ASSURANCE

Time allowed 1 hours

Total marks 100
[N.B. Questions must be answered in English. Examiners will take account of the quality of language and of
the manner in which the answers are presented. Different parts, if any, of the same question must be
answered in one place in order of sequence.]
Marks
1. Accounting estimates are of particular concern to the auditor as, by their nature, there may not be
any physical evidence to support them and they are prone to inaccuracy. They are also subjective
and therefore prone to management bias. If the directors wished to manipulate the accounts in any
way, accounting estimates are an easy way for them to do this. The auditor must take care when
auditing these estimates, to ensure that these have not been the cases.
a. What are accounting estimates as per BAS 8? Give 5 (five) examples.
3+3=6
b. What are the three methods for auditors as per BSA 540 to carry out audit of accounting
estimates? Give examples of audit steps for each method.
3+3=6
c. What are the areas that auditor should consider in evaluating the assumptions on which the
estimates are based in the preparation and presentation of financial statements by the
management?
3
2.

3.

4.

a. Define population as regards to Audit Sampling.

b. Peter is working on the audit of Alpha Ltd. In the prior year, there had been a large amount of
obsolete inventory at the year-end due to a decision by the management to amend the design of
their major product to improve safety aspect. Peter wants to ensure that management has no
intention of making any similar amendment to their products this year.
(i) What type of audit evidence peter should collect to ensure the managements intention and why?
(ii) As auditor of ABC Ltd, what are the key issues to be considered during verification of
inventory?
a. What are the objectives of Audit Engagement Letter.
b. Distinguish between Audit Strategy and Audit Plan.
c. Budget and actual financial information of PQR Ltd for the year 2013 are presented below:
Budget (Tk.)
Actual (Tk.)
Sales
1,200,000
1,222,578
Cost of sales
850,000
972,563
Gross Profit
350,000
250,015
Salaries
275,000
276,000
Travelling
100,000
172,453
Advertisement
75,000
43,000

6
7
6
6

Which three areas would you investigate further as a result of carrying out analytical procedures
on the above?

Assurance engagements are designed to enhance intended users degree of confidence about the
outcome of the evaluation or measurement of a subject matter against criteria. Auditors shall conduct
the audit of the financial statements of an entity with integrity, objectivity and independence.
Engagement personnel shall promptly notify the team leader of circumstances and relationships that
create threats to relevant ethical requirements. The engagement leader then in consultation with the
engagement partner will propose a resolution by applying the framework for resolving threats to
their assurance engagement.
a) What do you mean by integrity, objectivity and independence in assurance engagement?

b) What do you understand by independence of mind, independence in fact and independence in

appearance? Differentiate these three terminologies used in assurance engagement.

c)

The ABC & Co., an audit firm, is currently in the process of accepting a new client. A review
team is considering a number of ethical issues that might hinder acceptance. Write down the
meaning, threat type and applicable safeguards for the following threats as per following format:

[Please turn over]

3x6= 18

2
Threat
Some firms tendered low
billing
Assurer provides valuation
service to same client
Assurer recruits senior
management for the client
The client is proposing for a
contingent fee
Client threatens to sue the
assurance firm
Assurer accepts gifts and
hospitality from the client

5.

Meaning

Threat Type

Applicable Safeguards

Internal control is a process affected by an entitys structure, environment work, authority flows,
people and management information systems. Internal Control System is designed to help the
organization accomplish specific goals or objectives. By ensuring effective and efficient Internal
Control System an organization's resources are directed, monitored and measured which eventually
plays an important role in preventing and detecting fraud and error.
a)

(i) What is business risk?

(ii) What is entitys risk assessment process?

b) (i) What are the objectives of implementing Internal Controls System (ICS)?

c)

2
2
3

(ii) Name three limitations of Internal Control.

What are the five components of Internal Control? Briefly explain.

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