THE UNIVERSITY OF THE WEST INDIES

Semester l ☐ Semester II ☒ Summer ☐

Originating Campus: Cave Hill □ Mona ☒ St. Augustine □
Mode: On Campus ☒ By Distance □
MID-SEMESTER

Course Code and Title: ACCT 3044 – AUDITING II

Date: 28 February 2022 Time: 7:00pm – 9:00pm

Duration: 2 hrs Paper No:2

Materials required:
Answer booklet: Normal □ Special □ Not required □

Calculator: Programmable □ Non-Programmable ☒ (where applicable)

Multiple Choice answer sheets: numerical □ alphabetical □ 1-20 □ 1-100

Auxiliary/Other material(s) – Please specify:

Candidates are permitted to bring the following items to their desks: Pencil or pen,
Ruler, ID card, Exam card

Instructions to Candidates: This paper has pages & questions.

Candidates are reminded that the examiners shall take into account the proper use of
the English Language in determining the mark for each response.

ALL QUESTIONS ARE COMPULSORY:

 This paper comprises 2 compulsory questions; each carry 14 marks for a total
of 28 marks and must be attempted

Semester II 2021/2022

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SECTION B
Question 1

a) The auditor has options to documenting their understanding of their client’s internal
controls. One of these options is flowcharting.

Required
Describe the advantages to the auditor of flowcharting as a method for documenting
internal controls. (2 marks)

b) ISA 265 - Communicating Deficiencies in Internal Control to Those Charged with

Governance and Management, requires auditors to communicate significant
deficiencies in internal control, in writing, to those charged with governance.

Required
Explain THREE of the matters the auditor should consider in determining whether a
deficiency in internal controls is significant. (3 marks)

c) You are the audit senior of Cold Front Ltd, a frozen food distributor. You are
conducting audit work on their payroll system and have ascertained the following
information regarding the system for the year ended 31 December 2021:

The administrative staff record the number of hours worked using a clocking in /out
system. Generally, the staff work a standard 8-hour day shift, swiping their ID cards on
arrival and at the end of each day. If a staff does not swipe out at the end of the day the
system automatically clocks them out. To claim overtime, employees need to complete
an “overtime claim” form and submit it to the payroll clerk.

Jane Errol is the payroll clerk and is responsible for setting up and maintaining all
employee records and processing the monthly payroll. She is also responsible for
making changes to the computerised payroll system in respect of pay rates and leave
entitlements.

Deductions are calculated by the computerised payroll system to reflect gross pay,
statutory deductions, and net pay. Jane Errol checks the deductions on a periodic basis.
Monthly, a list of net cash payment for each employee is generated and authorised by
the Financial Controller before the list is sent to the bank for employees to be paid by
bank transfer.

Required
As the audit senior of Cold Front Ltd, write to management in respect of the payroll
system:
i. Identifying THREE deficiencies in respect of the above payroll system;
ii. Explaining the possible implication of these deficiencies; and
iii. Suggesting a recommendation to address each deficiency.
(9 marks)

Semester 2 2021/2022

The University of the West Indies Course Code: ACCT3044 2022./2/28

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Question 2

You are the audit manager on the Pollyanna Ltd audit engagement and had agreed with the
junior associate that audit sampling would be used in testing the Accounts Receivable
balance. During your review of the junior associate’s audit documentation around the work
done on the Accounts Receivable (AR) balance, you came across the following:
i. There was a misstatement between the balance confirmed by a debtor and the
amount noted in the client’s AR subledger, which the associate did not recognise
ii. In testing the completeness of the AR balance, the associate selected a sample of
balances from the AR subledger and traced them to the invoices supporting the
balance
iii. In selecting the sample of balances to send confirmations for, the associate targeted
AR balances she believed would be more likely to respond to the confirmation
request
iv. The audit manager had advised the associate that controls risk assessment around
AR had increased from the team’s preliminary assessment, however the associate
had not changed the extent of items selected for testing.

Required
a) For each of the above state whether it represents sampling risk or non-sampling risk? (4
marks)
b) State how both sampling risk and non-sampling risk can be reduced. (2 marks)

ISA 530 Audit Sampling requires the auditor to evaluate the results of the sample and
whether the use of audit sampling has provided a reasonable basis for conclusions about the
population that has been tested.

Required
c) State FOUR courses of action the auditor can take when a population is rejected (2
marks)

You are auditing the accounts payable balance of your audit client, Dish Wish, a cable
provider. The audit manager had advised you that the performance materiality for the
engagement was set at $300,000.

While auditing the accounts payable you ascertained the following information based on
your audit sampling: total value of the account payable population was $12,000,000; the
number of items in the population was 300; the number of items tested was 50; the total
value of your sample was $2,000,000 and the error in the sample amounted to $90,000.

Required
d) Calculate the expected error in the population and state whether the population is
acceptable or not, giving the rationale for your decision. (6 marks)

END OF QUESTION PAPER

Semester 2 2021/2022

The University of the West Indies Course Code: ACCT3044 2022./2/28