auditing study pack by harold(final).doc

8/10/2019 Auditing STUDY PACK by Harold(Final).doc

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21)

b) * "s" st"/s ar" ad" #at"l co3"r"d # d"r t " c a/t"r o i d"/" d" c" a d #aliti"s o aa#ditor "r"b " co sid"r"d st"/s ta " b t " /ro "ssio to s"c#r" t " #aliti"s o co!/"t" c", #d "!" t ob "cti3it a d i t" rit i a a#ditor.

c) /"ci ic actio s b a a#dit ir! to !i i!is" liabilit arisi ro! a#dit ris .

Pro/"r r"cr#it!" t a d trai i o all /"rso "l. $llocatio o sta it a//ro/riat" abilit to /artic#lar a#dits. Pla i t " or o t " ir! i s#c a a t at "ac a#dit ca b" a//roac "d i a

r"lax"d b#t disci/li "d a a d ti!i /robl"!s !a b" acco!!odat"d. * o a co!!# icatio it sta o !att"rs o " "ral co c"r a d i co "ctio it

s/"cial a#dit. :s" o a#dit !a #als ic co or! to t " a#dit sta dards a d #id"li "s. :s" o a#dit doc#!" tatio ic is co!/r" " si3" a d "t allo s or s/"cial sit#atio s. :s" o b#d "ti a d ot "r t"c i #"s to " s#r" t at a#dits ar" r"!# "rati3" a d "t ris

!i i!isi . :s" o /r"cis" a d r" #" tl #/dat"d l"tt"rs o " a "!" t. :s" o r"3i" t"c i #"s or all a#dits. xist" c" o a t"c ical s"ctio so t at all " d"3"lo/!" ts acco# ti la a d a#dit

/roc"d#r"s ar" ra/idl i cor/orat"d i to t " ir!Gs actio s.

a) * " "asi"st a to o "t "r a d"btor "xists is to as i! t is is call"d circ#larisatio . &"aso s or carr i o#t circ#larisatio o d"btors.

*o obtai co ir!ator dir"ct "xt"r al "3id" c" o t " "xist" c" a d b" " icialo "rs i/ o t " ass"t d"btors.

*o i3" "3id" c" t at t " i #r" i t " acco# ts or d"btors is a tr#" a d air o ". *o /ro3id" co ir!ator "3id" c" t at t " s st"! o r"cordi a d doc#!" ti sal"s

a d d"btors a d t " co trols t "r" o ca b" r"li"d #/o to /rod#c" a acc#rat" i #r" ord"btors. Nor!all , t"sts ic ar" d"si "d to obtai "3id" c" o t " r"liabilit o t "s st"!s ar" call"d co!/lia c" t"st. irc#larisatio t "r" or" is #s" #l bot or s#bsta ti3"a d co!/lia c" t"sts.

*o /ro3id" "3id" c" as to t " corr"ct "ss o c#t;o . #t;o is t " t"c ical t"r! #s"d to" s#r" t at i co!/#ti /ro its sal"s ar" acc#rat"l co!/ar"d it t " costs o t " oodssold. #t;o t"sts ca b" s#bsta ti3" i.". "xa!i i last #!b"rs o doc#!" ts orco!/lia c" t at is, i co trol "xists t "ir a//licatio ca b" t"st"d.

*o /ro3id" "3id" c" o t " "xist" c" o dis/#t"d it"!s. 't is a dir"ct co ir!atio .

=1 6o.i%i5e:

* " c#sto!"r is as "d to r"/l "t "r " a r""s to t " bala c" or otH or is as "d tos#//l t " bala c" i!s"l . * is !"t od is #s"d "r" t "r" is "a i t"r al co trols,s#s/icio o irr" #lariti"s or it"!s i dis/#t" a d #!"ro#s boo ; ""/i "rrors.

S TRATHMORE U NIVERSITY S TUDY P ACK

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21*

Ne#a%i5e:* " c#sto!"r is as "d to co!!# icat" o l i " do"s ot a r"" it t " bala c".

"cti3"l t " c#sto!"r is told t at i o r"/l is r"c"i3"d ro! t "! t " t " a#ditor illco cl#d" t at t " d"btor is i a r""!" t it all t " t"r!s i t " circ#lar.* " !a or dra bac i t is !"t od is t at i t " d"btor do"s ot r"c"i3" t " circ#lar, "

ill ot r"s/o d.* is !"t od t "r" or" is # r"liabl" a d s o#ld o l b" #s"d " t "r" is stro i t"r alco trol.

,1 0i1 "t"r!i " t " s st"! o i t"r al co trol o3"r sal"s a d d"btors. * " s st"! s o#ld" s#r" t at :

O l bo a id" sal"s bri d"btors i to b"i . $ll s#c sal"s ar" a//ro3"d.

"c i all sal"s ar" r"cord"d "c t at o c" t " "r" r"cord"d t " d"bts ar" o l "li!i at"d b r"c"i/t o cas

or o t " a#t orit o a r"s/o sibl" o icial. "c bala c"s ar" r" #larl r"3i" "d a d a "d a d a /ro/"r ollo #/ "xists a d i

"c"ssar t "r" is /ro3isio or bad a d do#bt #l d"bts.

(ii) $ circ#larisatio is 3"r " "cti3" i co ir!i t " "xist" c" o t " d"btor a d t "titl" to t " ass"t d"btor, b#t is ot d"si "d or "stablis i t " 3al#" o d"btors. 't ist "r" or" #/ to t " a#ditor to co ir! t " bala c" a d ot t " d"btor.

(iii) ' t "r" is o r"/l s" d a r"!i d"r. till o r"s/o s", t " t " ollo i alt"r ati3"a#diti

/roc"d#r"s s o#ld b" ado/t"d

"tail"d 3o#c i o all " tri"s i t " d"btors acco# ts xa!i i t " d"btors r"!itta c" ad3ic". $ ar" "ss o t " /ossibilit o # #s#al it"!s or !isstat"!" ts &"3i" i corr"s/o d" c" i a it t " d"btor. xa!i i t " /ost bala c" s ""t "3" ts ". . s"ttl"!" ts

) a1 6-" o.e o3 %$e le%%e" o3 e+#a#eme+%Para ra/ o#r o t " a#ditors o/"ratio al sta dards stat" t at t " a#ditor s o#ldobtai r"l"3a t a d r"liabl" a#dit "3id" c" s# ici" t to " abl" i! to arri3" atco cl#sio s "c"ssar or is o/i io . * " #id"li " r"co is"s !a a "!" t as a3alid so#rc" o a#dit "3id" c". o "3"r t " sa!" #id"li " co sid"rs i t"r al"3id" c" to b" l"ss r"liabl" i cl#di r"/r"s" tatio s b !a a "!" t. ' r"/r"s" tatio s ar" !ad" b !a a "!" t t "ir r"liabilit is " a c"d i t " ar"

ritt" . * " #id"li " o Jr"/r"s" tatio s b !a a "!" tK classi i"s oral a di!/li"d r"/r"s" tatio s b !a a "!" t asH

Not !at"rial to i a cial stat"!" ts.

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=at"rial to i a cial stat"!" ts b#t ca/abl" o i d"/" d" t corroboratio . =at"rial b#t o l"d " o acts is r"strict"d to b !a a "!" t or it is a !att"r o

s#b "cti3" #d "!" t or o/i io .

(b) $#dr" = >i #a "rti i"d P#blic $cco# ta t o >" a P O Box 85088 N$'&OB'

6 t =arc 2000

=a a i ir"ctor Nairobi Natio al Ba %tdP O Box 5$N =$.

"ar =ada!

I+%e"+al Co+%"ol#ri o#r a#dit " "xa!i "d t " acco# ti r"cords o o#r co!/a a d t "

s st"! o i t"r al co trol o3"r t os" r"cords "stablis "d i o#r co!/a . * iss st"! as d"si "d to " s#r" acc#rat" a d r"liabl" r"cords to sa " #ard t "co!/a Gs ass"ts. " a3" s"t o#t b"lo t " /ri ci/al "a "ss"s i t " s st"!i ic " o# d to "t "r it o#r r"co!!" datio or i!/ro3"!" t.

Ba+ i+# o3 ,$e -e. a+/ ,a.$* " co!/a ba s all its c " #"s a d cas o c" a "" . : ba "d cas a dc " #"s ar" "ld i t " /"tt cas box a d o l t " i a cial co troll"r a d

" "ral !a a "r a3" acc"ss to t " dra "r a d /"tt cas box. ' cas a dc " #"s ar" ba "d o l o c" a "" t "r" is a r"at"r li "li ood t at cas ca

b" lost or b" stol" . ' cas is ba "d "3"r da t " littl" or o cas ill b" /#ti t " /"tt cas box. * " i a cial co troll"r a d " "ral !a a "r !a coll#d"a d " d #/ !isa//ro/riati cas .

S- lie".tat"!" ts ro! s#//li"rs ar" /ass"d o to t " /#rc as"s l"d "r cl"r or

c "c i a ai st cr"ditors acco# t a d t " il"d. * is ca l"ad to "rrors a dra#ds as t " cl"r is ot 3"r co!/"t" t to carr o#t all t " "c"ssar c "c s or

t " cr"ditors.

* " cl"r s o#ld b" acco!/a i"d b so!"o " "ls" a d c "c t " i 3oic"s ro!s#//li"rs a d c "c t "! a ai st t " s#//li"rs stat"!" ts. bb"r sta!/ss o#ld b" "xt" d"d or i 3oic"s alr"ad c "c "d.

S%o, %a i+#* " stoc s ""ts "r" ot /r" #!b"r"d.* is !"a s t at all t " stoc s !a ot b" acco# t"d or. ?ra#ds co#ld b"

/"r/"trat"d b a3i stoc s ""ts ic ar" ot bo a id" b"i #s"d i t "or a isatio b stoc !a a "rs.

" r"co!!" d t at

toc s ""ts b" /r" #!b"r"d. bb"r sta!/s b" "xt" d"d o c "c "d i 3oic"s. $ r"co ciliatio b"t "" i 3oic"s a d s#//li"rs stat"!" t b" do ". =or" ri oro#s co trol b" "/t o3"r t " " to t " /"tt cas oldi .

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Pl"as" t"ll #s i d#" co#rs" at actio o# a3" ta " o t "s" !att"rs.

o#rs ait #ll , $ = N $ >'N :$ $N O.

) a) =at"rialit $ !att"r is !at"rial i its i cl#sio or o!issio ill a "ct t " d"cisior"ac "d b t " #s"r o t " acco# t a d i t " a "ct t " 3i" o t " acco# t. "t "r a

it"! is !at"rial !a d"/" d o t " d" r"" o a//roxi!atio o it"! o ic it is a /art. * "r" !a b" critical /oi ts " !at"rialit ca b" i!/orta t, or "xa!/l" it#r i a s!all /ro it i to a s!all loss or #st !a i a co!/a Gs ass"ts "xc""d itsliabiliti"s or r"3"rsi a tr" d.

b) #t o co id" tialit * " #id" to /ro "ssio al "t ics stat"s t at i or!atioac #ir"d i t " co#rs" o /ro "ssio al or s o#ld ot b" disclos"d "xc"/tco s" t as b"" ac #ir"d ro! cli" ts "!/lo "r or ot "r /ro/"r so#rc" or "r"t "r" is /#blic d#t to disclos" or "r" t "r" is a l" al or /ro "ssio al d#t or ri tto disclos".$ !"!b"r ac #iri i or!atio i t " co#rs" o /ro "ssio al or s o#ld "it "r #s" or a//"ar to #s" t at i or!atio or is /"rso al ad3a ta " or or t "ad3a ta " o a t ird /art .

c) Pro "ssio al i d"! it i s#ra c"H * "r" is a t" d" c to s#" t " a#ditor o it at " ill ot a3" to /a b#t is i s#r"r ill. * " a#ditor s"" s to /a so!"

/r"!i#!s to a i s#ra c" ir! so t at i cas" o a s#it il"d a ai st i! t " i s#r"r ca /a . * " " "ct o t is is t at t " i s#r"r ill i sist o r"aso abl" s ill a d car"o t " /art o t " i s#r"d.

d) P""r r"3i" !a b" d"scrib"d as a i d"/" d" t r"3i" o a ir!Gs acco# ti a d

a#diti /ractic"s. 't is i t" d"d t at t " r"3i" b" do " b /ractitio "rs #/o "llo /ractitio "rs " c" t " t"r! J/""r r"3i" K.

* " or o t " r"3i" is li!it"d to ;

Pro "ssio al as/"cts o t " /ractic". O3"rall total #alit co trol /olici"s. Pro "ssio al as/"cts o ir!Gs acco# ti a d a#diti /ractic"s li "

!ai t" a c" o or i /a/"rs or /rod#cts s#c as i a cial stat"!" ts.

") D#alit co trolH $#dits s o#ld b" "xtr"!"l "ll do " a d "t b" co!/l"t"d"x/"ditio#sl a d "co o!icall . * " a#ditor s o#ld " s#r" t at a#dits ar"carri"d o#t

i. ' accorda c" it i t"r atio al acco# ti sta dards.ii. ' co or!it it stat#tor a d co tract#al r" #ir"!" ts.iii. ' accorda c" it "t ical sta dards.


Lesson Ten


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231

i3. ' a r""!" t it a /ro "ssio al sta dards s"t o#t b t " ir! a d b ot "r /ro "ssio al bodi"s.

3. co o!icall a d to ti!" sc "d#l"s it !i i!#! ris .

< a) rit"ria or ass"ssi " "cti3" "ss a d r"l"3a c" o a i t"r al a#dit # ctio . ' d"/" d" c". o!/"t" c". #" /ro "ssio al car". ta i . 3id" c". &"/orti .

b) * r"" t /"s o ra#ds.

abota " o oodsEstoc d#ri d"li3"r to t " o#tl"ts. oll#sio b"t "" t " s#//li"rs !a a "r a d t " s#//li"r to o3"rstat" t "

3al#" o " s/a/"rs a d !a aAi "s.

=isa//ro/riatio o cas r"c"i/ts.

c) ?i3" " "l"!" ts ic s o#ld "xist i t " " "ral a#dit a//roac o i

ris ar"as. c"/tical. :s" i calibr" a#dit sta . oll"ctio o id" ra " o a#dit "3id" c" i "ac ar"a. ="tic#lo#s /r"/aratio o a#dit or i /a/"rs. xtr"!" car" i dra ti a#dit r"/ort.

* " "xt"r al a#ditor do"s ot a3" to 3isit o#tl"ts "3"r "ar. ?or "xa!/l" i "do"s ot to do a stoc ta " " !#st c"rti i!s"l o t " stoc ta " b

:si rotatio al 3"ri icatio !"t ods. ' t" si i ot "r 3"ri icatio !"t ods :si /"r/"t#al i 3" tor r"cords !or" t oro# l $//oi ti a " ts.

a.) xa!/l"s o sit#atio s " a a#ditor !a is to r"l o t " r"/ort o as/"cialist.

-al#atio s o c"rtai t /"s o ass"ts or "xa!/l" la d a d b#ildi s, /la ta d !ac i "r , or s o art a d /r"cio#s sto "s.

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"t"r!i atio o #a titi"s o / sical co ditio o ass"ts or "xa!/l"!i "ral stor"d i stoc /il"s, # d"r ro# d !i "rals a d /"trol"#! r"s"r3"sa d r"!ai i #s" #l li " o /la t a d !ac i "r .

"t"r!i atio o a!o# ts #si s/"cialis"d t"c i #"s or !"t od or"xa!/l" act#arial 3al#atio .

* " !"as#r"!" t o or co!/l"t"d a d to b" co!/l"t"d o co tracts i /ro r"ss or t " /#r/os" o 3al#" r"co itio .

%" al o/i io co c"r i i t"r/r"tatio s o a r""!" ts, la s a dr" #latio s.

b) ?actors to co sid"r " /laci r"lia c" o s/"cialists or .

* " !at"rialit o t " it"! b"i "xa!i "d i r"latio to t " i a ciali or!atio as a ol".

Nat#r" a d co!/l"xit o t " it"! i cl#di t " ris o "rror t "r"i . Pro "ssio al #ali icatio , lic" c" or !"!b"rs i/ o a a//ro/riat"

/ro "ssio al bod . x/"ri" c" a d r"/#tatio i t " i"ld i ic t " a#ditor is s"" i ad3ic". * " ob "cti3it o t " "x/"rt. * is !a b" i!/air"d i " is "!/lo "d b t "

cli" t or is r"lat"d i so!" !a "r to t " cli" t. * " so#rc" data #s"d b t " "x/"rt "t "r it is a//ro/riat" i t "

circ#!sta c"s i #"stio .


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MODEL ANS*ERS TO C6A I E;AMINATION SET %$ JUNE 799

7 a1 Fi+al o" ,om le%e/ a-/i%2 :s#all do " at t " " d o t " "ar o t " bala c" s ""t a d t " /ro it a d lossacco# t. $ r"/ort is ritt" to t " s ar" old"rs r" ardi t " tr#" a d air 3i" .

A/5a+%a#e. li!i at"s ot" ta i d#ri t " /roc"ss. 't is l"xibl". 'd"al or s!all b#si "ss"s. 't do"s ot disr#/t or . Pla #s"d ca b" r"c cl"d as i "3"r "ar t " sa!" d"tails ar" c "c "d.

Di.a/5a+%a#e. rrors a d ra#ds ar" disco3"r"d too lat". * " a#ditor as to sc "d#l" !a co!/a i"s at aro# d t " sa!" ti!". *a "s a lo ti!".

=1 I+%e"im A-/i%2

't is #s#all do " !id; a t " "ar. 't is i!/orta t to co!/a i"s t at #s#alld"clar" i t"ri! di3id" ds. * " bala c" s ""t tra sactio s ar" l" t o#t a d o l

/ro it a d loss acco# t is d"alt it .

A/5a+%a#e. 't is id"al or d a!ic b#si "ss"s. o!/ar"d to co ti #o#s a#dits it is c "a/"r. 't acilitat"s i al a#dits. :/ to dat" acco# ts ar" "/t. rrors a d ra#ds ar" /r"3" t"d a d d"t"ct"d at a "arl sta " co!/ar"d to i al

a#dits. ss" tial i a /art "rs i/ i ic so!" /art "rs ar" r"tiri or " a "

/art "r is b"i ad!itt"d i to t " b#si "ss. ss" tial " !"r "rs a d ta ";o3"rs ar" b"i co t"!/lat"d. ?acilitat"s t " calc#latio o i t"ri! di3id" ds.

Di.a/5a+%a#e. rrors ar" at a ad3a c"d sta "s co!/ar"d to co ti #os a#dits. =a a "rs !a !a i/#lat" acco# ts so as to co c"al /ro it i t " do ot a t to

/a i t"ri! di3id" ds. O3"r d"/" d" c" o a#dit sta to sol3" acco# ti /robl"!. ?i #r"s alr"ad c "c "d ca b" alt"r"d b a#dit sta or !a a "!" t.

,1 Co+%i+-o-. A-/i%2 o " at i t"r3als o o ", t o or t r"" !o t s. * " ar" id"al or

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Ba i b#si "ss"s os" tra sactio s !#st b" #/ to dat" to /r"3" t "rrors a dra#ds.

=a # act#ri or tradi co c"r s it #!"ro#s tra sactio s. B#si "ss"s it o#t stro i t"r al co trol s st"!. B#si "ss"s o/"rati i ris ar"as.

A/5a+%a#e. * " acilitat" i t"ri! a#dits. $cco# ts ar" #s#all "/t #/ to dat". rrors a d ra#ds ar" disco3"r"d at a "arl sta ". * " a#ditor at "rs s# ici" t o l"d " o t " b#si "ss as a r"s#lt o is

r" #" t 3isits. a3"s ti!" d#ri i al a#dits. B"tt"r r"/ort is d"3"lo/"d as ti!" s/" t is !or".

Di.a/5a+%a#e.

't is "x/" si3" to a3" a co ti #os a#dit s st"!. ?r" #" t disr#/tio s o t " cli" ts or d#ri t " a#dit. *" d" c to o3"r d"/" d o a#diti sta to sol3" acco# ti /robl"!s. o s#!"s a lot o ti!". ' t"r "r" c" o or ic as alr"ad b"" a#dit"d b t " cli" tGs sta .

/1 Bala+,e .$ee% a-/i%. *"sts t " str" t o t " i t"r al co trol s st"! b or i bac ards to "t t "

i itial tra sactio s. 't is bas"d o 3"ri icatio o ass"ts b c "c i H

"scri/tio =ai l o r"cordi " tri"s. O "rs i/ Pro3" o o "rs i/ "it "r b #s" o lo boo s or cars or titl" d""ds

or la d. -al#" ost a d !"t od o d"/r"ciatio . xist" c" 's t " ass"t r"all t "r"C

A/5a+%a#e. 't is c "a/ co!/ar"d to ot "r a#dits. $ bala c"d o/i io ca b" r"ac "d.

Di.a/5a+%a#e.

't is a /artial a#dit. $//li"d o l to b#si "ss it stro i t"r al co trol s st"!.

' a) $cc"/tabilit a d d"sirabilit o a o. co ti #i to act as acco# ta ts,a#ditors a d co s#lta ts or t " co!/a .


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a a d o. ar" "ar i 20M o t "ir ross i co!" ro! o " cli" t. * is co#ld"asil "o/ardis" t " i d"/" d" c" o t " a#ditor. * " a#ditor s o#ld ot "ar

!or" t a 15M o ross /ractis" i co!" ro! a o " cli" t or a ro#/ oco "ct"d cli" ts. * is is ood ro# d or a#ditors to r"si .

* " a#ditors ar" also /ro3idi ot "r s"r3ic"s li " co s#lta c . 't is c#sto!aror a#ditors i !a cas"s to /ro3id" ot "r s"r3ic"s as "ll as t "

a#dit. * is is acc"/tabl" /ro3idi t at t " a#ditor do"s ot /"r or! "x"c#ti3" # ctio s or !a " "x"c#ti3" d"cisio s. ?or"xa!/l" disc#ssi a #al di3id" ds it t " board o#ld b" a"x"c#ti3" actio a d " c" # acc"/tabl".

Pr"/aratio o acco# ti r"cords a d acco# ta c s"r3ic"s. ar" s o#ld b"ta " t at t " cli" t ta "s r"s/o sibilit or t " or do " a d t atob "cti3it i a#diti is ot i!/air"d. * " acco# ti r"cords o a

/#blic co!/a s o#ld ot b" /r"/ar"d b t " a#ditors.

b) Proc"d#r"s to ta " d#ri r"si atio

"/ositi a otic" i riti to t at " "ct to t " cli" t ' t" rat"d o s#ltii ""rs. * is otic" is ot " "cti3" # l"ss acco!/a i"s b a stat"!" t o

circ#!sta c"s. * " stat"!" t o circ#!sta c"s s o#ld co tai a circ#!sta c"s ic "

co sid"rs to b" i!/orta t to !"!b"rs or cr"ditors a d i " co sid"rsto b" o " t at is o s#c circ#!sta c"s t " a stat"!" t t at t "r" ar" o ".

c) $ctio o t " cli" t o r"c"i/t o r"si atio l"tt"r.

* " co!/a !#st s" d a co/ o t " otic" o r"si atio to t " &" istrar or"si atio .

* " dir"ctors call s#c xtra;ordi ar !""ti it i 21 da s o /ai o a i "a d !#st s" d o#t co/i"s o t " stat"!" t a d i t " ail to do sot " a#ditor ca r" #ir" t at t " stat"!" t b" r"ad at t " !""ti .

8 a) 1. $#dit sta i r" #ir"!" tsH't is i!/orta t b"ca#s"

* " a#ditor ca d"t"r!i " t " at#r", ti!i a d "xt" t o a#dit /roc"d#r"s 't also "l/s i co;ordi ati or to b" /"r or!"d. stablis "d d" r"" o i t"r al co trol * " cli" t b#d "t li!it s o#ld ot b" "xc""d"d " !a r" #ir" to i 3ol3" "x/"rts.

2. * " ti!i o a#dit i"ld 3isitsH

o as to or a is" disc#ssio s it cli" tGs !a a "!" t a d sta " s o#ld also or a is" to a3" acc"ss to t " /r"!is"s a d t " /la ts /"cial s ills ""d"d to /oss"ss a d t " ti!i o t "ir a#dit 3isits.

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o l"d " o t " s st"! ai "d att "s" sta "s ill " abl" t " a#ditor to /la is a#dit it a # d"rsta di o t " s st"!.

*i!i is !or" i!/orta t i co!/#t"ris"d " 3iro !" ts t a i !a #alo "s. * " a#ditor ill ""d to b" /r"s" t " data a d il"s ar"

a3ailabl". =or" r" #" t 3isits to t " cli" t ar" #s#all r" #ir"d. &"cordi !"t ods !a b" di "r" t. $ r"c" t d"3"lo/!" t is t " #s" o

/ortabl" !icro co!/#t"rs to !a " t " a#dit or i F/a/"rsG o lo// discsi st"ad o /a/"r.

* " allocatio o s#itabl s ill"d sta to t " a#dit. 't !a b" "c"ssar to #s"t " co!/#t"r a#dit d"/art!" t or so!" /arts o t " a#dit a d or " "rala#dit sta to a3" ad so!" co!/#t"r "x/"ri" c".

* " "xt" t to ic $$* ( o!/#t"r $ssist"d $#dit *"sts) ca b" #s"d.* "s" t"c i #"s o t" r" #ir" co sid"rabl" /la i i ad3a c".


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4 a) (i) 't is t " r"s/o sibilit o t " !a a "!" t to " s#r" t " "xist" c" o a stros st"! o i t"r al co trol. * " a#ditorGs r"s/o sibilit is to o3"rs"" t "" ici" c o t " i t"r al co trol s st"!.

(ii) -al#" o "xt"r al a#diti to cli" t.

* " "xt"r al a#ditorGs or is laid do b t " stat#t"s a d /ro "ssio alr" #ir"!" ts o t " i stit#t" t "r" or" " is li "l to b" !or" ob "cti3".

" is /ri!aril i t"r"st"d i t " tr#t a d air "ss o t " acco# ts. * " a#ditor is r"s/o sibl" to s ar" old"rs a d t " /#blic at lar " t "r" or" "

t" ds to ta " !or" car" o is or .

b) (i) &ol" o t " ' t"r al a#ditor i r"s/"ct to i t"r al co trols

" acts as a co s#lti d"/art!" t to ot "r d"/art!" ts i !att"rs to do

it i t"r al co trols. " s"r3"s as a c "c or "rrors a d ra#ds i t " co!/a . " s o#ld i!/l"!" t a d co trol all acti3iti"s i t " b#si "ss to " s#r" t at

it is " "cti3"l r# .

ii) o do"s " ass#r" i!s"l t at t " i t"r al a#dit is " "cti3"C " ca do t is bc "c i

t " i t"r al a#ditorGs

" r"" o i d"/" d" c"

co/" a d ob "cti3"s o i t"r al a#dit # ctio s #" /ro "ssio al car" *"c ical co!/"t" c" ' t"r al a#dit r"/orts

a) B" " itsi.*o co trol t " c#rr" t "arGs or . $ r"cord o or do " is "ss" tial or

* " a#dit cl"r to s"" t at " as do " all t at " s o#ld. is s#/"r3isor, !a a "r, t " /art "r to o! " is r"s/o sibl" a d ot "r

/"rso s o ill r"3i" t " or " ad do ". abli "3id" c" to b" a3ailabl" i t " i al o3"rall r"3i" sta " o a a#dit

so as to co sid"r i acco# ts s o a tr#" a d air 3i" . or i /a/"rs coll"ct"d i i 3"sti atio o o " /art o a " t"r/ris" !a b"

#s"d i t " 3"ri icatio /roc"ss or a ot "r /art. * " a#dit o o " /art o a " t"r/ris" is ot to b" co d#ct"d i isolatio .

ii. *o or! a basis or t " /la o a#dit i t " "xt "ar cl"arl a starti /oi t or a"arGs a#dit is t " r"3i" "ar co#ld l"ad to

a. li" t sta "tti to o t " /roc"d#r"s. b. * " co#ld d"si ra#ds, ic t " /roc"d#r"s ill ot # co3"r.

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iii. 3id" c" o or carri"d o#t. $#dit cl"r ""d to /ro3id" "3id" c" to t "ir s#/"riors t at t " a3" carri"d

o#t t " or . 3id" c" o t " or carri"d o#t !a b" ""d"d i a co#rt o la .

b) lai! or da!a "s. =att"rs to r"cord i t " c#rr" t il".

oc#!" t o "xt"r al 3"ri icatio ". . a co#rt stat"!" t s o i t " "3" tca#si t " "tails s o i t " "sti!at"d a!o# ts o t " clai!.

o/ o "x/la atio s b !a a "!" t abo#t t " la s#it as t is ill i3""3id" c" to t " a#ditor o t " /robabilit o r"c"i3i t " clai!.

ritt" co ir!atio b t " d" " da t t at " ill /a t " a!o# t i#"stio .

* " co!/a Gs ollo #/ o t " !att"r. *o d"t"r!i " o soo t " clai!ill b" r"c"i3"d.

c) rit" < t /"s o i or!atio i to t " /"r!a " t il".

$ o#tli " istor o t " or a isatio . %ist o acco# ti !att"rs o i!/orta c". $ddr"ss"s o t " r" ist"r"d o ic" a d all ot "r /r"!is"s it a s ort

d"scri/tio o t " or carri"d o at "ac .

d) ta dardisatio o or i /a/"rs.=ost ir!s ado/t a s st"! o sta dard or i /a/"rs ic ca b" #s"d o alla#dits. * is as !a ad3a ta "s i cl#di

ici" c . ta b"co!" a!iliar it t "!. =att"rs ar" ot o3"rloo "d. * " assist to i str#ct sta . or ca b" d"l" at"d to lo "r l"3"l sta . or ca !or" "asil b" co troll"d a d r"3i" "d.

isad3a ta "s ar"H

or b"co!"s !"c a ical. or b"co!"s sta dard. li" t sta !a b"co!" a!iliar it t " !"t od. ' itiati3" !a b" sti l"d. * " "x"rcis" o "c"ssar /ro "ssio al #d "!" t is r"d#c"d.

) a) xa!i atio o stat"!" ts r"c"i3"d ro! s#//li"rs o oods a d s"r3ic"s

*o " s#r" t at all t " liabiliti"s ar" i cl#d"d or bot s"r3ic"s a d oods


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*o " s#r" t at "r" a s"r3ic" or a ood as b"" r"c"i3"d b" or" t " "ar" d t " corr"s/o di liabilit as b"" s"t #/. * is is call"d c "c i t "c#t;o .

't also "l/s i "stablis i t " r"aso abl" "ss o t " liabilit ic !a /#ti! #/o " #ir

't also i3"s i! t " c a c" to co!/ar" t " c#rr" t liabiliti"s it /r"3io#s"ars liabiliti"s

" "xa!i "s t " stat"!" ts to "stablis t " t"r!s a d co ditio s "acc"/ti a liabilit b"t "" t " cli" t a d is cr"ditor.

* " a#ditor also a ts to " s#r" t at t " d"scri/tio i t " acco# ts isad" #at".

* is stat"!" ts ill s o t " !at"rialit o t " s#//li"s ic as to b"ta " i to co sid"ratio .

* " a#ditor ill "xa!i " t " stat"!" ts i ord"r to !atc t " / sical oodsto t " stat"!" t.

s#ri t at all oods a d r"c"i3"d b a cli" t "r" i cl#d"d i bot i 3" tori"sa d cr"dit bala c"s

"c i t " #s" /r"; #!b"r"d oods r"c"i3"d ot"s a d i t " !atc t "oods r"c"i3"d ot"s it s#//li"rs stat"!" ts a d i 3oic"s.

* " #s" o /r"; #!b"r"d /#rc as" ord"rs a d t "ir s#bs" #" t !atc iit oods r"c"i3"d ot"s.

* " a#ditor s o#ld i 3"sti at" t " !atc "d oods r"c"i3"d ot"s. &" #lar r"co ciliatio b"t "" t " cr"ditors l"d "r a d t " s#//li"rs

stat"!" ts, a3i a list o a//ro3"d s#//li"rs.

s#ri t at t " a!o# ts accr#"d or a "s a d salari"s d#" b#t # /aid "r" /ro/"rl calc#lat"d a d r"cord"d i t " boo s.

"c i a /ro/"r i d"/" d" t r"cord o "!/lo ""s is !ai tai "d so as toi d o#t d#!! "!/lo ""s o t " /a roll. ?ictitio#s a!"s !a b" i 3" t"d

or "!/lo ""s o a3" l" t or r"tir"d !a b" r"tai "d o t " /a roll. * is is#s#all do " b t " a "s o ic"r.

'!/ro/"r calc#latio o /a ca occ#r " t "r" is coll#sio b"t """!/lo ""s a d a "s o ic"r so t is s o#ld b" dir"ct"d as "ll. "c i t " cast t " /a roll at t " ti!" o a//ro3al.

*"sts # d"rta " i ord"r to " s#r" t at ca/ital co!!it!" ts at t " "ar " d "r"airl stat"d i t " boo s.

"c a#t orisatio o ca/ital co!!it!" ts t is s o#ld b" /r"/ar"d b 3"rs" ior l"3"l !a a "!" t a d t os" r"s/o sibl" s o#ld a3" o co "ctio

it cas or t " c#stod o titl". =ai t" a c" o i 3"st!" t r" ist"rH c "c i it is do " b a cl"r it o

acc"ss to doc#!" ts o titl" a d r"s/o sibilit or a#t orisatio o /#rc as"or sal"s .

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s#r" t at a i d"/" d" t cl"r s o#ld b" i3" t " d#t o co!/arico tract ot"s it /#rc as" a d sal"s a#t orisatio a d or " s#ri t atc ar "s a3" b"" corr"ctl calc#lat"d.

$d" #at" c#stod /roc"d#r"s !#st b" !ai tai "d or doc#!" ts o titl" a dt o s" ior o icials s o#ld a3" r"s/o sibilit or t "!.

< (a) ?o#r sit#atio s # d"r ic t " $ct r" #ir"s a#ditors to #ali t "ir r"/ort.

1. ' t " a#ditors ar" # abl" to obtai all t " i or!atio a d "x/la atio s t "co sid"r

"c"ssar or t " /#r/os" o t "ir a#dit, or "xa!/l", i t " ar" # abl" to obtaisatis actor "3id" c"

O t " "xist" c" o o "rs i/ o !at"rial ass"ts or o t " a!o# ts at ict " a3" b"" stat"d o t " basis ado/t"d.

O t " 3alidit o /a !" ts * at t " r"cords /ro/"rl r" l"ct all tra sactio s o t " b#si "ss b"ca#s" t ""3id" c" as b"" lost or d"stro "d or is ot "r is" ot ort co!i or as

"3"r "xist"d.

2. ' i t " o/i io o t " a#ditors Pro/"r boo s o acco# ts a3" ot b"" "/t i accorda c" it t "

o!/a i"s $ctH Pro/"r r"t#r s ad" #at" or t "ir a#dit a3" ot b"" r"c"i3"d ro! bra c "s

or 3isit"d b t "!. * " bala c" s ""t a d t " /ro it a d loss acco# t ar" ot i a r""!" t it

t " acco# ti boo s a d r"t#r s.


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B"ca#s" t " additio al i or!atio i3" i a ot" or i t " dir"ctorGs r"/ort!at"riall alt"rs t " 3i" ot "r is" i3" b t " acco# ts.

(b) irc#!sta c"s i ic t " a#ditors !a #ali t "ir r"/ort o i to i "r" t# c"rtai t .

: c"rtai t t is as d"scrib"d "arli"r i t " st#d /ac .: c"rtai t o 2 l"3"ls !at"rial a d ot # da!" tal a d !at"rial a d # da!" tal.

=at"rial a d ot ?# da!" tal' t " a#ditor as r"s"r3atio s o o l a /artic#lar as/"ct o t " acco# ts a d oto t " acco# ts as a ol". ' t is sit#atio t " a#ditor is abl" to or! a o/i ioo t " acco# ts as a ol" it /artic#lar r"s"r3atio o a s/"ci ic !att"r. "t "r" or" disclai!s o/i io o o l a as/"ct o t " acco# ts a d ot t "acco# ts ta " as a ol".

=at"rial a d ?# da!" tal* is is " t " i!/act o t " acco# ts ta " as a ol" is to !a " t "!!"a i l"ss or a d"cisio !a i /#r/os"s a d to r"d#c" t "ir i or!atio al3al#". ' t is sit#atio , t " a#ditor is # abl" to or! a o/i io o t " acco# tsta " as a ol" a d " t "r" or" disclai!s is o/i io alto "t "r b stati "is # abl" to or! a o/i io as to " t " i a cial stat"!" ts i3" a tr#" a d

air 3i" .

(c) ?o#r circ#!sta c"s i ic t " a#ditors !a #ali t "ir r"/ort as a r"s#lt odisa r""!" t it dir"ctors.

"/art#r" ro! acc"/t"d acco# ti /ractic"s "r"

* "r" as b"" ail#r" to co!/l it t " r"l"3a t '$ a d t " a#ditor do"s otco c#r.

$ acco# ti /olic ot t " s#b "ct o a '$ is ado/t"d ic a#ditorGs o/i io isot a//ro/riat" to t " circ#!sta c"s o t " b#si "ss orH

xc"/tio all a '$ as b"" ollo "d it t " r"s#lt t at i a cial stat"!" ts doot /r"s" t a tr#" a d air 3i" .

isa r""!" t as to t " acts or a!o# ts i cl#d"d i t " i a cial stat"!" ts isa r""!" ts as to t " !a "r or "xt" t o disclos#r" o acts or a!o# ts i t "

i a cial stat"!" ts ?ail#r" to co!/l it t " r"l"3a t l" islatio or ot "r r" #ir"!" ts.

Di.a#"eeme+%. i. ma%e"ial =-% +o% 3-+/ame+%al

' dicat" t at t " a#ditor i dicat"s t at " as "xc"/tio s a ai st r"s"r3atio s ot"d# d"r

# c"rtai t a d " ill !" tio i is r"/ort t at to t " "xt" t o t " "xc"/tio t "acco# ts do

ot i3" a tr#" a d air 3i" .

Di.a#"eeme+% i. ma%e"ial a+/ 3-+/ame+%al

'ts i!/act o i a cial stat"!" ts is to !a " t "! !isl"adi as a ol". ' t issit#atio

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t " a#ditor ill stat" t at t " acco# ts ta " as a ol" do ot i3" a tr#" a d air 3i" .

a) 1. a "t o # clai!"d a "s.

=isa//ro/riatio o # clai!"d a "s. * " !o " b"i #s"d to rit" o d"btors acco# ts. :s" o t " cas as /"tt cas a d b# i o ic" it"!s ot a#t oris"d. o#bl" /a !" ts to alr"ad /aid or "rs t ro# coll#sio it cl"r .

2. &"c"i/t o cas ro! c#sto!"rs

*""!i a d ladi . =isa//ro/riatio o cas r"c"i3"d. riti o bad d"bts or c#sto!"rs o a3" /aid. r"diti ot "r d"btors acco# ts it t " cas a t"r coll#di .


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MOCK E;AMINATION

A+.@e" a+! SI; -e.%io+. Time: 8Ho-".To =e ,a""ie/ o-% -+/e" exami+a%io+ ,o+/i%io+. Ma" . allo,a%e/ %o ea,$ -e.%io+ a"e.$o@+ a% %$e e+/ o3 %$e -e.%io+ S$o@ all !o-" @o" i+#.

UESTION ONE

I# " a %td. is a co str#ctio co!/a ic b#ilds o#s"s a d actori"s or its cli" ts.#ri t " "ar " d"d


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UESTION THREE

a. * " a#ditor is r" #ir"d to ""/ d"tail"d or i /a/"rs ic doc#!" t all as/"cts o t " /la i a d co!/l"tio o t " a#dit or a d also o t " co cl#sio s or!"d d#ri t "a#dit. * " or i /a/"rs s o#ld also r"cord all !att"rs o #d "!" t i so!" d"tail.

s o#ld t " a#dit or b" r"cord"d i t is l"3"l o d"tailC(12 !ar s)

b. * " dir"ctors o a co!/a ar" o t " o/i io t at t "ir a#ditors c#rr" t il"s !i tco tai a r"at d"al o #s" #l !a a "!" t i or!atio . * " rit" to t " a#ditor a t"r t "co cl#sio o t " a#dit a d as or acc"ss to t " il"s. o s o#ld t " a#ditor r"s/o d tot " r" #"stC (8 !ar s)

0To%al '( Ma" .1

UESTION FOUR

i. $ lar " co!/a ic !a # act#r"s / ar!ac"#tical /rod#cts as r"c" tl o/" "d ac ai o c "!istsG s o/s across t " co# tr . * is as to " abl" t " co!/a to s"ll itso bra ds o !"dici "s to t " /#blic a d also to di3"rsi i to t " r"taili i d#str .Ot "r !a # act#r"rs /rod#cts ar" also sold t ro# t " s o/s.* " board o t " co!/a is co c"r "d t at ross !ar i s ar" ot as ood as ad b""

b#d "t"d. $ll /#rc asi is do " c" trall a d t " cost o oods is ro# l i li " it"x/"ctatio s. 't as b"" s# "st"d t at ra#d b sta is a3i a " "ct o r"cord"di co!", /artic#larl as t " s o/s a3" b"" d"si "d to d"t"r s o/li t"rs.

ii. tat" it !a b" di ic#lt to /r"3" t ra#d b sta i a !a or r"tail or a isatio .( 5 !ar s)

iii. x/lai i d"tail so!" o t " co trols ic co#ld b" /#t i /lac" it i t " s o/s to!i i!is" or /r"3" t ra#d b sta .

(15 !ar s)0To%al '( Ma" .1

UESTION FIVE

a. %ist t r"" /#r/os"s o a d"btors circ#larisatio .(< !ar s)

b. %ist t " sta "s o a d"btors circ#larisatio .(4 !ar s)

c. " o r"/li"s ar" r"c"i3"d ro! d"btors i a d"btors circ#larisatio "x"rcis", t " a#ditor or!all /"r or!s alt"r ati3" /roc"d#r"s b" or" " ca co cl#d" o "t "r t "ob "cti3"s o t " circ#larisatio a3" b"" !"t. %ist a d "x/lai alt"r ati3" /roc"d#r"s.

(6 !ar s)d. x/lai t " !"a i a d i!/orta c" o t " l"tt"r o " a "!" t. at ar" t " #s#al

co t" ts o t " l"tt"r o " a "!" tC(7 !ar s)

0To%al '( Ma" .1

UESTION SI;

>" a $#diti #id"li " L O/"ratio al No. 6 stat"s t at Ji t " a#ditor is "s to /lac"r"lia c" o a i t"r al co trols, " or s " s o#ld asc"rtai a d "3al#at" co trols a d /"r or!co!/lia c" t"sts o t "ir o/"ratio .K


Lesson Ten


251/252

2'(

Re -i"e/:

a. x/lai t " circ#!sta c"s " it is ot a//ro/riat" or a#ditors to c "c t " i t"r al

co trol s st"!. (

b. x/lai t " circ#!sta c"s " a#ditors s o#ld c "c i t"r al co trols a d t " r"aso s t " /"r or! t "s" c "c s.

(4 !ar s)c. "scrib" t " a#dit or o# ill carr o#t at "ac o t " sta "s s o b"lo i r"latio to

i t"r al co trol s st"! o3"r /#rc as"s

i. $sc"rtai i t " s st"!H(4 !ar s)

ii. &"cordi t " s st"!H(4 !ar s) iii. o ir!i t " s st"!H(< !ar s)

i3. 3al#atio o t " co trols.(2 !ar s)

0To%al '( Ma" .1

UESTION SEVEN

>" a $#diti #id"li " 7 o &"3i" o ?i a cial tat"!" ts stat"s J * " a#ditor s o#ldco sid"r "t "r is r"3i" as disclos"d a " actors ic a "ct t " /r"s" tatio or acco# ti /olici"s ado/t"d. ?or "xa!/l", it !a b"co!" a//ar" t as a r"s#lt o is r"3i"o t " i a cial stat"!" ts as a ol", t at t " " tit as li #idit /robl"!s a d t " a#ditor s o#ld co sid"r "t "r or ot t " i a cial stat"!" ts s o#ld a3" b"" /r"/ar"d o a oico c"r basis.K

Re -i"e/:

a. x/lai t " !"a i o F oi co c"r G co c"/t.(4 !ar s)

b. %ist "i t actors ic !i t cast do#bt o t " oi ;co c"r stat#s o a co!/a .(8 !ar s)

A UDITING

Revision Ai$


252/252

2')

c. "scrib" t " a#dit /roc"d#r"s "c"ssar i ord"r to obtai s# ici" t a#dit "3id" c" to b"abl" to or! a o/i io o t " oi ;co c"r stat#s o a co!/a .

(8 !ar s)0To%al '( Ma" .1

UESTION EIGHTa. O#tli " t " b" " its t at ca b" d"ri3"d b a a#ditor ro! t " s#cc"ss #l "!/lo !" t o

statistical sa!/li t"c i #"s as o//os"d to o ;statistical sa!/li

Lesson Ten

auditing study pack by harold(final).doc

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