Certificate in Accounting and Finance Stage Examination

05 November 2021
60 minutes – 36 marks
Additional reading time – None

CAF 08 – AUDIT AND ASSURANCE

Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.

Test – 3

Q.1 In respect of an audit client, the following were some relevant dates:

Accounting year end December 31, 2018

Completion of audit including resolution of all queries and outstanding issues March 1, 2019
Approval of the accounts by the Board of directors. March 5, 2019
Date of representation letter. March 7, 2019
(02)
What should be the date of auditor’s report.

Q.2 You are an audit manager in Brown & Co and you are nearing completion of the audit of Paprika
& Co (Paprika). The audit senior has produced extracts below from the draft audit report for
Paprika.

Auditor’s responsibility
(1) Our responsibility is to express an opinion on all pages of the financial statements based on
our audit. We conducted our audit in accordance with most of the International Standards
on Auditing.
(2) Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain maximum assurance as to whether the financial statements are free from all
misstatements whether caused by fraud or error.
(3) We have a responsibility to prevent and detect fraud and error and to prepare the financial
statements in accordance with International Financial Reporting Standards.
(4) An audit involves performing procedures to obtain evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the availability
and experience of audit team members. We considered internal controls relevant to the
entity; and express an opinion on the effectiveness of these internal controls.
(5) We did not evaluate the overall presentation of the financial statements, as this is
management’s responsibility. We considered the reasonableness of any new accounting
estimates made by management. We did not review the appropriateness of accounting
policies as these are the same as last year. In order to confirm raw material inventory
quantities, we relied on the work undertaken by an independent expert.

The extracts are numbered to help you refer to them in your answer.

Required:
For the above audit report extracts, identify and explain SIX elements of this report which require
amendment.

Note: Redrafted audit report extracts are not required. (12)

 Business Law Page 2 of 3
Q.3 The auditors of Porters Limited had a disagreement with the management on application of
certain accounting policies. The audit adjustments suggested by the auditors in this respect were
refused by the management. Describe with reasons the possible modifications in the audit report (03)
of the company.

Q.4 You, as external auditor, have received a direct communication from the company’s legal advisor
about a claim of significant amount which was provided for and included in the sundry claims
payable accounts. The communication states that the relevant court of law has, subsequent to the
year end, issued judgment in favour of the company. The matter was discussed with the
management but they are not willing to reverse the provision on the ground that the decision of
the court was delivered after the financial year end. What will be the impact on your audit
opinion on management’s reluctance to reverse the above provision? (03)

Q.5 Analyze the following situations and state under which condition an auditor would most likely
issue a disclaimer of opinion:
(i) Presentation of short term investment as long term.
(ii) There are certain indications that the company may not be a going concern. However, managem
(iii) Management’s refusal to furnish written representations in respect of an item for which no
other evidence is reasonably expected to exist.
(iv) The terms and conditions of a long term loan have been incorrectly disclosed. (08)

Q.6 Due to a major computer breakdown during the year, the accounting records of the company are
no more verifiable. The company does not have proper manual records. Although the integrity of
the management is not in doubt, the auditor is not in a position to substantiate management’s
assertions contained in the financial statements. What type of opinion should be expressed in
these circumstances? (04)

Q.7 You are the audit senior on the external audit of Dug Ltd (Dug) for the year ended 31 January
2011. In January 2011 Dug sold some office equipment to the wife of Dug’s managing director.
The audit junior has noted that the sale has not been disclosed in the note to the financial
statements detailing related party transactions and has suggested the inclusion of an emphasis of
matter paragraph in the audit report to highlight this issue.
Comment on the suitability or otherwise of the audit junior’s suggestion. (04)

(THE END)