AUDIT & ASSURANCE [S2]

STRATEGIC LEVEL-1
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Time Allowed: 03 Hours Maximum Marks: 100 Roll No.:

(i) Attempt all questions.

(ii) Write your Roll No. in the space provided above.
(iii) Answers must be neat, relevant and brief. It is not necessary to maintain the sequence.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation and language.
(vi) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(vii) Question Paper must be returned to invigilator before leaving the examination hall.
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME
Question No. 1 Proposed Time : 36 Min. | Total Marks : 20
(a) ISA 300 – ‘Planning an Audit of Financial Statements’, provides guidance to auditors. Planning an audit
involves establishing the overall audit strategy for the engagement and development of an audit plan.
Adequate planning is useful for the audit of financial statements in several ways.

Required:
(i) Discuss the difference between audit strategy and audit plan.
(ii) The auditor performs risk assessment procedures to obtain an understanding of the entity and its
environment, including its internal controls. Briefly discuss how would entity’s risk assessment
procedure can be evaluated by:
 External Auditor
 Internal Auditor

(b) As per ISA 315, the auditor shall identify and assess the risk of material misstatement at financial
statements level and assertion level for classes of transactions, account balances, and disclosures.

Required:
(i) Explain what do you understand by assessment of risk of material misstatement at the financial
statements level?
(ii) Specify the two concerns on the basis of which the auditors’ understanding of an entity’s internal
control may raise doubts about the auditability of its financial statements.

(c) Habib & Co. is an unquoted public company. A large part of its business is carried out with persons/
organizations that are related to the management or the shareholders.

Required:
You are required to enumerate any six (06) procedures which an auditor may perform for determining
the existence of related party relationships and transactions.

Question No. 2 Proposed Time : 22 Min. | Total Marks : 12

According to ISA 505, "Depending on the circumstances of the audit, audit evidence in the form of external
confirmations received directly by the auditor from confirming parties may be more reliable than evidence
generated internally by the entity”.

Required:
(a) What is the objective of the auditor using third party confirmation?
(b) What should an auditor do when using external confirmation procedures?
(c) Describe negative and positive confirmations and how it effects the financial reporting.
(d) Does an oral response to a confirmation request constitute an external confirmation? Justify.
AA-MP [MSS 2018] 1 of 3 PTO
(Note: The number of questions and their marks may vary in the examination paper)
Question No. 3 Proposed Time: Min. 34  Total Marks : 19
(a) (i) The International Auditing Standards (ISAs) prescribe a format for the auditor’s report and also
provide guidance regarding its preparation and contents thereof. In the light of these guidelines you
are required to briefly discuss the requirements in respect of the following:
 Auditor’s signature
 Date of report
 Auditor’s address
(ii) Under what circumstances it is necessary to include an .emphasis of matter paragraph in the audit
report?

(b) One of the key activities of the internal audit function is often to provide assurance to the management.
Identify certain issues on which internal auditors may provide assurance to internal management.

(c) Which subsidiary board of International Federation of Accountants (IFAC) is authorized to develop and
promote International Standards on Auditing (ISAs)? State the reasons why does an auditor need to
learn about the key principles and requirements of the International Standards on Auditing (ISAs)?

Question No. 4 Proposed Time: Min. 27  Total Marks : 15

(a) Altaf Company approached the Mini-Finance Bank to extend their overdraft limit in order to finance a
new project. The bank asked the company to provide a cash flow projections and assurance over those
projections.

Required:
Explain the type of assurance engagement that will be undertaken by the auditor in the above scenario
and form of such assurance. Also explain why such type of assurance is appropriate for cash flow
projections.

(b) In view of the significant events, engagement letters for existing clients are to be revised. In the light of
ISA 210 – Agreeing the Terms of Audit Engagements, describe any five factors which would require
revision of an engagement letter for existing client.

(c) Assume you are the Audit Manager of Zimal Associates, an audit firm. During the audit of the Shaheen
Limited Company for the year ended June 30, 2018, you have been informed that fraud has been
committed by the Manager Finance of the company. He had created a fake expense account in the
record and had been claiming fraudulent expenses from the company for a significant period of time.
He has left the company in the month of December 2017. New Manager Finance has joined the
company in January 2018 and was surprised that auditors have not uncovered the fraud during the last
year’s audit.

Required:
As per ISA 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements,
briefly explain the auditor’s responsibilities in relation to the prevention and detection of fraud and error.

Question No. 5 Proposed Time: Min. 32  Total Marks : 18

(a) In accordance with ISA 610, “Using the Work of Internal Auditors”, enlist the audit procedures in
performance of which the external auditor should NOT use internal auditors to provide direct
assistance.

(b) (i) Explain ‘Component Auditor’ and ‘Significant Component’ in accordance with ISA 600, “Special
Considerations – Audits of Group Financial Statements (including the work of component
auditors)”.

AA-MP [MSS 2018] 2 of 3

(Note: The number of questions and their marks may vary in the examination paper)
 (ii) What procedures the group engagement team or a component auditor on its behalf, shall perform
for a component that is significant because it is likely to include significant risks of material
misstatement for the group financial statements due to its specific nature or circumstances?

(c) Assume yourself an Audit Manager in Mumtaz and Co., and have been appointed auditor of a retailer
having annual revenue of Rs.400 million. During the planning stage of the audit you found that the
retailer is using services of a service company for the majority of their accounting functions. As you are
carrying out the audit of such companies first time, therefore, you are seeking advice from your senior
in respect of the following queries in the light of ISA 402 “Audit Consideration Relating to an Entity
Using a Service Organisation”:

Required:
(i) Discuss the objectives stated in ISA 402 with which you will concern, while carrying out the audit of
the retailer uses the services of a service organization.
(ii) Describe ‘type 1’ and ‘type 2’ reports which may be received from the service organization while
conducting the audit of the retailer.

Question No. 6 Proposed Time: Min. 29  Total Marks : 16

(a) Suppose you are an Audit Manager of Almas & Co., an audit firm. Every year the firm inducts many
internees from various professional institutions. Mr. Naushad, a recently qualified professional
accountant joined your firm and has been assigned a cost audit task of a manufacturing company.
Mr. Naushad has few queries about the cost audit requirement and advantages of separate cost audit
therefore, approached you to discuss the following:
(i) Being an Audit Manager explain the need of separate cost audit in addition to external statutory
audit of financial statement.
(ii) Are there any additional benefits, if a company arranges to conduct a cost audit? Enumerate any
eight (08) advantages of cost audit.

(b) Which persons/ firms cannot act as a Cost Auditor of a company as per the Companies (Audit of Cost
Accounts) Rules, 1998?

THE END

AA-MP [MSS 2018] 3 of 3 PTO

(Note: The number of questions and their marks may vary in the examination paper)