MASINDE MULIRO UNIVERSITY OF SCIENCE AND TECHNOLOGY
SCHOOL OF BUSINESS AND ECONOMICS (SOBE)
DEPARTMENT OF ACCOUNTING AND FINANCE
NAME: JOEL OKINYI LIMONYA
REGISTRATION NO: PBA/H/01-70365/2024
COURSE TITLE: ADVANCED AUDITING AND ASSURANCE
COURSE CODE: PBC 922
TASK: ASSIGNMENT.
LECTURER: PROF. ONDIEK B. ALALA
QUESTION ONE
You are an auditor of Nzoia CONTRACTORS LIMITED a listed company which distributes
materials to the real estate industry. You are finalizing the audit for the year ended 31 st March
2022. Your audit junior has identified the following matters and brought them to your attention:
1. The four directors have each borrowed shs 100,000 from the company. These loans
which total to shs 400,000 have been included in the statement of financial position as at
31st March 2022 within the total accounts receivable under the heading other accounts
receivables-due within one year. No separate disclosure about the loan has been made in
the director’s report or the financial statements. The auditor junior has investigated this
further and concluded that. Whilst the loans are illegal, they are guanine collectible assets
of the company.
Audit Opinion: Qualified Opinion
The omission of disclosure of the loans advanced to the Directors is material but not pervasive
hence the Audit report will state that the financial statements of Nzoia Contractors Limited are
fairly presented except for the non-disclosure of loans advanced to its directors.
2. The accounts of Baraka contractors limited did not contain a statement of change in
equity
Audit Opinion: Qualified Opinion
The omission of disclosure of the statement of change to equity is material but not pervasive
hence the Audit report will state that the financial statements of Baraka Contractors Limited are
fairly presented except for the missing statement of change in equity.
Or
Audit Opinion: Adverse Opinion
The omission of disclosure of the statement of change to equity is material and pervasive hence
the Audit report will state that the financial statements of Baraka Contractors Limited do not
present a true and fair view
3. The physical inventory count for two deposits of construction materials were made
available to you and you have not been able to confirm the inventory amount using
alternative audit procedures. The amount of inventory for two deposits is considered to be
material.
Audit Opinion: Adverse Opinion
The inability to verify the amount of two inventory is a likelihood of gross misstatement of
the financial statements which are pervasive and material hence the Financial Statements do
not present a fair view of Baraka Construction Limited’s financial position and performance.
QUESTION TWO
Explain the procedures that an auditor would carry out when performing an environment audit of
a sugar manufacturing company
Auditors are guided both professionally and by law in all their undertakings while in the line of
duty. A sugar company, just like any other companies and organizations, need auditing for
effective performance and growth. Therefore, an auditor is required to follow the following
procedure while conducting an environmental audit.
i) Preparation for the audit.
At this stage, the auditor is required and expected to carry out varied preparations including
defining the scope and stipulating the objectives for the environmental audit. Such objectives
should be made known to the sugar company to enable the read from the same script. Similarly,
it is this stage that the auditor is expected to assemble the audit team in readiness to the tasks and
duties ahead.
An audit plan is equally developed and drawn at this stage which then serves as a roadmap for
the entire process. The auditor then notifies the stakeholders of the environmental plan due. The
stakeholders are key players in this audit activity whom should have a prior knowledge of the
audit process and the timelines. It is at this stage that the auditor should identify, avail and
comprehend on the necessary logistics and resources which would be needed and utilized during
the audit process as deemed fit by the auditor. The planning stage is essential for the review of
the company’s environmental protection policies and the necessary applicable regulations.
ii) Conduct the audit.
Once the team is well vast and convinced of their preparation for the audit, it is their mandate to
hence proceed and conduct the environmental audit activities. At this stage, the team could hold
an opening meeting where the ground rules and other house-keeping issues could be laid. Data
collection are equally part of this stage where the audit team are required to do some necessary
inspections, interview the staffs over the overall conducts and control systems, carry surveys and
document reviews in the individual sugar company.
Data collection is very key and substantial for the entire audit process since it will act as live
evidence and supportive to the audit process. With the audit data, evidences and necessary
findings which could prompt an opinion, the team could hence document all the findings in the
recommended and required format. This then calls for a possible convening of a closing audit
meeting with the authorized stakeholders of the sugar company. It is this meeting that the audit
team will convey to the management the material misstatements depicted in the findings. Areas
for improvements and efficiencies of the internal control systems are equally shared to the
management.
iii) Post- audit activities (Analysis)
A postmortem for the audit activity is very important and equally healthy to the sugar company.
The audit team thereafter retires to prepare a comprehensive report which entails uncompromised
opinion regarding the just concluded environmental audit. This repot is regarded as free from any
collaborations and influences by the client sugar company. The reports are then distributed or
shared to all the required stakeholders who were either involved or should know of the process of
the sugar company.
An action plan for corrections are equally developed at this stage of the audit where the do’s and
don’ts are ironed out by the two teams. What ought to have been done are explained in details to
the management and other stakeholders. Finally, implementation of the rectified actions by the
management and later verifying their effectiveness to the sugar company, marks the closure or
end of this stage.
iv) Reporting stage.
A report that captures all the necessary information is created. This report ought to include
compliance, facility environmental structure, audit process and supportive evidence for the audit
activity. This report is not only important to the management of Sugar Company, but rather for
legal purpose and statutory implications. Implementation time or period and follow-ups stands
to help and assist the sugar company.
References
Arens, Alder, Beasly, Auditing and Assurance Services - An integrated approach, 14 th Edition,
Pearson Prentice Hall, 2012