Auditing Question Bank

Autumn 2009 to Autumn 2016

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9 Strawberry Pakistan Limited (SPL) was incorporated on March 1, 2011. The directors of SPL are in the Q.1
process of appointng the first statutory auditor of the company. They have requested your firm to (S-11)
submit a proposal for the statutory audit assignment. A partner of your firm has asked you to draft
the proposal after assessing whether the preconditons for the audit exist. Required:

a) Briefly discuss the term ‘preconditons for an audit’.

b) What are the steps that you would perform in order to ensure that preconditons for the audit
exist?
c)
d) Discuss whether your firm may or may not accept the assignment if one of the preconditons for
the audit is not present. (10 marks )

10 (a) A prestgious company has approached your firm to accept appointment as its external auditor. Q.8
State the matters that your firm should consider before acceptng the engagement. (04) (S-10)

(c) Your firm has been the auditor of Mujahid Limited (ML) for many years. Before the
commencement of the current year’s audit ML has requested that some changes be made in the
terms of engagement. Required:

(i) What are the circumstances which may lead to changes in the terms of engagement? (03)
(ii)
(iii) (ii) Discuss the important points which should be considered before acceptng the changes in the
terms of engagement. (05)

Code of Ethics

1 Your firm is the auditor of ABD Limited (ABDL). After the acquisiton of majority shareholding in HG Q.2(b)
Motors (Private) Limited (HGM), ABDL has decided to replace the existng auditors of HGM in the (A-14)
next annual general meeting and has approached you for appointment as HGM’s auditors for the
next year.

Required:
Explain the responsibilites of your firm and the existng auditors in the above situation under the
Code of Ethics for Chartered Accountants. (05)

2 You have recently signed the audit report of Sadiq Limited. The management has approached you for Q.6(d)
reducton in audit fee for the next year because the company has been suffering losses for the past (S-12)
three years. (03 marks )
 Chapter 3

ISA 300

1 Briefly discuss the concept of ‘Professional skeptcism’. (03) Q.6(e)

(S-16)

2 (a) Briefly describe ‘Preliminary Engagement Activites’ and ‘Planning Actvites’. (05) Q.1
(S-14)
(b) You are the partner of Alamgir and Company, Chartered Accountants and have received an offer
for appointment as auditor of Guava Limited (GL). The previous year’s audit was carried out by
Babur and Company, Chartered Accountants.
Required:
State the matters that you would consider:
(i) while deciding about the acceptance of audit of GL. (03)
(ii) in establishing the overall audit strategy, including matters which are to be considered, being the
inital audit engagement. (08)

3 a) What is the difference between audit strategy and audit plan? (04marks) Q.6
b) You have been appointed as the auditor of a company which was previously audited by another (A-10)
auditor. Being a new client, what additonal consideratons would you take into account while
performing the preliminary engagement activities prior to commencement of the audit? (05
marks)

4 During the audit team planning meetng, a member of the audit team passed a comment that based Q.1(b)
on past experience with the client, he was confident that the management of the client was honest (A-09)
and there was no issue as regards management integrity or risk of fraud in the Company. The audit
manager responded that the auditor should always maintain an atttude of professional skeptcism
throughout the audit. Required: Briefly describe ‘Audit Skeptcism’ and elaborate on the response of
the audit manager. (08)

ISA - 320

1 Determination of materiality level requires professional judgment on the part of the auditor. Q.7
(a) Briefly describe the importance of materiality in the following stages of audit: (S-16)
(i) Planning stage (01)
(ii) Reportng stage (02)

(b) What aspects of materiality should be documented by an auditor in the working papers? (04)

2 You are the training manager in a firm of chartered accountants. Prepare brief presentaton for Q.6(c)
newly inducted trainees, on the following: (A14)
Materiality and Performance Materiality. (05)

3 (a) Sajjad is the audit senior on the audit of Hameed Limited (HL). Upon his manager’s instructon Q.5
Sajjad had determined the acceptable materiality level to be Rs. 10 million at the inital (S-10)
planning stage. However, at the tme of evaluating the results of audit procedures carried out
at the interim stage, he has reduced the materiality level to Rs. 7.5 million.
Required:
(i) Identfy the possible causes which motvated Sajjad to reduce the materiality level. (02 )
(ii) Discuss the impact of reducton in the materiality level on audit risk and the audit procedures to
be performed. (05 )

(b) During the course of an audit, both quanttative as well as qualitative misstatements need to be
considered. Give four examples of qualitative misstatements. (04 )
 Chapter 8

Intro to Substantive Procedures

1 Briefly describe the following concepts: Q.10(b)

Embedded audit facilites and its significance (04) (S-16)

ISA – 520

1 Identfy the matters that need to be considered by the auditor at the tme of designing and performing Q.1(e)
substantive analytcal procedures. (04) (S-15)

2 In the planning phase of the audit of Dynamic Limited for the year ending 30 June 2012, you have Q.2
calculated the following ratios from the management accounts of the company for the eight months (S-12)
ended 29 February 2012:
Eight
Year ended Year ended
months
30 June 2011 30 June 2010
period ended
Gross profit percentage 29
35% 40% 40%
Inventory turnover days 120 105 78
Current rato 1.5 2.3 2.6
Quick rato 0.78 1.6 1.7
Times interest earned 0.91 1.67 2.1
Debtors turnover days 132 86 68

Identfy the prospective audit risks which the auditor should consider while planning the
audit. (09 marks)
3 The analytcal procedures which are carried out near the end of the audit usually assist the auditor in Q.3
forming an overall conclusion on the financial statements. (A-10)
Required:
a) State the objectives which an auditor expects to achieve while applying analytcal procedures at the
end of an audit. (04 marks )
b) Discuss the course of action an auditor should adopt when results of analytcal procedures identfy
inconsistent relationships or differ from expected values by significant amounts. (04 marks )
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