QUESTION ONE

(a) The expressions "management audit, operational audit, and efficiency audit" are very often used these days.

Do they differ from internal audits? If so, to what extent?

Discuss.

(b) Write short notes on "Value for Money audits" with a special reference to government and quasi-government bodies.(Total: 20 Marks)

QUESTION TWO

An International Audit practice Statement (IAPS) has been issued on Audit of Small Businesses.

Required

(a) Discuss the various aspects in which this audit of small business enterprises differs from that of larger ones. (8 Marks)

(b) Briefly outline the arguments which have been advanced for and against the retention of small business audits. (6 Marks)

(c) Summarise the provisions of the IAPS referred to above. (6 Marks)

(Total: 20 Marks)

QUESTION THREE

A leading stock broker has approached your firm and asked you to prepare an accountants report to be included in a prospectus for Easy Fruits Ltd. which is about to issue shares to the public. You learn that Easy Fruits Limited is a public company and has been in business for the last 15 years.

Required

(a) In point form itemise the contents of your report. (10 Marks)

(b) Usually the case is that some of the items in the past financial statements of the issuing company require amendment for the purposes of the accountants report.

With due regard to the relevant provisions of the Companies Act, discuss the aspects and items shown in the financial statements which may require amendment for the purposes of your report.

(10 Marks)

(Total: 20 Marks)

 QUESTION FOUR

You have been in partnership with a fellow Certified Public Accountant for a number of years. Due to old age and ill-health your partner has suddenly resigned.

Unfortunately, some of the clients of your practice have also suddenly left you, thereby leaving you with few personal clients and only one large client which, on departure of your partner, will represent 30% of your total audit fee income.

While reviewing your business plan and your ethical position, you realise that in order to make the practice profitable and viable you will need to expand your client base considerably.

Required

(a) In the light of the Accountant's Act (Cap.531) and the Ethical Guidelines issued by the Institute, state with reasons whether you will have to resign as auditor of the large client. (8 Marks)

(b) Outline the steps you are entitled to take in order to bring in more clients. (7 Marks)

(c) Outline the actions which are specifically prohibited by the Ethical Guidelines for a practice which wishes to bring in more clients. (7 Marks)

(Total: 22 Marks)

QUESTION FIVE

For a considerable time now, East-West Airlines (EWA) has been experiencing numerous problems with their computerised Reservation and Invoicing System (CRIS). The company's main activity is the operation of a fleet of 25 passenger planes for both domestic and International flights. The directors of EWA inform you that they think that the problems relating to the CRIS are due to insufficient input, processing and output controls.

Consequently, +the CRIS has to be restructured to incorporate the required controls in the programs.

The following additional information is supplied to you.

i. Last year the company had an annual turnover of Sh.1,200 million all derived from ticket sales.

ii. Bookings are made from six computer terminals which are located in six countries. The terminals are connected to a mainframe computer situated at the company's headquarters.

iii. The terminals are only capable of performing enquiries for availability of Airline seats. Additionally all bookings are confirmed through these terminals; such confirmation being the basis of simultaneous update of the seats available file (in the air ticket computer) and automatic printing of a costed air ticket (from the terminal's printer).

Required

(a) Prepare a detailed report to the directors of EWA outlining the controls which you consider necessary in such a processing environment. (14 Marks)

(b) Briefly describe the new operational and control related features which distinguish batch control from real-time data processing systems. (6 Marks)

(Total: 20 Marks)