Certificate in Accounting and Finance Stage Examination

28 December, 2022
45 minutes – 26 marks
Additional reading time – 05 minutes

Audit and Assurance

Test # 8
Instructions to examinees:
(i) Answer all FIVE questions.
(ii) Answer in BLACK ballpoint pen only.
(iii) Attempt each part of the question on a new page.

Q.1 When should the following inventory counting tests take place – before, during or after the
inventory count? Insert alphabet only using format given below.

(a) Observe whether client staff are following instructions.

(b) Review previous year's inventory count arrangements.
(c) Assess method of accounting for inventories.
(d) Trace counted items to final inventory sheets.
(e) Review replies from third parties about inventory held for them.
(f) Conclude as to whether inventory count has been properly carried out.
(g) Gain an overall impression of levels and values of inventory.
(h) Consider the need for expert help.

Format:
Before During After
(04)

Q.2 List the auditing procedures that an auditor should employ to determine whether slow moving
or obsolete items are included in the inventory. (03)

Q.3 You are planning the statutory audit of the financial statements of Mahiwal Limited (ML) for
the year ending June 30, 2011.

A review of the draft financial statements has also disclosed that ML had revalued a property
in accordance with the requirements of the International Financial Reporting Standards. The
property was acquired many years ago to earn rental income.

Required:
Enumerate the key audit procedures to be conducted to assess the appropriateness of the
revaluation of property and the accounting treatment thereof. (06)

Q.4 State briefly how would you perform the following audit tests:

(i) Purchase Cut-off Tests. (02)

(ii) Assessing the reasonability of balance due from trade debtors. (02)
(iii) Completeness of Sales. (02)
(iv) Verifying stocks owned by the company but held by third parties. (02)
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Q.5 Kabul (Private) Limited (KPL) has advanced Rs. 100 million to Qandhar Limited (QL), one
of its suppliers of raw material. KPL and QL have recently signed an agreement whereby the
above advance has been converted into a loan and QL has agreed to pay mark-up on the
outstanding balance at prevailing market rates. QL has confirmed the amount of loan and the
interest accrued thereon. However, you have acquired some information which suggests that
QL is facing financial difficulties.

Required:
As an auditor of KPL, discuss how you would deal with the above situation and possible
implications thereof on the audit report. (05)

(THE END)