Review Questions 2nd set

Question 1
Malanje Milling Plc. was recently listed on the Dar es salaam Stock Exchange (DSE) after
acquisition by an international company in the food manufacturing industry. The parent company
has retained a majority of 70% of the shares with the remaining shares subscribed by institutional
shareholders and individual shareholders.
Before the listing, the financial statements of Malanje Milling Plc. was audited by Zena
Chartered Accountants, a small one partner firm. The company is in the process of raising
additional capital and the parent company is committed to inject US$20 million in the company.
The company recently obtained a loan of US$10 million from an investment bank secured on
plant and equipment. The loan is repayable in dollars at a floating interest rate of 3%. The
company wishes to diversify and go into the manufacturing of animal feed. The exchange rate
between the local currency and the dollar has risen from an average of TZS 2200/1US$ in the
past to TZS2000/1 US$ in the last six (6) months.
The following resolutions were made by the board of directors of the parent company on the
activities of Malanje Milling Plc:
1. A change in senior management resulting in the contracts of five (5) senior managers not
being renewed including that of the Finance Director, Mayu.
2. The contract with the existing auditors was terminated and the audit services were put to
tender by inviting audit firms to bid for offering the services.
3. Being a transition year, the board resolved that a review of the financial statements rather
than a full audit be conducted in the current year because it is a cheaper alternative for a
company experiencing cash flow problems. Further, due to thetermination of the contract
for Mayu, the Finance Director, the Board proposed that a senior person from the firm
that will be appointed auditor should be seconded to Malanje Milling Plc. for a period of
three (3) months to participate in the finalization of the preparation of the current year
financial statements.
4. A new board of directors was put in place comprising executive and non-executive
members. Clive who is a partner in Clive & Associates Chartered Accountants is one of
the non- executive directors of the board.

The following information relates to the operations of Malanje Milling Plc.:

1. Malanje Milling Plc. buys maize, the major input to production, largely from small scale
farmers and five (5) commercial farmers with whom the company has contracts to buy
their maize failure to which the company will be required to pay the farmers the
difference between the selling price to third parties and the agreed contract price. The
agreement allows for legal action by the farmers in the event that some of their maize
remains unsold. Three (3) years ago the company decided to maintain an inventory level
of two (2) years requirements of maize and this policy will continue. In the last three (3)
years the company lost 1% of its closing inventory due to the maize going bad. The bad
maize has a very low realizable value and as such at each year end a provision is made in
the financial statements for maize going to waste.
2. The government passed legislation in the current year requiring that the Bureau of
Standards should carry out random inspections of the major players in this industry to
ensure that they adhere to the regulations with regards to the use of disinfectants in the
preservation of maize so that prohibited substances are not used.
 3. Malanje Milling Plc. sells the bulk of its products through agents based in the provincial
centers. Each of the agents pays a refundable deposit equivalent to one month’s
inventory to Malanje Milling Plc. and is given one (1) month credit for all the purchases.
Due to general economic difficulties being faced in the country the receivables days have
increased to 45 days resulting in most of the agents getting supplies exceeding the
deposit held by Malanje Milling Plc.
In an effort to control and manage the prices of mealie-meal, the Government set up
milling companies through co-operatives to be managed by youths and women all
around the country. The government guaranteed that it will sell maize to the co-
operatives at prices determined by the Food Reserve Agency (FRA) which are much
lower than the prices of maize in the open market. In this way it is hoped that the price of
meal meal from cooperatives will be determined and controlled by Government.

You work for Clive & Associates Chartered Accountants as Audit Manager. Your firm has
offices in four (4) provinces and the existing staff are busy on other assignments. Your firm
submitted a bid for offering audit services to Malanje Milling Plc. Your partner has requested
you to prepare a presentation that will be made to the audit committee of Malanje Milling. The
partner has informed you that he has been talking to Mayu the former Finance Director of
Malanje Milling Plc. with a view to give him a job as Audit Manager and assign him on the audit
of Malanje Milling Plc.
If your firm is appointed auditor of Malanje Milling Plc., it will also be required to provide legal
services to Malanje Milling Plc. The fee for the two (2) services will significantly increase the
fee income from Malanje Milling to 18% of your firm’s total income.
Required:
a) Explain the concept of audit and assurance in the context of the audit of Malanje
MillingPlc.
b) Explain the meaning of reasonable assurance in an audit of financial statements and
distinguish it from limited assurance.
c) Explain four (4) matters that should be included in the presentation to the audit
committee of Malanje Milling Plc. by your firm.
d) Identify and explain six (6) audit risks in the audit of Malanje Milling Plc. and for each
risk suggest a suitable audit response.
e) Identify and explain five (5) ethical issues that must be considered in accepting
appointment as auditor of Malanje Milling Plc. and in each case suggest a suitable
safeguard that should be taken.

Question two
You are the Audit Manager in Bagosha & Associates Chartered Accountants and planning for
the audit of the financial statements of Chamale Chemicals Plc. a manufacturer of agricultural
chemicals for the year ended 31 December 2020. Your firm has been auditor of Chamale
Chemicals Plc. for the past fifteen (15) years and Shemeli has been Engagement Partner
throughout this period. It is the first time that you and the rest of the audit team have been
assigned to this audit. Shemeli is a close friend of the Chief Executive Officer of Chamale
Chemicals Plc. and they are both part sponsors of the local social football team. Chamale
Chemicals Plc. imports the bulk of its raw materials used in manufacturing of its products.
The company sells the bulk of its products to Agro dealers who are given thirty (30) days to pay
for the purchases. The accounts receivables have been increasing over the last three (3) years
with 30% of the receivables outstanding for periods beyond two (2) months. Most of the Agro
dealers have failed to settle their dues due to non-payment by government for the supply of
chemicals to farmers under a support scheme.
The chemical industry is regulated by the Tanzania Environmental Management Agency and
there are stiff penalties for non-compliance with the regulations.
The production plant at Chamale Chemicals Plc.is old and the company obtained a loan of TZS
45 million to purchase new modern equipment which produces less toxic fumes into the
environment. It is clear that the carrying amount of the equipment is less than the recoverable
amount and so an impairment exercise was carried out in the current year. During the year a
court case in which Chamale Chemicals Plc. was sued by one of its employee who suffered
serious burns arising from lack of protective equipment commenced. The case is still in court and
the company made a provision of TZS 10 million in the financial statements. The employee
refused to accept an out of court settlement of this amount and is claiming TZS 50 million.
The Finance Director of Chamale Chemicals Plc. resigned his position three (3) months before
the period end and he was key in the preparation of the financial statements. The company is in
the process of filling the vacancy and the Financial Accountant is assisting in the preparation of
the final accounts for the first time.
During the planning stage of the audit of Chamale Chemicals Plc. you establish that the company
has poor risk management systems and the internal controls are poor in all the business cycles.
The following information was gathered about the purchasing and inventory systems during the
risk assessment stage performed in accordance with ISA 315 (Revised) Identifying and assessing
the risks of material misstatement through understanding the entity and its environment. It is
your wish that you should use a combined approach on this audit by carrying out tests of control
and substantive tests.
The company has a Stores Department which is responsible for the custody and issue of stores
items to user departments. The Stores Department has un-numbered inventory cards for each
inventory item. The Stores Officer numbers the cards when used and he decides the numbering
to use. On a regular monthly basis the stores officer counts all the items in stock and compares
with the inventory per stock card. At the end of the year an inventory count involving staff from
stores, finance and human resources carry out an inventory count supervised by the stores
officer. All discrepancies are recorded and the Management Accountant does the inventory
valuation.
When stock levels reach the reorder level, the Stores Officer makes a verbal order from any
supplier on the list of approved suppliers. On receipt of goods from the supplier the stores officer
passes the invoice to accounts who prepare the payment documentation. The only evidence of
receipt of goods is that evidence by the Stores Officer signing for checking and receipt of
inventory on the payment voucher prepared by accounts. The valuation of closing work in
progress is done by a Specialist Engineer who worked for Chamale Chemicals and has since
formed his own company. Chamale Chemicals Plc engages him annually for determination of
work in progress.
Required:
a) Identify and explain six (6) audit risks in Chamale Chemicals Plc. and for each risk
explain the audit response.
 b) Identify and explain four (4) ethical issues in the audit of the financial statements of
Chamale Chemicals Plc. and explain the response that should be made
c)
i. Distinguish between tests of control and substantive tests in the audit of financial
statements.
ii. Recommend a suitable audit approach to be followed in view of the poor internal
control systems in Chamale Chemicals Plc.
d. Identify and explain five (5) internal control weaknesses in the purchases system of
Chamale Chemicals Plc. and suggest suitable improvements.

QUESTION THREE
The audit fee is a contentious issue for most companies who feel that they do not get value for
money for the services paid for. One way that companies try to reduce the audit fee is by
enhancing the role of internal audit. The external auditors may rely on the work of internal audit
or they may seek direct assistance of the internal auditors thereby save on time spent on the audit
and ultimately the cost of the audit.

Required:
a) Explain the meaning of seeking direct assistance of internal audit by the statutory auditor.
b) Explain four (4) situations where statutory auditors are prohibited from the direct use of
internal audit according to ISA 610(Revised) Using the work of internal auditors.

QUESTION FOUR
Your firm has been auditor of Kangaroo Plc. for five (5) years. During this period your firm has
had a good relationship with the management of Kangaroo Plc. However, a recent change in
senior management has impacted negatively on the relationship.
You are the Engagement Partner on the audit of the financial statements of Kangaroo Plc. For the
year ended 31 December 2021. The audit is in the final stages and there has arisen a serious
disagreement with management over the accounting for development costs. Management insists
on capitalizing development costs which do not meet the requirement for capitalizing.
You have obtained sufficient appropriate evidence that the development cost should instead be
written off against revenue in the current year. You have indicated to management that unless
they amend the financial statements, you will issue an adverse audit opinion in the year.
However, Management have indicated that they may have no option but to replace you with
another firm of auditors.

At a meeting with the Partner responsible for client management, it was resolved that the firm
should not continue auditing the financial statements of Kangaroo Plc. and that the firm should
resign from the engagement immediately.

You have been requested to start the process of resignation and ensure that the correct
resignation process is followed.

Required:
a) Explain the procedure that should be followed by your firm in resigning from the audit of
Kangaroo Plc.
 b) Explain two (2) rights of your firm after resignation as auditor of Kangaroo Plc.

QUESTION FIVE
You are a Senior Audit Manager in Ndekeja Chartered Accountants. You are in charge of the
audit of the financial statements for Chawa Plc. for the year ended 30 June 2021 a company in
which you hold shares that you inherited from your father six years ago.
Ndekeja Chartered Accountants was appointed as auditor of Chawa Plc. at the Annual General
Meeting (AGM) which was held on 22 September 2020. The agreed audit fee is TZS 15 million
payable in advance.
Chawa Plc. is one of the key players in the honey industry in Tanzania. It is involved in
harvesting, processing, packaging and marketing of honey for both local and export markets. The
receivables balance at the period end includes receivables from both local and export sales. The
Engagement Partner has already had a planning meeting with the Finance Director and he has
provided you with the following information: Tanzania is a tropical country endowed with the
resources that are required to boost the honey industry. However, the honey industry currently
operates using old laws and regulations which were enacted before the country became
independent in 1964. Obtaining a licence is very difficult and most of the players in the honey
industry operate on an informal basis. On 26 August 2020, the company started developing one
of the biggest honey processing and packaging plants in the Common Market for Eastern and
Southern Africa (COMESA). It is located in Igurusi district of Tanzania. It was completed in
February 2021 and became operational on 1 April 2021. This was financed by a convertible debt
and a government grant in the sum of TZS 80 million. The plant is currently operating at 40% of
its full capacity, mainly due to the depressed market conditions as a result of the COVID-19
pandemic. The management accounts for the month of June 2021 show a significant decrease in
profitability. Management wants to attach the audited financial statements to their application for
the much needed COVID-19 relief fund, which the government has launched. The Finance
Director has been instructed by the Board of Directors to direct Ndekeja Chartered Accountants
to use highly qualified manpower, who will focus on enquiries of accounting and finance staff
and analytical procedures so that the audit work is completed quickly. The post COVID-19 sales
projections provided by the Finance Director are impressive given that most nutritional advice
has been placing emphasis on more use of honey to replace ordinary sugar. All export sales are
on credit.
A computerized accounting system was implemented in the last quarter of the year under review
in order to address most of the deficiencies identified by the previous auditors and the internal
auditors. In order to motivate its workforce, the Board of Directors of Chawa Plc. introduced a
defined benefit pension scheme in 2019. The Finance Director is responsible for determining the
actuarial Assumptions used in the estimation of future obligations. Chawa Plc. requested
Ndekeja Chartered Accountants to represent it in a tax dispute with the Tanzania Revenue
Authority (TRA) which is before the Tax Appeals Tribunal (TAT). In fact, the Managing Partner
has indicated that Ndekeja Chartered Accountants is considering not seeking re-election so that
the firm focuses on providing consultancy services to Chawa Plc.
The Review Department of the National board of Accountants and Auditors (NBAA) notified the
firm of the inspection (monitoring) which will be conducted next month. The newly appointed
Quality Control Partner has requested you to immediately send him an email explaining the
purpose of the Tanzania National Board of Accountants and Auditors (NBAA) inspection.
Required:
 a) Write an email to the newly appointed Quality Control Partner, explaining the purpose of
the NBAA inspection (monitoring) of audit firms
b) Using the information in the scenario:
i. Identify and explain four (4) ethical threats which may affect the independence of
Ndekeja Chartered Accountants in respect of the audit of Chawa Plc.
ii. For each threat, suggest how it may be reduced to an acceptable level.
iii. Discuss five (5) factors which Ndekeja Chartered Accountants should consider when
opting for the provision of consultancy services to Chawa Plc.
c) Identify and explain six (6) audit risks arising in the audit of the financial statements of
Chawa Plc. for the year ended 30 June 2021
d) Analyse two (2) potential issues that the computerization of the accounting system of
Chawa Plc. will have on planning of the financial statement audit for the year ended 30
June 2021, and explain any two (2) audit procedures which will be relevant for the
payroll system.
e) Recommend three (3) audit procedures which should be used when auditing the actuarial
assumptions in Chawa Plc.

QUESTION SIX
a) Discuss the importance of Environmental Impact Assessment (EIA) activities for
developing countries.
b) What is the need for EIA in developed countries?

QUESTION SEVEN
a) How does risk assessment help to maintain and control environment systems?
b) What are the functions of the environment cell?
c) Which aspects considered under the review of the environmental management plan?
d) What is the importance of environmental audit for the industry?
e) What are the objectives behind the environmental audit?

QUESTION EIGHT
a) What are the criteria under ISO 14001 for an environmental audit?
b) Discuss in detail on ISO 45001: OH&S audit and applications.
c) Write an account of audit tools and technology.
d) What are the responsibilities of the auditor?
e) Discuss in detail about International Training Organizations and Government Agencies in
Audit (INTOSAI).

QUESTION NINE
1. Explain the importance of plan-do-check-act (PDCA) in environmental audits with a
suitable example.
2. What is the Eco-Management and Audit Scheme? Discuss requirements under it for
institutes.
3. Discuss the importance of the environmental budget to minimize impacts.
QUESTION TEN
Samweli is a practicing accountant. He has been approached by Hassan, the financial controller
of Jomo Engineering, which wants to invest in Mwenge Technologies. Hassan has analysed the
financial position of Mwenge Technologies over the last few years. However, as the proposed
investment is substantial, he wants a second opinion on the reliability of the most recent financial
statements of Mwenge Technologies as a dependable basis for him to make his investment
decision. Therefore, he has approached Samweli for an assurance on this matter.
Required
Identify the key elements of the assurance engagement in this scenario if Samweli accepts the
engagement.

QUESTION ELEVEN
Why does an external auditor provide an opinion on whether the financial statements are true and
fair rather than true and correct?

QUESTION TWELVE
Audit practitioners have recently begun to initiate changes in the audit approach. The strategy
seems to be moving away from the traditional audit of financial statements to the provision of
assurances on financial data, systems and related controls. Auditors are reviewing the business
processes utilizing benchmarking, performance measurements such as value for money and best
control practices. The audit is moving toward the analysis of business risks which is seen to be
more of a benefit for management.

Risk assessment services are now part of the audit service of which clients can avail themselves.
The provision of internal audit is becoming a larger part of the business assurance service offered
by auditing firms. The audit is becoming a management consultancy exercise with internal audit,
external audit and consultancy assignments being seen as complimentary services.

REQUIRED:

Discuss the implication of the external auditor providing an internal audit service to a client,
explaining the current ethical guidance on the provision of other services to clients.

QUESTION THIRTEEN
Your firm is the auditor of Emmanuel Company Ltd which operates 15 petrol stations in and
around DSM. You are the senior in charge of the audit for the year ending 31 January 2010, and
are engaged on the audit planning. Most of the entity’s sites are long established and, as well as
supplying fuel, oil, air and water, have a car wash and a shop. Over the last few years, due to the
intense price competition in petrol retailing, the shops have been expanded into mini-markets
with a wide range of motor accessories, food, drinks and household products.
They also sell National Lottery tickets. Point-of-sale microcomputers are installed in all the
petrol stations, linked on-line via a network to the computer at head office. Sales and inventory
data are input direct from the microcomputers. The entity has an internal auditor, whose group
function is to monitor continuously and test the operation of internal controls throughout the
organization. The internal auditor will also be responsible for coordinating the year-end
inventory count.
Prepare notes for a planning meeting with the audit partner which:
a) Identify areas of potential risk which will have to be addressed by the audit;
b) describe the extent to which the work performed by the internal auditor may affect your
planning, and the factors that could limit the use you may wish to make of his work; and
c) Detail the analytical review procedures that you would adopt to obtain audit evidence on
income and gross profit as part of your substantive testing.

QUESTION FOURTEEN
Your firm is the external auditor of Lunengela plc. which has a turnover of Tsh 25 million and a
profit before tax of Tsh 1.7 million. The entity operates from a head office at Lunengela main
office and has sales and inventory holding centers in different parts of the country. The directors
have decided the entity has reached a size when it needs an internal audit department. As is
becoming increasingly common, the directors have asked your firm to provide this service to the
entity as well as being the statutory auditor of the entity’s annual financial statements.
In answering the question, you should consider:
a) The effects of the Accountant’s code of Professional Conduct in relation to providing an
internal audit service to Lunengela;
b) The extent to which your audit firm can rely on the internal audit work when carrying out
the statutory audit of Lunengela;
c) The arrangements over control of the work and reporting of the internal audit staff:
i. the extent to which the internal audit staff should be responsible to Lunengela,
and who should control their work;
ii. The extent to which the internal audit staff should be responsible to a manager or
partner of your firm, and whether the same manager and partner should be
responsible for both the internal audit staff of Lunengela and the external audit.
Required:
a) In relation to your audit firm becoming internal auditors of Lunengela: describe the
matters you should consider and the action you will take to ensure your firm remains
independent as external auditor of the annual financial statements;
b) describe the advantages and disadvantages to Lunengela of your firm providing an
internal audit service;
c) Describe the advantages and disadvantages to your audit firm of providing an internal
audit service to Lunengela plc.

QUESTION FIFTEEN
You are the senior auditor for the team auditing Hamki Ltd, a retailer selling high fashion clothes
and accessories. The following points describe various aspects of the company’s operations for
the year ended 31st December 2019:
1. Hamki Ltd trades from 12 stores located in large towns and cities throughout the country.
2. Two of the stores account for approximately 29% and 22% respectively of the company’s
TZS.100 million annual turnover.
3. The company has been established for over 20 years and has achieved steady growth with
a marketing strategy encompassing high quality, high price, branded product lines. A
consequence of this strategy is that Hamki Ltd, carries high levels of stock and due to
constant changes in fashion, often sells product lines at prices lower than cost.
 4. The company’s directors are very keen on ensuring prompt reporting of sales and other
financial information, and insist on monthly management accounts being prepared within
five working days of each month end. Similarly, they always insist that the audit of the
company’s financial statements should be completed within 12 weeks of the company’s
financial year-end.
5. In May 2019, to facilitate reporting and the preparation of the company’s accounts, the
company invested in a new centrally located computer-based accounting system linked
remotely to point-of-sale cash registers at each store.
REQUIRED:
i. Describe how adequate audit planning benefits an audit of financial statements.
ii. For each of the aspects of Hamki Ltd’s operations outlined in the scenario above, explain
how they will affect audit strategy of the company.

QUESTION SIXTEEN
“The auditor shall perform risk assessment procedures to provide a basis for the identification
and assessment of risks of material misstatement at the financial statement and assertion levels”.
REQUIRED:
i. Briefly explain what you understand about the “risk of material misstatement” at
financial statement level.
ii. Explain the risk assessment procedures as referred above.

QUESTION SEVENTEEN
a) Explain the responsibilities of the successor and predecessor auditors when a company is
changing auditors.
b) When an auditor has accepted an engagement from a new client who is a manufacturer, it
is customary for him or her to tour the client’s plant facilities.
REQUIRED:
Discuss the ways in which the auditor’s observations made during the course of the plant
tour will be of help in planning and conducting the audit.

QUESTION EIGHTEEN
You have been provided with the following four different independent audit situations.

1. Simbilisi is an Audit Manager working with Allu Associates, the firm of Certified Public
Accountants in Public Practices. He has been appointed to supervise the audit of Jamaa
Kubwa Co. where he owns some shares. The company was registered in Tanzania
dealing with the production of coffee. He owns the shares amounting to TZS.20,000,000.
The total authorized and issued share capital of Jamaa Co. stands at TZS.1,000,000,000.
The Audit Partner do not own any share in the Jamaa Co.

2. James Orango was appointed to supervise the audit of client known as Marry Maxima
which is the financial institution. He is aware that Marry Maxima has just advertised the
vacancy of the Public Relation Officer (PRO) in which the interview is yet to be
conducted. One of the applicants for this vacant position is his adopted child who has just
graduated Bachelor Degree in Public Relations and Sociology from the University. Mr.
 Orango insists that as the position is not of audit nature, there is no impact on audit
assignment.

3. Angavu Associates is the firm of Certified Public Accountant in Public Practices. They
have been auditing the Lugono Company consecutively for more than ten years. Angavu
is getting TZS.100,000,000 per annum in relation to audit services from Lugono. In this
financial year Angavu has also been given the tax consultancies by the Lugono, to defend
it in the tax appeal relating to the refusal by the Commissioner General on VAT input
deductions.
4. Kola is an Audit Senior working with JJ Associates a firm of Certified Auditors. In
current year, he is responsible for the audit of Makande Company Limited. A year ago,
before joining JJ Associates, he was working with Makande Limited as Finance Manager,
the position he held for over five years. His sister-in-law, Jane is the Assistant to Chief
Executive of Makande Limited.
REQUIRED:
Describe the ethical threats which may occur and how they can be minimized in the
above four (4) situations.

QUESTION NINETEEN
Tabia, Partner in a firm of Certified Public Accountants, is Engagement Partner on the audit of
Kimondo Plc, a soft drink supply company. She is reviewing the audit file for the year ended
31st August 2020. At the front of the file is a memo from the Audit Manager recommending the
issue of a qualified audit opinion. Kimondo’s major customer, a chain of pubs, is known to be in
financial difficulties yet no provision has been made against the material debt owed to Kimondo.
Kimondo’s Financial Director is arguing that their customer has sold the chain of pubs and they
are just waiting for the new owner to come up with the money. But once they have the money
the customer will be in a position to repay all their debts. He claims to have consulted another
firm of accountants who have indicated that a provision is being overly prudent. Tabia is
unhappy with the situation for the following reasons:
 She is reasonably certain that, if she issues a qualified opinion, the Directors of Kimondo
will recommend appointment of another firm as Auditor and the Finance Director appears
to be already on ‘opinion shopping’.
 Her firm supplies many other non-audit services to Kimondo such as preparing tax
returns and management consultancy which bring in twice as much revenue as the audit
and are more profitable.
 It is highly unlikely the firm would continue to be asked to provide these services if the
audit is lost. In total, fees paid by Kimondo for the audit and these other services amount
to 8% of the audit firm’s revenues.
 She has been the Engagement Partner for eight years and is certain that the Finance
Director has always been truthful with her in the past. However, the evidence in the audit
file is quite persuasive that the customer is, currently, in financial difficulty and if the sale
of the chain of pubs does not materialize, they will be unable to pay their debts.
 She calls the Finance Director to advise him that she will have no choice but to give a
qualified opinion if the financial statements do not contain a provision against the debt.
REQUIRED:
In connection with the threat of removal from office;
 i. Describe actions that auditors can take when being threatened with removal by the
Directors.
ii. State the requirements of the IFAC’s Code of Ethics relating to the supply of non-audit
services to public company audit clients.
iii. Explain why there are sometimes negative perceptions when auditors provide non audit
services to their audit clients.

QUESTION TWENTY
a) Jamal is a Partner in PQ & Co., a firm of Certified Accountants, with specific
responsibility for the quality of audits. PQ & Co, an audit firm was appointed as auditors
of Kipanga Company Ltd (KICO), a provider of waste management services, in July
2021. Jamal visited the audit team at the head office of KICO in Dodoma. The audit team
comprises an audit manager CPA Chonya, an audit senior CPA Asha and two audit
trainees, Mr. Ngosha and Ms. Pilikapilika. KICO’s draft financial statements for the year
ended 30th June 2021 show revenue of TZS.200 million (2020 TZS.160 million) and
total assets of TZS.300 million (2020 – TZS.255 million). During your visit, a review of
the audit working papers revealed the following:
1. On the audit planning checklist, the audit senior has crossed through the analytical
procedures section and wrote not applicable – new client. The audit planning checklist
has not been signed off as having not been reviewed.
2. The audit manager last visited KICO’s office when the final audit commenced on 30th
September 2021. The audit senior has since completed the audit of tangible noncurrent
assets (including property and service equipment) which amounted to TZS.200.6 million
as at 30th June 2021, (2020 – 200 million). The audit manager spends most of his time
working from KICO’s office and is currently allocated to four other assignments as well
as KICO’s audit.
3. At 30th June 2021 trade receivables amounted to TZS.21 million (2020 –TZS.10
million). One of the trainees has just finished sending out requests for direct confirmation
of customers’ balances as at the end of the reporting period.
4. The other trainee has been assigned the audit of the consumable supplies which included
inventory amounting TZS.50 million (2020 – TZS.30 million). The trainee has carried
out tests of controls over the perpetual inventory records and confirmed the ‘roll-back’ of
a sample of current quantities to book quantities as at the year end.
5. The audit manager has noted the following matter for attention. The financial statements
as at 30th June 2020 disclosed, as unquantifiable, a contingent liability for pending
litigation. However, the audit manager has seen a letter confirming that the matter was
settled out of court for TZS.45 million on 20th September 2019. The auditor’s report on
the financial statements for the year ended 30th June 2020 was unmodified and signed on
20th September 2020. The audit manager believes that management of KICO, is not
aware of the error and has not brought it to their attention.
REQUIRED:
i. Identify the deficiencies of PQ & Co’s quality control policies on each issue (1 – 5)
revealed on the audit papers.
ii. Comment on the implications of these findings for PQ & Co’s quality control policies
and procedures.
QUESTION TWENTY ONE
A co-worker at your audit firm is contemplating whether to use emphasis of matter paragraph or
other matter paragraph:
REQUIRED:
i. Explain the meaning of ‘emphasis of matter paragraph’ and ‘other matter paragraph’.
ii. Explain any three (3) circumstances where each of the two paragraphs are relevant

QUESTION TWENTY TWO

Dongo is a company that provides call centre services for a variety of organisations. It operates
in a medium sized city and your firm is the largest audit firm in the city. Dongo is owned and run
by two entrepreneurs with experience in this sector and has been in existence for five years. It is
expanding rapidly in terms of its client base, the number of staff it employs and its profits. It is
now 2nd November 2021 and you have been approached to perform the audit for the year ending
30th November 2021. Your firm has not audited this company before. Dongo has had three
different firms of auditors since its incorporation.
Dongo’s directors have indicated to you informally that the reason they wish to change auditors
is because of a disagreement about certain disclosures in the financial statements in the previous
year. The director consider that the disagreement is a trivial matter and have indicated that the
company accountant will be able to provide you with the details once the audit has commenced.
Your firm has explained that before accepting the appointment, there are various matters to be
considered within the firm and other procedures to be undertaken, some of which will require the
co-operation of the directors.
Your firm has other clients that operate call centres. The directors have asked your firm to
commence the audit immediately because audited accounts are needed by the bank by 31 st
December 2021. Your firm is very busy at this time of the year.
REQUIRED:
a. Describe the matters to consider within your firm before accepting the
appointment as auditors to Dongo.
b. Describe the procedures that must be undertaken before accepting the
appointment as auditors of Dongo.
c. Explain why it would be inappropriate to commence the audit before
consideration of the matters and the undertaking procedures referred to in parts (i)
and (ii) above have been completed.
d. Explain the purpose of an engagement letter and list its contents.
e. Briefly describe some of the audit risks that will be associated with the audit of
Dongo, explaining why do you consider them to be risky.
QUESTION TWENTY THREE
The following situations involve Mtumwa Maridadi, an audit senior with the audit firm of
Tulonge CPAs. He is involved with the audit of client Hakika Haulage Plc (HHP) and the
following matters have been brought to the attention of the firm:
i. The accounts clerk of HHP resigned two months ago and has not been replaced. As a
result, HHP transactions during this period have not been recorded and the books are not
up to date. To comply with the terms of a loan agreement, HHP needs to prepare interim
financial statements but cannot do so until the books are brought up to date. The
Managing Director of HHP requested Mtumwa to help on bringing the books up to date
 as he was the one who performed the audit last year. The audit partner of Tulonge CPAs
allowed HHP to engage Mtumwa for one month before the start of the annual audit.
ii. During the annual audit of HHP, Mtumwa discovered that the company had materially
understated income on last year’s tax return. The client is unwilling to take corrective
action and therefore Mtumwa decided to inform the Tanzania Revenue Authority (TRA).
iii. On completion of the fieldwork for the audit of HHP, Mtumwa was offered six free
cinema tickets by the Managing Director. He tells him that the gesture was in
appreciation of a job well done and Mtumwa accepted the tickets.
iv. The Managing Partner of Tulonge CPAs is not very pleased with the time HHP is taking
to pay its audit fee for the year. He decided to take TZS.5,000,000 out of a trust fund that
Tulonge CPAs holds on behalf of HHP. He intends to replace it as soon as HHP makes
payment of its audit fee.
REQUIRED:
In respect of each of the four situations, (i) to (iv) outlined above, identify any ethical
issues involved and assess whether or not there has been a violation of ethical conduct
principles?

QUESTION TWENTY FOUR

Kafodi communications operates via head a head office and several branches. The company has
a mainframe computer at its head office, which is linked via a communications network to
terminals at its branches.
You are a manager at a firm which has been asked to carry out system reliability review over the
general controls operating in Kafodi communications’ computer system. Your initial work has
identified the following weaknesses:
a) There is no physical restriction at every site to rooms in which the terminals are kept.
b) Staff can change passwords at their discretion
c) In the computer room at the head office there are no fire extinguishers or air conditioning.
d) There is no formal disaster recovery plan.
e) Back up media is held on site.
Required:
Identify the possible consequences of the above weaknesses and suggest
recommendations to remedy them, clearly describing how the control procedures should
operate
QUESTION TWENTY FIVE
In recent years, many commentators have been placing emphasis on the importance of the
environment. Perhaps as a consequence of this, companies have begun to recognize their
environmental responsibilities and environmental issues now often have important implications
for companies. Such implications cannot be ignored by company auditors. The profession needs
to show an awareness of the possible impact of environmental issues on client’s financial
statements. Discuss.
QUESTION TWENTY SIX
“The growth in assurance-type work provides a great money-spinning opportunity for audit firms
to provide a lower level of assurance, involving less work and reduced engagement, risks,
compared to the standard audit.” Discuss
QUESTION TWENTY SEVEN
Explain the key characteristics of the following audit-related services
a) A review engagement
b) Agreed-upon procedures
c) A compilation engagement
QUESTION TWENTY EIGHT
What is meant by the term level of assurance? How does the level of assurance differ for an audit
of historical financial statements, a review, a compilation, and agreed upon procedures
engagement?
QUESTION TWENTY NINE
What is negative assurance/ why is it used in a review engagement report?
QUESTION THIRTY
Distinguish the three forms of compilation reports that a CPA can provide to clients.
QUESTION THIRTY ONE
You are an audit senior of Hessonite & Co and are in the process of reviewing the inventory
system documentation for your audit client, Lemon Quartz Co (Quartz) which manufactures
computer equipment. The company’s factory and warehouse are based on one large site, and
their year-end is 30 June 2016. Quartz is planning to undertake a full inventory count at the year-
end of its raw materials, work in progress and finished goods and you will be attending this
count. In preparation you have been reviewing the inventory count instructions for finished
goods provided by Quartz.

The count will be undertaken by 15 teams of two counters from the warehouse department with
Quartz’s financial controller providing overall supervision. Each team of two is allocated a
number of bays within the warehouse to count and they are provided with sequentially numbered
inventory sheets which contain product codes and quantities extracted from the inventory
records. The counters move through each allocated bay counting the inventory and confirming
that it agrees with the inventory sheets. Where a discrepancy is found, they note this on the sheet.

The warehouse is large and approximately 10% of the bays have been rented out to third parties
with similar operations; these are scattered throughout the warehouse. For completeness, the
counters have been asked to count the inventory for all bays noting the third party inventories on
separate blank inventory sheets, and the finance department will make any necessary
adjustments.

Some of Quartz’s finished goods are high in value and are stored in a locked area of the
warehouse and all the counting teams will be given the code to access this area. There will be no
despatches of inventory during the count and it is not anticipated that there will be any deliveries
from suppliers.

Each area is counted once by the allocated team; the sheets are completed in ink, signed by the
team and returned after each bay is counted. As no two teams are allocated the same bays, there
will be no need to flag that an area has been counted. On completion of the count, the financial
controller will confirm with each team that they have returned their inventory sheets.

Quartz’s finance director has asked your firm to undertake a non-audit assurance engagement
later in the year.

The audit junior has not been involved in such an assignment before and has asked you to
explain what an assurance engagement involves.
Required:
Explain the five elements of an assurance engagement.

QUESTION THIRTY TWO

Sycamore’s new finance director has read about review engagements and is interested in the
possibility of Maple & Co undertaking these in the future. However, she is unsure how these
engagements differ from an external audit and how much assurance would be gained from this
type of engagement.

Required:
i. Explain the purpose of review engagements and how these differ from external
audits; and
ii. Describe the level of assurance provided by external audits and review
engagements.

QUESTION THIRTY THREE

Pear International Co (Pear) is a manufacturer of electrical equipment. It has factories across the
country and its customer base includes retailers as well as individuals, to whom direct sales are
made through their website.
The company’s year end is 30 September 2021. You are an audit supervisor of Apple & Co and
are currently reviewing documentation of Pear’s internal control in preparation for the interim
audit.
Pear’s website allows individuals to order goods directly, and full payment is taken in advance.
Currently the website is not integrated into the inventory system and inventory levels are not
checked at the time when orders are placed.
Goods are despatched via local couriers; however, they do not always record customer signatures
as proof that the customer has received the goods. Over the past 12 months there have been
customer complaints about the delay between sales orders and receipt of goods.
Pear has investigated these and found that, in each case, the sales order had been entered into the
sales system correctly but was not forwarded to the despatch department for fulfilling.
Pear’s retail customers undergo credit checks prior to being accepted and credit limits are set
accordingly by sales ledger clerks. These customers place their orders through one of the sales
team, who decides on sales discount levels.
Raw materials used in the manufacturing process are purchased from a wide range of suppliers.
As a result of staff changes in the purchase ledger department, supplier statement reconciliations
are no longer performed. Additionally, changes to supplier details in the purchase ledger master
file can be undertaken by purchase ledger clerks as well as supervisors.

In the past six months Pear has changed part of its manufacturing process and as a result some
new equipment has been purchased, however, there are considerable levels of plant and
equipment which are now surplus to requirement.

Purchase requisitions for all new equipment have been authorised by production supervisors and
little has been done to reduce the surplus of old equipment.
Pear’s finance director has expressed an interest in Apple & Co performing other review
engagements in addition to the external audit; however, he is unsure how much assurance would
be gained via these engagements and how this differs to the assurance provided by an external
audit.
Required:
Identify and explain the level of assurance provided by an external audit and other review
engagements.