December 2025 CPA Advanced Auditing and Assurance Past papers with answers

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QUESTION ONE
You are an audit associate at Duncan and Duncan Associates, a firm of Certified Public Accountants, responsible for the audit of Long Finger Ltd., for the year ended 30 June 2025. You have been temporarily appointed as the audit manager for the audit because the audit manager in charge of the audit travelled abroad.
The final audit for the year is nearing completion and you are reviewing the audit working papers. As part of your duties, you are required to review the progress of the audit with the other members of the engagement team.

During the review, the audit trainee expressed the following concerns regarding how the audit was being conducted:
1. I have only worked on two audits before being assigned to the Long Finger Ltd. engagement. I was expecting to attend a meeting at the start of the audit where the partner and senior team members would discuss the audit plan, but no planning meeting was held.
2. During the audit, the audit manager was away, leaving the audit associate in charge. The audit associate was busy with other assignments and was not always available to provide guidance.
3. I was given the responsibility for auditing the goodwill arising from an acquisition made during the year. I also worked on the audit of inventory and attended the inventory count, which was complicated due to significant work-in-progress.
4. To assist the client, I helped their staff count some of the raw materials. Later, because I attended the count, the acting audit manager asked me to question the finance director about the adequacy of the provision against inventory which he believed was understated.
5. As the audit neared completion, we realised we were running short of time. The acting audit manager advised us to reduce the sample sizes in our audit tests to save time. He also suggested that if a selected item was time- consuming to verify, we should replace it with another item that would be quicker to audit.

Required:
(a) Discuss THREE weaknesses in the conduct of the audit of Long Finger Ltd. and their implications. (6 marks)
(b) Identify TWO ethical threats in the audit and recommend how each should have been handled. (4 marks)
(c) As the acting audit manager, outline FOUR corrective measures you could take to ensure audit quality and compliance with International Standards on Auditing (ISAs). (4 marks)
(d) With reference to ISA 260, Communication with Those Charged with Governance, enumerate THREE matters that an auditor is required to communicate to those charged with governance. (6 marks) (Total: 20 marks)

QUESTION TWO
North Grill Ltd. is a company that manufactures bicycles. In the year 2025, it acquired R&R Tires Ltd., a tyre manufacturing company as part of its strategy to integrate production and improve efficiency. However, six months after the acquisition, R&R Tires Ltd. was declared bankrupt. This unexpected collapse raised serious concerns within North Grill’s management about the accuracy and reliability of R&R Tires’ financial information prior to acquisition. The management of North Grill Ltd. alleged that there had been financial impropriety by the previous management of R&R Tires Ltd. They further claimed that the company’s 2024 financial statements did not present a true and fair view of its financial performance and position. Additionally, the management accused R&R Tires’ external auditors of professional negligence, arguing that the audit had failed to detect or report significant irregularities that existed before the acquisition.
Following these concerns, the Managing Director of North Grill Ltd. engaged an independent audit firm to conduct a forensic audit. The purpose of this audit was to determine whether the auditors of R&R Tires Ltd. were negligent in their duties and to establish if there was any deliberate financial misrepresentation by the previous management.
Required:
(a) (i) Explain THREE audit procedures that could be adopted by an auditor in undertaking the forensic audit. (6 marks)
(ii) Describe THREE ways in which the forensic audit of R&R Tires Ltd. could assist North Grill Ltd. in establishing legal liability and improving future acquisition due diligence processes. (6 marks)

(b) African Diatomite Mining Industries Limited (ADIMIL) operates in Kenya’s diatomite mining sector and holds 10 mining sites across the country. The company extracts, purifies and distributes diatomite for use as a filter aid in industrial applications. ADIMIL operates under a license granted by the National Environmental Management Authority (NEMA), which regulates and monitors its environmental and mining practices. You are the audit manager at Richard Koki Ltd., the external auditors of ADIMIL, reviewing audit working papers for the year ended 30 September 2025. The draft financial statements recognise a profit before tax of Sh.18 million and total assets of Sh.175 million.

On 15 September 2025, an accident occurred at Mutaita mine, one of ADIMIL’s key mining sites. Several underground tunnels collapsed causing flooding and rendering about one-third of the mine permanently inaccessible. Management intends to continue operations in the remaining sections of the mine after implementing health and safety regulations. Although no injuries were reported, the collapse caused land subsidence that damaged several nearby residential properties. A surveyor was appointed to determine whether the houses should be demolished or repaired. Meanwhile, 20 residents have been relocated to rental accommodation, with ADIMIL covering all related expenses.
Mutaita mine was acquired several years ago and is currently recognised in the draft financial statements at a carrying value of Sh.10 million. Despite the accident, ADIMIL’s management has decided not to report the incident to NEMA arguing that no casualties occurred and that production will resume in unaffected sections.

Required:
As the audit manager responsible for reviewing the audit of ADIMIL for the year ended 30 September 2025, evaluate FOUR key audit implications arising from the Mutaita mine accident. (8 marks) (Total: 20 marks)

QUESTION THREE
You are the audit senior responsible for the audit of Mavuno Supermarkets Ltd., a large retail chain with over 50 outlets across Africa. The Supermarket recently implemented a new Enterprise Resource Planning (ERP) system that integrates its sales, inventory, payroll and supplier management modules.

Your audit firm, Integrity Auditors, a firm of Certified Public Accountants, plans to leverage data analytics tools to enhance audit efficiency and improve the quality of audit evidence throughout the engagement. The engagement partner has therefore requested you to assess how data analytics could be applied at different stages of the audit.
To achieve this, the audit team has proposed the following data analytics tests:
1. Using Benford’s Law to identify unusual or irregular sales transactions.
2. Applying continuous auditing tools to flag transactions exceeding user-defined limits in real time.
3. Performing data matching between supplier invoices and goods received notes to detect fictitious vendors.
4. Conducting trend and ratio analysis to identify branches with declining profit margins.
5. Testing payroll data for duplicate bank accounts and potential ghost employees.

Despite these initiatives, the engagement partner has expressed several concerns, particularly regarding:
• The reliability and integrity of client data extracted from the ERP system.
• The competence of the audit team in effectively using data analytics tools.
• The interpretation and documentation of data analytics results as sufficient and appropriate audit evidence.
• Data security and confidentiality: Ensuring that client data accessed for analytics is handled securely to prevent unauthorised access or breaches.

Required:
(a) (i) Discuss how data analytics could be applied at the planning, execution and completion stages of the audit of Mavuno Supermarkets Ltd. to enhance audit effectiveness. (6 marks)

(ii) With reference to the concerns raised by the engagement partner, evaluate the THREE challenges Integrity Auditors might face in using data analytics for the audit of Mavuno Supermarkets Ltd. and recommend appropriate responses to each challenge. (6 marks)
(b) Suggest FOUR ways to address the concerns raised by the engagement partner regarding the use of data analytics in the audit engagement. (8 marks)
(Total: 20 marks)

QUESTION FOUR
Alpha Ltd. is in the process of raising additional capital through a public issue of shares. As part of this process, the company is required to prepare a prospectus to be submitted to the Capital Markets Authority (CMA) and the Securities Exchange. In compliance with the regulatory requirements, the prospectus must include a report by the company’s auditors. The Board of Directors intends to include a profit forecast in the prospectus to attract potential investors and demonstrate the company’s future earning potential.

As the Audit Manager in charge of this audit, you have been informed that the Securities Exchange regulations require you to review and report on the profit forecast presented by management. Specifically, you are expected to:

1. Examine the assumptions and bases used by the directors in preparing the forecast.
2. Assess the reasonableness and consistency of these assumptions with historical financial data and prevailing market conditions.
3. Verify the accuracy and reliability of the underlying calculations supporting the forecast figures.
Required:
(a) (i) Describe FOUR preliminary considerations that you should bear in mind before accepting responsibility for reporting on the profit forecast. (4 marks)
(ii) Explain FOUR issues you should emphasise on when briefing audit staff on how to approach the review of the profit forecast. (8 marks)
(b) With reference to International Standard on Related Services (ISRS) 4410 (Revised), Compilation Engagements, discuss FOUR documents that a professional accountant is required to prepare during a compilation engagement. (8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) According to ISA 700, Forming an Opinion and Reporting on Financial Statements, describe THREE ways in which an auditor could respond when the financial statements refer to two different financial reporting frameworks. (6 marks)

(b) Criminals operate front businesses to launder money, deliberately hiding the existence, source, ownership, control, location and disposition of proceeds from crime.

With reference to the above statement, summarise FOUR ways in which auditors might respond when they discover that their clients could be using front businesses to facilitate money laundering. (8 marks)

(c) Discuss THREE elements of audit quality control within a Certified Public Accountants firm (CPA) as outlined in the International Standard on Quality Control (ISQC 1) or its successor ISQM 1. (6 marks)