August 2025 CPA Auditing and Assurance Past Paper answers

Description

QUESTION ONE
(a) Your firm has been engaged in auditing micro small and medium entities (MSMEs) for the last five years. In a recent development, your firm has been appointed to conduct an audit of Maua Ltd., a large public listed company. This is the first assignment of such magnitude. You are required to undertake an interim audit and a final audit.
Required:
Explain FOUR audit procedures you could undertake during the following audits of Maua Ltd.:
(i) Interim audit. (4 marks)

(ii) Final audit. (4 marks)

(b) An organisation that you have been auditing has approached your audit firm to review its interim financial information before it releases to the public on quarterly basis as required by the regulations governing its operations.
Required:
In reference to International Standards on Review Engagements (ISRE) 2410, describe THREE general principles that your firm would have to apply in performing the review engagement. (6 marks)
(c) Planning for an audit begins by developing the audit planning memorandum or the overall audit strategy.
Enumerate SIX contents of an audit planning memorandum. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) You are the auditor in charge of Viazi Tamu Enterprises, a distributor of fresh produce to supermarkets across the country. The company has recently expanded its operations and now operates warehouses in various towns and cities in the country. The Finance Director is concerned that the entities’ internal controls have not kept pace with this expansion. During your review of internal controls, you discovered the following:

1. Bank reconciliation is carried out every six months.
2. Purchases are authorised by the head of the warehouse and purchase orders can be raised by any member of the warehouse since the procurement department is inadequately staffed.
3. The entity has an internal auditor domiciled in the risk department.
4. Warehouse staff make manual adjustments to inventory records since the inventory management system is manual. They are not required to provide any documentation.
5. There have been increased complaints from supermarkets about delivery discrepancies. The warehouse manager downplayed this claim citing that the discrepancies were not material.

Required:
(i) Identify FIVE weaknesses in the internal control system of Viazi Tamu Enterprises. (5 marks)

(ii) For each weakness identified in (a) (i) above, recommend an internal control measure that could be implemented by the company to mitigate the associated risk. (5 marks)

(b) You are a newly hired audit associate at a Musa and Musa Associates. Your firm has been engaged by the board of Lipa Microfinance Ltd., to conduct a forensic audit following allegations of fraudulent loan approvals and embezzlement by senior staff members. The audit senior has tasked you with the duty to prepare a plan on the forensic audit.

Required:
Discuss FIVE investigative techniques that you could include in the plan in order to uncover the alleged fraud and embezzlement. (10 marks)
(Total: 20 marks)

QUESTION THREE
(a) Lima and Limau Associates, a local audit firm is not sure about document audit working papers that are sufficient without carrying excessive information and not scanty.
Required:
Advise Lima and Limau Associates on EIGHT characteristics that their working papers should display in accordance with International Standard on Auditing (ISA) 230, Audit Documentation. (8 marks)

(b) Boresha Ltd. is a medium-sized manufacturing company. The company has recently established an internal audit function to help improve internal controls and operational efficiency. The head of internal audit currently reports directly to the Finance Director. The Finance Director has also asked the internal auditors to assist in the preparation of monthly management accounts and the review of year-end financial statements before they are submitted to the external auditors.

Required:
(i) Evaluate THREE ways in which the internal audit function could add value to Boresha Ltd’s operations.
(6 marks)
(ii) Analyse THREE threats to the independence and objectivity of the internal audit function in Boresha Ltd.
(3 marks)

(iii) For each threat in (b) (ii) above, suggest one suitable safeguard against the threat. (3 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Taraji and Wema Associates is a registered audit firm and currently the auditor of Shamba Farm Ltd., an agricultural company. During the course of the audit, the managing partner, Alice Wema, attended Shamba Farm Ltd.’s board meetings and assisted in drafting parts of the company’s financial statements. A few months after the audit, Shamba Farm Ltd. was declared insolvent due to undisclosed financial liabilities. The shareholders are suing Taraji and Wema Associates for negligence, arguing that the auditors failed in their professional responsibilities.

Required:
(i) Explain THREE ethical threats that Taraji and Wema Associates could have faced in their engagement with Shamba Farm Ltd. (3 marks)
(ii) Analyse THREE ways in which Taraji and Wema Associates could be held liable for professional negligence in the context of this case. (3 marks)

(b) You are part of an external audit team reviewing the inventory records of Kubwa Wholesalers. The client uses a manual stock recording system, and you observed discrepancies between physical stock counts and recorded quantities during your visit to the warehouse.

Required:
Recommend SIX appropriate procedures the audit team should perform to obtain sufficient and appropriate audit evidence regarding inventory. (6 marks)

(c) You are a trainee auditor working on the audit of Urembo Ltd., a medium-sized retail company that sells women’s clothes and accessories. During the planning stage of the audit, your audit manager has emphasised the importance of fully understanding the client’s business environment and internal controls.

Required:
With reference to International Standard on Auditing (ISA) 315, explain FOUR procedures you might perform to obtain an understanding of Urembo Ltd. and identify risks of material misstatement. (8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Analyse FOUR considerations before an auditor can rely on written representations as audit evidence. (4 marks)

(b) Explain the objectives of the following types of audits conducted in the public sector
(i) Financial audit. (2 marks)

(ii) Compliance audit. (2 marks)

(iii) Performance audit. (2 marks)
(iv) Value for money audit. (2 marks)

(c) Discuss the FOUR audit opinions that the auditor could express and their implications on the organisation that the auditor reports on. (8 marks)
(Total: 20 marks)
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