QUESTION 1

You are the manager responsible for the annual review of your firm’s audit engagements to
identify situations where independence may be at risk and where appropriate safeguards
should be applied. From your review of your firm’s files relating to Shava Ltd you ascertain the
following:
The company is expanding rapidly following a number of acquisitions and is preparing to apply
for admission to the Zimbabwe Stock Exchange and to offer a proportion of its shares to the
public. As a result of the special investigations undertaken, total fees from Shava Ltd amount to
17% of your firm’s gross practice income for the current year.
The company is about to undertake a feasibility study, on a proposal to expand into Europe
which is to be kept a secret from employees. To keep the initial costs of Shava Ltd team’s
European travel expenses a secret, a partner (who is not the engagement partner) has offered
to have them put onto his credit card. There would then be billed as professional fees.
Required
a) Explain the risks you would consider in deciding whether or not the appointment should
continue. [12 marks]
b) Briefly describe the safeguards available. [8 marks]
c) Come to a conclusion on whether you consider the appointment should continue.
[5
marks]
QUESTION 2
You are in the final stages of the audit of Apple Ltd. for the year ended 31 December 2020. You
are approached by the Finance Director (a qualified accountant) who tells you that he believes
that there is no point in examining the purchase ledger for 2020 and testing data in support of
the 2020 entries. He further states that:
(i) Any invoices received too late to be included in the purchases ledger in December 2020 were
recorded as at the year-end by journal entry; and
(ii) The Internal Auditor tested this process after the year-end; and
(iii) He (the Finance Director) will furnish you with a letter certifying that there were no
unrecorded liabilities at 31 December 2020.

Required:
a) The search for un-recorded liabilities is often one of the most difficult parts of an audit
for which to obtain conclusive or even comprehensive evidence. Hence, it is said that
completeness is one of the most risky assertions where liabilities are concerned.
Discuss the extent, if at all, to which this statement can be considered to have become
even more appropriate and important in difficult economic times. (4 marks)
b) Evaluate the extent to which the auditor’s tests for un-recorded liabilities of Apple Ltd
should be affected by the fact that the client made a journal entry to record 2020
 invoices that were received late. (4
marks)
c) Discuss the extent to which the auditor’s tests for un-recorded liabilities of Apple Ltd
would be affected by the fact that a letter is obtained in which a responsible official
certifies that, to the best of his knowledge, all liabilities have been recorded. (3 marks)

d) In Apple Ltd., should an external auditor’s test for un-recorded liabilities be eliminated
or reduced because of internal audit work that has already been completed? Explain.
(4 marks)
e) Apple Ltd has recently been subjected to a Revenue Audit. Discuss the extent to which
you can rely on the results of this audit in terms of your assurance as to the
completeness of liabilities in the areas of Corporation Tax, VAT, PAYE, and interest and
penalties thereon. (5
marks)
f) What sources, in addition to the 2020 purchases ledger of Apple Ltd., should the auditor
consider to detect possible un-recorded liabilities? (5 marks)
[Total: 25 Marks]
QUESTION 3
(a) Discuss the view that it is often the case that the guidance provided by the International
Standards on Auditing is insufficiently specific to be of real value to an auditor in practice. You
should refer specifically (but not exclusively) to ISA 500 - Audit Evidence and the requirement
for audit evidence to be both “sufficient” and “appropriate”. (6 marks)
(b) Assess the view that if an auditor believes that management representations are
fundamentally unreliable, then s/he has no realistic alternative other than to terminate the
relationship with the client. (6 marks)
(c) Wakura and Dunira, Certified Public Accountants and Registered Auditors, are auditing the
financial statements of Dafi Trading Ltd. for the year ended 31 December 2020. On 2 April 2021,
an inquiry letter to Tomu Shoko & Co., Dafi Trading Ltd.’s solicitors, was drafted by a junior
member of the audit team to corroborate the information furnished to the auditors by
management concerning pending and threatened litigation, claims, assessments and
unasserted claims and assessments. On 6 April 2021, the audit junior gave the engagement
partner a draft of the inquiry letter below for the engagement partner’s review before mailing it
to Tomu Shoko & Co.

Wakura & Dunira

6 April 2021

Tomu Shoko, Solicitor

Dear Mr. Shoko,

In connection with our audit of the financial statements of Dafi Trading Ltd for the year ended
31 December 2020, management of the company has prepared and furnished us a description
and evaluation of certain contingencies, including those set forth below involving matters with
respect to which you have been engaged and to which you have devoted substantive attention
on behalf of the company in the form of legal consultation or representation. Your response
should include matters that existed at 31 December 2020. Because of the confidentiality of all
these matters, your response may be limited.
In November 2020, an action was brought against the company by an outside salesman alleging
breach of contract for sales commissions. The damages claim is for $300,000, but Dafi believes
it has a meritorious defence to the claim. We would be obliged if you confirm that the possible
exposure of the company to a successful judgment on behalf of the plaintiff is slight.
In July 2018, an action was brought against the company by Industrial Manufacturing Co. Ltd.
(Industrial) alleging patent infringement and seeking damages of $20,000,000. The action
resulted in a decision on 16 October 2020, holding that the company had infringed seven
industrial patents and awarded damages of $14,000,000. The company vigorously denies these
allegations and has filed an appeal with a Higher Court. The appeal process is expected to take
approximately two years, but Dafi’s management admits that there is some chance that
Industrial may ultimately prevail.
Please furnish directly to ourselves such explanation, if any, that you consider necessary to
supplement the foregoing information, including an explanation of those matters as to which
your views may differ from those stated and an identification of the omission of any pending or
threatened litigation, claims, and assessments or a statement that the list of matters is
complete. Your response may be quoted or referred to in the financial statements without
further correspondence with you.
You may have also been consulted on various other matters involving pending or threatened
litigation. However, you may not comment on these matters because publicising them may
alert potential plaintiffs to the strengths of their cases. In addition, various other matters
probable of assertion that have some chance of an unfavourable outcome, as of 31
December 2011 are unasserted claims and assessments.

James Dunira CPA,

Required:
Analyse the deficiencies in the above draft letter. (13 marks)
[Total: 25 Marks]

QUESTION 4
“Auditors, like everyone else, are conscious of the very difficult current economic conditions
and must consider the potential implications arising for their reports. They should not take ‘the
easy way out’, however, by referring to going concern uncertainties in every audit report;
rather, they must consider in each case whether there are circumstances specific to the entity
that indicate significant uncertainties such as to warrant an ‘emphasis of matter’ paragraph in
their audit report.” (from an article by Ronan Nolan FCA).

Required:
(a) Critically evaluate three ways in which a set of financial statements prepared on a going-
concern basis will differ from a set prepared on an alternative basis. (6 marks)
(b) How might an auditor satisfy himself/herself as to the truth and fairness of the asset and
liability valuations used in financial statements prepared on a basis other than the going
concern basis? Justify your answer. (8
marks)
(c) Discuss the statement by the author of the above quotation that the auditor ‘should not
take ‘the easy way out’, however, by referring to going concern uncertainties in every audit
report’.
(6 marks)
(d) Should auditors avoid the use of going concern qualifications in audit reports because such
references tend to become “self-fulfilling prophesies”, thus making it even harder for the entity
concerned to survive? Justify your answer. (5 marks)
[Total: 25 marks]

QUESTION 5
Tsivai & Co., an internationally affiliated firm of Chartered Accountants, act as a firm of auditors
to two major insurance companies, which are in cut-throat competition with each other.
Required:
(a) Comment on the above scenario in line with the rules of professional conduct of members
as regards conflict of interest. (18
Marks)
(b) Discuss in detail what your opinion would be if it were discovered that the engagement
partner had 20,000 ordinary shares in one of the companies. These shares were acquired
before the firm commenced the audit of the company. The partner also held a life assurance
policy taken out before the audit engagement.
(7 Marks)
[Total 25 Marks]

QUESTION 6
(a) Clients have an undisputable right to appoint their auditors or choose their professional
advisers. They may seek professional advice from even more than one professional accounting
firm, as required. However, there are legitimate professional reasons why a professional
accounting firm might not wish to accept an appointment as Auditors to a prospective client.
Discuss these reasons. (9 Marks).
(b) Chuma & Co. a big auditing firm has been appointed Joint auditors to a commercial bank.
Some years later, the bank decided to maintain Chuma & Co as the sole firm of auditors.
Discuss the professional duty required of Chuma & Co. before accepting the appointment on
each occasion. (4
Marks)
(c) The Companies Act confers on the auditors the right to require from the officers of a
company any information and explanations deemed necessary for the performance of the
audit. In addition, the auditor can obtain third party certificates to complement evidence he has
obtained.
Required:
(i) What are third party certificates? (2 Marks)
(ii) Briefly state reasons why certificates are obtained from third parties. (2 Marks)
(iii) Describe any four types of third party certificates. (8 Marks)
[Total 25 Marks]

QUESTION 7

You have been asked by the senior in charge of the audit of Bin Manufacturing Limited to
describe certain aspects of the work you will carry out in auditing the company’s wages system.
Employees of Bin Manufacturing are paid on the basis of hours worked and quantities
produced. The hours worked are recorded on clock cards and the quantities produced are
confirmed by the supervisor. Wages are paid in cash each Friday for the previous week’s work.
Appointment of employees is authorized by the managing director, and the personnel
department maintains employees’ records and their rates of pay. The cashier is separate from
the wages department.
Previous years’ audits have highlighted weaknesses in internal controls in the company’s wages
system. This has allowed an employee in the wages department to perpetrate a fraud by
creating fictitious employees on the payroll and misappropriating the wages. Some of your
audit tests have been designed to detect whether this fraud is still taking place.
A “starters and leavers” test is carried out to ensure that employees are not paid before they
commence employment or after they have left.
Required
(a) State the principal controls you would expect to exist in a wages system and explain
their purpose. [10 marks]
(b) Assuming you decide not to attend the wages payout, suggest other techniques you can
use to check the existence of employees. [5 marks]
(c) Describe how you will carry out a starters and leavers test. [4 mark]
(d) Describe the analytical review techniques you can use in auditing the wages system. This
should include suggesting any ratios you would calculate. [6 marks]

[Total: 25 marks]
QUESTION 8
In terms of ISA300, the audit plan must contain a description of the nature, timing and extent of
planned risk assessment procedures sufficient to assess the risk of material misstatements.
Audit is a combination of inherent risk, control risk and detection risk. The auditor must there
evaluate the materiality and risks specific to the company. Materiality limits should be set at
the planning stage of the audit to act as a guideline for deciding whether adjustments should be
made to the financial statements.
Required
(a) Briefly describe the terms ‘inherent risk’, ‘control risk’,’ detection risk’ and ‘audit risk’
(8 marks)
(b) List the eight factors which the auditor would bear in mind when assessing the audit risk
of a company. Your answer should talk of inherent and control risk. (4 marks)
(c) Define and explain the Risk Equation, describing how it should be used in auditing
planning. (3 marks)
(d) Discuss the considerations which would determine whether an item is material in
relation to financial statements (4
marks )
(e) Discuss the validity of the statement that “materiality limits should be set at the
planning stage of the audit and should be rigidly be adhered to throughout the audit.”
( 6 marks)
[Total 25 Marks]

QUESTION 9
You are the senior in charge of the audit of Big Ltd a manufacturing company. You have been
talking with the payroll supervisor who has commented on the strength of the company’s
payroll internal control system. She has assumed that this internal control system guarantees
the completeness, accuracy and validity of the payroll accounting records.
Required
a) State whether you agree with the supervisor’s assumption that an internal control
system can guarantee the completeness, accuracy and validity of the records,
supporting your answer by using examples from the payroll system
[15 marks]
b) The supervisor has also asked you to explain some internal control terminology which
she does not understand. Explain the meaning of the following terms, using payroll
examples different from those you have given above:
i) Segregation of duties [5 marks]
 ii) Arithmetical and accounting controls [5 marks]
[Total 25 Marks]

QUESTION 10
The auditing guidelines “Audit evidence” suggests that techniques of audit testing fall into some
broad categories.
Required:
(a) List and discuss FIVE of these categories giving TWO examples of each. [15 marks]
(b) The auditor’s tests of controls help to identify weaknesses which constitute threats to
data security, reliability and loss. Discuss. [10 marks]
[Total 25 Marks]

QUESTION 11
(a) ISA 210 Terms of Audit Engagements explain the content and use of engagement letters.

Required:

State any Four items that could be included in an engagement letter. [4 marks]

(b) ISA 500 Audit Evidence explains types of audit evidence that the auditor can obtain.

Required:
State, and briefly explain, four types of audit evidence that can be obtained by the auditor.
[12 marks]

(c) ISA 700: The Independent Auditor’s Report on a Complete Set of General Purpose Financial
Statements explains the form and content of audit reports.
Required:
State three ways in which an auditor’s report may be modified and briefly explain the use of
each modification. [9
marks]

[Total 25 Marks]

QUESTION 12
Your client of over five years – ABC Rubber Products Limited, is proposing to change over to a
computer-based accounting system.
(a) How would this impact on your approach to the audit? [10 marks]
(b) Enumerate the major differences between manual and computer-based accounting system.
[10 marks]
(c) Explain the term “Audit Committee” considering the provision of the Companies Act
[5
marks] [Total: 25
Marks]
QUESTION 13
Tsivai & Co., an internationally affiliated firm of Chartered Accountants, act as a firm of auditors
to two major insurance companies, which are in cut-throat competition with each other.
Required:
(a) Comment on the above scenario in line with the rules of professional conduct of members
as regards conflict of interest. (18
Marks)
(b) Discuss in detail what your opinion would be if it were discovered that the engagement
partner had 20,000 ordinary shares in one of the companies. These shares were acquired
before the firm commenced the audit of the company. The partner also held a life assurance
policy taken out before the audit engagement.
(7 Marks)
[Total 25 Marks]

QUESTION 14
You have been asked by the manager in charge of the audit of Shumba Ltd to consider and
describe various aspects of carrying out a debtor’s circularization at its year end of 31 October
2019. The company sells all its products on credit and the draft accounts show annual sales of
$15 million and a year-end accounts receivable of $4.3 million. Your tests of control on the sales
system have shown that there is a satisfactory division of duties in the sales system and only
minor errors were found in the tests of control.
Required
a) Consider the reliability of a debtor’s circularization in providing audit evidence and in
verifying the value of year-end accounts receivable. [9 marks]
b) Describe the work you will carry out in auditing the replies to the debtors’ circularization
where:
i) The debtor disagrees the balance and provides a different balance. [7 marks]
ii) The debtor does not reply to the circularization. In answering this part you
should consider the techniques you would use to verify the existence of the
debtor and the investigations you would carry out to check the recoverability of
the debt on the sales ledger [9
marks]
[Total 25 Marks]

QUESTION 15
An Auditor is expected to obtain relevant and reliable audit evidence sufficient to enable him
draw measurable conclusions as a basis for his report. You are required to:
(a) Discuss the factors, which may influence the auditor’s judgment in relation to sufficiency of
the evidence so collected. [15 marks]
(b) Discuss the factors that would enable the auditor assess the reliability of such evidence.
[10
marks]

QUESTION 16
The Chairman of XYZ LTD, a small scale enterprise has been advised by his accountant to
appoint an external auditor, but he disagreed with his accountant that since he has a qualified
accountant in his employment, there is no need appointing an external auditor.
As a consultant, explain to the chairman:-
(a) (i) The difference between auditing and accountancy work; [4 marks]
(ii) The objectives of an external audit [3 marks]
(iii) The advantages of an external audit [8 marks]

(b) Discuss five essential features of systems audit [10 marks]

QUESTION 17
ABC & Co. is a large accountancy partnership that offers a range of services including auditing,
accounting, taxation, financial consultancy and liquidation. It often undertakes complex
assignments which require the use of multi-disciplinary teams. ABC & Co. has a reputation for
having a competitive culture. The firm offers salaries that are much higher than the industry
average. There is an "up or out" culture which means that qualified staff must demonstrate the
potential to be promoted to the next level of seniority within a relatively short period or they
will be encouraged to leave.
ABC & Co. has 64 partners. About half of these are based in the Harare office; the remainder in
various provincial towns and cities throughout Zimbabwe. The firm is supervised by CPA. All of
the partners are qualified accountants, and with a few exceptions, all are Certified Public
Accountants. There are approximately 450 professional staff. ABC & Co.'s professional staff
comprises accountants at different stages in their careers, ranging from senior managers to
junior trainees. Staff who have qualified elsewhere are recruited only if there is a pressing need
which cannot be met from within the firm. The team leaders are all experienced accountants
who are eligible for promotion to partnership in the event of a vacancy arising. Selection for
partnership depends on the ability to complete assignments to a consistently high standard and
within budget.
Trainee accountants are appointed on a three-year contract, during which time they are
expected to pass the professional examinations of CPA. ABC & Co. recruits approximately 55
trainees every year. The firm endeavours to recruit the best graduates from the universities and
institutes of technology. Those trainees who demonstrate the necessary qualities to succeed in
ABC & Co. are offered the opportunity to stay with the firm at the conclusion of their training
contracts. Those who do not receive such an offer must leave.
Each partner is responsible for a portfolio of assignments, and each portfolio is accounted for as
a profit centre.
Partners are expected to be aware of the opportunities to bid for assignments and to win new
business despite competition from other practices including “Big 4” firms. ABC & Co. has a
reputation for bidding aggressively and accepting tight deadlines. One critic has recently
commented that they have made “low balling into an art form”.
Each partner is also responsible for a portfolio of assignments, each of which involves a team
leader and several assistants. Professional staff time is charged to assignments on an
absorption costing basis and the firm’s time recording system calculates a notional profit for
each assignment based on the cost of time charged against the fee generated.
With the exception of partners who are on the management committee (se e below), each
partner receives a share of the firm’s annual profit based on the profitability of their portfolio
as compared to the firm as a whole. This practice is sometimes unkindly referred to as the “eat
what you kill” policy.
Notwithstanding this, in all other respects, all partners enjoy equal seniority and major strategic
decisions are decided by a simple majority vote of the partnership. The firm is managed on a
day-to-day basis by a management committee which comprises three partners. Every partner is
expected to take a turn as a member of the management committee at some stage in his or her
career. One person joins the committee every year to take over from the committee member
whose term of office has expired. One member of committee is expected to fulfil the role of
quality control partner. The third year of service on the management committee is spent as the
firm’s managing partner. The committee members are not expected to be responsible for a full
complement of assignments and the managing partner is not expected to be responsible for
any assignments. Committee members are remunerated at the rate of 120% of the average
partner earnings each year and the managing partner enjoys an extra bonus of 10% on top of
this. This amount is deducted before the calculation of the other partners’ profit shares.

Required:
ABC & Co.’s Managing Partner has asked you to prepare a report for her in which you:
(a) Analyse the risks arising from the firm's culture to:
(i) the practice itself (6 marks)
(ii) the quality of service offered to the clients of ABC & Co. (6 marks)
(b) Evaluate the strengths and weaknesses of ABC & Co.’s governance arrangements with
respect to the partnership and its management committee.
(13 marks)
[Total: 25 Marks]

QUESTION 18
a) As the audit manager in charge of an audit of a large multinational company, draw up an
audit programme for fixed assets for the use of the field staff. [10 Marks]
b) Define and explain what is meant by analytical review procedures. [3 marks]
c) Discuss four types of general analytical review procedures. [8 marks]
 d) What is the purpose of performing preliminary analytical review procedures at the audit
planning stage? [4 marks]
[Total: 25 Marks]

QUESTION 19
Blue Star is a theme park based on a popular series of children’s books. Customers pay a fixed
fee to enter the park, where they can participate in a variety of activities such as riding roller-
coasters, playing on slides and purchasing themed souvenirs from gift shops. The park is open
all year and has been in operation for the last seven years. It is located in a country which has
very little rainfall – the park is open-air so poor weather such as rain results in a significant fall
in the number of customers for that day (normally by 50%). During the last seven years there
have been on average 30 days each year with rain.
Blue Star is now very successful; customer numbers are increasing at approximately 15% each
year.
Ticket sales
Customers purchase tickets to enter the theme park from ticket offices located outside the
park. Tickets are only valid on the day of purchase. Adults and children are charged the same
price for admission to the park. Tickets are preprinted and stored in each ticket office. Tickets
are purchased using either cash or credit cards. Each ticket has a number comprising of two
elements – two digits relating to the ticket office followed by six digits to identify the ticket. The
last six digits are in ascending sequential order.
Cash sales
1. All ticket sales are recorded on a computer showing the amount of each sale and the
number of tickets issued. This information is transferred electronically to the accounts
office.
2. Cash is collected regularly from each ticket office by two security guards. The cash is
then counted by two accounts clerks and banked on a daily basis.
3. The total cash from each ticket office is agreed to the sales information that has been
transferred from each office.
4. Total cash received is then recorded in the cash book, and then the general ledger.
Credit card sales
1. Payments by credit cards are authorised online as the customers purchase their tickets.
2. Computers in each ticket office record the sales information which is transferred
electronically to the accounts office.
3. Credit card sales are recorded for each credit card company in a receivables ledger.
4. When payment is received from the credit card companies, the accounts clerks agree
the total sales values to the amounts received from the credit card companies, less the
commission payable to those companies. The receivables ledger is updated with the
payments received.
You are now commencing the planning of the annual audit of Blue Star. The date is 3 June 2021
and Blue Star’s year end is 30 June 2021.

Required:
 a) List and explain the purpose of the main sections of an audit strategy document and for
each section, provide an example relevant to Blue Star. [8 marks]
b) For the cash sales system of Blue Star, identify the risks that could affect the assertion of
completeness of sales and cash receipts; [4 marks]
c) Discuss the extent to which tests of controls and substantive procedures could be used
to confirm the assertion of completeness of income in Blue Star. [5 marks]
d) List the substantive analytical procedures that may be used to give assurance on the
total income from ticket sales for one day in Blue Star; [2
marks]
e) List the substantive analytical procedures that may be used to give assurance on the
total income from ticket sales in Blue Star for the year. [2
marks]
f) List the audit procedures you should perform on the credit card receivables balance.
[4 marks]
[Total: 25 Marks]

QUESTION 20
Following a competitive tender, your audit firm Calvin & Co has just gained a new audit client
Tyrol Co. You are the manager in charge of planning the audit work. Tyrol Co’s year end is 30
June 2021 with a scheduled date to complete the audit of 15 August 2021. The date now is 3
June 2021.
Tyrol Co provides repair services to motor vehicles from 25 different locations. All inventory,
sales and purchasing systems are computerised, with each location maintaining its own
computer system. The software in each location is the same because the programs were
written specifically for Tyrol Co by a reputable software house. Data from each location is
amalgamated on a monthly basis at Tyrol Co’s head office to produce management and
financial accounts.
You are currently planning your audit approach for Tyrol Co. One option being considered is to
re-write Calvin & Co’s audit software to interrogate the computerised inventory systems in each
location of Tyrol Co (except for head office) as part of inventory valuation testing. However, you
have also been informed that any computer testing will have to be on a live basis and you are
aware that July is a major holiday period for your audit firm.

Required:
a) Explain the benefits of using audit software in the audit of Tyrol Co; [4 marks]
b) Explain the problems that may be encountered in the audit of Tyrol Co and for each
problem, explain how that problem could be overcome. [10 marks]
c) Following a discussion with the management at Tyrol Co you now understand that the
internal audit department are prepared to assist with the statutory audit. Specifically,
the chief internal auditor is prepared to provide you with documentation on the
computerised inventory systems at Tyrol Co. The documentation provides details of the
software and shows diagrammatically how transactions are processed through the
inventory system. This documentation can be used to significantly decrease the time
 needed to understand the computer systems and enable audit software to be written
for this year’s audit.
Required:
i) Explain how you will evaluate the computer systems documentation produced by the
internal audit department in order to place reliance on it during your audit. [6 marks]
ii) Contrast the role of internal and external auditors. [5 marks]
[Total: 25 Marks]