carried this procedure in prior years, you decide to perform a positive circularisation on
creditors listed as at 31 December 2022.

Required:
Evaluate FIVE creditors that you could include in the sample of creditors to be positively circularised. (10 marks)

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(b) You have been auditing Fruitly Ltd., a large national grocery store chain for the first time. Towards the end of the
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audit, your audit manager demands that you seek a letter of representation from the management of the client
company. Upon follow up with the client’s management, you are informed that the management is unwilling to sign
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the letter of representation.

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Required:
(i) Examine the need for seeking a letter of representation from the client’s management. (2 marks)
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(ii) Outline SIX matters that you expect the management of Fruitly Ltd. to include in the letter of representation.
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(6 marks)
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(iii) Highlight TWO reasons for the management to be unwilling to sign a letter of representation. (2 marks)
(Total: 20 marks)
……………………………………………………………………

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 CPA INTERMEDIATE LEVEL

AUDITING AND ASSURANCE

WEDNESDAY: 7 December 2022. Afternoon Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on
this paper.

QUESTION ONE
(a) Distinguish between a “financial statement audit” and a “fraud examination”. (4 marks)

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(b) Smart Elec Ltd., one of your new clients, deals in locally manufactured and imported electric appliances targeting

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middle level income customers. Your Audit Manager has assigned you the task of verification of inventory which
includes attending a stock take at your client’s premises.
a.
Required:
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Discuss SIX possible challenges that you are likely to encounter in the verification of inventory. (6 marks)
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(c) In the context of the inherent limitations in both internal control and the audit process itself, explain FIVE reasons
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why even a properly performed audit may not detect errors and fraud. (10 marks)
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(Total: 20 marks)
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QUESTION TWO
(a) You have been provided with the following independent scenarios:
1. H Ltd. is a fast-growing company that operates in the animal feeds industry. It is quoted on the Securities
Exchange but its founder, Kazi Tele and his family still control about 60% of the company’s voting shares.
Kazi Tele personally makes all the major decisions and the Board of Directors just “rubber stamps” them.
There is a nomination committee of the Board but this notwithstanding, a majority of the Board members of
H Ltd. are either members of Kazi Tele’s extended family or have some connection to him.
2. Tech Up Ltd. is a private company engaged in the development and manufacture of computer accessories.
The industry in which the company operates is very competitive and subject to rapid changes in technology.
The company ranks third or fourth in the market in which it operates and its products are rated slightly
behind the market leaders in terms of performance.

Required:
(i) For each of the scenarios in (1) and (2) above, evaluate how the risk of material misstatement should be
assessed. (6 marks)

(ii) Explain what effect the evaluation in (i) above will have on the detection risk. (6 marks)

(b) Describe FOUR characteristics of financial statement fraud. (8 marks)

(Total: 20 marks)

QUESTION THREE
(a) In recent years, there has been a substantial increase in cybercrime occasioned by the reliance placed on technology
by business entities. As a result, the effect of cybercrime on organisations is becoming highly significant in relation to
financial statement audits.

Required:
Citing FIVE factors, discuss the importance of cybersecurity in the context of ISA 315 (Identifying and Assessing the
Risks of Material Misstatement). (10 marks)

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(b) Haki Yangu is an ordinary shareholder in Mizani Ltd. He has instituted a criminal liability case against the auditors of
Mizani Ltd. as a result of his reliance on the information presented in the company’s audited financial statements.

Required:
(i) Highlight FOUR actions by an auditor that could make him criminally liable under the Companies Act in
your jurisdiction. (4 marks)

(ii) Describe THREE circumstances that Haki Yangu is required to prove against the auditors for a successful
criminal liability case under the Companies Act in your jurisdiction. (6 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain the “THREE Es” of a value for money audit. (6 marks)

(b) ISA 230 (Audit Documentation), requires auditors to prepare audit documentation for an audit of financial statements
on a timely basis.

Required:
Describe FOUR benefits of documenting audit work. (4 marks)

(c) An internal audit function is an appraisal activity established or provided as a service to the entire entity.

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Required:
With reference to the above statement, explain FIVE functions that could be performed by the internal audit
a.
department. (10 marks)
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(Total: 20 marks)
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QUESTION FIVE
(a) Your firm has been appointed as the new auditors for Jazamatt Ltd., a small-scale supermarket. The company has
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recently unearthed fraudulent activities perpetrated by employees leading to loss of credibility with its current and
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potential customers. The fraud led to loss of company revenue which was brought about by a weak internal control
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system (ICS). The company has requested your firm to support it to improve its operations in order to avoid another
fraud in future.

(i) Propose a five-step approach that you could adopt to identify deficiencies (ordinary and significant)
including material weaknesses in the ICS of Jazamatt Ltd. (5 marks)

(ii) Explain to the management of Jazamatt Ltd. THREE responsibilities that they bear regarding evaluating
risks of fraud in the company. (3 marks)

(iii) Highlight THREE types of revenue manipulations that the employees of Jazamatt Ltd. may have exploited
in undertaking the fraud. (3 marks)

(b) Mahindi Safi Millers operates a milling business that procures maize supplies from local farmers as a community
empowerment program. The company also recruits permanent and casual labour from the community who are paid
salaries and wages respectively. You have been requested to undertake a verification of salaries and wages paid in the
month of November 2022.

Required:
Propose NINE procedures that you would review to verify the salaries and wages before proceeding to verify
payments made on account of salaries and wages. (9 marks)
(Total: 20 marks)
……………………………………………………………………

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 CPA INTERMEDIATE LEVEL
AUDITING AND ASSURANCE
WEDNESDAY: 3 August 2022. Afternoon paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write
anything on this paper.
QUESTION ONE
(a) Describe five Auditor’s responsibilities for the Audit of Financial Statements as provided by the International Standard
on Auditing 700 (Revised): Forming an opinion and Reporting on Financial Statements. (10 marks)

(b) Explain four items of information that the auditor should disclose in the opinion section of the auditor’s report.
(4 marks)
(c) Your audit team is planning to adopt statistical sampling to analyse big data from a client operating in the banking
sector.
Required:
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Highlight six factors that the audit team should consider before adopting statistical sampling. (6 marks)
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(Total: 20 marks)
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QUESTION TWO
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(a) Describe four strategies that an auditor may deploy to reduce exposure to professional liabilities. (4 marks)
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(b) Auditors are frequently required to provide assurance for a broad range of non-audit engagements.
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Required:
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(i) Summarise four elements of an assurance engagement. (4 marks)

(ii) Distinguish between “reasonable assurance engagements” and “limited assurance engagements”. (4 marks)

(c) Your firm has been appointed as incoming auditors of Taratibu Motors Ltd. Part of the agreement is a proposal of
undertaking of continuous audits on the company’s financial statements.
Required:
Explain four disadvantages of conducting the proposed continuous audits. (4 marks)

(d) Kilimo Sacco has recently automated its loan processing and disbursement activities upon purchase of an Enterprise
Resource Planning (ERP) system. You have been requested to review the processing controls of the system.
Required:
Suggest four processing controls that the system should possess upon full implementation. (4 marks)
(Total: 20 marks)

QUESTION THREE
(a) Your client, ADL Ltd., deals in selling and distribution of office stationery. The company’s Director mentions to you
the possibility of the occurrence of errors and frauds within the company. The company also recently introduced an
internal audit unit in its organisation structure to enhance the company’s internal control framework.
Required:
(i) Explain four ways in which the internal audit unit could assist the management in managing the risk of errors
and frauds. (4 marks)

(ii) Using relevant examples, describe three components of the Fraud Triangle that the management of ADL Ltd.
should be aware of. (6 marks)

(iii) Analyse six audit procedures that you would undertake in response to errors and fraud related to inventory
quantities reported in the company’s financial statements. (6 marks)
(b) Analyse four factors that could result in an increase in the control risk within an organisation. (4 marks)
(Total: 20 marks)
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QUESTION FOUR
(a) Your firm is in the process of auditing a client dealing in actuarial services. Your audit team lacks sufficient expertise
in the field of actuarial services. In this regard, the Audit Manager has recommended engaging a management expert as
a source of audit evidence. You are also required to maintain the working papers for the exercise.

Required:
(i) Analyse six factors that would affect the reliability of the information produced by the management expert.
(6 marks)

(ii) Evaluate four features of the audit working papers that you would be required to maintain. (4 marks)

(b) International Standard on Auditing (ISA): “Going Concern”, deals with the auditor’s responsibilities in the audit of
financial statements relating to going concern and the implications for the auditor’s report.

Required:
(i) Explain six indicators that would cast doubt to an auditor about the going concern status of a company.
(6 marks)

(ii) Discuss for audit procedures that an auditor would carry out in order to obtain sufficient audit evidence to be
able to form an opinion on the going concern status of a company. (4 marks)
(Total: 20 marks)

QUESTION FIVE
Your audit team is in the process of preparing the annual audit plan. You have been allocated the task of undertaking risk
assessment. Mike Ogola, a newly recruited audit trainee, argues that there is no need for a risk assessment or even the whole
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audit planning process. He is convinced that the two exercises add absolutely no value to the output of the audit assignment.
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Required:
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(a) Explain six justifications for undertaking audit planning. (6 marks)

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(b) Distinguish between “qualitative risk assessment techniques” and “quantitative risk assessment techniques”. (4 marks)
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(c) Describe five possible risk assessment challenges that you are likely to encounter as you undertake the above
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assignment. (5 marks)

(d) Recommend five risk management responses that could be deployed to mitigate risk. (5 marks)
(Total: 20 marks)
.......................................................................................................................

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 CPA INTERMEDIATE LEVEL

PILOT PAPER

AUDITING AND ASSURANCE

December 2021. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question.

QUESTION ONE
(a) Explain the meaning of the term “inherent risk”. (2 marks)

(b) State with reasons five factors that would affect the initial assessment of inherent risk at the financial statement
level. (10 marks)

(c) State four general controls that should exist to prevent unauthorised access to a company’s computer system
from the remote terminals. (8 marks)
(Total: 20 marks)
QUESTION TWO
Data analytics has been described as one of the modern ways of analysing data in various professional fields.

Required:
(a) Explain how auditors can use data analytic techniques during the audit process. (10 marks)

(b) Highlight the challenges that the auditors will encounter when using data analytics during the course of the audit.
(10 marks)
(Total: 20 marks)
QUESTION THREE
You have been assigned to assist your audit senior in auditing a new client, Happy Land Limited. During the course of
you reviewing and understanding the company’s internal control system, you discovered the following information:

1. The company has an internal audit department.

2. Bank reconciliation is undertaken by the internal audit department.
3. Purchase invoices are being approved for payment at branches and a list of approved invoices sent to head office
for payment. The invoices, supporting documentation and suppliers statements are retained at the branches.
4. Excess cash is now invested by the finance director in short term securities.
5. A physical inventory has not been carried out for non-current assets and reconciled with the non-current assets
register.
6. While visiting a production plant, it was noted that access to the inventory store room was unrestricted. It was
discovered that the staff responsible for making test counts and agreeing to inventory on hand with the perpetual
records, resigned and a replacement had not yet appointed.

Required:
(a) Explain five control deficiencies in Happy Land Limited. (10 marks)

(b) Recommend a control to address each of these deficiencies. (5marks)

(c) Describe a test of control the auditor should perform to assess if each of these controls, if implemented, is
operating effectively to reduce the identified deficiency. (5 marks)
(Total: 20 marks)

QUESTION FOUR
(a) State the key financial statement assertions applicable to tangible non-current assets. (4 marks)

(b) List the audit procedures which auditors should carry out when planning a company’s physical inventory count.
(5 marks)

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 (c) In relation to ISA 3000 “Assurance Engagements Other than Audits or Reviews of Historical Financial
Information”:

State the difference between:

(i) An audit and an assurance engagement. (4 marks)

(ii) An attestation engagement and a direct engagement. (2 marks)

(d) Describe five elements of assurance engagement. (5 marks)

(Total: 20 marks)

QUESTION FIVE
(a) You are an auditor of Baraka Constructers Limited, a listed company which distributes materials to the real
estate industry. You are finalising the audit for the year ended 31 March 2021. Your audit junior has identified
the following matters and brought them to your attention:

1. The four directors have each borrowed Sh.100,000 from the company. These loans, which total
Sh.400,000 have been included in the statement of financial position as at 31 March 2021 within the
total accounts receivable under the heading “other accounts receivable – due within one year”. No
separate disclosure about the loan has been made in the director’s report or the financial statements.
The audit junior has investigated this further and concluded that, whilst the loans are illegal, they are
genuine collectible current assets of the company.

2. The accounts of Baraka Constructers Limited did not contain a statement of changes in equity.

3. The physical inventory count sheets for two deposits of construction materials were lost before they
were made available to you and you have not been able to confirm the inventory amount using
alternative audit procedures. The amount of inventory for the two deposits is considered to be material.

Required:
Explain the audit opinion you will issue in each of the cases above. (15 marks)

(b) Explain the procedures that an auditor would carry out when performing an environment audit of a sugar
manufacturing company. (5 marks)
(Total: 20 marks)
……………………………………………………………………..

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