1.

Write a few notes on ISA 10 (Events after the Reporting Period) explaining clearly and giving
examples of adjusting and non-adjusting events

1. ISA 10: Events After the Reporting Period

Adjusting Events

 Definition: Events that provide additional evidence about conditions that existed at the
reporting date.

 Examples:

o Settlement of a lawsuit after year-end: If a lawsuit is settled for less than the estimated
liability, adjust the financial statements to reflect the actual settlement amount.

o Bankruptcy of a major customer: If a customer declares bankruptcy after year-end but

before the financial statements are issued, adjust for any expected losses.

Non-Adjusting Events

 Definition: Events that are indicative of conditions that arose after the reporting date.

 Examples:

o Natural disasters: A flood or earthquake occurring after the reporting date does not
require adjustment but may require disclosure.

o Changes in tax laws: New tax legislation passed after the reporting period does not
affect the prior period's financial statements.

2. ISA 560 talks of subsequence events. Outline the auditor’s responsibility on the events occurring
between the year-end date and the auditor’s report is signed and the date the auditor’s report is
signed and the date the financial statements are issued

2. ISA 560: Subsequent Events

 Auditor’s Responsibility:

o Between Year-End and Auditor’s Report:

 Identify and evaluate events that could impact the financial statements.

 Ensure appropriate adjustments or disclosures are made.

o Date of Auditor’s Report to Financial Statement Issuance:

 Review any subsequent events that may require disclosure.

 Update the auditor’s report if necessary based on new information.

3. Define the following terms giving examples, types and where it can be used in the audit

(a) test of control

(b)substantive procedure

(c)analytical procedures

3. Definitions and Examples

(a) Test of Control

 Definition: Procedures to evaluate the effectiveness of controls in preventing or detecting

material misstatements.

 Examples:

o Observing the process of cash disbursements.

o Reperforming bank reconciliations.

 Types:

o Manual controls.

o Automated controls.

(b) Substantive Procedure

 Definition: Procedures designed to detect material misstatements at the assertion level.

 Examples:

o Confirming accounts receivable balances.

o Performing analytical procedures on revenue.

 Types:

o Tests of details.

o Analytical procedures.

(c) Analytical Procedures

 Definition: Evaluations of financial information through analysis of plausible relationships

among financial and non-financial data.

 Examples:

o Comparing current year revenues to prior years.

o Ratio analysis.

 Types:
 o Trend analysis.

o Ratio analysis.

4. Define audit risk giving components/elements of risk that contribute to total audit risk and explain
the auditor’ response to each risk in planning the audit

4. Audit Risk

Definition

 Audit Risk: The risk that the auditor may issue an inappropriate opinion on financial statements
that are materially misstated.

Components of Audit Risk

 Inherent Risk: Risk of material misstatement in financial statements due to error or fraud.

o Response: Increase substantive testing in high-risk areas.

 Control Risk: Risk that internal controls will not prevent or detect misstatements.

o Response: Test the effectiveness of controls.

 Detection Risk: Risk that the auditor's procedures will fail to detect a material misstatement.

o Response: Adjust the nature, timing, and extent of audit procedures to reduce detection
risk.

5. Explain the responsibilities of external auditors in considering laws and regulations in an

audit of financial statements and the prevention and detection of non- compliance with
laws and regulations
5. Responsibilities of External Auditors

 Consideration of Laws and Regulations:

o Understanding applicable laws and regulations affecting the entity.

o Assessing risk of non-compliance and its effects on financial statements.

 Prevention and Detection:

o Design audit procedures to identify non-compliance.

o Communicate findings to those charged with governance.

6. Explain the quality control procedures to an audit engagement and problem faced in
implementing quality control procedures
6. Quality Control Procedures

 Definition: Policies and procedures to ensure that an audit firm meets professional standards.

Key Procedures

 Engagement Performance: Review processes to ensure audits are conducted per standards.

 Monitoring: Ongoing evaluation of audit quality and compliance.

Problems Faced

 Resource Constraints: Limited staff training and expertise.

 Resistance to Change: Difficulty in implementing new quality control measures.

7.(a) What are the rights of an auditor and the actions taken when some of the rights are
denied
7. Auditor Rights and Actions

(a) Rights of an Auditor

 Access to Information: Right to access all records and information necessary for the audit.

 Independence: Right to perform the audit without undue influence.

Actions When Rights Are Denied

 Communicate with Management: Discuss the issue directly.

 Consider Resigning: If access is denied, consider withdrawing from the engagement.

(b) Explain the primary and secondary objectives of an audit

(b) Objectives of an Audit

 Primary Objective: Provide an opinion on the truth and fairness of financial statements.

 Secondary Objectives: Assess internal controls and provide recommendations for improvement.

8.Write notes on ISA 580 Management Representations (as an audit evidence) and what is included in
management representation letter

8. ISA 580: Management Representations

 Definition: Written statements from management confirming certain matters related to the
financial statements.
Contents of Management Representation Letter

 Acknowledgment of responsibility for the financial statements.

 Confirmation of the completeness of information provided to auditors.

 Assertions regarding the recognition, measurement, and disclosure of financial statement items.

9.(a) Write elements of an unmodified report and ways in which an auditor’s report may
be modified and a brief explanation on the use of each modification
9. Auditor’s Report

(a) Elements of an Unmodified Report

 Title: Clear identification as an independent auditor's report.

 Addressee: Specifies to whom the report is addressed.

 Opinion Paragraph: Clear opinion on the financial statements.

 Basis for Opinion: Description of audit methodology.

Modifications to an Auditor’s Report

 Qualified Opinion: For specific issues that do not affect overall financial statements.

 Adverse Opinion: When financial statements are materially misstated.

 Disclaimer of Opinion: When insufficient evidence prevents forming an opinion.

(b)Discuss whether or not the audit report should be modified

(b) Should the Audit Report Be Modified?

 Yes, if there are material misstatements or limitations in scope that affect the reliability of the
financial statements.

10(a). Why is it important for the auditor to obtain an understanding of the entity and its
environment?
10. Understanding the Entity

(a) Importance of Understanding

 Risk Assessment: Helps identify and assess risks of material misstatement.

 Tailored Audit Approach: Enables auditors to design effective audit procedures.

(b) Explain factors that the external auditor should consider when assessing the
competence and objectivity of the expert
(b) Assessing Competence and Objectivity

 Qualifications: Evaluate the expert's education and experience.

 Independence: Confirm that the expert is free from conflicts of interest.

11. Explain the term direct and indirect financial interest in a client and parties that are
not allowed to own direct or indirect financial interest
11. Direct and Indirect Financial Interest

 Direct Financial Interest: Ownership of shares or financial instruments in a client.

 Indirect Financial Interest: Ownership through an intermediary or related party.

Parties Not Allowed to Own Interests

 Auditors: Cannot have financial interests in audit clients.

 Immediate Family: Close relatives of auditors may also be restricted.

12 (a) Define ‘going concern’ and discuss the auditor’s responsibilities in respect of going
concern.
Definition of Going Concern

Going Concern: The assumption that an entity will continue its operations for at least 12 months from
the reporting date.

Auditor’s Responsibilities

1. Evaluate Management's Assessment: Review management’s evaluation of going concern.

2. Analyze Financial Statements: Look for indicators of financial distress (e.g., losses, cash flow
issues).

3. Review Cash Flow Projections: Assess the reasonableness of forecasts and funding plans.

4. Consider Subsequent Events: Investigate events after the reporting date affecting viability.

5. Conduct Inquiries: Discuss plans with management to address risks.

6. Document Findings: Record evidence and conclusions about going concern.

7. Recommend Disclosures: Advise on necessary disclosures if doubt exists.

8. Modify Auditor's Report: Adjust opinion if significant doubt remains.

 (b)Explain the actions that an auditor should carry out to try and ascertain whether an
entity is a going concern.
(b) Actions to Ascertain Going Concern

 Review Financial Statements

 Analyze profitability, liquidity, and cash flows.

 Evaluate Cash Flow Projections

 Assess reasonableness of management's forecasts.

 Examine Debt Obligations

 Review repayment schedules and compliance with covenants.

 Consider Management Plans

 Evaluate strategies to improve financial performance.

 Assess Market Conditions

 Analyze external economic factors and industry trends.

 Review Subsequent Events

 Investigate events after the reporting date that may impact viability.

 Conduct Inquiries with Management

 Discuss management's assessment and plans regarding going concern.

 Evaluate Internal Controls

 Assess controls related to financial reporting and risks.

 Investigate Legal Issues

 Identify ongoing or potential legal matters affecting stability.

 Document Findings

 Record evidence and conclusions about going concern.

13 (a) Explain the importance of audit planning and explain matters that would be
included in an audit plan
13. Importance of Audit Planning
(a) Importance

 Efficient Resource Allocation: Ensures optimal use of time and effort.

 Risk Identification: Identifies areas of higher risk for focused audit attention.

Matters Included in an Audit Plan

 Scope and Objectives: Define the audit's scope and objectives.

 Timeline: Establish a schedule for audit procedures.

(b)Discuss the importance of assessing risks at the planning stage of an audit

(b) Importance of Risk Assessment

 Tailored Procedures: Helps design specific audit procedures based on identified risks.

 Resource Allocation: Allocates resources effectively to areas of higher risk.

14 (a) Contrast the role of internal and external auditors.

Internal Auditors

 Purpose: Improve internal controls, risk management, and operational efficiency.

 Focus: Assess the effectiveness of internal processes and compliance with policies.

 Reporting: Reports to management and the board of directors.

 Scope: Ongoing evaluations throughout the year.

 Independence: Generally employed by the organization, may have less independence.

External Auditors

 Purpose: Provide independent assurance on the accuracy of financial statements.

 Focus: Assess compliance with accounting standards and regulatory requirements.

 Reporting: Reports to shareholders or stakeholders.

 Scope: Typically, annual audits with a set timeframe.

 Independence: Independent from the organization, enhancing objectivity.

(b) Describe the steps an audit firm should perform prior to accepting a new audit engagement

(b) Steps Before Accepting a New Engagement

 Assess Independence
  Check for conflicts of interest and financial interests.

 Understand the Client

 Gather background information on the client’s business and management integrity.

 Evaluate Financial Health

 Review previous financial statements and conduct a preliminary risk assessment.

 Consider Scope of Work

 Define the engagement scope and clarify client expectations.

 Assess Resources and Expertise

 Ensure the firm has necessary resources and assign qualified team members.

 Obtain References

 Contact previous auditors and gather client references.

 Understand Legal Requirements

 Review relevant regulations and compliance requirements.

 Document Findings

 Prepare an engagement proposal and draft the engagement letter.

 Internal Approval

 Obtain internal approvals from senior management.

 Communicate with the Client

 Confirm acceptance of the engagement and establish timelines.

15. Under the Public Financial Management Act, Audit Committees are required to play
important roles in corporate governance and Accountability.
Discuss FIVE (5) mandatory roles and responsibilities and FIVE (5) advisory roles and
responsibilities of Audit Committees that may contribute to Corporate Governance and
Accountability
15. Audit Committees

Mandatory Roles and Responsibilities

1. Oversight of Financial Reporting: Ensure accuracy and integrity in financial reporting.

2. Monitoring Internal Controls: Evaluate the effectiveness of internal controls.

 3. Engagement with External Auditors: Facilitate communication between auditors and
management.

4. Risk Management: Identify and assess risks facing the organization.

5. Compliance Oversight: Ensure compliance with laws and regulations.

Advisory Roles and Responsibilities

1. Guidance on Financial Policies: Advise management on financial strategies.

2. Performance Evaluation: Monitor the performance of financial management.

3. Ethical Standards: Promote ethical behavior within the organization.

4. Policy Development: Assist in the development of governance policies.

5. Stakeholder Communication: Facilitate communication with stakeholders regarding financial

matters.