NTA LEVEL- 6, Marking Scheme for 2010 Exam, Elements of Auditing

(Zanzibar Institute of Financial administration- Chwaka, Zanzibar)

No. Details Marks

Question no. one. ( Total marks =20 marks) Full mark of 5
a) Auditing is the review of the financial statements of a company or will be issued if
any other legal entity (including government), resulting in the student
publication of an independent opinion on whether or not those demonstrate that
financial statements are relevant, accurate, complete, and fairly he/she know
presented. On other hand if they showing true and fair view of the what is financial
operation under review (5marks) audit
b) (5marks) One mark for
Heading Accounting Auditing each point of
Objective Preparation of Certifying truth and fairness of differentiation
final accounts final accounts between
accounting and
Nature. Uses records to Check on the work of both auditing
prepare final book-keeper and accountant,
accounts, may be contractual or statutory
contractual

Qualification No formal Must be a CPA

qualifications

Commencem After the work of After the work of accountant is

ent book-keeper is over
over

Liability No report, no Must report and it is a statutory

statutory liability
liabilities

c) Importance of auditing to public listed company One mark for

1. Credibility of the financial statements every point
2. Easy to raise money through loan and share issuing mention,
3. As per stock listing requirements maximum
4. As per company requirements marks is 5
5. Prevention of errors and frauds
d) HEADING EXTERNAL AUDIT INTERNAL One mark for
AUDIT each point.
Student is
Objectives Report on financial Tool of management, expected not to
position and earning scrutiny of plans, explain these
capacity of business- polices and points
true and fair procedures to
improve operational
efficiency

Appointment By the proprietors of By the management

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 NTA LEVEL- 6, Marking Scheme for 2010 Exam, Elements of Auditing
(Zanzibar Institute of Financial administration- Chwaka, Zanzibar)

shareholders, or board of directors,

compulsory by law. optional and
contractual.

Approach To ensure truth and To ensure substantial

fairness of accounts. accuracy of records

Independence Outside the circle, not Within the circle,

be member of group employees of the
business.

Scope Accuracy of accounting To ensure

records, true and fair. compliance with the
Qualifications, rights, procedures laid down
duties and liabilities by management, free
prescribed by law- no to adopt any
contracting out, methods, reporting
reporting to to top management
shareholders. on adequacy of
internal control

Responsibilities Liable to members and Liable only to

outsiders management.

Question two: Student is

Audit evidence expected to
a) The information obtained by the auditor in arriving at the define the term
conclusions on which the audit opinion is based. Audit evidence audit evidence =
will comprise source documents and accounting records underlying 4 marks and 1
the financial report, and corroborating information from other mark for
sources. ISA used to explain audit evidence is ISA 500 mentioning ISA
(5 marks)
b) (5 marks) One mark for
Other audit evidence: each point,
• minutes of meetings; Explanation is
• confirmations from third parties; not required;
• analysis' reports';
• comparable data about competitors (benchmarking);
• controls manuals;
• information obtained by the auditor from such audit
procedures as inquiry, observation, and inspection; and
• other information developed by, or available to, the
auditor that permits the auditor to reach conclusions through
valid reasoning
c) (10 marks) Student is

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 NTA LEVEL- 6, Marking Scheme for 2010 Exam, Elements of Auditing
(Zanzibar Institute of Financial administration- Chwaka, Zanzibar)

1. Inspection expected to
2. Observation mention and
3. Reperformance explain five
4. Recalculation methods in
5. Confirmation order to earn
6. Inquiry full 10 marks.
7. Analytical Procedures (2 marks x 5)

a) Question three. Student is

Electronic Audit working papers are the documents which expected to
keeping all audit evidence obtained during the auditing work which discuss
are in the form of soty copy. In addition can take pictures ( static electronic
and vedio) incluing sound. It is useful when auditor under takes working paper
substative tests and analytical review of financial statement. by showing that
Audit working paper is to be able to support the audit works done it is soft rather
in order, sufficient and assurance audit evidences have been than hard copy
obtained and reasonable assurance audit conclusion can be made in
due course
(5marks)
b) Weakness of electronic working papers: (5marks) 5 marks
• Easy to destroy record in working papers discussing
• Easy to manipulate data hence destroy evidence disadvantages
• Some legislation do not support electronic evidence especial of electronic
during litigation process working paper
• Extensive uses of computer is required
c) Legally, working papers is the property of company under audit Student should
and not auditor, it is true as all working paper contain company demonstrate
heading and reference, even retired auditor has to submit W/P ability to
either to company ( audit committee) or income auditor but cannot explain these
run away with them. But in absent of any clause in engagement that two type of
require auditor otherwise, it is professional believe to be the ownership of
property of auditor simple because of: he the one prepare the W/P, working paper
the one who keep in safe custody, used as evidence in legal case (5 marks)
against him.
d) Basically when W/P get lost, junior auditor had to repeat the 4 marks for full
auditing procedures same as undertaken before and submit new discussion of
W/P to senior auditor who going to write audit opinon, otherwise the situation and
senior auditor can use his experiance to add other explanation showing the
provided by junior auditor in issuing opnion (but this should only consequences
used under great care as it will lead into audit risk situation). The
auditing firm has to cover any additional costs resulting from lost
of working paper and not client, hence it will be ineffecient audit
process in terms of costs and time.

Question four

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 NTA LEVEL- 6, Marking Scheme for 2010 Exam, Elements of Auditing
(Zanzibar Institute of Financial administration- Chwaka, Zanzibar)

5 marks for
Sampling risk: is the risk that the sample is not representative of definition
a) the population from which it is drawn and thus the auditor’s
conclusion is different to that which would be reached if the whole
population was examined
(5 marks)
Alpha risk (α) The risk of incorrect rejection’ or risk of under 10 Full mark for
b) reliance. discussion and
showing the that
• the risk of incorrect rejection which arises when test of Beta is the
control (compliance) are less effective than they actual are, riskiest
or based on test of details (substantive) that a material sampling error
misstated error exist when this is not the case.

• This situation is usually resolved by additional audit work

being performed when it is decided that, a sample may be
material misstated.

• This risk affects audit efficiency but should not affect the
validity of the resulting audit conclusion
• Beta risk (β) or the risk of incorrect acceptance or risk of
over reliance.
• It arises when material error is not detected in a population
because the sample failed to select sufficient items
containing errors. Or
• If based on the tests of controls (compliance), the controls
are more effective than is actually the case, or based on the
test of details (substantive) that there is no material
misstated error while it is in fact exists.
• It affects audit effectiveness, can be quantified using sit is
possible that an unqualified auditors’ report could be issued
inappropriately such errors should be detected by other
complementary audit procedures (assuming that the sample
size is appropriate to the level of detection risk).
• It is serious indeed in terms of ultimate liability in an audit
situation (10 marks)

c) • removal of the directors (entire board of directors and 5 marks for

appointment of a new board showing the
• fall in the value of the company’s shares because the negative effects
potential shareholders of company
 will not have demand such shares and being issued
 Even the existing shareholders will start selling their shares with qualified

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 NTA LEVEL- 6, Marking Scheme for 2010 Exam, Elements of Auditing
(Zanzibar Institute of Financial administration- Chwaka, Zanzibar)

in particular, minority shareholders.

• loss of credibility which will reduce its goodwill, thus:
• The company will not be able to rise further (additional)
finance easily, in particular, share capital and debt finance.
• The company cannot attract trade creditors, i.e. it losses
negotiating power
• management or technical skill will take place,
• Revisit price offered by the owners selling the firm
• Prepare report to the client advising him or her of your
findings.
(5 marks)
Question five 5 marks for
a) • ISA 210 = terms of audit engagements mentioning,
• ISA 300 = Planning and audit of financial statements order of ISA is
• ISA 505 = External confirmations not important
• ISA 520 = Analytical review
• ISA 570 = Going concern
b) When planning the audit, the auditor should consider an appropriate 1 mark for
combination for manual and CAATs. In determining whether to use listing points
CAATs the factors to be considered include. and other one
1. Computer knowledge, expertise and experience of the for explaining
auditor Total 10 marks
2. Availability of CAATs and suitable computer facilities
3. Effectiveness and efficiency
4. Timing
5. Impracticability of manual tests
(10 marks)
c) • IFRS 1= fist time adoption of International finanical Each IFRS 2.5
reporting standards marks
• IFRS 2= share based payment (2 marks)

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