You are the auditor of Company. You have been asked to review the management accounts of the company for the eleven month ended 30 April 1997, in support if an application to a bank for further facilities to fund the increasing working capital requirements of the company and for the replacement of half of its fleet of twenty four lorries. In the past, it has been the company’s policy to replace four lorries every year with proceeds on disposal usually equating to half of the original cost. During the last three years no lorries have been replaced due to lack of funds.

The company’s turnover for the current year is expected to be in the region of Sh.50 million and consists mainly of contract hire. The Lorries are housed and maintained in the company’s own freehold garages and workshop.


(a) Outline the approach you would take to plan and carry out the review, and state those matters to which you would pay particular attention. (5 Marks)

(b) State the extent to which such a review will have an effect on the statutory audit for the year ending 31 May 1997. (5Marks)

(Total: 20 marks)


You are the auditor of Kenya Shoes Wholesalers Ltd., a shoe wholesaling company, whose financial year is ending on 30 September 1997. The company intends to determine quantity and value of each line of stock at a physical stock check to be held on Saturday 27 and Sunday 28 September 1997, and then adjust for the movements between 28 and 30 September. The purchases and sales ledger will be closed at 30 September.

The company has a fast moving stock but operates a satisfactory recording system which incorporates goods inwards and dispatch records.


Describe the audit procedures that you would adopt to satisfy yourself that the company’s cut off disciplines including valuation are adequate. You can assume that the company does not maintain perpetual stock records.

(Total: 20 marks)


You are the auditor of a major organization whose financial records were transferred at the end of 1996 to an online database computer system operated by a central computer section with terminals located in various stations.


(a) Outline the controls or procedures you would expect to be incorporated into the

systems to counteract the risks of potential losses arising from the possibilities of human errors, hardware or software errors, natural disasters or deliberately malicious actions. (15Marks)

(b) Discuss the implications for your audit for the year ending 31 December 1997 on

discovering that there were many deficiencies in the operating of the system during the first six calendar months of 1997, but none of any significance are expected thereafter.

(5 Marks)

(Total: 20 marks)


Agro-Chemical Limited is a large manufacturing company producing fertilizers and other agro-chemicals. It employs about 3,000 workers. Attendance by factory hands and other wage employees is evidence by the use of clock card, whereby each worker clocks in and out of the factory. Time keeper man the clocking machine and at the end of each week a summary is prepared of record of attendance of each employee. These weekly summarise serve as the input for the preparation of payrolls at the end of the month.

During the course of your audit of the company’s wages expenditure, you discovered that fraud had taken place and the management has commissioned you to investigate it.


(a) Clearly state and describe five possible ways in which wages fraud can be

committed in an organization (5Marks)

(b) Detail the areas and audit tests you will conduct to assess the extent of the fraud.

(15 marks)

(Total: 20 marks)


(a) ‘The concern of auditors is to limit the scope of their responsibilities, public opinion, on the other hand, believes that their audit responsibilities should be extended’.


(a) Discuss those areas in which the public believes the auditors responsibilities should be extended and provide comments from an auditor’s point of view. (10 Marks)

(b) ‘The accounting profession needs to develop a conceptual framework for the

preparation and interpretation of financial statements.

Discuss the benefits of such a framework for both the users and auditors of financial statements and consider the difficulties in developing a framework that is useful in practice.

(10 Marks)

(Total: 20 marks)