April 2026 CPA Auditing and Assurance Past Paper answers

Description

CERTIFIED PUBLIC ACCOUNTANT (CPA) INTERMEDIATE LEVEL
AUDITING AND ASSURANCE

WEDNESDAY: 22 April 2026. Afternoon Paper. Time Allowed: 3 hours.

This paper consists of five (5) questions. Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.
QUESTION ONE
Bora Ltd. is a public limited company. Following the resignation of its previous external auditor, the company is in the process of appointing a new auditor. The board of directors has shortlisted three audit firms and intends to recommend one of them to the shareholders for appointment at the forthcoming Annual General Meeting.
During preliminary discussions with one of the shortlisted firms, management requested the firm to assist in designing Bora Ltd.’s new internal control system over revenue. The proposed auditor also indicated that, if appointed, it would issue an engagement letter in line with the requirements of International Standards on Auditing (ISA).
Required:
(a) As the advisor to the board of Bora Ltd., outline SIX matters that should be considered before one of the shortlisted audit firms is recommended to shareholders for appointment as the company’s external auditor at the Annual General Meeting. (6 marks)
(b) In relation to management’s request that the proposed auditor assist in designing Bora Ltd.’s new internal control system over revenue, explain THREE ethical threats that may arise and, in each case, recommend ONE appropriate safeguard. (6 marks)
(c) Assuming that the shareholders appoint the recommended audit firm as Bora Ltd.’s external auditor, evaluate FOUR
elements that should be included in the engagement letter to be issued to Bora Ltd. in accordance with ISA 210.
(8 marks)
(Total: 20 marks)
QUESTION TWO
Afya Supplies Ltd. is a pharmaceutical distribution company that operates a computerised accounting system and supplies products across the country. During the audit planning for the year ended 31 December 2025, the audit team noted that the company has placed increased reliance on automated controls and cloud-based documentation.
In response, the audit manager instructed the team to adopt a risk-based audit approach in accordance with International Standard on Auditing (ISA) 315. The team also established that the company uses an integrated test facility within its accounting software as part of its processing controls. Further, because management is under pressure to meet loan covenants set by a local bank, there is concern that revenue may be susceptible to manipulation.
Required:
(a) With reference to the audit of Afya Supplies Ltd. for the year ended 31 December 2025, describe FOUR procedures the audit team should perform in order to obtain an understanding of the entity and its environment in accordance with ISA 315. (8 marks)
(b) In relation to the computerised accounting environment of Afya Supplies Ltd.:
(i) Explain the term “integrated test facility”. (2 marks)
(ii) Summarise TWO advantages and TWO disadvantages of using integrated test facilities as part of Computer Assisted Audit Techniques (CAATs) in the audit of the company. (4 marks)

(c) Considering the pressure on management of Afya Supplies Ltd. to meet the bank’s loan covenants, discuss THREE
indicators of fraudulent financial reporting that the auditor should be alert to during the audit. (6 marks)
(Total: 20 marks)

QUESTION THREE
Mavuno Ltd. is a rapidly expanding company whose internal audit function currently reports directly to the Finance Director and has recently identified several control weaknesses in the inventory system. The board is considering establishing an audit committee to strengthen oversight and corporate governance structures. The external auditor intends to rely on the work of the internal audit department during the current year’s audit.

Required:
(a) Explain FOUR functions of an audit committee in strengthening corporate governance. (8 marks)

(b) Discuss FOUR factors that the external auditor should consider before placing reliance on the work of the internal audit function. (8 marks)

(c) Analyse TWO matters that should be included in the management letter to those charged with governance in accordance with ISA 265. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Imara Ltd. is a company engaged in the distribution of electronic equipment. You are the audit manager responsible for finalising the audit of the company for the year ended 31 December 2025.
During the audit, two significant matters were identified. First, management refused to allow the audit team to circularise trade receivables, arguing that this might damage customer relationships. Consequently, the auditor was unable to obtain external confirmation evidence in relation to trade receivables. The receivables balance is material, but not pervasive, to the financial statements.

Second, the company capitalised borrowing costs that do not meet the recognition criteria under the applicable financial reporting framework. This resulted in a material misstatement affecting several elements of the financial statements.
Required:
(i) With reference to the matters identified above, explain the circumstances under which the auditor would issue:
• A qualified opinion. (2 marks)

• An adverse opinion. (2 marks)
• A disclaimer of opinion. (2 marks)

(ii) Explain THREE factors that would guide the auditor in deciding whether the matters identified above have a pervasive effect on the financial statements. (6 marks)
(b) Describe FOUR characteristics that audit working papers should exhibit in order to meet the requirements of ISA 230.
(8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Explain TWO purposes of analytical procedures when performed at the final review stage of the audit. (4 marks)

(b) Discuss FOUR objectives of a performance audit in the public sector context. (8 marks)

(c) Analyse FOUR differences between a “review engagement” and an “audit”. (8 marks)
(Total: 20 marks)
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