Auditing Question Bank

Autumn 2009 to Autumn 2016

[Structured
Audit and AssuranceAs Per ICAP Study
PageText
|2 Question Bank (ICAP Past Papers)

Chapter 1

ISA 200 and Basics of Auditing

1 In relation to the audit report on financial statements and the contents thereof (under revised/new Q.5 b.c
ISAs), discuss the appropriateness or otherwise of the following (A-16)
statements:
(b) Reasonable assurance is a high level of assurance and is a guarantee that if audit is conducted in
accordance with ISAs, it will always detect a material misstatement whenever it exists. (03)
(c) The auditor obtains an understanding of controls relevant to the audit in order to design audit
procedures that are appropriate in the circumstances and also for the purpose of expressing an opinion
on the efectveness of the entty’s internal control. (03)

2 Briefly explain with examples, the different levels of assurance that can be provided to an assurance Q.1(g)
client. (03) (A-15)

3 Briefly describe the meaning of professional judgment and explain its importance in the context of an Q.1
audit (04) (S-13)

4 List three reasons why audit evidence is considered to be persuasive rather than conclusive. (03) Q.5(b)
(S-11)

5 Briefly highlight the management’s responsibilites relating to the financial statements? (07) Q.1(a)
(A-09)

Companies Ordinance 1984

1 Daud and Company, Chartered Accountants (DC), has received an ofer for appointment as auditor of Q.7
Jamal Limited (JL). Wife of Daud is a Shareholder and Director in Royal Limited (RL). (A-16)
Required: In accordance with the requirements of the Companies Ordinance, 1984, state whether and
under what circumstances DC could accept the audit, under each of the following situations:
(a) JL holds 51% shareholding in RL. (03)
(b) JL is an associated company of RL. (05)
(c) One of the directors in JL also holds 10% shareholding in RL. (02)

2 Justfy giving reasons whether the appointment of auditors in the following cases is in compliance with Q.4
the requirements of Companies Ordinance, 1984. (S-16)
a) Kashif and Company, Chartered Accountants (KC) has received an offer for appointment as the
auditor of National Electricity Limited (NEL). On the request of one of the partners of KC, NEL has
allowed him to pay his last month’s electricity bill amounting to Rs. 150,000 in monthly installments
of Rs. 15,000 each. (03)
b) Zubair and Company, Chartered Accountants (ZC) has received an ofer for appointment as auditor
of Haroon Limited (HL). Saima, who is the wife of a partner of ZC, is the chief executive of Jameel
Limited (JL). JL is an associated company of HL. Saima also holds 100,000 shares in JL. (03)

3 Comment on each of the following situations with reference to the appointment of external auditors in Q.2
accordance with the requirements of the Companies Ordinance, 1984. (S-15)
a) ABC Limited and DEF Limited are associated companies on account of common directorship. Salman
and Company, Chartered Accountants (SCC) have received an ofer for appointment as the auditor in
ABC. Salman, a partner in SCC is the spouse of Naveen, who is an employee in DEF. (02)
b) All the partners of Kashif Associates are Cost and Management Accountants. The firm has received
an ofer for appointment as the auditor of Nihal (Private) Limited (NPL). NPL has a paid -up capital of
Rs. 500,000 and 30% of its shares are held by Siyal Limited which is a public company. (03)

4 The external auditors are normally appointed by the shareholders at the annual general meetng (AGM) Q.1(c)
of the company. State the exceptons to this rule. (03) (S-15)
5 Your firm is the auditor of ABD Limited (ABDL). After the acquisiton of majority shareholding in HG Q.2(a)
Motors (Private) Limited (HGM), ABDL has decided to replace the existng auditors of HGM in the next (A-14)
annual general meetng and has approached you for appointment as HGM’s auditors for the next year.
Required:
In the light of the Companies Ordinance, 1984 explain the procedures to be followed and formalities to
be complied with for appointment of your firm as the auditor of HGM. Also explain the rights of the
existng auditors in this situation. (08)

6 Comment on the following independent situations, with reference to the requirements of the Companies Q.2
Ordinance, 1984. (S-14)
a) (a) Mateen has recently joined Humayun and Company (HC), a firm of Chartered Accountants, as a
Director with a commitment of being promoted as a partner in due course. HC is the auditor of
Strawberry Limited (SL). Mateen was previously associated with SL as a Director. He left that job in
2011 but stll holds 1,000,000 shares in SL. (03)

b) (b) Khawar is a partner in Ghalib and Company, Chartered Accountants. He writes occasionally as a
Free Lancer for ‘Investment Times’, a leading Financial Magazine. Ghalib and Company are the
auditors of Financial Press Limited, publisher of Investment Times. Khawar has received a
remuneraton of Rs. 20,000 for his artcles published in the magazine. (02)

c) (c) Hamid is a partner in a Chartered Accountant firm and holds 100,000 Term Finance Certficates in
Sona Fertlizers Limited (SFL). Hamid’s firm is considering to accept the audit of SFL. (02)

7 Comment on each of the following independent situations in the light of the requirements of the Q.5
Companies Ordinance, 1984: (A-13)
a) Khan and Company, Chartered Accountants has received an offer for appointment as auditors of
Good Bank Limited (GBL). Shahid is a partner in Khan and Company. He has obtained a personal
finance of Rs. 450,000 from GBL and also holds GBL’s credit card. The outstanding balance on his
credit card is Rs. 100,000. (03)

b) Abid is a partner in AFL & Company, Chartered Accountants. AFL has accepted an ofer for
appointment as auditors of Saima Limited (SL). Saima, the wife of Abid, owned 11% shares in SL. She
also works as SL’s General Manager Marketng. Saima disposed of the shares held by her to Abid’s
father, within 30 days of the appointment of AFL but contnues to remain employed in SL. (03)

8 Comment on each of the following independent situations with reference to the applicable requirements Q.3
of the Companies Ordinance, 1984. (S-13)

a) Jahangir (Private) Limited (JPL) has a paid-up capital of Rs. 2.5 million. Till recently, it was a wholly
owned subsidiary of Malik Limited (ML). Recently ML has disposed of 60% of its holding in JPL to
Zubair Enterprises (ZE), a partnership firm. All the partners in ZE are on the Board of Directors of ML.
JPL intends to appoint Mr. Ahsan as its auditor. Mr. Ahsan is an MBA and his brother is also a partner
in ZE. (03)

b) A notce for appointment of Kashif and Company, Chartered Accountants (KCC) was received by
Khanewal Limited (KL), fourteen days before the AGM. The notce was served by Mr. Iqbal, who is a
holder of 500,000 non-votng preference shares. (02)

c) Mr. Khan is a partner in a firm of Chartered Accountants. He also holds 70% shares in Khan Limited,
(KL). Constructon Bank Limited (CBL) has granted a loan of Rs. 10 million to KL. Mr. Khan’s firm has
received an offer for appointment as auditor of CBL. (02)
9 Comment on each of the following independent situations with reference to the applicable rules and Q.8
regulations. (A-12)

a) Zaman is a partner in a firm of Chartered Accountants and holds 5,000 shares in Mardan Limited
(ML). His firm has received an offer for appointment as auditors of Khanewal Limited (KL). ML and KL
are subsidiaries of Dera Khan Limited (DKL). (03)

b) Bilal and Company has received an ofer for appointment as auditors of IJK Limited. The total paid up
capital of the company is Rs. 990 million whereas its ordinary share capital is Rs. 130 million. Faryal,
the wife of a partner in Bilal and Company, is a director in LMN Limited which holds 50 million non -
votng preference shares and 2 million ordinary shares in IJK Limited. Faryal also holds 10,000 shares
in LMN Limited. The par value of both types of shares is Rs. 10 each. (04)

10 Comment on each of the following independent situations with reference to the applicable rules and Q.6
regulations. (S-12)

a) Waqar is a partner in Sohail and Company, Chartered Accountants, who are the auditors of Wasi m
Limited for the year 2011. Aqib who was a partner of Waqar in 2008 in his food business, has
recently been appointed as a Director of Wasim Limited. (02 marks )

b) Aleem, Asif and Company (AAC), Chartered Accountants, has accepted an ofer for appointment as
auditors of Gul Limited (GL). Kamal who is a partner in AAC, held 5000 shares in GL. Within thirty
days of acceptance, he gifted the shares to his son Kamran, who is a manager in AAC. (06 marks )
c) Sajid, Hameed and Company (SHC), Chartered Accountants, are the auditors of Mir Hasan Limited
(MHL). Kashif is a senior manager in SHC and is being promoted as a partner. He teaches auditng in a
college. The college is owned by a trust whose trustees include two directors of MHL. (02 marks )
d) Saleem is a partner in Orange and Company, Chartered Accountants. He also practces as a sole
proprietor and has received an ofer for appointment as auditor of ABC Financial Services Limited
which is a subsidiary of DEF Bank Limited. The balance outstanding against the credit card issued by
DEF Bank Limited to a partner of Orange and Company is Rs. 510,500. (02 marks )

11 Comment on each of the following independent situations in respect of appointment of auditors, with Q.4
reference to the applicable rules and regulations: (A-11)

a) Guava and Company, Chartered Accountants, have received a request for appointment as auditor of
Orange Bank Limited (OBL). Most of the partners of Guava and Company maintain their accounts
with OBL and are enjoying credit card facilites from them. The maximum outstanding balance on the
credit card facility, due from any partner is Rs. 399,000.
b) Apricot and Company, Chartered Accountants, have received an ofer for appointment as auditor of
Banana Limited. Mr. Pumpkin who is a nominee director of the Government on the Board of
Directors of Banana Limited holds 25% shares in Water Melon Limited. The spouse of a partner also
holds shares in Water Melon Limited.
c) Mr. Zaheer, a legal practtoner, has received an offer for appointment as external auditor of Lychee
(Private) Limited (LPL). The paid up capital of LPL is Rs. 1,500,000 of which 40% is owned by Blue
Black Limited, a listed company.
d) Walnut and Company, Chartered Accountants, have received an offer for appointment as external
auditors of Wasim (Private) Limited (WPL), in place of the previous auditors, who were removed
before the completion of their term. You may assume that WPL has completed all the legal
formalities before removing the previous auditors.
e) Mr. Sadiq has recently joined your firm as a partner. He has served on the Board of Directors of
Strawberry Limited (SL) untl 30 June 2009, as a Government nominee. In the Annual General
Meetng of SL held on 31 August 2011, a shareholder has proposed the name of your firm for
appointment as the external auditors for the year ending 30 June 2012. (11 marks)
12 Comment on each of the following situations with reference to the appointment of external auditors in Q.1
accordance with the requirements of the Companies Ordinance, 1984: (S-10)

a) Farrukh& Co., Chartered Accountants, has received an offer to be appointed as the external auditor
of Ebrahim Gas Company. The firm is indebted to the company as it has not paid the last two
months’ bills amountng to Rs. 4,860.
b) After seventy days of incorporaton, the directors of Rahman Limited (RL) decided to appoint Mr.
Shahid as the company’s statutory auditor. Mr. Shahid was employed by RL before he started his
own practce.
c) The directors of Fazal Limited (FL) have decided to appoint Syed & Company, Chartered Accountants,
as external auditor of the company. One of the partner’s spouse holds 1,000 shares in the subsidiary
of FL.
d) The directors of Najam (Pvt.) Limited having paid-up capital of Rs. 4.5 million have appointed Mr.
Dawood to act as the external auditor of the company. Mr. Dawood has been awarded a diploma in
International Financial Reportng Standards by the Insttute of Chartered Accountants of Pakistan
and has completed the mandatory period of training from a leading firm of chartered accountants.
e) All directors of Hussain Associates (Pvt.) Limited are chartered accountants. The company has
recently received an offer for appointment as the external auditor of Masood (Pvt.) Limited which
has a paid-up share capital of Rs. 1,000,000. (10)
 Chapter 2

ISA- 210

1 In relation to the audit report on financial statements and the contents thereof (under revised/new ISAs), Q 5a
discuss the appropriateness or otherwise of the following statements: (A-16)
(a) The management is only responsible for preparation of financial statements in accordance with the
financial reportng framework and for such internal controls as management determines are necessary to
enable the preparation of financial statements that are free from material misstate ment, whether due to
fraud or error. (03)

2 Your firm has been re-appointed as the auditor of Elegant Limited (EL) for the year ended 30 June 2015. Q.2
The firm has been the auditor of EL for the last five years. (A-15)

Required:
(a) How would you assess whether it is necessary to send an audit engagement letter to EL for the year
ended 30 June 2015? ( 5 marks)
(b) State how would you proceed If EL requests your firm to change certain terms of engagement.
( 4 marks)

3 The audit engagement letter specifies objective and scope of audit, responsibilities of auditor and Q.1(b)
management, applicable financial reportng framework and form and contents of audit report. State any (S-15)
four additonal matters that may be included in the engagement letter. (04)

4 Khanewal Limited (KL) has requested your firm to submit engagement letter for KL’s statutory audit. The Q.1
engagement partner has asked you to establish whether preconditons for the audit of KL are present. (A-14)

Required:
What matters would you consider in order to ensure that preconditons for the audit exist? (05)

5 Briefly describe the steps that an auditor should take in order to establish whether preconditons of an Q1 (b)
audit are present. (06) (A-13)

6 List the important matters that are required to be included in an audit engagement letter. (06) Q.9
(A-12)

7 An auditor may agree to a change in the terms of engagement provided there is a reasonable justificaton Q.3
for doing so. (S-12)

Required:

a) List the circumstances in which the management may request the auditor to change the terms of an
audit engagement.

b) What factors should be considered by the auditor before acceptng a change in the terms of the
engagement?
c)
d) (c) List the steps that the auditor should consider, if he is unable to agree to a change in the terms of
engagement. (09 marks)

8 List the circumstances in which it may become necessary to revise the terms of audit engagement for a Q.9
recurring audit. (07 marks) (A-11)
9 Strawberry Pakistan Limited (SPL) was incorporated on March 1, 2011. The directors of SPL are in the Q.1
process of appointng the first statutory auditor of the company. They have requested your firm to (S-11)
submit a proposal for the statutory audit assignment. A partner of your firm has asked you to draft
the proposal after assessing whether the preconditons for the audit exist. Required:

a) Briefly discuss the term ‘preconditons for an audit’.

b) What are the steps that you would perform in order to ensure that preconditons for the audit
exist?
c)
d) Discuss whether your firm may or may not accept the assignment if one of the preconditons for
the audit is not present. (10 marks )

10 (a) A prestgious company has approached your firm to accept appointment as its external auditor. Q.8
State the matters that your firm should consider before acceptng the engagement. (04) (S-10)

(c) Your firm has been the auditor of Mujahid Limited (ML) for many years. Before the
commencement of the current year’s audit ML has requested that some changes be made in the
terms of engagement. Required:

(i) What are the circumstances which may lead to changes in the terms of engagement? (03)
(ii)
(iii) (ii) Discuss the important points which should be considered before acceptng the changes in the
terms of engagement. (05)

Code of Ethics

1 Your firm is the auditor of ABD Limited (ABDL). After the acquisiton of majority shareholding in HG Q.2(b)
Motors (Private) Limited (HGM), ABDL has decided to replace the existng auditors of HGM in the (A-14)
next annual general meeting and has approached you for appointment as HGM’s auditors for the
next year.

Required:
Explain the responsibilites of your firm and the existng auditors in the above situation under the
Code of Ethics for Chartered Accountants. (05)

2 You have recently signed the audit report of Sadiq Limited. The management has approached you for Q.6(d)
reducton in audit fee for the next year because the company has been suffering losses for the past (S-12)
three years. (03 marks )
 Chapter 3

ISA 300

1 Briefly discuss the concept of ‘Professional skeptcism’. (03) Q.6(e)

(S-16)

2 (a) Briefly describe ‘Preliminary Engagement Activites’ and ‘Planning Actvites’. (05) Q.1
(S-14)
(b) You are the partner of Alamgir and Company, Chartered Accountants and have received an ofer
for appointment as auditor of Guava Limited (GL). The previous year’s audit was carried out by
Babur and Company, Chartered Accountants.
Required:
State the matters that you would consider:
(i) while deciding about the acceptance of audit of GL. (03)
(ii) in establishing the overall audit strategy, including matters which are to be considered, being the
inital audit engagement. (08)

3 a) What is the diference between audit strategy and audit plan? (04marks) Q.6
b) You have been appointed as the auditor of a company which was previously audited by another (A-10)
auditor. Being a new client, what additonal consideratons would you take into account while
performing the preliminary engagement activities prior to commencement of the audit? (05
marks)

4 During the audit team planning meetng, a member of the audit team passed a comment that based Q.1(b)
on past experience with the client, he was confident that the management of the client was honest (A-09)
and there was no issue as regards management integrity or risk of fraud in the Company. The audit
manager responded that the auditor should always maintain an atttude of professional skeptcism
throughout the audit. Required: Briefly describe ‘Audit Skeptcism’ and elaborate on the response of
the audit manager. (08)

ISA - 320

1 Determination of materiality level requires professional judgment on the part of the auditor. Q.7
(a) Briefly describe the importance of materiality in the following stages of audit: (S-16)
(i) Planning stage (01)
(ii) Reportng stage (02)

(b) What aspects of materiality should be documented by an auditor in the working papers? (04)

2 You are the training manager in a firm of chartered accountants. Prepare brief presentaton for Q.6(c)
newly inducted trainees, on the following: (A14)
Materiality and Performance Materiality. (05)

3 (a) Sajjad is the audit senior on the audit of Hameed Limited (HL). Upon his manager’s instructon Q.5
Sajjad had determined the acceptable materiality level to be Rs. 10 million at the inital (S-10)
planning stage. However, at the tme of evaluating the results of audit procedures carried out
at the interim stage, he has reduced the materiality level to Rs. 7.5 million.
Required:
(i) Identfy the possible causes which motvated Sajjad to reduce the materiality level. (02 )
(ii) Discuss the impact of reducton in the materiality level on audit risk and the audit procedures to
be performed. (05 )

(b) During the course of an audit, both quanttative as well as qualitative misstatements need to be
considered. Give four examples of qualitative misstatements. (04 )
ISA - 315

1 You are the audit manager of the Educational University (EU) for the year ended 31 December 2015. Q.11
EU has a student base of 2,500 students. It follows a policy of receiving 50% of the fees at the start (S-16)
of the semester and 50% in the middle of the semester. However, 10% discount is allowed to those
students who pay the entre amount in advance. The cost of course material is included in the fees.
The semester starts in December and June each year. You have notced that 30% of the students
who were registered in December 2015 had not claimed the course material tll 31 December 2015.

Required:
Discuss the audit risks in the above scenario and how you would deal with them. (07)

2 You are the Audit Manager on the audit of Durable Cement Limited (DCL). The information Q.3
contained in the planning document includes the following: (A-15)

(i) DCL is presently operatng in poor general economic conditons and is also faced with tough
compettion, due to the availability of low priced imported cement.

(ii) In additon to the wholesalers, DCL supplies cement directly to various government
departments and real estate developers. The sale is authorized by the credit control
department; however, payments from government departments are often delayed.

(iii) During the year, DCL has made investment in securities of unlisted public companies.

(iv) A long-term loan was obtained in 2007 to finance the existing plant. The amount is repayable in
10 annual installments.

(v) DCL operates a non-funded gratuity scheme for its employees.

Required:
Assess the inherent risks (high, low or moderate) along with appropriate justfication, related
to the following assertions:

- Valuation of factory plant - Valuation of trade receivables

- Ownership right of finished goods inventory - Valuation of unlisted securities
- Accuracy of long-term finance - Valuation of provision for gratuity (9)

3 The auditor is required to identfy and assess the risk of material misstatement at both the financial Q.1(a)
statement and asserton levels. State what is meant by risk at financial statement level and (S-15)
asserton level. Give one example of risk at each level. (03)

4 An auditor is required to identfy and assess the risks of material misstatements to provide a basis Q.4
for designing and performing further audit procedures. (S-14)

Required:
(a) State factors which an auditor should consider while evaluating significance of audit risks. (06)

(b) State the matters which you would include while documentng the risk identification and risk
assessment procedures. (06)
ISA - 240

1 (a) Discuss the external auditor’s responsibility relating to fraud in an audit of financial statements. Q.2
(04) (A-16)
(b) Sometme the management’s atttude towards the audit/auditors is indicative of the possibility of
material misstatement in the financial statements due to fraud. Give four examples of such
atttude/circumstances. (04)
(c) You are the auditor of Information Limited (IL), which is engaged in the development of customized
software. During the last three years IL has become the leading software developer in the industry
due to completon of large number of projects.
During the inital meetng the client has informed that:
· IL has achieved a growth of 60% as compared to the growth target of 30% set for the
financial year ended 30 June 2016 and the board of directors are considering to d istribute
25% of the profit to the management staff as performance bonus.
· one of the compettors has shown its willingness to acquire IL.

Required: Identfy the fraud risk factors in the above situations. (03)

2 Briefly state the audit procedures which may be performed to identfy the risks of material Q.3(b)
misstatement due to fraud. (05) (S-16)

3 While reviewing the audit files of four different clients you confronted the following situations: Q.9
(i) Due to tough compettion in the market, the company has been unable to increase the prices of (S-15)
its products since last 5 years.
(ii) Additon to intangible assets, amountng to Rs. 500 million include research cost of Rs. 10 million
which is duly supported by invoices from suppliers.
(iii) During the last three years, the Chief Executive and higher management has been earning
handsome bonuses, based on the profitability of the company.
(iv) Physical stock take on 31 December 2014 included goods sold but not despatched amountng to
Rs. 52 million. The delivering of goods was stopped on the request of a distributor. Upto 20
January 2015, the distributor has taken delivery of goods amountng to Rs. 2 million.
Required:
(a) In each of the above situations, identfy with justfication whether it represents a risk of fraud.
(06)
(b) Describe what actons are to be taken by an auditor on identfying a fraud risk factor. (04) Q.3(a)
(A-14)
4 Your firm is the auditor of Cell Phones (Private) Limited (CPPL), which operates a chain of mobile
phone retail outlets. About 25% of shareholding in CPPL is owned by Anwar and his wife. Anwar is the
Chief Executve of CPPL and also looks after the finance and operatons of the company. There are five
other directors and each of them holds 15% shares in CPPL.
The Internal Audit Functon comprises of three senior oficers who are graduates. Their dutes include
checking of accountng records, physical stock taking, preparation of bank reconciliations, reviewing
payments and verificaton of fixed and current assets.
During the planning phase, Anwar stressed the need for early completon of audit, in order to be able
to submit the audited financial statements for seeking a long term finance. He was of the view that
internal internal audit working papers would be of enormous help in performing and early completon
of the audit.
Required:
Q.1
Identfy and briefly describe the fraud risk factors in the above scenario. (06)
(A-10)
5 You are the Audit Manager on the audit of Al-Salam Pakistan Limited (ASPL) for the year ended June
30, 2010. ASPL is engaged in the manufacture of a wide range of plastc products. While reviewing the
inital work performed by the audit team, the following matters have come to your notce:
(i) The quantty of material scrapped during the year is materially different from the quantty of scrap
sold. The company’s records show nil balance both at the beginning and at the close of the year. No
reconciliation for the difference has been provided by the company.
 (ii) Sales for the year have increased by 7% over the previous year. However, it has been noted that
sales in the last two weeks of June 2010 have been exceptonally high and represent 15% of the
annual sales. The audit working papers carry the following observations in respect of the above:
§ 70% of the sales in the last two weeks of June were made to two new customers whose
credit assessment has not been formally documented;
§ a significant porton of the goods sold to the above referred customers were returned in the
first week of July 2010; and
§ management bonuses are linked to the operatng performance of the company.

(iii) During the year, ASPL purchased a machine for Rs. 25 million. The payment voucher is duly
supported by the invoice from the supplier. However, the fixed assets schedule provided by the client
shows the amount capitalized as Rs. 2.5 million. Depreciaton has been charged on this amount. The
diference of Rs. 22.5 million is appearing in the Bank Reconciliation Statement.

Required:
(a) Analyze each of the above situations and assess whether it represents a fraud or an error. (06)
(b) What acton would you take to deal with the above matters? (09)

6 During the course of audit an auditor is expected to be vigilant enough to develop understanding Q.2
about the propriety of important transactions and to determine whether or not such transactions (A-09)
have appropriate business rationale. Required: Briefly describe the situations in which a transaction is
indicatve of fraud or an attempt to conceal fraud or fraudulent reportng. (07)

Not for Profit Organisation

1 Al-Madad Foundation (AMF) is a charitable organizaton. It receives donations which are utlized to Q.5
help the desttute persons in accordance with the rules and regulations prescribed by the AMF’s Trust (A-10)
Deed. The donations are received from the following sources:

(i) Cash collected from the general public through charity boxes placed at key points in hospitals,
airports, superstores etc.,

(ii) cash and cheques received from individuals and insttutons at AMF’s office; and

(iii) cash from generous individuals who prefer to remain anonymous.

Donations received in case of (ii) and (iii) above, often contain specific instructons for utlisation of the
donated amount for specific purposes e.g. for education of orphan children.

Required:

(a) Identfy the inherent risks in the operatons of AMF. (03 marks )
(b) Briefly discuss the effect of each of these risks on the audit of AMF. (03 marks )
 Chapter 4

ISA- 500

1 Briefly describe how an auditor evaluates the sufficiency of audit evidence (04) Q.6(b)
(S-16)

2 Narrate the circumstances under which the auditor would resort to the following techniques while Q.7(a)
selectng items for tests of details and controls: (A-13)

Selectng all items of a population. (03)

3 (b) Briefly explain any six methods for collectng audit evidence. (12) Q1 (b)
(A-13)

4 Explain the term “Suficient and Appropriate Audit Evidence”. (04) Q.7(a)
(A-10)

ISA - 530

1 (a) List any four ways in which the debtor balances may be stratfied. (02) Q.7
(A-15)
(b) You are the audit incharge on the audit of Opportunity Limited (OL). OL deals in fast moving
consumer goods. For sending of confirmations, an audit team member has stratfied the debtors as
follows:
Category A Balances exceeding Rs. 50 12 customers
Category Balances
million below Rs. 50 million 100 customers
B
Category Balances below Rs. 10 million 280 customers
C
Category D Balances below Rs. 1 million 600 customers

During a meetng some of the team members have expressed divergent views, as follows:
(i) Verification of balances of category A and B will provide sufficient coverage and evidence;
therefore there is no need to cover other categories.
(ii) Selecton should be done on haphazard basis, as under this method all items of population have
equal chance of selecton.
(iii) Selecton of sample should be done systematically, whereby items consttutng 10% of the
amounts in each category should be selected in descending order.
Required:
Discuss the appropriateness of optons discussed in the meetng and give your suggeston in this
regard. (05)

2 What are the matters which the auditor should consider while designing an audit sample, Q.1(g)
determining its size and selecting the sampling units? (03) (S-15)

3 Briefly Describe the term ‘systematic sampling’. (01) Q.10(e)

(A-14)

4 Differentate between the following: Q.5(c)

(ii) Tolerable mis-statement and performance materiality (05) (S-12)
5 (a) Differentate between the following: Q.3
(i) Statstcal and non-statstical sampling (S-11)
(ii) Sampling and non-sampling risk (05)

(b) You are the audit manager on Apple Distributon Limited (ADL). While reviewing the audit
planning documentaton, you found that the audit team has selected 100 out of a total of 2,550
debtors for balance confirmation. The details are as follows:
§ 50 largest debtors consttute approximately 40% of total debtors. Out of these, 10 have been
selected.
§ 90 other debtors were selected through haphazard sampling.
§ All debtors below Rs. 5,000 were ignored as immaterial.
§ Balances due from government and some of the related partes were ignored as prior years
working papers showed that they never responded to requests for confirmation.

Required:
(i) Comment on the sampling approach adopted by the audit team.
(ii) Suggest alternative means of selectng the sample in which the material balances have a greater
probability of selection. (04)

6 Describe the circumstances in which an auditor may decide to examine entre population of items
that make up an account balance. (03)

7 You are the audit manager on a client where an annual sale is Rs. 640 million. During the course of Q.3(a)
annual audit the following table was developed by an audit team member, to categorize the annual (A-09)
sales:

Category A 50 sales transactions to diferent customers 300 million

Category B 100 transactions to different customers 200 million
Category C 500 transactions to different customers 140 million
Total 640 million

Sohail, a team member, is of the view that if verificaton of all the transactions in category A is
carried out, there is no need to perfrm further procedures. However, other team members do not
agree and consider that proper sampling should be carried out from the total population and
categorization should be ignored.

Required: As an audit manager of the job, you are required to:

(i) Explain how audit eficiency could be improved by using the above table.
(ii) List other ways in which the sales population may be categorized and what precauton should be
taken while carrying out such categorizaton.
(iii) Give your opinion on the views expressed by Sohail & Other audit team members. (11)
ISA - 230

1 (a) State the auditor’s responsibility in respect of ‘Assembly of final audit file’. (03) Q.3
(b) The audit report of Salim Limited was signed on 30 April 2016. After issuance of the audit (A-16)
report, the auditor was informed that a major debtor has become bankrupt.

Required: Specify the matters that the auditor would be required to document in the above
situation. (03)

2 While reviewing the final audit file of XYZ Limited for the year ended 30 June 2014, you have Q.3
identfied that certain amendments were made in the final audit file after the date of the (S-15)
auditor’s report.
Required:
Comment on the above situation in the light of International Standards on Auditng. (07)

3 You are the training manager at Guava & Co., Chartered Accountants. Some trainees in the firm Q.6
have requested you to clarify the following issues: (S-11)

a) Can the auditor discard any audit document, forming part of his opinion, after the issuance
of the auditor’s report?
b) The changes that can be incorporated during the final file assembly process citing three such
examples.
c) The circumstances under which it becomes necessary to modify the existng audit
documents or add new audit documents after the issuance of the auditor’s report and the
matters that should be documented in such a situation.

Required:
Ofer appropriate explanations for each of the above issues. (11 marks )

4 The preparation of working papers is an integral part of the auditor’s responsibilities. Identfy the Q.4
factors that the auditor should consider while determining the form, content and extent of audit (S-10)
working papers. (07 )

5 You work as assistant manager in one of the leading firm of chartered accountants. Your partner Q.5
has asked you to prepare a presentaton for some of the newly recruited staff. As part of this (A-09)
presentaton, you are required to explain the nature and objectves of maintaining ‘Audit
Documentaton.’ (10 )
 Chapter 5

1 In the context of control actvites explain what is included in ‘Performance reviews’. (03) Q.1 (c)
(A-16)
2 Specify any four main categories of general controls that an auditor would expect to find in a Q.1 (e)
computer based information system. (04) (A-16)
,

3 Because of its ability to exert influence, management is in a positon to perpetrate fraud and Q.3(a)
prepare fraudulent financial statements. (S-16)
Identfy six diferent ways in which fraud may be committed by management through overriding of
controls. (06)
4 Briefly describe the following concepts: Q.10(a)
Audit trail in a computerized environment (03) (S-16)

5 Following IT related controls are being employed at Vision Limited: Q.5

(i) The general ledger system is automatically updated with sub-ledger transactons (e.g. Accounts (A-15)
Receivable) every night through batch processing.
(ii) The system automatically maintains second copies of all programs and data files.
(iii) Access to programs and data files is restricted using passwords.
(iv) Invoices that are entered into the system are physically counted.
(v) Firewalls (software and hardware) are installed to restrict unauthorized access.
(vi) Screen warnings are displayed as regards incomplete processing.
(vii) Vision Limited has service level agreements with reliable software companies, for technical
support.
(viii) Review of output against expected values.
Required:
a) In respect of each control, determine whether it is a preventve, detective or corrective control.
(04)
b) Also classify each of the above between general IT controls and application controls. (04)

6 International Standards on Auditng require an auditor to evaluate the control environment and Q.1(b)
assess its effectveness. State the factors that the auditor should consider in evaluating the control (A-15)
environment. ( 04)

7 State any two factors which the auditor should consider to ensure reliability of audit evidence. (02) Q.10(j)
(A-14)

8 Classify the following controls as preventve, detective, or correctve controls. Give brief reasons to Q.9
justfy your answers. (A-14)
(i) Training on applicable policies, department policy/ procedures
(ii) Batch totals
(iii) Segregation of dutes
(iv) Contngency planning
(v) System logs
(vi) System backup (06)
9 You are the training manager in a firm of chartered accountants. Prepare brief presentaton for Q.6
newly inducted trainees, on the following: (A-14)
a) Control Environment and its elements (04)
b) Walk through tests and why these are performed (03)
10 Management is in a unique positon to perpetrate fraud because of its ability to manipulate Q.10
accountng records and prepare fraudulent financial statements by overriding controls that (S-14)
otherwise appears to be operating effectively.
Required:
Determine the audit procedures that may be performed by the auditor to address the risks related
to override of controls. (08)
11 Briefly explain the components of internal control as referred to in the International Standards on Q.7(a)
Auditng. (09 ) (S-10)
 Chapter 6

1 You are working in IT department of a firm of Chartered Accountants. The partners are concerned Q.1 (a)
about the confidentality of client data which is electronically transmitted by firm’s staff from the (A-16)
clients’ offices.
Required: Suggest controls over data transmission to ensure confidentality of data. (03)

2 Explain the term ‘Communicaton protocols’. (04) Q.1 (d)

(A-16)
3 List six physical access controls over an IT system. (3 marks) Q.6(d)
(S-16)

4 a) Differentate between Symmetric key ciphers and Asymmetric key ciphers in relation to data Q.8
encrypton techniques. (02) (A-15)
b) Identfy any four types of information that can be extracted from system logs. (02)

5 Controls over data transmission help to ensure that transmitted data is complete, secure and Q.10
unaltered. (S-15)

Required:
State any five controls over data transmission which help to ensure that the data is secure and
unaltered. (04)

6 Describe deployment and opportunity flowcharts. (04) Q.1(d)

(S-15)

7 Deehan Super Stores has launched a sales promoton scheme. Accordingly, the customers who Q.8
purchase a loyalty card gain reward points on every purchase. The points may be redeemed by (A-14)
adjustng the value of the available points in any subsequent purchase.

Required:
Draw a flow chart showing the payment process including point accumulation and point
redempton. (09)
 Chapter 7

1 You are the CFO of a newly incorporated company which has recently established five super Q.2
markets in the city. One of your responsibilities is to implement internal controls. (S-16)
List six key controls:
(a) over cash sales and cash handling; (06)
(b) to reduce possibility of misappropriation of inventory. (06)

2 You have been assigned to plan the test of controls in respect of salaries and wages. In this Q.10
regard you are required to identfy the following: (A-15)
a) Possible control weaknesses in overtme payments (03)
b) Principal controls over payment of overtme (04)

3 You have been assigned to plan the test of controls in respect of receiving of goods and invoices Q.8
from suppliers of Bhurban Limited. In this regard, you are required to identfy the following: (S-15)

a) The related risks (03)

b) Controls that you expect to see to address the above risks (04)
c) Audit procedures that you need to perform to test the controls (03)

4 You are audit incharge at Quick Enterprises Limited (QEL), a distributor of fast moving consumer Q.8
goods. QEL supplies goods to retailers all over the country. The purchase procedure of the (A-13)
company includes the following:

(i) Minimum stock levels are fixed on the basis of the changing demand for diferent brands
which is monitored by the marketng department.

(ii) At the minimum stock level, requisitons for stock purchases are generated by the marketng
department and signed by the Marketng Manager.

(iii) Pre-numbered purchase orders are generated in triplicate.

(iv) Purchase Manager signs the purchase order after matching these with the requisitons signed
by the Marketng Manager.

(v) Purchase orders are faxed to the suppliers and copies thereof are forwarded to the stores and
finance departments.

(vi) On receipt of goods, pre-numbered Goods Receiving Notes (GRNs) are prepared and signed by
the Store Incharge. Each GRN is compared with the relevant purchase order by the Store
Incharge.

(vii) GRN is forwarded to the finance department for recording in the stores ledger.

Required:
Identfy the key internal controls that appear to be in place in the above system and test of
controls required to evaluate each control. (08)
5 Your firm is the auditor of Shahzad Limited (SL), a listed company, which is a wholesaler of Q.7(b)
consumable products. SL records its sale on delivery of goods and maintains up to date (S-10)
computerised inventory records. A full inventory count was conducted at the year end.

The senior who attended the physical stocktaking at the central warehouse has observed the
following matters:

(i) The inventory count took place on January 1, 2010 under the supervision of the Inventory
Controller. No movement of inventory took place on that day.

(ii) Four countng teams were formed. Each team comprised of two persons. The floor area was
allocated by the teams among themselves.

(iii) Each team was instructed by the Inventory Controller to remember which inventory had been
counted.

(iv) Pre-numbered count sheets were provided to the staff involved in the inventory count. The
count sheets showed the inventory ledger balances, to facilitate reconciliation.

(v) Old, slow-moving or already sold inventories were highlighted on the count sheets at the time
of countng.

(vi) Items not located on the pre-numbered inventory sheets were recorded on separate sheets
which were numbered by the staff.

(vii) At the end of the count, all inventories against which advances from customers had been
received were removed from the physical inventory on the instructon of the Inventory
Controller

Required:
Identfy the weaknesses in the system of inventory count. Give appropriate explanations to
support your point of view. (09 )
 Chapter 8

Intro to Substantive Procedures

1 Briefly describe the following concepts: Q.10(b)

Embedded audit facilites and its significance (04) (S-16)

ISA – 520

1 Identfy the matters that need to be considered by the auditor at the tme of designing and performing Q.1(e)
substantive analytcal procedures. (04) (S-15)

2 In the planning phase of the audit of Dynamic Limited for the year ending 30 June 2012, you have Q.2
calculated the following ratios from the management accounts of the company for the eight months (S-12)
ended 29 February 2012:
Eight months
Year ended Year ended
period ended 29
30 June 2011 30 June 2010
February 2012
Gross profit percentage 35% 40% 40%
Inventory turnover days 120 105 78
Current rato 1.5 2.3 2.6
Quick rato 0.78 1.6 1.7
Times interest earned 0.91 1.67 2.1
Debtors turnover days 132 86 68

Identfy the prospective audit risks which the auditor should consider while planning the
audit. (09 marks)
3 The analytcal procedures which are carried out near the end of the audit usually assist the auditor in Q.3
forming an overall conclusion on the financial statements. (A-10)
Required:
a) State the objectives which an auditor expects to achieve while applying analytcal procedures at the
end of an audit. (04 marks )
b) Discuss the course of action an auditor should adopt when results of analytcal procedures identfy
inconsistent relationships or difer from expected values by significant amounts. (04 marks )
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