Assurence Question

ChapterChapter Name Questions Marks

01

5

10

8. (b) What is the `expectation gap’ in assurance engagement? 6

4+8=12

3

5

Concept of and need for

assurance

1. (b) In addition to audit, users want some other assurance services. Give few examples.

5. A key issue for accountants is that there are limitations to assurance services, and therefore there is always a risk involved that the wrong conclusion will be drawn. What are the limitations of assurance services?

1. What is assurance engagement? What are the key elements of an assurance engagement?

9. Assurance service is an independent professional service, typically provided by Chartered Accountants, with the goal of improving the information or the context of the information so that decision makers can make more informed, and presumably better decisions. Assurance services provide independent and professional opinions that reduce the information risk (risk that comes from incorrect information) a. Audit and Assurance are always used together. What is the exact difference between these? b. Under the “International Framework for Assurance Engagements,” how many types of assurance engagement a practitioner is permitted to perform? Define all.

6+3+6=15

2. In Bangladesh, the auditor will normally express his audit opinion by reference to the ‘true and fair view’, which is an expression of reasonable assurance. Briefly define the terms ‘true’ and ‘fair’

3. You are an Accountant who has been approached by Mr. X, who wants to invest in company ABC Ltd. He has asked you for assurance whether the most recent financial statements of company ABC Ltd. are a reliable basis for him to make his investment decision. Identify the key elements of an assurance engagement in this scenario, if you accepted the engagement.

01

7+3=10

02

1. (a) List the key elements of an assurance engagement.5

5

5

10

10

5

Concept of and need for

assurance

1. ‘Assurance can never be absolute’. Discuss the limitation of assurance. Which three of the following are benefits of assurance work?• An independent professional opinion • Additional confidence given to other related parties • Testing as a result of sampling is cheaper for the responsible party • Judgments on estimates can be conclusive • Assurance may act as a deterrent to error or fraud

Process of Assurance : Obtaining & engagement

1. (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?

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.

1. Briefly explain the key elements of an assurance engagement and what the types of assurance are engagement as per the International Framework for Assurance engagements.

7. The practitioner should comply with the International Framework for Assurance Engagements (the Framework) and International Standard on Assurance Engagements (ISAE) when performing an assurance engagement other than an audit or review of historical financial information covered by International Standards on Auditing (ISAs) or International Standards on Review Engagement (ISREs). (a) What are the factors a practitioner must consider before accepting an assurance engagement and what are low risks and high risks for assurance?

7. (b) What are the purposes of an engagement letter? Should a practitioner send an engagement letter to existing clients?

02

10

6

1. What forms and contents will normally be contained in a letter of engagement?4

3

4. What forms and contents will normally be contained in a letter of engagement? 3

2

03

6

10

5

Process of Assurance : Obtaining & engagement 1. (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.

2. Which three of the following will normally be contained within a letter of engagement? 6 Responsibilities of the auditors; Responsibilities of the directors; The scope of the audit; The staff assigned to the engagement;

2. You own an accounting firm. XYZ Ltd. is your prospective client. However it declines permission to contact the previous auditors, what should be your course of action?

5. You own an accounting firm. XYZ Ltd. is your prospective client. However, it declines permission to contact the previous auditors, what should be your course of action?

3. (a) Name five possible of sources of information about the client. (b) Define ‘Materiality’ in assurance work. Which factors indicate a risk might be a significant risk?

5+2+4=11

Process of Assurance : Planning the assignment

1. (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.

1. (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?

3. (b) What is the risk of material misstatement occurring within the entity and its environment? Give two examples.

03

3. b) The assurance firm may do insufficient work to detect material errors. 4

3. c) The financial statements contain a number of estimates. 4

3

2

4+4=8

2


3. What is Audit Risk? What are the different types of Audit Risk? For each of the following examples, indicate the type of risk:3. a) Vendor’s payments are processed, booked and reconciled in the system by the same person in the Accounts Department.

4+5

3

1. a. Which of the following procedures might an auditor use in gaining an understanding of the entity? (i) Inquiry (ii) Recalculation (iii) Analytical procedures (iv) Reperformance of a control (v) Observation and inspection.

1. b. The audit team is required to discuss susceptibility of the financial statements to material statements.TrueFalse

6. a. What is Audit Risk? What are the different types of Audit Risk? For each of the following examples, indicate the type of risk illustrated: 4+4=8 i. Vendors’ payments are processed, booked and reconciled in the system by the same person in the Accounts Department. ii. The organization is highly connected with the building trade. iii. The assurance firm may do insufficient work to detect material errors. iv. The financial statements contain a number of estimates.

6. b. If control and internal risk are assessed as sufficiently low, substantive procedures can beabandoned completely.TrueFalse

03

7+3=10

04

10

3+4

5

5

3

4

11. (b) Name six financial statement assertions. 5


2. Discuss in brief ‘Audit Strategy’ and ‘Audit Plan’. Which three of the following would normally be contained in the overall audit strategy? 7+3 • The contract between the audit firm and the client • The result of audit risk assessment • Calculation of preliminary materiality • Detailed plan of audit procedures to be carried out • List of staff to be involved with the audit

Process of Assurance : Evidence & reporting

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.

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?

2. (b) What three things the auditors are required to state as explicit opinions in their audit report?

2. (c) What matters the auditors are required to state by exception as implied opinions in their audit report?

2. (d) Who should the auditors address to in their audit report of a company according to BSA 700?

8. An accountant evaluates financial records based on assertions imbedded in the financial statements. (a) What are the management assertions under different categories?

04

4+5=9

3

2+6=8

05

5

3. (c) Why should management establish effective internal control? 5

3+3

4. (c) What is audit software? Give examples of what audit software can do. 3+4

3+6


4. (a) What are the matter with which the auditors imply satisfaction in an unqualified report under the Companies Act 1994? What basic elements, according to BSA 700, the audit report should include?

4. (b) Which three of the following are implied opinions given in the audit report? 3 • All information and explanations required for the audit have been received. • Proper accounting records have been kept. • The director’s reports is consistent with the financial statements • The financial statements have been prepared in accordance with the Companies Act 1994. • The preparation of the financial statements is the responsibility of the company’s management.

5. Define ‘Audit Committee’. What are likely to include in the terms of reference of the audit committee as required for the companies listed in the Bangladesh stock exchanges?

Introduction to internal

Control

3. Internal control is most effective when controls are built into the entity’s infrastructure and properly monitored to assess the quality of the system’s performance over the time. a. What type of assurance is internal control expected to provide?

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?

4. Define ‘Audit Committee.’ What are likely to include in the terms of reference of audit committee as required for the companies listed in stock exchange of Bangladesh.

05

6+6=12

4.(a) Name three broad types of document used in Internal Control Recording.3

4+6=10

2

06

10

3

7

Introduction to internal

Control

7. The use of an IT system by a client does not change the need to establish effective internal control; however, it does change the nature of the controls. More advanced IT features, such as online capabilities, database storage, IT networks, and end user computing, present special control risks. Therefore, specialized controls are needed, including passwords, validity tests, and computer logs. a. How do certain IT areas and IT general controls (ITGC) affect almost all financial audits? 6 b. How do IT system of an entity cause risk of material misstatement?

3. What is Internal Control? Name its components. What are its importance and limitations?

2+5+8=15

4. (b) What are IT General and IT Application Controls? List three examples in each area.

9. (c) Which two control activities are most likely to reduce the risk of payments being made twice for the same liability?

7. What is ‘internal control’? Name the components of an internal control system. What are the limitations of internal control systems? Why smaller companies have problems in implementing internal controls?

2+3+3+3=11

Revenue System

3. What tests of control might be appropriate for Sales day book and Receivables ledger

4. Sales invoices are source documents that provide a record for each sale. For control purposes, sales invoices are sequentially pre-numbered. a. What are the control objectives to mitigate risk of not receiving payments from a sales invoice?

4. (b) Which tests of control do you think appropriate for sales day book and suggest some controls to safeguard cash in hand and at bank?

06

3

5+6=11

07 4

086

3

09 internal Audit

10

3+2=5

10

12

7

Revenue System

9. (a) Which three of the following functions should ideally be segregated: 3 Authorization of orders Invoicing Recording cash receipts on receivables ledger Reconciliation of receivables ledger with receivables ledger control account Credit Control

8. As an assurance provider, how will you perform test of controls in relation to Sales? Give five examples of tests to be performed on the cash payment book.

Purchase System

9. (b)List four examples of purchase documentation on which numerical sequence should be checked.

Employee Cost

6. (a) List six procedures assurance providers should carry out if wages are paid in cash.

6. (b) How should assurance providers confirm that wages have been paid at the correct rate to individual employees?

8. What does internal audit do? What are the key differences between external and internal audit?

8. What are the key differences between external audit and internal audit? ‘As objectivity is a key issue for internal auditors, they are likely to routinely be involved in operational activities’ do you agree? Explain.

Documentation

5. Classify the following working papers into Current Audit file and Permanent Audit file: Engagement letters, new client questionnaire, financial statements relating to year under review, Management letter, Accounts checklist, Audit planning memo, Board minutes of continuing relevance, and Accounting system notes.

6. BSA 230 Audit Documentation establishes standard and provides guidance regarding documentation in the context of audit of financial statements. Required: List the purposes of audit working papers

10

4

11

4. (b) What is CAAT? What are the stages in the use of test data?3+4

8

4

3

2+4=6

6

12

5

5

5

Documentation

9. Classify the following working papers into Current Audit File and Permanent Audit File: Engagement letters, New client questionnaire, Financial Statements relating to year under review, Management letter, Accounts checklist, Audit planning memo, Board minutes of continuing relevance, Accounting system notes.

Evidence & Sampling

2. Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. a. Discuss the attributes of evidence as per BSA 500 and list the sources of audit evidence.

2. (b) Is 100% examination likely in the case of test of controls? Give examples when 100% examination may be appropriate?

2. (c) There will be an impact on sample size when there is an increase in the auditor’s assessment of the risk of material misstatement. Explain.

10. What is accounting estimate? What will be auditor’s approach to audit of accounting estimates?

10. What includes audit evidence? Briefly explain the procedures to obtain audit evidence.

Management representatio

n

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. 5. (a) What does a Letter of Representation provide as audit evidence?

5. (b) What actions should the auditor take when no other evidence is available and internal confirmations form significant basis of the opinion?

5. (c) What actions should the auditor take when management refuses to provide internal confirmations (representations)?

12

5. (d) What should auditors do when they receive management representations?5

10

2

13

8

(c) List the activities usually undertaken in an internal audit. 6

5

5

Management representatio

n

5. What are management representations? How does management representations work as audit evidence? When management representations are required?

11. (a) When Management Representation is required? What do auditors do when receive such representation and in occasions when such evidence does not agree with other evidences?

Substantive Procedure - Key financial

statement figures

3. (b) The financial statements of A Ltd. were prepared on going concern basis, although there is a significant doubt about the company’s 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

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 company’s 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. 4. (a) What are the major risks of misstatement of the inventory value in the financial statements?

4. (b) What are the principal reasons for auditors’ attendance at annual physical inventory (stocktaking)?

13

5

5

10

16

7


statement figures

4. (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?

4. (d) Why do auditors normally record result of their test counts to compare with the final inventory listing during an inventory observation?

8. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence about which financial statement assertion: Completeness Existence Valuation Rights and obligations (a) Inspect assets (b) Verify the valuation certificate (c) Refer to the title deeds (d) Compare assets in ledger to non-current asset register (e) Review depreciation rates (f) Verify material on self constructed assets to invoices (g) Examine invoices after the year end (h) Review repairs in nominal ledger.

7. Describe the audit procedures you should apply to the following items in the balance sheet of a limited company: 16 Stock of finished goods Accounts receivables Bank Balances Fixed deposits

7. A Ltd has a number of long and short terms payables, accruals and provisions in its Balance Sheet. 7 Required: Describe the audit procedures you would apply to the following item including those relating to disclosures. A 10-years bank loan with a variables interest rate and an overdraft (a bank statement with a debit balance on the bank statement) both from the same bank.

9. What does assurance provider check if perpetual inventory counting is used? What will be the Audit plan for perpetual inventory count? In what circumstances is net realizable value likely to be less than cost?

3+3+4=10

13

4+4=8

6

17. Explain ‘walk-through’ test with suitable examples. 3

14

10

5

5

5

2


statement figures

12. What could be the possible reasons for disagreements of Accounts Receivable balances between the client and the customer? Balance confirmation from individual customers is the ideal substantive procedure, what are the alternative procedures to verify existence/rights of Accounts Receivables?

13. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence about financial statement assertion. Completeness Existence Valuation Rights and Obligations(a) Inspect assets, (b) Verify to valuation certificate, (c) Refer to title deeds, (d) compare assets in ledger to non-current asset register, (e) Review deprecation rates, (f) verify material on self-constructed assets to invoices, (g) Examine invoices after the year end, (h) Review repairs in nominal ledger.

Codes of professional

ethics

9. What are the general sources of threat identified by the IFAC Code? Give one example against each source?

6. The Code of Ethics for Professional Accountants (IESBA Code) establishes ethical requirements for professional accountants. The fundamental principles for professional ethics for professional accountants provides a conceptual framework that professional accountants shall apply to identify threats to compliance with the fundamental principles; evaluate the significance of the threats identified; and apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level. a) What are the fundamental principles a Chartered Accountant shall comply with?

6. b) What are the threats that relationships or circumstances could compromise a member’s compliance with the rules?

6. c) What are the actions or others measures to be taken to eliminate threats or reduce them to acceptable levels?

15. a. The IFAC Code of Ethics applies only to statutory audits. True False

14

2

15

2. (c) How will you manage conflict of interest in accepting an assurance client?5

15

7

3

Codes of professional

ethics

15. b. As per IFAC Code of Ethics, audit engagement partners of listed companies should be rotated away from the engagement: i. Every year ii After 2 years iii After 3 years iv. After 5 years v. After 7 years.

Integrity, Objectivity & Independence

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.

6. Section 220 of Code of Ethics says that the principles of objectivity impose an obligation on all professional accountants not to compromise their professional or business judgment because of biasness, conflict of interest or the undue influence of others. a. What should a professional accountant do where there is a conflict of interest and what safeguards are available for a professional accountant in different circumstances?

6. (b) What should the professional accountant do if his request for consent to act for another party having conflict of interest is refused by the client?

15

4+4=8

16

5

4

3+5=8


14. What are ‘independence of mind’ and ‘independence in appearance’? Why do independence and objectivity matter so much? What can the auditor do to preserve objectivity? Name different categories of threats to independence.

4+3+3=10

16. List the different situations of conflict of interest those an accountant in business might face. Monower is a qualified accountant. He has recently moved out of practice and taken up the position of financial controller of a small company, XYZ Ltd. The company has a short-term cash flow problem. Monower was recently called into the board meeting and asked if he could defer some income from the previous financial year so as to influence when the tax (both VAT and corporate tax) would be due to those sales. The directors were insistent that such deferral was necessary and that he should consider this request more in the nature of an order. What should be Monower’s course of action?

Confidentiality

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?

3+3=6

2. (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?

2. (d) How an auditor can maintain ‘Chinese Walls’ to safeguard clients’ confidentiality?

11. Why is confidentially important? Discuss the security procedures which might be wise to prevent accidental disclosure of information?

Session Chapter Weight

June, 2013

9%

June, 2012

June, 2012

June, 2011

June, 2010

June, 2010

December,2011

9%

June, 2013

15%

June, 2013

June, 2013

June, 2012

June, 2012

June, 2012

December,2010

15%

June, 2011

June, 2010

June, 2010

June, 2013

20%

December,2012

December,2011

December,2011

December,2010

December,2012

December,2012

20%

June, 2010

June, 2010

June, 2010

June, 2010

December,2011

December,2011

December,2011

20%

8%June, 2012

June, 2010

December,2010

December,2012

December,2012

December,2012

December,2012

December,2012

8%

June, 2012

12%

June, 2012

June, 2012

June, 2012

December,2010

December,2010

December,2010

December,2011

12%

June, 2011

June, 2011

June, 2011

June, 2011

June, 2010

June, 2012

5%

June, 2012

June, 2012

December,2011

June, 2011

5%

June, 2011 1%

June, 20111.3%

June, 2011

June, 2011

2.14%June, 2010

3%

December,2010

December,2011

December,2010

June, 2010

3%

5%

June, 2012

June, 2012

June, 2012

June, 2010

June, 2013

5%

June, 2013

June, 2013

December,2012

December,2010

June, 2013

5%

June, 2011

June, 2010

June, 2013

13%

June, 2013

June, 2013

June, 2013

June, 2013

13%

June, 2013

June, 2011

December,2011

December,2010

December,2010

June, 2010

13%

June, 2010

June, 2010

June, 2012

4%

June, 2010

December,2011

December,2011

December,2011

June, 2010

4%

June, 2013

7%

June, 2012

June, 2012

December,2012

June, 2010

7%

June, 2010

June, 2013

3%

June, 2013

June, 2013

December,2010

Chapter Chapter Name

01

02

03

04

05

06 Revenue System07 Purchase System08 Employee Cost09 internal Audit10 Documentation11 Evidence & Sampling12 Management representation

Concept of and need for assurance




Introduction to internal Control

13

14 Cores of professional ethics

15

16 Confidentiality

Substantive Procedure - Key financial statement figures


16 Confidentiality

QuestionsMarks

5

1. (a) List the key elements of an assurance engagement.5

5

5

6

5

5

5

5

1. (b) In addition to audit, users want some other assurance services. Give few examples.

1. (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?

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.

1. (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.

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. 5. (a) What does a Letter of Representation provide as audit evidence?

5. (b) What actions should the auditor take when no other evidence is available and internal confirmations form significant basis of the opinion?

5. (c) What actions should the auditor take when management refuses to provide internal confirmations (representations)?

5. (d) What should auditors do when they receive management representations?

8

(c) List the activities usually undertaken in an internal audit. 6

5

5

5

5

2. (c) How will you manage conflict of interest in accepting an assurance client?5

3. (b) The financial statements of A Ltd. were prepared on going concern basis, although there is a significant doubt about the company’s 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

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 company’s 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. 4. (a) What are the major risks of misstatement of the inventory value in the financial statements?

4. (b) What are the principal reasons for auditors’ attendance at annual physical inventory (stocktaking)?

4. (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?

4. (d) Why do auditors normally record result of their test counts to compare with the final inventory listing during an inventory observation?

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?

3+3=6

5

4

2. (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?

2. (d) How an auditor can maintain ‘Chinese Walls’ to safeguard clients’ confidentiality?

Chapter Chapter Name01

02

03

04

05

06 Revenue System07 Purchase System08 Employee Cost






09 internal Audit10 Documentation11 Evidence & Sampling12 Management representation

13


15

16 Confidentiality



Questions Marks

10

10

5

10

3+4

5

5

3

5

3. (c) Why should management establish effective internal control? 5

3+3

4. (c) What is audit software? Give examples of what audit software can do.3+4

1. (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.

1. (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?

3. (b) What is the risk of material misstatement occurring within the entity and its environment? Give two examples.

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.

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?

2. (b) What three things the auditors are required to state as explicit opinions in their audit report?

2. (c) What matters the auditors are required to state by exception as implied opinions in their audit report?

2. (d) Who should the auditors address to in their audit report of a company according to BSA 700?

3. Internal control is most effective when controls are built into the entity’s infrastructure and properly monitored to assess the quality of the system’s performance over the time. a. What type of assurance is internal control expected to provide?

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?

4. (b) What is CAAT? What are the stages in the use of test data? 3+4

15

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.


02

03

04

05

06 Revenue System

07 Purchase System08 Employee Cost09 internal Audit10 Documentation






11 Evidence & Sampling

12 Management representation

13


15

16 Confidentiality



Questions Marks10

8. (b) What is the `expectation gap’ in assurance engagement? 610

10

5

4

10

3

7

5. A key issue for accountants is that there are limitations to assurance services, and therefore there is always a risk involved that the wrong conclusion will be drawn. What are the limitations of assurance services?

1. Briefly explain the key elements of an assurance engagement and what the types of assurance are engagement as per the International Framework for Assurance engagements.

7. The practitioner should comply with the International Framework for Assurance Engagements (the Framework) and International Standard on Assurance Engagements (ISAE) when performing an assurance engagement other than an audit or review of historical financial information covered by International Standards on Auditing (ISAs) or International Standards on Review Engagement (ISREs). (a) What are the factors a practitioner must consider before accepting an assurance engagement and what are low risks and high risks for assurance?

7. (b) What are the purposes of an engagement letter? Should a practitioner send an engagement letter to existing clients?

8. An accountant evaluates financial records based on assertions imbedded in the financial statements. (a) What are the management assertions under different categories?

3. What tests of control might be appropriate for Sales day book and Receivables ledger

4. Sales invoices are source documents that provide a record for each sale. For control purposes, sales invoices are sequentially pre-numbered. a. What are the control objectives to mitigate risk of not receiving payments from a sales invoice?

4. (b) Which tests of control do you think appropriate for sales day book and suggest some controls to safeguard cash in hand and at bank?

8

4

3

10

7

3

2. Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. a. Discuss the attributes of evidence as per BSA 500 and list the sources of audit evidence.

2. (b) Is 100% examination likely in the case of test of controls? Give examples when 100% examination may be appropriate?

2. (c) There will be an impact on sample size when there is an increase in the auditor’s assessment of the risk of material misstatement. Explain.

9. What are the general sources of threat identified by the IFAC Code? Give one example against each source?

6. Section 220 of Code of Ethics says that the principles of objectivity impose an obligation on all professional accountants not to compromise their professional or business judgment because of biasness, conflict of interest or the undue influence of others. a. What should a professional accountant do where there is a conflict of interest and what safeguards are available for a professional accountant in different circumstances?

6. (b) What should the professional accountant do if his request for consent to act for another party having conflict of interest is refused by the client?


02

03

04

05






06 Revenue System

07 Purchase System

08 Employee Cost

09 internal Audit

10 Documentation



13


15

16 Confidentiality



Questions Marks

4

3

3. b) The assurance firm may do insufficient work to detect material errors. 4

3. c) The financial statements contain a number of estimates. 4

3+6

9. Assurance service is an independent professional service, typically provided by Chartered Accountants, with the goal of improving the information or the context of the information so that decision makers can make more informed, and presumably better decisions. Assurance services provide independent and professional opinions that reduce the information risk (risk that comes from incorrect information) a. Audit and Assurance are always used together. What is the exact difference between these? b. Under the “International Framework for Assurance Engagements,” how many types of assurance engagement a practitioner is permitted to perform? Define all.

6+3+6=15

1. What forms and contents will normally be contained in a letter of engagement?

2. You own an accounting firm. XYZ Ltd. is your prospective client. However it declines permission to contact the previous auditors, what should be your course of action?

3. What is Audit Risk? What are the different types of Audit Risk? For each of the following examples, indicate the type of risk:3. a) Vendor’s payments are processed, booked and reconciled in the system by the same person in the Accounts Department.

4+5

3

4. Define ‘Audit Committee.’ What are likely to include in the terms of reference of audit committee as required for the companies listed in stock exchange of Bangladesh.

6+6=12

12

7. The use of an IT system by a client does not change the need to establish effective internal control; however, it does change the nature of the controls. More advanced IT features, such as online capabilities, database storage, IT networks, and end user computing, present special control risks. Therefore, specialized controls are needed, including passwords, validity tests, and computer logs. a. How do certain IT areas and IT general controls (ITGC) affect almost all financial audits? 6 b. How do IT system of an entity cause risk of material misstatement?

5. Classify the following working papers into Current Audit file and Permanent Audit file: Engagement letters, new client questionnaire, financial statements relating to year under review, Management letter, Accounts checklist, Audit planning memo, Board minutes of continuing relevance, and Accounting system notes.

10

5

5

5

8. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence about which financial statement assertion: Completeness Existence Valuation Rights and obligations (a) Inspect assets (b) Verify the valuation certificate (c) Refer to the title deeds (d) Compare assets in ledger to non-current asset register (e) Review depreciation rates (f) Verify material on self constructed assets to invoices (g) Examine invoices after the year end (h) Review repairs in nominal ledger.

6. The Code of Ethics for Professional Accountants (IESBA Code) establishes ethical requirements for professional accountants. The fundamental principles for professional ethics for professional accountants provides a conceptual framework that professional accountants shall apply to identify threats to compliance with the fundamental principles; evaluate the significance of the threats identified; and apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level. a) What are the fundamental principles a Chartered Accountant shall comply with?

6. b) What are the threats that relationships or circumstances could compromise a member’s compliance with the rules?

6. c) What are the actions or others measures to be taken to eliminate threats or reduce them to acceptable levels?


02

03

04

05

06 Revenue System

07 Purchase System

08 Employee Cost






09 internal Audit

10 Documentation11 Evidence & Sampling


13


15

16 Confidentiality



Questions Marks4+8=12

6

4.(a) Name three broad types of document used in Internal Control Recording. 3

4+6=10

2

3

4

6

3

1. What is assurance engagement? What are the key elements of an assurance engagement?

2. Which three of the following will normally be contained within a letter of engagement? 6 Responsibilities of the auditors; Responsibilities of the directors; The scope of the audit; The staff assigned to the engagement;

3. What is Internal Control? Name its components. What are its importance and limitations?

2+5+8=15

4. (b) What are IT General and IT Application Controls? List three examples in each area.

9. (c) Which two control activities are most likely to reduce the risk of payments being made twice for the same liability?

9. (a) Which three of the following functions should ideally be segregated: 3 Authorization of orders Invoicing Recording cash receipts on receivables ledger Reconciliation of receivables ledger with receivables ledger control account Credit Control

9. (b)List four examples of purchase documentation on which numerical sequence should be checked.

6. (a) List six procedures assurance providers should carry out if wages are paid in cash.

6. (b) How should assurance providers confirm that wages have been paid at the correct rate to individual employees?

10

10

16

8. What does internal audit do? What are the key differences between external and internal audit?

5. What are management representations? How does management representations work as audit evidence? When management representations are required?

7. Describe the audit procedures you should apply to the following items in the balance sheet of a limited company: 16 Stock of finished goods Accounts receivables Bank Balances Fixed deposits


02

03

04





05

06 Revenue System

07 Purchase System

08 Employee Cost

09 internal Audit

10 Documentation



13




15

16 Confidentiality


Questions Marks7+3=10

7+3=10

4+5=9

3

1. ‘Assurance can never be absolute’. Discuss the limitation of assurance. Which three of the following are benefits of assurance work?• An independent professional opinion • Additional confidence given to other related parties • Testing as a result of sampling is cheaper for the responsible party • Judgments on estimates can be conclusive • Assurance may act as a deterrent to error or fraud

3. (a) Name five possible of sources of information about the client. (b) Define ‘Materiality’ in assurance work. Which factors indicate a risk might be a significant risk?

5+2+4=11

2. Discuss in brief ‘Audit Strategy’ and ‘Audit Plan’. Which three of the following would normally be contained in the overall audit strategy? 7+3 • The contract between the audit firm and the client • The result of audit risk assessment • Calculation of preliminary materiality • Detailed plan of audit procedures to be carried out • List of staff to be involved with the audit

4. (a) What are the matter with which the auditors imply satisfaction in an unqualified report under the Companies Act 1994? What basic elements, according to BSA 700, the audit report should include?

4. (b) Which three of the following are implied opinions given in the audit report? 3 • All information and explanations required for the audit have been received. • Proper accounting records have been kept. • The director’s reports is consistent with the financial statements • The financial statements have been prepared in accordance with the Companies Act 1994. • The preparation of the financial statements is the responsibility of the company’s management.

2+6=8

5+6=11

7

2+4=6

7

5. Define ‘Audit Committee’. What are likely to include in the terms of reference of the audit committee as required for the companies listed in the Bangladesh stock exchanges?

8. As an assurance provider, how will you perform test of controls in relation to Sales? Give five examples of tests to be performed on the cash payment book.

6. BSA 230 Audit Documentation establishes standard and provides guidance regarding documentation in the context of audit of financial statements. Required: List the purposes of audit working papers

10. What is accounting estimate? What will be auditor’s approach to audit of accounting estimates?

7. A Ltd has a number of long and short terms payables, accruals and provisions in its Balance Sheet. 7 Required: Describe the audit procedures you would apply to the following item including those relating to disclosures. A 10-years bank loan with a variables interest rate and an overdraft (a bank statement with a debit balance on the bank statement) both from the same bank.

3+5=8

9. What does assurance provider check if perpetual inventory counting is used? What will be the Audit plan for perpetual inventory count? In what circumstances is net realizable value likely to be less than cost?

3+3+4=10

11. Why is confidentially important? Discuss the security procedures which might be wise to prevent accidental disclosure of information?


02

03




04

05

06 Revenue System

07 Purchase System

08 Employee Cost

09 internal Audit

10 Documentation



13





15

16 Confidentiality


Questions Marks3

5

3

2

3

2

4+4=8

2

2. In Bangladesh, the auditor will normally express his audit opinion by reference to the ‘true and fair view’, which is an expression of reasonable assurance. Briefly define the terms ‘true’ and ‘fair’

3. You are an Accountant who has been approached by Mr. X, who wants to invest in company ABC Ltd. He has asked you for assurance whether the most recent financial statements of company ABC Ltd. are a reliable basis for him to make his investment decision. Identify the key elements of an assurance engagement in this scenario, if you accepted the engagement.

4. What forms and contents will normally be contained in a letter of engagement?

5. You own an accounting firm. XYZ Ltd. is your prospective client. However, it declines permission to contact the previous auditors, what should be your course of action?

1. a. Which of the following procedures might an auditor use in gaining an understanding of the entity? (i) Inquiry (ii) Recalculation (iii) Analytical procedures (iv) Reperformance of a control (v) Observation and inspection.

1. b. The audit team is required to discuss susceptibility of the financial statements to material statements.TrueFalse

6. a. What is Audit Risk? What are the different types of Audit Risk? For each of the following examples, indicate the type of risk illustrated: 4+4=8 i. Vendors’ payments are processed, booked and reconciled in the system by the same person in the Accounts Department. ii. The organization is highly connected with the building trade. iii. The assurance firm may do insufficient work to detect material errors. iv. The financial statements contain a number of estimates.

6. b. If control and internal risk are assessed as sufficiently low, substantive procedures can beabandoned completely.TrueFalse

11. (b) Name six financial statement assertions. 5

3+2=5

4

6

2

4+4=8

7. What is ‘internal control’? Name the components of an internal control system. What are the limitations of internal control systems? Why smaller companies have problems in implementing internal controls?

2+3+3+3=11

8. What are the key differences between external audit and internal audit? ‘As objectivity is a key issue for internal auditors, they are likely to routinely be involved in operational activities’ do you agree? Explain.

9. Classify the following working papers into Current Audit File and Permanent Audit File: Engagement letters, New client questionnaire, Financial Statements relating to year under review, Management letter, Accounts checklist, Audit planning memo, Board minutes of continuing relevance, Accounting system notes.

10. What includes audit evidence? Briefly explain the procedures to obtain audit evidence.

11. (a) When Management Representation is required? What do auditors do when receive such representation and in occasions when such evidence does not agree with other evidences?

12. What could be the possible reasons for disagreements of Accounts Receivable balances between the client and the customer? Balance confirmation from individual customers is the ideal substantive procedure, what are the alternative procedures to verify existence/rights of Accounts Receivables?

6

17. Explain ‘walk-through’ test with suitable examples. 32

2

4+4=8

13. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence about financial statement assertion. Completeness Existence Valuation Rights and Obligations(a) Inspect assets, (b) Verify to valuation certificate, (c) Refer to title deeds, (d) compare assets in ledger to non-current asset register, (e) Review deprecation rates, (f) verify material on self-constructed assets to invoices, (g) Examine invoices after the year end, (h) Review repairs in nominal ledger.

15. a. The IFAC Code of Ethics applies only to statutory audits. True False

15. b. As per IFAC Code of Ethics, audit engagement partners of listed companies should be rotated away from the engagement: i. Every year ii After 2 years iii After 3 years iv. After 5 years v. After 7 years.

14. What are ‘independence of mind’ and ‘independence in appearance’? Why do independence and objectivity matter so much? What can the auditor do to preserve objectivity? Name different categories of threats to independence.

4+3+3=10

16. List the different situations of conflict of interest those an accountant in business might face. Monower is a qualified accountant. He has recently moved out of practice and taken up the position of financial controller of a small company, XYZ Ltd. The company has a short-term cash flow problem. Monower was recently called into the board meeting and asked if he could defer some income from the previous financial year so as to influence when the tax (both VAT and corporate tax) would be due to those sales. The directors were insistent that such deferral was necessary and that he should consider this request more in the nature of an order. What should be Monower’s course of action?

Assurence Question

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