Marking Scheme for NTA LEVEL-7

Elements of Auditing- 4th Semester

No. Details Marks

Question no. one. Total marks =20 marks Full mark of 3
a) Management Consultant is an examination of the health of a will be issued if
business by a specialist is called management consultancy. student
demonstrate
Management consultancy relates only to specific problems and h/his skill in
provides solution only to those problems which are posed to it. It management
and is problem oriented. is always adhoc while involving external consultancy
experts. (4marks) idea
b) (4 marks) One mark for
S/No. MANAGEMENT AUDIT MANAGEMENT CONSULTANCY each point of
1 Institutional or individual Problem oriented. differentiation
oriented between
2 Overall review of all Dealing with specific problems and management
managerial policies, their solutions. consultancy
procedures and actions
3
and
Periodical but regular Casual and adhoc
4 Internal experts External experts.
management
audit
c) Step one diagnosing the problem - From the data given by Here student
customer it is clear that gross profit is affected by costs of is test his/her
production and not sales (as some time sales dropping are the ability to
sources of problem but not in this case) a constant increase in analyze the
manufacturing costs in clear indication that management is not situation and
efficient in production and acquisition of raw material and labor providing
cost. good solution
Possible reasons for high costs: on the said
1. It may be is inefficiency in finishing of bottles, problem.
2. Raw materials including bottles are purchased at high costs Discussion
comparatively, with example
3. There is an increase in production cost without will earn mark
corresponding increase in selling prices. easily.
What to do then? Answer is just
1. Client should buy read made bottles and compare the price an indicative;
with one that is finished within client factory, student may
2. Raw material should be purchased in big quantity to enjoy site other
bulk discount, relevant case.
3. Pay supplier on time to utilize cash discount,
4. JIT stock system if applicable could reduce storage costs.
5. Check possibility of increasing selling price but watch out
you competitors
6. Timing of purchase to avoid adverse exchange rate that will
render production costs to rise
7. Watch out company’s overheads, uses of Generator should
avoided unless is necessary.
8. Think about changing more automated machines rather than
old version. (12 marks)

1 Zanzibar Institute of Financial Administration -Chwaka

 Marking Scheme for NTA LEVEL-7
Elements of Auditing- 4th Semester

Question no. two, total marks=20

a) i Economy may be defined as “minimizing the cost of resources used
for an activity having regard to the appropriate quality”. Economy
relates to all types of resources such as physical, financial, human
and information. The question of economy is relevant to the
acquisition of resources. Auditors try to determine whether the
resources have been acquired in the right amount, at the right place,
and the right time, of right kind and at the right cost.
This by itself is not very easy. It presumes that there are standards
available to judge whether considerations of economy were kept in
view in acquiring resources. One example of a standard for
economy is to accept the lowest open bid for buying an asset.
(6
ii marks) Indicator of Economy:
1. Decisions are made with cost consciousness.
2. Poor quality output due to low quality input.
3. Suspension/delay in implementation of decisions due to rise
in market process.
4. Nonpayment/Settlement of certain obligations e.g. staff
overtime without justifiable reasons.
5. Existence of savings not matching with the level of
performance.
6. General, management becomes too conservative in making
decisions due to financial implications of those decisions.
(4 marks)
b) Usefulness of the concept in public sector audit. Just points
mentioning.
1. The public sector in Tanzania is generally malfunctioning 2 marks for
due to mismanagement, misuse, and underutilization of every point
resources both financial, non-financial and human mentioned
resources.
2. The government budget is characterized of persistent
deficits due to excessive expenditures of the votes and
institutional budgets
3. Public officers are overstaffed due to uncontrolled
recruitment.
4. Fraud and embezzlement are rampant in the public sector
coffers due to lack of accountability
5. Public buildings and other tools eg. Vehicles are dilapidates
and become excessively obsolete due to lack of
maintenance, care, and misuse.
6. Government stores are heavily misused or stolen due to lack
of effective controls.
7. Some individuals are becoming millionaires in the public

2 Zanzibar Institute of Financial Administration -Chwaka

 Marking Scheme for NTA LEVEL-7
Elements of Auditing- 4th Semester

system due to rampant irregularities in the use of public

moneys and other resources and also due to irregular
schemes of awarding tenders and opportunities.
8. Abuse of power, misuse of authority, override of regulatory
schemes and disregard of the law
(a) Question no. three , total marks=20
The purpose of EDP application controls is to establish specific
control procedures over the accounting application in order to
provide reasonable assurance that all transactions are authorized,
recorded and are processed completely accurately and on a timely
basis
To achieve the overall objective (purpose) of application controls,
the specific requirements are:
i. Control over the completeness and authorization of input.
ii. Controls over the completeness and accuracy of
processing
iii. Controls over the maintenance of master files and the
standing data contained therein.
(5 marks)
b Potential control weaknesses, specific to on line systems:
a. Input data problem.
• Input data are collected directly from the originator, so
source documents independent of the computer system
often are not prepared or if prepared may not be readily
available for review.
• Input data can alter or affect the processing of
subsequent transactions.
b. Hardware problems. The terminal may be stolen or
damaged especially the modern desk top type
peripherals-if the system does not incorporate a physical
control
c. Unauthorized access. If terminals are not secure it
might be possible for unauthorized users to obtain or
corrupt information held on files. On-line computer
systems provide users with direct access to transaction
processing functions. Users may perform incompatible
duties as a result of using on line computer system
unless adequate restrictions are placed on the
processing functions available to each user.
d. Systems break down. If system does not incorporate
back up data procedures there might be a loss-if the
system breakdown for any reasons such as power
failure.
(5 marks)

3 Zanzibar Institute of Financial Administration -Chwaka

 Marking Scheme for NTA LEVEL-7
Elements of Auditing- 4th Semester

c The methods that can be adopted to overcome these weaknesses, on

line use additional safeguards because of the increased vulnerability
created by the use of terminals and remote operational centers.
Common controls are:
i. Hardware.
• Controls over the accurate transmission of data from
user locations to the central processing unit.
• Hardware to be kept in secure locations with access
only available to authorized personnel..
• Use of special rooms, storage cupboard, strict
control over keys, assist in establishing secure
location.
i. Access and security controls.
• Control over user identification codes so that access to
files can be restricted to authorized personnel and
• Control over user of passwords to control terminal
accessibility.
ii. Data and procedural controls. Represent mechanism of
controlling daily computer operations, establishing
safeguarding against processing errors, and ensuring that
operations could continue in the event of physical disaster or
other computer failure-(use of standby generator)
(5 marks)
d • Tests of details of transactions and balances-for example,
the use of audit software to test all (or a sample) of the
transactions in a computer file.
• Analytical review procedures-for example, the use of audit
software to identify unusual fluctuations or items
• Compliance tests of general EDP controls-for example, the
use of test data to test access procedures to the programme
libraries.
• Compliance tests of EDP application controls-for example
the use of test data to test data to test the functioning of a
programmed procedure
(5 marks)
a Question no. four, total marks=20
Advice opinion is suitable for this particular case as departures
from accounting policy are fundamental and material to the
company financial statement. (5 marks)
b Yes must decision will change to EXEPT FOR OPINION as it
will be material but not fundamental. (5 marks)
c In our opinion, these financial statements do not present fairly the
financial position of the company as at 2009 and the results of its
operations and cash flow information for the year then ended in

4 Zanzibar Institute of Financial Administration -Chwaka

 Marking Scheme for NTA LEVEL-7
Elements of Auditing- 4th Semester

conformity with IFRS and in the manner required by the companies

ordinance. (5 marks)
d Qualities of good audit report
 It should not be biased to any party with stake in the
business.
 It should be forceful.
 It should be based on constructive criticism.
 It should offer constructive and timely suggestions to the
management so as to solve problems highlighted in the
report.
 It should be clear and concise i.e its conciseness should not
be at the expense of clarity (5 marks)
A Question no. five, total marks=20
i Fraud: obtaining a material advantage by unfair or wrongful
means.
fraud is the use of deceit to obtain an advantage or avoid an
obligation.
Fraud divided into two:
1. Management fraud
2. Employee fraud (2.5 marks)
ii Corruption is practice of offering, soliciting( ask for), or accepting
of an inducement or reward to influence an action by an officer of
an entity (2.5 marks)
iii Larceny Is the legal language indicating a charge to theft or
stealing.
It is on other hand, a wrongfully taking and carrying away of the
personal property of another person with intent to convert it or
deprive the owners of its use and possession.
the thief does not have legal possession or custody of the property
(2.5 marks)
iv Embezzlement is fraudulent appropriation of property by a person
entrusted with its custody, thus breaching the trust or fiduciary
responsibility
in embezzlement the person is legally authorized by its owner to
take or receive possession of the property at least for the time being
(2.5 marks)
b Screening:
1. Adequate employee screening is powerful tool, Hiring
honest employees is best way, It can best done by out-
sourcing
2. Screening tests include -lie detector and drug tests and
fingerprinting of employees. background checks of
information on resumes and applications, an employer can
elicit significantly more information and determine if the
original information is accurate

5 Zanzibar Institute of Financial Administration -Chwaka

 Marking Scheme for NTA LEVEL-7
Elements of Auditing- 4th Semester

1. It should have BOD approval, It must comply with the law

and existing organizational policy eg
• The extent, who have responsibility
• Levels of checking used
• Whether existing staff should be included or internal
promotions and transfers
Question used in screening questionnaire forms:
• Are legal, fair and unambiguous?
• Assess honesty, reliability, suitability, experience and
qualification?
• Can answer be checked?
• How will errors, omissions or discrepancies affect
employments?
Screening will also include:
• Bankruptcy checks
• Research and verification of the CV looking for gaps and
inconsistencies.
• Confirmation of education
• Confirmation of professional qualification for prof. bodies
(NBAA)
• Directorship and media searching
Screening will also include:
• Verification of employment history with direct
line managers and HR, for last five years
• Supreme court record searches
(10 marks)
The end

6 Zanzibar Institute of Financial Administration -Chwaka