Certificate in Accounting and Finance Stage Examination
10 March 2025
3 hours – 100 marks
Additional reading time – 15 minutes
Audit and Assurance
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
Q.1 Your firm is the external auditor of Bright Future Educational Trust (BFET), a non-profit
organization that operates schools in Pakistan. BFET receives 80% of its funding i.e.,
Rs. 400 million from government education grants, while the remaining 20% comes from
tuition fees and private donations. Notably, Rs. 30 million in tuition fees remained
uncollected at year-end.
Recently, BFET implemented a new Financial Information System (FIS). During the
implementation of the FIS, Rs. 15 million in grants were identified as misallocated. Despite
this implementation, the fee collection records at some schools still do not reconcile with bank
deposits, and handwritten corrections were found on some donation receipts.
Furthermore, the latest government funding report to be submitted by BFET was delayed due
to the implementation of the FIS.
Required:
Identify and discuss the audit risks in the above scenario. (10)
Q.2 (a) Your firm is the auditor of Metro Textile Limited (MTL) for the year ended
31 December 2024. The management of MTL has provided your team a revenue
schedule, the extracts of which are as follows:
Invoice Revenue Deferred Payment
Invoice Customer Invoice Revenue Time of
amount recognized revenue received
no. name date type recognition
------------ Rs. in million ------------
ABC
Point-in-time
24-023 Fashion 01-12-24 Export 50 50 - 50
i.e., shipping
Inc.
Retail
Point-in-time
24-267 Direct 05-12-24 Retail 90 90 - 60
i.e., cash sales
Ltd.
Style ME Over time of
24-705 10-12-24 Wholesale 100 60 40 60
Pvt Ltd. the contract
TexCorp Point-in-time
24-799 31-12-24 Export 25 25 - -
Europe i.e., shipping
Required:
List any eight substantive audit procedures that the audit team can perform on the above
information. (08)
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(b) You are the audit senior assigned to the audit of Omega Limited, a mid-sized retail
company for the year ended 31 December 2024. During the audit of cash and bank
balances, you observed several matters, which are detailed below:
(i) The bank reconciliation for December 2024 shows an unexplained reconciling
difference of Rs. 2.5 million, which remains unresolved. The finance manager
suspects that this is due to timing issues in recording transactions.
(ii) The cash book contains cheques issued more than six months ago that still remain
outstanding. Some of these stale cheques are related to suppliers’ payments, which
have already been paid through alternative methods.
(iii) The petty cash ledger shows a balance of Rs. 0.5 million, but a physical cash count
revealed a balance of Rs. 0.4 million.
Required:
State three audit procedures that should be performed to address each of the above
matters. (09)
Q.3 You are the audit senior assigned to the audit of Cantilever Limited (CL), a manufacturing
company that specializes in industrial equipment. During the audit, you reviewed the
accounts receivable aging report and noticed that one of CL’s customers, Aqua Limited (AL),
had been granted a credit period of 180 days, which is significantly longer than CL’s standard
credit terms of 60 days for other customers.
Upon further investigation, you came to know that AL was added as a customer during this
financial year. The total sales to AL amount to Rs. 180 million. CL's sales director informed
that AL is a reputable customer introduced by one of the directors and that the extended credit
terms were provided to encourage business growth. Moreover, he is confident that AL settles
its invoices on time.
Required:
Evaluate the transaction with AL and discuss any eight substantive audit procedures that you
would perform. (10)
Q.4 Your firm is conducting an internal control review for QuickBuy Supermarkets Limited, a
national grocery chain with multiple locations. As part of the evaluation, your team visited
several stores and reviewed key financial and operational processes. Your team has made the
following observations:
(i) At the checkout counters, cashiers manage the cash registers throughout the day and
prepare the end-of-day reconciliation reports, which they submit directly to the accounts
department.
(ii) The procurement manager is responsible for placing inventory orders and approving
supplier invoices for payment.
(iii) The accountant can modify system-generated invoices even after they have been
recorded. This is usually done to rectify incorrect entries posted in the general ledger.
Required:
Identify the control deficiencies and the risk(s) associated with each deficiency. Also,
recommend any two controls to mitigate each control deficiency. (09)
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Q.5 Your firm is the external auditor of Fast Track Logistics Limited (FTL), a company that
provides delivery services across Pakistan, for the year ended 31 December 2024. The
following information is available:
2024 2023
------- Rs. in million -------
Revenue 4,500 3,000
Receivables 1,125 600
Cash and cash equivalents 700 1,100
Number of deliveries (in ‘000) 12,000 10,000
Additional information:
(i) FTL has been facing intense competition, leading to aggressive pricing strategies,
offering discounts and expansion to three new regions.
(ii) A major shareholder sold his shares before year-end due to dispute with other
shareholders.
(iii) The FTL’s CFO resigned midway through the year, and the position remains vacant.
Required:
Discuss the fraud risk factors that are present in the above scenario. (08)
Q.6 You are the audit manager in a firm of Chartered Accountants. The following independent
matters are presently under your consideration:
(a) Your firm is the auditor of Sugar Biscuits Limited (SBL) for the year ended
31 December 2024. During the audit, your team identified that SBL’s bank loans were
due in the last month, and the management has not provided any evidence of either the
renewal of the existing agreement or the obtaining of a new one to cover these
obligations. Management has not yet provided a detailed restructuring plan or any
survival projections to demonstrate how SBL will continue to operate in the foreseeable
future. Management has expressed confidence in their ability to resolve the financial
difficulties, yet they have not provided any evidence to support this claim. (06)
(b) Your firm is the auditor of MedLife Pharmaceuticals Limited (MPL) for the year ended
31 December 2024. MPL maintains a significant stock of a particular over-the-counter
medicine, reported at a cost of Rs. 150 million in the financial statements. This medicine
has been a major contributor to MPL’s revenue of Rs. 1,530 million and net profit of
Rs. 306 million.
The government has implemented a new regulation effective from 1 December 2024,
which reclassifies this medicine as a prescription-based drug. This change is expected to
significantly reduce the demand for the product, as it will no longer be easily available
to customers without a prescription. It is estimated that 30% of the stock at MPL will
not be saleable before its expiry date. (06)
Required:
Evaluate each of the above independent situations and discuss the implications for the audit
report.
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Q.7 (a) Your audit firm, FNZ & Company Chartered Accountants (FNZ) is currently
conducting the annual audit of Champion Oils Limited (COL), a listed oil and gas
company, for the year ended 31 December 2024. COL has recently decided on an early
implementation of sustainability-related reporting standards.
To strengthen the knowledge of the firm’s audit staff, FNZ has scheduled formal
training on the sustainability standards with a renowned trainer on 31 March 2025. The
trainer has suggested to incorporate the real-world scenarios from the firm’s audit clients
into the upcoming training to help staff understand the practical implications of the
sustainability standards.
Required:
In light of the ICAP Code of Ethics for Chartered Accountants, discuss the threat(s) and
the fundamental principle(s) affected by these threats. Also, evaluate the significance of
the threat(s). (10)
(b) You are the audit engagement partner for the audit of Sports Wear Limited (SWL), one
of the most significant clients of your firm, contributing 16% of the firm’s total audit
revenue. You have been informed by the managing partner of the firm that the board of
SWL wants to complete the audit within one month after year-end. He instructed you
to complete the audit within this timeline, as this would help us maintain a strong client
relationship.
Required:
In light of the ICAP Code of Ethics for Chartered Accountants, discuss the threat(s) and
the fundamental principle(s) affected by these threats. (06)
Q.8 (a) Discuss the placement and presentation of emphasis of matter paragraph in the auditor’s
report when a key audit matter section is included. (03)
(b) Specify the documentation required if the auditor decides to use the work of the internal
auditor. (05)
(c) State the principles for determining the reliability of audit evidence. (05)
(d) Discuss why it is important to obtain written representation as close as possible to the
auditor’s report date. With the help of three examples, explain what potential issues can
arise if written representations are obtained early. (05)
(THE END)
