Question 1

You have recently accepted an appointment as auditors to Zimbabwe Open University

which has annual income (fees) tuition of $10 000 000.

Required

a) State and explain 5 quality control procedures you should put in place within the
institution to carry out the audit of income of Zimbabwe Open University. (10 marks)

Independence, Integrity, and Objectivity

Policies and procedures should be established to provide ZOU with reasonable assurance that
personnel maintain independence (in fact and in appearance) in all required circumstances,
perform all professional responsibilities with integrity, and maintain objectivity in
discharging professional responsibilities.

Personnel Management

The university’s quality control system depends heavily on the proficiency of its personnel.
In making assignments, the nature and extent of supervision to be provided should be
considered. Generally, the more able and experienced the personnel assigned to a particular
engagement, the less direct supervision is needed.

Acceptance and Continuance of Clients and Engagements

Policies and procedures should be established for deciding whether to accept or continue a
client relationship and whether to perform a specific engagement for that client. Such policies
and procedures should provide the university with reasonable assurance that the likelihood of
association with a client whose management lacks integrity is minimized.

Engagement Performance

Policies and procedures should be established to provide the university with reasonable
assurance that the work performed by engagement personnel meets applicable professional
standards, regulatory requirements, and the firm's standards of quality.

Monitoring

Policies and procedures should be established to provide the university with reasonable
assurance that the policies and procedures established by the university for each of the other
elements of quality control are suitably designed and are being effectively applied.
b) State in detail the substantive procedures you would undertake when auditing the
income stated above. (15 marks)

Substantive Analytical Procedures when auditing the income

Test of details for fees revenue

In the audit of revenue, test of details usually focuses on the occurrence of revenue,
completeness of revenue transactions, the accuracy of the revenue record and the cut-off of
the accounting period for the fees payments.

Occurrence

Occurrence tests whether the fees revenue transactions that have been recorded in the
student’s accounts actually exist. Under the accrual basis of accounting, all revenues should
be recognized and recorded when they occurred regardless of whether the payment have been
received or not. In most cases, it happens when the services have been delivered.

Select a sample of recorded revenue transactions

Vouch the selected transactions to fees invoice to ensure transactions recorded are based on
generated fees invoices. Trace student fees invoice to customer quotation and system billing
of fees to ensure transactions have actually happened and services have been delivered to
students

Completeness

In the audit of fees revenue, completeness tests whether all revenues that actually happened
have been recorded in the accounts. The completeness assertion here is the opposite of the
occurrence assertion above. While occurrence tests the revenues that had been recorded to
ensure they actually exist, the completeness tests the revenues that occurred to ensure they
have been recorded.

Select a sample of student fees statements

Trace the selected student fees statements to student invoices and ledger for the selected
students to ensure they have been recorded as fees revenue

Scan the sequential number of student invoices in the accounts receivable fees journal; ensure
that the missing numbers are not unrecorded fees and have an appropriate explanation for.

Accuracy
Accuracy tests to see whether the fees revenue transactions recorded are free from error.
There is need to review to see whether the fees invoices prepared are mathematically
corrected and there is no misstated amount recorded.

Select a sample of fees invoices

Verify the selected fees invoices with supporting documents to makes sure they are
accurately prepared. Trace fees invoices to student fees journal and accounting record to
make sure they are recorded in the correct amount

Cut-off

Cut-off tests whether the fees revenue transactions are recorded in the correct accounting
period. Fees revenues may be recognized in the wrong accounting period due to the
complicated process of the accounting system, wrong posting, or the student may intend to
move accounting transactions from one year to another in order to defer for some particular
semester.

Select a sample of fees invoices around the year-end

Inspect the dates on the invoices and compare them with the dates of receipting of fees
payments and trace to the dates recorded in the student ledgers and accounting record to
ensure the correct accounting period entries.

Question 2

Makoromore and Partners, an audit firm have been asked to consider its firm’s review
procedures in detail.

a) Outline the objectives of an audit review. (10

marks)

Reviews of data are checks carried out on information prepared by another person. They
provide a moderate level of assurance that the information under review is free of material
misstatements. ISRE 2400 Engagements to Review Financial Statements states that: The
objective of a review of financial statements is to enable an auditor to state whether, on the
basis of procedures that do not provide all the evidence that would be required in an audit,
anything has come to the auditor's attention that causes the auditor to believe that the
financial statements are not prepared, in all material respect, in accordance with an identified
financial reporting framework. The objective of a review of financial statements is to enable
an auditor to state whether, on the basis of procedures which do not provide all the evidence
that would be required in an audit, anything has come to the auditor’s attention that causes
the auditor to believe that the financial statements are not prepared, in all material respects, in
accordance with an identified financial reporting framework which is negative assurance.

The objective of an audit is to express an opinion on financial statements, to give the opinion
about the financial statements, the auditor examines the financial statements to satisfy himself
about the truth and fairness of the financial position and operating results of the enterprise.
There are certain inherent limitations of audit examination. It would not be possible for any
type auditor to discover all errors and frauds, in the financial statements due to the limitations
of his checking. The main objectives of the audit are known as the primary objectives of the
audit. They are examining the system of internal check, checking arithmetical accuracy of
books of accounts, verifying posting, casting, balancing, verifying the authenticity and
validity of transactions, checking the proper distinction between capital and revenue nature of
transactions, confirming the existence and value of assets and liabilities and verifying
whether all the statutory requirements are fulfilled or not. Proving true and fairness of
operating results presented by income statement and financial position presented by the
balance sheet.

b) Outline the respective responsibilities of:

i) The Manager and (8 marks)

Audit managers are responsible for overseeing internal operating controls, processes, and
practices. They may also recommend changes and enhancements to existing policies and
controls to make sure they are current, adequate, functional, and utilized in accordance with
standards established by the government and the company. Some audit managers will manage
a team of junior auditors or accountants, reviewing their works and providing guidance. The
following is what audit managers are responsible for:

i. Planning and performing operational and financial audits

ii. Identifying business process risks
iii. Developing testing methodologies to evaluate the adequacy of controls
iv. Documenting the results of the evaluations
v. Developing recommendations and reports based on audits and presenting these ideas
to senior management
vi. Formulating professional development and educational plans for junior staff members
vii. Planning and allocating resources and individuals in accordance with skills and
schedules

ii) The partner for the review to be carried out. (7marks)

The requirements in ISA 220 apply to all engagements that are conducted in accordance with
the ISAs, including audits of the financial statements of entities where the majority of the
general and financial management of the entity and the majority of the business activities and
related processing of transactions is located or undertaken in jurisdictions other than where
the entity is registered or maintains a correspondence. ISA 220 establishes requirements for
the engagement partner that are designed to facilitate a quality audit, including, among others,
requirements for the partner to be responsible for the following:

i. Taking responsibility for the overall quality on each audit engagement to which that
engagement partner is assigned.
ii. Being satisfied that appropriate procedures regarding the acceptance and continuance
of client relationships have been followed and determining that conclusions reached
in this regard are appropriate
iii. Taking responsibility for reviews being performed in accordance with the firm’s
review policies and procedures.
iv. Being satisfied, through a review of the audit documentation and discussion with the
engagement team, that sufficient appropriate audit evidence has been obtained to
support the conclusions reached and for the auditor’s report to be issued.
v. Taking responsibility for the direction, supervision, and performance of the audit
engagement in compliance with professional standards and applicable legal and
regulatory requirements; and the auditor’s report being appropriate in the
circumstances.
References

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ACCA (2010). P7 INT Study Text: Advanced Audit and Assurance. (4th Edition).
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Marx, B.,Van Det Watt, A., Bourne, P. and Hamel, A. (2004). Dynamic Auditing: A Student
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SAICA (2011). 2011/12 Auditing SAICA Handbook. Volume 2. Durban: LexisNexis.

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