TUMAINI UNIVERSITY DAR ES

SALAAM COLLEGE
(A constituent College of Tumaini Makumira)
Faculty of Business Administration
Bachelor of Business Administration
Academic year 2013/2014 First Semester
University Special Final Examination

EXAMINATION NAME:

PRINCIPLES OF AUDITING I

EXAMINATION CODE:

ACCT 203

EXAMINATION DATE:

MARCH 7th, 2014

TIME ALLOWED:

3 HOURS

GENERAL INSTRUCTIONS:
1. There are FOUR (4) questions in this paper
2. Attempt ALL FOUR questions
3. To facilitate time budgeting, marks are shown at the end of each question
(100% in total).
4. Show all your workings in your answer booklet.
5. Do not write anything on the question paper, all rough works should be done
in the answer booklet and then cancelled.
6. Be clear specific and straight forward.
7. Possessions of Mobile phone and any other un-authorized material in
the examination room is strictly prohibited
8. You are reminded to adhere to ALL University Examination
Regulations.
1

QUESTION ONE
(a) Explain the following terms as used in International Auditing Standards [IASs] and
auditing professional in general:
(i) Audit,
(ii) Audit risk,
(iii) Internal control,
(iv) Analytical procedures,
(v) Permanent audit file.
[Each 2 marks; 10 Marks in Total]
(b) ISA 530 focuses on the concept of sampling and related procedures reflecting the
contents of this standard and general knowledge obtain in your auditing course answer
the following questions:
(i) What are the differences between sampling and sampling risk?
[4 marks]
(ii) Why sampling is used when proceeding with audit work?
[3 marks]
(iii) State five matters that auditor need to consider when making decisions on
the design of sample.
[4 marks]
(iv) Explain the key differences between statistical and non-statistical
sampling to audit work.
[4
marks]

[TOTAL 25 MARKS]
QUESTION TWO
(a) ISA 315 focuses on identifying and assessing the risks of material misstatement by
attempting to understand business entity and its environment it is through this standard
that auditors are being cautioned that they need to be familiar or acquire necessary
knowledge through preliminary examination of their clients which include getting
acquainted with the nature of their business operations.
Required:
(i)
Identify and give brief explanation to three sources of information for auditors
capable of assisting in getting familiar with their clients
[6 Marks]
(ii)
State three advantages that auditors get by getting familiar or understanding the
entity and general environment of their clients in particular audit engagement
[4 Marks]
(iii)
Identify and explain only SIX key issues defining the client business operations or
general business environment which auditors is expected to be sensitive with

before accepting audit engagement due to their high level of risk in jeopardizing
the quality or achievement of audit objectives
[8 Marks]
(b) ISA 500 599 covers different matters relating to audit evidence define the term audit
evidence and provide FIVE different type of audit evidence by focusing on their methods
for which audit evidence may be collected
[7 marks]
[TOTAL 25 MARKS]

QUESTION THREE
(a) ISA 210 terms of audit engagement identify and explain 10 elements that define the
contents of engagement letters in a particular audit work
[6 Marks]
(b) Why auditor need clearly specified letter of engagement to proceed with audit work
[4 Marks]
(c) You are the audit manager for accounting firm known as Excellent Accounting &
Consulting Ltd [EACL]. This firm is in the process of accepting the audit engagement
relating to one company named Endless Fame & Beauty Company [EFBC] EACL has
been the audit firm of EFBC for more than 5 years. On the nature of business conduct
EFBC specializes in manufacturing of luxury jewelries like earrings and bangles of
different sorts.
During the planning stage of the audit work EACL has obtained the following details:
- The employees of EFBC are entitled to within the house purchase of items for
relatively lower price under discounting arrangement of 10%.
- The arrangement noted above has also been provided for EACLs audit team in the
previous period on equal basis.
- During the previous accounting period Financial Controller of EFBC had an
emergence hence was absent from the office however this gap was filled by having
appropriate arrangement where a qualified senior auditor of EACL was seconded to
the client for three months to work in the capacity of Financial Controller. Due to this
the Audit Partner has recommended that the seconded employee because of his good
knowledge and experience of client also be included as part and parcel of audit team
that will work for EFBC.
- Another observation includes, the question of fee income that is derived from EFBC
being relatively significant together with taxation service fee they amount to 20% of
the audit firm fees.
- Upon reviewing the correspondence files it was observed that the Audit Partner and
the Chief Financial Officer are good friends and have known each other on social
basis as they attended the same university and other professional courses. Actually the
two with their families went on holiday together last summer to Egypt for touring
important historical sites like the pyramid structures and other attractive areas as a
result of this friendship the partner do not see the importance of having arm length
talking regarding last year fees where 25% is still a outstanding since then.

Required:
(i) Identify and briefly explain the ethical threats affecting the independence of
EACL with regard to audit engagement with client EFBC
[7.5 Marks]
(ii) For each threat you have identified above explain clearly the means of avoiding
such threat
[7.5 Marks]
[TOTAL 25 MARKS]
QUESTION FOUR
(a) What does it mean by Internal Control System?
[5 Marks]
(b) Describe FOUR main objectives for any organization to have sound internal control
system.
[10 Marks]
(c) Based on ISA 610 which provide for the ability of external auditor to use the work of
internal auditors explain FIVE key factors more likely to influence the decision of
external auditor to use the work of internal auditor.

[10 Marks]
[TOTAL 25 MARKS]

END OF EXAM