Winter Exam-2012

(Final)

Auditing

(07.11.2012)

Duration: 3 hrs.

Marks-100

[Instructions]
Ensure that the question paper delivered to you is the same, in which you intend to appear.
Read the instructions given on the title page of Answer Script.

Attempt all Questions

Q.1. Define and briefly explain the following terms:

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(a) Professional Skepticism

(b) Assurance Engagement
(c) Audit Materiality
(d) Audit Risk
(e) Going Concern
Q.2.

(a) Define Fraud.

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(b) Describe the two types of fraud: Misappropriation of Assets and fraudulent

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Financial Reporting and how do these differ from each other?

(c) As per ISA 240, describe the auditors responsibilities in relation to fraud in
an audit of Financial Statements.

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Q.3. You are a partner of Siddiqui and Co., incharge of the audit of Tea Limited, a

public listed company; the audit manager has completed the audit for the
financial year October 2010 to September 2011 and has given you the draft
financial statements and audit file containing all the working papers. You are
conducting your final review prior to signing the audit report and have
identified that Tea Limited currently has borrowings of Rs. 100 million which
are due for repayment on 1st November 2011 but it is currently trying to extend
the due date in negotiation with commercial banks; in addition it also has an
overdraft of Rs. 250,000 which is Rs. 50,000 over the authorized limit; this was
not identified as a cause for concern by the audit manager. Further, the
company has suffered its third consecutive year of loss and its current liabilities
exceed its current assets by Rs. 450,000.
(a) What issues should the audit manager have considered to assess whether
Tea Limited is a going concern?
(b) The management has prepared the financial statements of Tea Limited on
a going concern basis. What are the responsibilities of Siddiqui and Co. in
relation to assessing whether the going concern basis is appropriate and
what courses of action are available?

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Q.4. Explain the auditors procedures and responsibilities in relation to:

(a) Obtaining confirmation for receivable balances.

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(b) Events subsequent to balance sheet date.

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(c) Using the work of experts.

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Contd. on back

Q.5. State and describe four methods of sampling which an auditor may use in an

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audit of Financial Statements.

(a) Briefly describe the primary differences between external and internal

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audit.
(b) State what factors should be considered when deciding whether to rely on
the work of the internal audit department.

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(a) Briefly describe the audit procedures an auditor may use for obtaining audit

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evidence.
(b) State four steps the auditor needs to perform before accepting a new audit
assignment.

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Q.8. Describe the legal considerations pertaining to the appointment, removal and

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Q.6.

Q.7.

resignation of auditors.
Q.9. Provide three audit tests an auditor may perform to ascertain the truth and

fairness of each of the following:

(a) Provision for warranty obligations

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(b) Provision for Bad Debts

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(c) Impairment charge of fixed assets

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(d) Tax payable

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