Winter Exam-2010

(Final)
Auditing (03-11-2010)
Duration: 3 hrs. Marks-100
[Instructions]
• Ensure that the question paper delivered to you is the same, in which you intend to appear.
• Read the instructions given on the title page of Answer Copy.

Attempt all Questions

Q.1. Explain and distinguish between the following types of audit opinion:
a) Adverse Opinion (03)
b) Disclaimer of Opinion (03)
c) Opinion with emphasis of matter paragraph (03)

Q.2. You are involved in the audit of Extreme Sports (Pvt) Ltd., a company engaged in the (10)
manufacture of various sports and gym equipment. The company offers standard
credit terms to its debtors of 45 days. However, due to the recent financial crises in
the country, many debtors have not been paying their dues on time. Further, the
company faces a high percentage of customer complaints regarding quality of
equipment, for which the company has to take back the equipment and supply new
equipment at its own cost.
Most of the Company’s equipment is imported from European countries. The
exchange rate between Pakistani Rupee and the currency of those countries is very
unstable. Recently, the company’s administrative expenses have been increasing
due to inflation in the country. The company has just two persons in the Accounts
Department and it takes a lot of effort to collect information in order to prepare
Financial Statements.
You are required to identify the major audit risks arising from the above situation
and explain what procedures you would perform to address those risks.

Q.3. a) You are the Audit Senior on the audit of Valentica, a company specialized in the
manufacture of beauty and cosmetics products. You had selected 25 trade
debtors for circularization (i.e. balance confirmation). State the course of action
you would take in each of the following situations:
(i) Customer disagrees with the balance in the company’s books (03)
(ii) Customer does not reply to the confirmation (03)

b) State and briefly explain three substantive procedures, other than (06)
circularization, that you are likely to perform on trade debtors in Valentica.
Q.4. Describe the differences between an External and Internal Audit. (10)

Q.5. Describe the main rights and duties of the External Auditor. (10)
Q.6. According to ISA 580 Management Representations, an Auditor is required to obtain (09)
representations from management in relation to the audit of financial statements.
What representations are likely to be required in the following cases:
a) Provision for warranty claims
b) Trade receivables
c) Inventories
Contd. on back
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Q.7. In the light of ISA 240, describe any five responsibilities of the Auditor in relation to (05)
Fraud in an audit of Financial Statements.

Q.8. (a) For each of the following business processes, give an example of one manual
and one automated control:
(i) Revenue and receivables (02)
(ii) Fixed Assets (02)
(iii) Inventory (02)
(b) For each of the controls described above, state what procedure the auditor can (06)
adopt to test that control
Q.9. Texperts Limited is a company engaged in the manufacture of textile products. The
Company has a policy of investing surplus funds on a short-term basis to earn
income. The Company’s Balance Sheet as at 30th June, 2010 shows the following
investments.
• Fixed deposit @ 12% with Your Bank Limited for three months
• Investments in ABC Limited (a listed company)
• Investments in XYZ (Private) Limited
You are the audit team member responsible for the audit of Investments appearing
in the balance sheet of Texperts Limited.

(a) What are the major audit risks associated with investments? (05)
(b) Describe what procedures you are likely to perform on the Investments of (08)
Texperts Limited?
Q.10. Audit Procedures for obtaining audit evidence include: (10)
(a) Inspection
(b) Re-calculation
(c) Re-performance
(d) Analytical Procedures
(e) Inquiry
Describe, by giving one example for each, the above-mentioned audit procedures.

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