Addis Ababa University

COLLEGE OF BUSINESS AND ECONOMICS

Department of Accounting and Finance
Advanced Auditing( ACFN 723) and Advanced
Auditing and Assurance Services ACFN 652)

INDIVIDUAL ASSIGNMENT: Submission date, May 25 /2024

1. Demonstrate understanding of the value of auditing in an economy and theories explaining

the demand for auditing;
2. Discuss the role of auditing and other assurance services in society and the public’s
expectation for these services.
3. Describe issues associated with the audit of public sector, not-for-profit and small business
entities.
4. Critically evaluate the professional, legal, ethical and regulatory framework within which
audits and other assurance engagements are carried out,;
5. Discuss current developments in auditing.
6. Audits can be categorized into different types: Like; (1) financial statement audits, (2)
compliance audits, (3) operational audits, and (4) forensic audits.
Required: For each of the following descriptions, indicate which type of audit (financial
statement audit, compliance audit, operational audit, or forensic audit) best characterizes the
nature of the audit being conducted. Also indicate which type of auditor (external auditor,
internal auditor, government auditor, or forensic auditor) is likely to perform the audit
engagement.
a. Determine the fair presentation of Ajax Chemical’s balance sheet, income statement,
and statement of cash flows.
b. Review the payment procedures of the accounts payable department for a
large manufacturer.
c. Examine the financial records of a division of a corporation to determine if any
accounting irregularities have occurred.
d. Evaluate a company’s computer services department in terms of the efficient and
effective use of corporate resources.

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 e. Audit the partnership tax return of a real estate development company.
f. Investigate the possibility of payroll fraud in a labor union pension fund.
g. Examine contractual agreements with bankers and other lenders to be sure the company
is complying with legal requirements.
7. Discuss how the events that have so dramatically affected auditors and the public
Accounting profession since the Enron scandal may in some senses be “healthy” for the
profession.
8. The list below indicates various audit, attestation, and assurance engagements involving auditors.
a. A report on the effectiveness of internal control over financial reporting as required by
Section 404 of the Sarbanes–Oxley Act.
b. An auditor’s report on whether the financial statements are fairly presented in
accordance with International Financial Reporting Standards.
c. A report stating whether the company has complied with restrictive covenants related
to officer compensation and payment of dividends contained in a bank loan
agreement.
d. A report indicating whether a governmental entity has complied with certain
government regulations.
e. A report on the examination of a financial forecast.
f. A report on management’s assertion on the company’s level of carbon emissions.
g. An evaluation of the effectiveness of key measures used to assess an entity’s success in
achieving specific targets linked to an entity’s strategic plan.
Required: For each of the services listed above, indicate the type of service from the list
that follows.
(1) An audit of historical financial statements.
(2) An attestation service other than an audit service.
(3) An assurance service that is not an attestation service.

9. In the aftermath of a series of high-profile business scandal, efforts were made to enhance
corporate governance and risk management with the establishment of new regulations. In the
US, the Sarbanes-Oxley Act of 2002 and the establishment of PCAOB address the essential
issues on internal control reporting and the auditor’s role in this respect.
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Required: Discuss these changes along with how the proposed measures could be
effective in bolstering confidence in capital market economies.

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10. The following (1 through 18) are the balance-related, transaction related, and presentation
and disclosure related audit objectives.

Balance-Related audit Transaction-Related audit Presentation and Disclosure

objectives. objectives. audit objectives.
1.Existence 9. Occurrence 15. Occurrence &Rights
2.Completeness 10. Completeness 16. Completeness
3.Accuracy 11. Accuracy 17. Accuracy &Valuation
4.Classification 12. Classification 18. Classification
&Understandability.
5.Cut-off 13. Timing
6.Detail-tie-in 14. Posting &Summarization
7. Realized value
8.Rights
&Obligations.
Identify the specific audit objective (1-18) that each of the following specific audit procedures (a.
through l.) satisfies in the audit of sales, accounts receivable and cash receipts for fiscal year ended
December 31, 2011.

a. Examine a sample of duplicate sales invoices to determine whether each one has a
shipping document attached.

b. Add all customer balances in the accounts receivable trial balance and agree the amount to
the general ledger.

c. For a sample of sales transactions selected from the sales journal, verify that the amount of
the transaction has been recorded in the correct customer account in the accounts receivable
sub ledger.

d. Inquire of the client whether any accounts receivable balances have been pledged as
collateral on long-term debt and determine whether all required information is included in
the footnote description for long-term debt.

e. For a sample of shipping documents selected from shipping records, trace

each shipping document to a transaction recorded in the sales journal.

f. Discuss with credit department personnel the likelihood of collection of all accounts as
of December 31, 2011 with a balance greater than $100,000 and greater than 90 days old
as of yearend.

g. Examine sales invoices for the last five sales transactions recorded in the sales journal
in2011 and examine shipping documents to determine they are recorded in the correct
period.

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 h. For a sample of customer accounts receivable balances at December 31, 2011,
examine subsequent cash receipts in January 2012 to determine whether the customer
paid the balance due.

i. Determine whether all risks related to accounts receivable are adequately disclosed.

j. Foot the sales journal for the month of July and trace postings to the general ledger.

k. Send letters to a sample of accounts receivable customers to verify whether they have
an outstanding balance at December 31,2011.

l. Determine whether long-term receivables and related party receivables are reported separately
in the financial statements.

11. In your opinion, what are the important issues affecting auditor independence in a capital market
economy? Why is the inquiry into auditor independence becoming increasingly important?

12. The auditor should consider audit risk and materiality when planning and performing an
examination of financial statements in accordance with auditing standards. Audit Risk and
materiality should also be considered together in determining the nature, timing, and extent of
auditing procedures and in evaluating the results of those procedures.
Required: a) Define Audit Risk and Materiality.
b) Describe the components of audit risk (e.g., inherent risk, control risk, and
detection risk).
c) Explain how these components are interrelated.
d) Describe the relationship between materiality for planning purposes and
materiality for evaluation purposes.

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13. An auditor is required to obtain sufficient understanding of each component of an entity’s
internal control system to plan the audit of the entity’s financial statements and to assess
control risk for the assertions embodied in the account balance, transaction class, and
disclosure components of the financial statements.
Required: a) Define internal control.
b) For what purpose should an auditor’s understanding of the internal
control components be used in planning an audit?
c) Why may an auditor set control risk at the maximum level for one or
more assertions embodied in an account balance?
d) What are an auditor’s documentation requirements concerning an entity’s
internal control system and the assessed level of control risk?

14. You were recently hired by the CPA firm of Honson & Hansen within two weeks, you were
sent to the first-year staff training course. The instructor asks you to prepare answers for the
following questions:
a) How is evidence defined?
b) How does evidence relate to assertions and to the audit report?
c) What characteristics of evidence should an auditor be concerned with when
searching for and evaluating evidence?

15. The risk model can be restated as follows: AR = IR × CR × DR, Where: AR = audit risk IR =
inherent risk CR = control risk DR = detection risk
Using the audit risk model, compute the detection risk for the following values of audit risk,
inherent risk and control risk. Then answer the questions below.
Types of risks Case 1 Case 2 Case 3
Audit risk 5% 10% 1%
Inherent risk 25% 30% 50%
Control risk 50% 50% 15%

Required: Which of the above cases shows the highest (lowest) detection risk? Why? What is
the significance of these results in terms of evidence gathering by the auditor? Why?

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 16. Read chapter five of your PPT, notes and relevant chapters to each from your text book. You
can also use additional reference materials. You need to understand the topics against the course
objectives. After reading the chapter, write a vivid summary of two to four pages (minimum of
two pages and maximum of four pages) on the following issues.
Auditing operating systems.
Auditing networks.
Auditing Electronic data interchange
(EDI). Auditing PC based accounting
systems.
Auditing data base system.

17. Discuss what does Auditing and EDP audit means? For what purpose we need audit? How
do auditors undertake the work of audit? What is the role of technology on auditing?

18. Discuss Auditing system in Ethiopia and the Code of Ethics required for
Accountancy professionals issued by office of the federal auditor general in Ethiopia.

19. List and discuss the business entities required to produce audited financial statements in Ethiopia.

20. Take at least two companies audited financial statement reports of 2020/2021 and
2021/2022 and evaluate their Audited Financial Statements.
21. Differentiate the following IAASB international standards.
 International standards on Quality control.
 International standards on Auditing( ISAS).
 International standards on Review Engagements.
 International standards on Assurance Engagements.
 International standards on Related services.