ASSURANCE

Time allowed 1 hours

Total marks 100
[N.B. The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. a. What do you mean by the term Sufficient and Appropriate audit evidence? State various
factors that help the auditor to ascertain as to what is sufficient and appropriate audit evidence. 10
b. Write down the purpose of issuing audit engagement letter. Discuss the situations where it is
necessary to issue audit engagement letter each year even for repetitive audits.
10
c. BSA-320 Audit materiality provides guidance on the concept of materiality in planning and
performing an audit. Define materiality and describe the relationship between materiality and
audit risk and how audit risk can be reduced to an acceptable level?
10
2. An auditor's report is considered an essential tool when reporting financial information to users,
particularly in business. Some have even stated that financial information without an auditor's
report is "essentially unreliable" for investment purposes.
a. What is Audit Opinion? How is an unqualified opinion written in an audit report?
b. What three things the auditors are required to state as explicit opinions in their audit report?
c. What matters the auditors are required to state by exception as implied opinions in their audit
report?
d. Who should the auditors address to in their audit report of a company according to BSA 700?

3+4
5
5
3

3. Internal control is most effective when controls are built into the entitys infrastructure and properly
monitored to assess the quality of the systems performance over the time.
a. What type of assurance is internal control expected to provide?
5
b. What is the risk of material misstatement occurring within the entity and its environment? Give
two examples.
5
c. Why should management establish effective internal control?
5
4. Most IT controlled weaknesses are rooted in poor management rather than the technology itself. The
general controls are those that equally affect the whole system within an installation whereas application
controls must be designed to address the specific issues in each separate application or program.
a. What are the objectives of general controls and application controls?
3+3
b. What is CAAT? What are the stages in the use of test data?
3+4
c. What is audit software? Give examples of what an audit software can do.
3+4
5. ABC & Co., is a Chartered Accountancy firm and its engagement partner for XYZ Company has been
in place for approximately eighteen years and his son has just accepted a job offer from XYZ
Company as Chief Financial Officer. If ABC & Co. is appointed as internal and external auditors, then
XYZ Company has suggested that the external audit fee should be renegotiated with at least 20% of
the fee being based on the profit after tax of the company as they feel that this will align the
interests of ABC & Co. and XYZ Company. From the given information, mention the ethical threats
which may affect the independence of ABC & Co. in respect of the audit of XYZ Company, and for
each threat explain how it may be reduced.
15

The End