ISO 9001: 2015 Certified

INSTITUTE OF TAX ADMINISTRATION

Bachelor of Customs and Tax Management Two

Tutorial Review Questions - I

Academic Year: 2023-2024

1 Course Code: GSU 07456

2 Course Name: Auditing

1. Discuss:
a) The components of internal controls
b) The elements of Control activities
2. Discuss how the independence of Internal audit function can be enhanced within the
organization that has internal audit department.
3. Compared and contrast the quality of internal audit work between outsourced audit
service and from within the organization.
4. State the differences between internal check and internal audit
5. Identify and discuss three main roles of each of the following parties to the internal
control of an entity: Board of Directors, Management, Employees, External auditor,
Internal auditor and Sole proprietor.
6. Discuss the limitations of Internal Controls
7. Discuss the importance of internal controls to the organization
8. Discuss the relationship between internal and external auditor
9. Why is it important for external auditor to assess the effectiveness of internal
controls of the audit client?
10. Discuss the important factors that the external auditor should consider in the
assessment of internal controls.
11. Discuss the following:
a) Audit plan
 b) The purpose of audit planning
c) The benefits of audit planning
d) The determinants of audit planning
12. Why understanding of entity and its environment is very essential when planning the
audit? Identify the key elements to be considered in understanding the entity and its
environment.
13. Differentiate between materiality and performance materiality. Describe determinants
of Financial statements materiality.
14. For each of the controls identified below, identify a control test to be performed by the
auditor.
a) Performance of monthly bank reconciliation by purchase ledger clerk,
approved by financial controller
b) Purchase invoices stamped as “paid”
c) Stock counts performed by client at each month end
d) Written procedures manual containing procedures and policies maintained
by client
e) The role of chasing outstanding debtor balances on the sales ledger is
segregated from the role of updating the sales ledger for cash received from
debtors.
15. Identify some categories of experts that the auditor may decide to use during the audit
of financial statements.
16. (a) Explain the term ‘audit risk’ and the three elements of risk that contribute to
total audit risk.
The HURUMA charity was established in 1960. The charity’s aim is to provide support to
children from disadvantaged backgrounds who wish to acquire higher education.
HURUMA has a detailed constitution which explains how the charity’s income can be
spent. The constitution also notes that administration expenditure cannot exceed 10% of
income in any year. The charity’s income is derived wholly from voluntary donations.
Sources of donations include:
(i) Cash collected by volunteers asking the public for donations in shopping areas,
(ii) Cheques sent to the charity’s head office,
(iii) Donations from generous individuals. Some of these donations have specific clauses
attached to them indicating that the initial amount donated (capital) cannot be spent and
that the income (interest) from the donation must be spent on specific activities.
The rules regarding the taxation of charities in the country HURUMA is based are
complicated, with only certain expenditure being allowable for taxation purposes and
donations of capital being treated as income in some situations.
Required:
(b) Identify areas of inherent risk in the HURUMA charity and explain the effect of
each of these risks on the audit approach.
(c) Explain why the control environment may be weak at the charity HURUMA.
17. Kishoju Ltd sells coffee from 25 different locations in the country. Each branch has up
to 30 staff working there, although most of the accounting systems are designed and
implemented from the company’s head office. All accounting systems, apart from petty
cash, are computerized, with the internal audit department frequently advising and
implementing controls within those systems. Kishoju Ltd has an internal audit
department of eight staff, all of whom have been employed at Kishoju Ltd for a
minimum of 7 years and some for as long as 12 years. In the past, the chief internal
auditor appoints staff within the internal audit department, although the chief executive
officer (CEO) is responsible for appointing the chief internal auditor. The chief internal
auditor reports directly to the finance director. The finance director also assists the
chief internal auditor in deciding on the scope of work of the internal audit department.
You are an audit manager in the internal audit department of Kishoju Ltd. You are
currently auditing the petty cash systems at the different branches. Your initial systems
note on petty cash contain the following information:
a. The average petty cash balance at each branch is Tzs10mil.
b. Average monthly expenditure is Tzs 4mil, with amounts ranging from Tzs10,000
to Tzs 1mil.
c. Petty cash is kept in a lockable box on a bookcase in the accounts office.
d. Vouchers for expenditure are signed by the person incurring that expenditure to
confirm they have received re-imbursement from petty cash.
e. Vouchers are recorded in the petty cash book by the accounts clerk; each voucher
records the date, reason for the expenditure, amount of expenditure and person
incurring that expenditure.
f. Petty cash is counted every month by the accounts clerk, who is in charge of the
cash. The petty cash balance is then reimbursed using the ‘imprest’ system and
the journal entry produced to record expenditure in the general ledger.
g. The cheque to reimburse petty cash is signed by the accountant at the branch at
the same time as the journal entry to the general ledger is reviewed.
Required:
i. Explain the issues which limit the independence of the internal audit
department in Kishoju Ltd. Recommend a way of overcoming each issue.
ii. Explain the internal control weaknesses in the petty cash.

18. Ikizu Ltd is a construction company with a large number of workers on various
construction sites. The internal audit department of Ikizu Ltd is currently reviewing
cash wages systems within the company.
The following information is available concerning the wages systems:
(i) Hours worked are recorded using a clocking in/out system. On arriving for work and at
the end of each day’s work, each worker enters their unique employee number on a
keypad.
(ii) Workers on each site are controlled by a foreman. The foreman has a record of all
employee numbers and can
issue temporary numbers for new employees.
(iii) Any overtime is calculated by the computerized wages system and added to the
standard pay.
(iv) The two staff in the wages department make amendments to the computerized wages
system in respect of employee holidays, illness, as well as setting up and maintaining all
employee records.
(v) The computerized wages system calculates deductions from gross pay, such as
employee taxes, and net pay. Finally, a list of net cash payments for each employee is
produced.
(vi) Cash is delivered to the wages office by secure courier.
(vii)The two staff place cash into wages packets for each employee along with a
handwritten note of gross pay, deductions and net pay. The packets are given to the
foreman for distribution to the individual employees.
Required:
(a) (i) Identify and explain weaknesses in Ikizu Co system of internal control over
the wages system that could lead to mis-statements in the financial statements;
(ii) For each weakness, suggest an internal control to overcome that weakness.

(b) Compare the responsibilities of the external and internal auditors to detect
fraud.

19. Explain the similarities and differences of auditing and accounting

20. Explain the following terms as used in auditing

i. True and fair view

ii. Going concern as per
ISA 570
iii. Materiality as per ISA
320
21. Briefly explain the elements of an assurance services
22. Explain the term “limited assurance” in the context of an examination of a
company’s cash flows forecast and explain how this differs from the assurance
provided by an external audit
23. Explain each of the FIVE fundamental principles of ACCA’s Code of Ethics and
Conduct for professional accountants.