ASSURANCE

Time allowed 1 hours

Total marks 100
[N.B. 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) List the key elements of an assurance engagement.
(b) In addition to audit, users want some other assurance services. Give few examples.
(c) The code of ethics of ICAB and IFAC sets out some rules under which auditors should accept new
appointments.
What procedures should the new auditors follow to comply with the above set of rules?
(d) The audit firm considers whether the client is likely to be high or low risk to the firm in terms of
being able to draw an appropriate assurance conclusion in relation to that client.
Distinguish between two clients considering high and low risk.

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2. Confidentiality is an assurance that information is shared only among authorized persons or entities.
Breaches of confidentiality can occur when data is not handled in a manner adequate to safeguard the
confidentiality of the information concerned. Such disclosure can take place by word of mouth, by
printing, copying, e-mailing or creating documents etc. The classification of the information should
determine their confidentiality for determination of the appropriate safeguards.
a. What is the importance of confidentiality? What are the safeguards to confidentiality?
b. What should be your actions if you are compelled by the law that you have to disclose confidential
information of your client in the public interest?
c. How will you manage conflict of interest in accepting an assurance client?
d. How an auditor can maintain Chinese Walls to safeguard clients confidentiality?

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3. (a) The form and contents of audit Engagement Letter may vary for each client, but they would
generally include some basic contents.
Write in brief those basic contents of an Engagement Letter.
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(b) The financial statements of A Ltd. were prepared on going concern basis, although there is a
significant doubt about the companys ability to continue as a going concern.
What effects will this situation have on your audit report if the uncertainty over going concern is
(i) fully disclosed in the financial statements
(ii) not disclosed in the financial statements
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(c) List the activities usually undertaken in an internal audit.
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4. Inventory is often the largest item in the current assets category, and must be accurately counted and
valued at the end of each accounting period to determine a companys profit or loss. Entities whose
inventory items have a large unit cost, generally keep a day to day record of changes in inventory
(perpetual inventory method) to ensure accurate and on-going control. Entities with inventory items
of small unit cost generally update their inventory records at the end of an accounting period or when
financial statements are prepared (periodic inventory method). The value of an inventory depends on
the valuation method such as First-In, First-Out (FIFO) or Last-In, First-Out (LIFO) method.
a. What are the major risks of misstatement of the inventory value in the financial statements?
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b. What are the principal reasons for auditors attendance at annual physical inventory
(stocktaking)?
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[Please turn over]

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c. Which of the following analytical procedures is most applicable to inventory; comparison of sales
of current and prior years or comparison of gross profit ratios of current and prior years? Why?
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d. Why do auditors normally record result of their test counts to compare with the final inventory
listing during an inventory observation?
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5. The auditor should obtain written representations from management on matters material to the
financial statements when other sufficient appropriate audit evidence cannot reasonably be expected
to exist.
a. What does a Letter of Representation provide as audit evidence?
b. What actions should the auditor take when no other evidence is available and internal
confirmations form significant basis of the opinion?
c. What actions should the auditor take when management refuses to provide internal confirmations
(representations)?
d. What should auditors do when they receive management representations?

- The End -

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