THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
MAY 2013 INTERMEDIATE
Question Papers Suggested Solutions Plus Examiners‟ Reports
PATHFINDER
INTERMEDIATE – MAY 2013
1
FOREWORD
This issue of the PATHFINDER is published principally, in response to a growing demand for an aid to: (i) Candidates preparing to write future examinations of the Institute of Chartered Accountants of Nigeria (ICAN); (ii) Unsuccessful candidates in the identification of those areas in which they lost marks and need to improve their knowledge and presentation; (iii) Lecturers and students interested in acquisition of knowledge in the relevant subjects contained herein; and (iv) The profession; in improving pre-examinations and screening processes, and thus the professional performance of candidates. The answers provided in this publication do not exhaust all possible alternative approaches to solving these questions. Efforts had been made to use the methods, which will save much of the scarce examination time. Also, in order to facilitate teaching, questions may be altered slightly so that some principles or application of them may be more clearly demonstrated. It is hoped that the suggested answers will prove to be of tremendous assistance to students and those who assist them in their preparations for the Institute‟s Examinations.
NOTES
Although these suggested solutions have been published under the Institute‟s name, they do not represent the views of the Council of the Institute. The suggested solutions are entirely the responsibility of their authors and the Institute will not enter into any correspondence on them.
PATHFINDER INTERMEDIATE – MAY 2013 2
TABLE OF CONTENTS
SUBJECT
PAGES
COSTING AND QUANTITATIVE TECHNIQUES 3 - 34
AUDIT AND ASSURANCE 35 - 60
TAXATION 61 - 84
BUSINESS COMMUNICATION & RESEARCH METHODOLOGY 85 - 107
PATHFINDER INTERMEDIATE – MAY 2013 3
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA INTERMEDIATE EXAMINATIONS – MAY 2013 COSTING AND QUANTITATIVE TECHNIQUES
Time Allowed: 3 hours
SECTION A:
PART I MULTIPLE-CHOICE QUESTIONS (20 Marks) ATTEMPT ALL QUESTIONS Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in each of the following questions/statements:
Use the following data to answer questions 1 and 2: Unit selling price N500 Variable cost/unit N260 Fixed cost N52,000 Tax rate 40%
1. What is the break-even point?
A. 250 units
B. 218 units
C. 217 units
D. 215 units
E. 210 units
2. Determine the units that should be produced to achieve a target income after tax of N12,000.
A. 300 units
B. 266 units
C. 250 units
D. 247 units
E. 246 units
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3. Which of the following is NOT involved in the problems of interpretation of variances?
A. Inflation
B. Opportunity cost of variance
C. Cost benefit analysis of variance
D. Shortage of materials in the store
E. Type of efficiency standard in operation
4. Which of the following is NOT a characteristic of customer‟s definition of product quality?
A. Performance
B. Aesthetics
C. Durability
D. Empathy
E. Features
5. Under which of the following labour remuneration methods will direct labour cost always be a variable cost?
A. Day rate
B. Hourly rate
C. Piece rate
D. Differential piece rate
E. Group bonus scheme
6. A contractor has just invited an Engineer to site for assessment. The Engineer‟s Certificate issued at the end of the day revealed the following:
Cost of work to date 361,000
Cost of work to date 361,000
Cost of work not yet certified 40,000
Value of work certified 400,000
Value of work certified 400,000
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What is the value of notional profit on the contract so far?
A. 30,000
B. 43,000
C. 79,000
D. 321,000
E. 360,000
7. Successful implementation of Just-In-Time (JIT) does NOT require
A. Elimination of non-value adding activities
B. A focus on continuous improvement
C. Persistent efforts to reduce inventory
D. A focus on improving quality of processes
E. High quality inputs from vendors
8. Activity-Based Costing focuses on causes of costs incurred which are otherwise known as
A. Planning
B. Valuation
C. Estimation
D. Cost Driver
E. Prediction
9. Which of the following is NOT a benefit of budgeting?
A. It establishes a system of control
B. It fulfils illegal reporting obligations
C. It is a starting point for strategic planning
D. It helps to coordinate the activities of the various departments
E. It reduces the level of budget padding
10. Technology is reducing costs within the supply chain by
A. Reducing competition among alternative suppliers
B. Reducing the exchange of information within the value chain
C. Reducing the need to generate paper documents for purchase
transactions
D. Delaying payment transactions
E. Increasing cost of acquisition of technology
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11. Marginal and Absorption costing produce the same net profit where
A. First-In-First-Out valuation stock is used
B. First costs are not included
C. Overheads are spread over cost unit
D. Overheads are absorbed using standard cost
E. Opening and closing stock do not exist
12. The following data is available in connection with the fixed overheads of a factory for the month of March:
Budgeted production hours
40,000
Budgeted fixed production cost
N145,000
Actual hours worked
38,000
Standard hours for actual production
27,000
What was the fixed production overhead capacity variance for the month of March?
A. N7,250 (A)
B. N7,250 (F)
C. N39,875 (A)
D. N39,875 (F)
E. N42,362 (A)
13. An index number increases each year by 10% of its value in the previous year. If its value in 2000 was 170, its value in 2003 is closest to
A. 224
B. 225
C. 226
D. 227
E. 228
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14. If A = 1, 2, 3, 4, 6 , the cardinality of set A is
A. 1
B. 2
C. 3
D. 4
E. 5
15. A Linear Programming problem is based on the following assumptions EXCEPT
A. Proportionality
B. Additivity
C. Equality
D. Continuity
E. Certainty
16. A manufacturing company is independently working on two separate jobs. If the probability that either of the jobs will be finished on time is 0.2, the probability that just one of the jobs will be finished on time will be
A. 0.16
B. 0.32
C. 0.46
D. 0.52
E. 0.76
17. If A and B are two matrices, then A+B = B + A is the statement of the
A. Identity law
B. Associative law
C. Commutative law
D. Distributive law
E. Equality law
18. The beginning and end points of an activity are called events or
A. Network
B. Routes
C. Links
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D. Nodes
E. Activity arrows
19. A firm‟s profit from the sale of calculators is given by the function
𝜋 𝑥 =500 𝑥−2 (12−𝑥) where 𝑥 is the price (in Naira) at which the calculators are sold. The selling price which maximises the profit is then equal to
A. N2
B. N5
C. N6
D. N7
E. N12
20. The policy where an en-masse replacement of items is made is known as
A. Group policy
B. Individual policy
C. Ordinary policy
D. Maintenance policy
E. Company policy
SECTION A: PART II SHORT-ANSWER QUESTIONS (20 Marks) ATTEMPT ALL QUESTIONS Write the correct answer that completes each of the following questions/statements: 1. The difference between sales value and the marginal cost of sales is known as ................... 2. A cost technique which is the easiest and most certain way to increase profit in the short term is called .............. 3. A group of managers composed to supervise and take responsibility for the budget setting process is known as .................
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Use the following data to answer questions 4 and 5: In a period, 50,000 units of Product x were produced and sold, costs and revenues were
N
Sales
250,000
Production costs:
Variable
87,500
Fixed
37,500
Selling and distribution overhead (fixed)
62,500
4. What is the contribution per unit of Product x? 5. Calculate the net profit. 6. An attempt to reflect more accurately, in product costs, those activities which influence the level of support overhead is called .............. 7. Standard which is best suited for performance evaluation and which can positively influence employee‟s motivation is known to be ............ 8. Discarded substances from production having no saleable value are called ............. 9. The technique of investigating, comparing and evaluating a company‟s products, processes and or services against those of competitors or companies believed to be “best in class” is called ................. 10. Costs incurred aimed at influencing customers to place orders are classified as ................ 11. An incentive scheme in which employees receive a certain proportion of their company‟s profit for the year as an addition to normal wages is referred to as .................. 12. A move towards zero inventory and an emphasis on perfect quality that is zero defects are features of ................ 13. A standard Linear Programming problem with all constraints having “a greater than or equal to sign” is a ............... problem.
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14. A firm has tendered proposals for two independent contracts A and B. If the probabilities of not getting the contracts are 0.4 and 0.2 respectively, then the probability of getting both contracts is ...................... 15. If A = 2− 23 2 and B = 1 23 4 , then the value of BA is .................... 16. Given that the value and price indices are 76.5% and 96.7% respectively, then the quantity index is ................ 17. In Replacement Analysis, the point at which to seek the replacement of an item is the ................. point. 18. If every element of set A is contained in set B, then set A is said to be a ............. of set B. 19. In a transportation problem, .................... method makes effective use of the cost information and yields a better initial solution than that obtained by the other method. 20. If total revenue equals total cost, the transaction ........... whereas if marginal revenue equals marginal cost, then the ................ SECTION B: ATTEMPT ANY FOUR
QUESTIONS (60 Marks) SUBSECTION I: COSTING – ATTEMPT TWO QUESTIONS FROM THIS SUB-SECTION QUESTION 1 Double Leave Limited operates a process which produces four refined products known as X, Y, Z, W. The joint costs of operating the process for Quarter 2 of 2012 were as follows:
QUESTIONS (60 Marks) SUBSECTION I: COSTING – ATTEMPT TWO QUESTIONS FROM THIS SUB-SECTION QUESTION 1 Double Leave Limited operates a process which produces four refined products known as X, Y, Z, W. The joint costs of operating the process for Quarter 2 of 2012 were as follows:
N
Raw materials
750,000
Labour
240,120
Process overhead is absorbed by adding 25% of labour cost.
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The output of the refined products in Quarter 2 were as follows:
X
7,000 litres
Y
6,000 litres
Z
4,000 litres
W
1,000 litres
No stocks of refined product at the beginning of Quarter 2 and no work in progress but the following stocks were on hand at the end of the period:
There was no work in progress as at the end of Quarter 2. Prices realised from sale per litre of products X, Y, Z and W were N400, N900, N1,200, and N2,010 respectively. These prices are expected to be maintained. You are required to calculate a. Apportionment of joint costs. (12½ Marks) b. Cost of the closing stock, using the sales value as the basis of your calculation. (2½ Marks) (Total 15 Marks) QUESTION 2
Matito Manufacturing Company (MMC) Limited produces products A, B and C. Each product requires one kilogram of material but the standard times allowed for production of products A, B and C are 12 minutes, 15 minutes and 20 minutes respectively. The company has three operators: Joy, Glad and Hope who work on the production of A, B and C respectively. Joy, Glad and Hope are respectively issued 600kg, 400kg and 450kg for week 2. It is the company‟s policy that for
X
300 litres
Y
200 litres
Z
800 litres
W
50 litres
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every hour saved, bonus is paid at 40% of the basic rate of N2.40 per hour for the three employees. The times used for completion of work assigned to the three employees are given below: Joy 80 hours Glad 70 hours Hope 90 hours The basic working week is 100 hours. When an employee completes the task issued to him for the week, he is not given additional material to work on but instead a general assignment is given and all hours spent on general assignment are paid for at 150% of the basic rate of N2.40. The general assignment is regarded as fixed overhead and the payment is not regarded as part of wages cost for the purpose of calculating the cost of a product. Defective production units recorded per employee are Joy 20 units, Glad 24 units and Hope 30 units and are not regarded as loss. You are required to calculate a. Bonus paid to each employee. (6 Marks) b. Total wages paid to each employee for week 2. (6 Marks) c. Wages cost of a completed good production unit of A, B and C. (3 Marks) (Total 15 Marks) QUESTION 3 Metals Nigeria Limited operates an interlocking financial and cost accounting system. The following relates to entries obtained from the Company‟s record: Cost ledger opening Trial Balance
N
Financial ledger control account 250,000
Stores ledger control account 50,000
W.I.P. control account 75,000
Finished goods control account
125,000
250,000
250,000
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The following information is available regarding the period‟s operations:
N
Raw material purchased 500,000
Direct wages 340,000
Indirect wages 125,000
Stores issues – Production 285,000
- Factory maintenance 147,500
- Admin. maintenance 21,500
Production overheads absorbed 350,000
Admin. overheads absorbed 210,000
Selling and distribution overheads absorbed 215,000
Factory cost of finished goods 990,000
Cost of finished goods sold 1,415,000
Sales 1,700,000
Admin. Salaries 60,000
Selling and distribution salaries 120,000
Production expenses 85,000
Selling and distribution expenses 90,000
Admin. Expenses 125,000
You are required to prepare the a. Financial ledger control account showing all necessary ledger postings. (11 Marks) b. Closing cost ledger Trial Balance. (4 Marks) (Total 15 Marks) QUESTION 4 Concrete Works Plc. is a construction company. Data relating to one of its contracts awarded to build a new petrol station at a contract price of N50 million is detailed below. Work commenced on 1 July and at 31 December, the job was still on-going.
N
Materials purchased 6,200,000
Wages paid 1,400,000
Plant purchased for the contract 1,270,000
Plant sent to site at valuation ( 1 July) 180,000
Value of work measured (to December) 8,600,000
Cash received 7,740,000
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You also ascertained the following:
N
Plant on site at 31 December (at valuation) 800,000
Materials on site used to date 140,000
Work completed but not measured 740,000
Plant is depreciated at 20% per annum. You are required to: a. State FIVE characteristics of long-term contracts. (5 Marks) b. Prepare a contract account for the period. (5 Marks) c. Show the amount of profit or loss you consider should be taken to the statement of comprehensive income. (5 Marks) Show all workings. (Total 15 Marks) SUBSECTION II: QUANTITATIVE TECHNIQUES – ATTEMPT TWO QUESTIONS FROM THIS SUB-SECTION QUESTION 5 The following data relate to a set of commodities used in a particular process:
Commodities
Base Price N Quantity (units) Period 1 price N Quantity (units)
A 36, 120, 35, 75
B 70, 14, 85, 13
C 42 18 51 19
D 5 126 8 42
E 34 1140 100 1300
You are required to calculate the a. Fisher‟s Ideal Index. (11 Marks) b. Marshall Edgeworth Price Index. (4 Marks) (Total 15 Marks)
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QUESTION 6 A market survey was carried out to determine the acceptability of different brands of table water produced by Hygienic Nigeria Limited. An analysis of responses from 200 people yielded the following result: 55 prefer brand A, 45 prefer brand B, 50 prefer brand C, 80 prefer brand A or brand B, 90 prefer brand A or C, 85 prefer brand B or C while 5 people prefer all the three brands. The company is willing to develop a new brand D provided the ratio of the present brand to the total responses is less than half of the sampled population. You are required to a. Draw the Euler-Venn diagram to represent the given information. (3 Marks) b. Determine the total number of people that prefer the present brands A, B and C. (10 Marks) c. Advise (with reason) the company whether it should embark upon the development of the new brand D. (2 Marks) (Total 15 Marks) QUESTION 7 Wasco Paint Manufacturing Company makes three types of paint: type X, type Y and type Z. The machine and labour hours required for the production of the paints are tabulated as follows:
Type X Type Y Type Z
Machine hours 2 1 4
Labour hours 4 3 2
There are 400 machine hours and 600 labour hours available. The company makes a profit of N400, N600 and N500 for type X, type Y and type Z paints respectively. You are required to a. Formulate the Linear Programming problem from the information above. (5 Marks) b. Use simplex method to obtain the optimal level of production. (10 Marks) (Total 15 Marks)
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SOLUTIONS TO SECTION A
PART 1 - MULTIPLE CHOICE QUESTIONS
1. C
2. A
3. B
4. D
5. C
6. C
7. E
8. D
9. B
10. C
11. E
12. A
13. C
14. E
15. D
16. B
17. C
18. D
19. D
20. A
Workings
1. BEP = Fixed Cost /Contribution Unit
= 52,000 / 500 - 260
= 52,000 / 500 - 260
= 52,000 / 240
= 217 Units Option (C)
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2. Unit to Produce to give a Profit of N12,000
=
Contribution Unit
T et tax rate
Fixed Cost
arg 1
=
240
12,000 1 0.4
52,000
=
240
72,000
= 300 Units Option (A)
3. Calculation of Notional Profit
N N
Value of work certified 400
Cost of work to date 361,000
Less cost of work not yet certified 40,000 321,000
Notional profit 79,000 Option (B)
13. For year 2000, we have 170
For year 2001, we will have
170
100
10
x + 170
= 17 + 170 = 187
For year 2002, we will have 10 x 187 + 187 = 18.7 + 187 = 200.7
100
For year 2003, we will have 10 x 205.7 + 205.7 = 20.57 + 205.7
100
= 226.27
= 227 Option (D)
14. A = {1, 2, 3, 4, 6}
n(A) = 5 as the required cardinality
16. Pr (T) = 0.2, Pr (NT) = 0.8
Pr (just one) = Pr (T) x Pr (NT) or Pr (NT) x Pr (T)
=0.2 x 0.8 + 0.8 x 0.2
=0.32 Option (B)
19. (x) 500(x 2)(12 x)
500( 14 24) 2 x x
dx
d
500(2x 14)
At the turning point,
dx
d = 0
500(2x 14) 0
- 2x 14
x 7
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2
2
dx
d = -1000 < 0, then x 7 gives the maximum profit Option
(D)
EXAMINERS‟ REPORT
The questions cover a good proportion of the syllabus.
All the candidates attempted this part of the paper. Performance was average as
about half of the candidates scored 50% and above.
Candidates will do better if they
i. Cover the syllabus more extensively
ii. Read good quality texts
iii. Familiarize themselves with past question papers
PART II – SHORT-ANSWER QUESTIONS
1. Contribution
2. Marginal Costing
3. Budget Committee
4. N3.25
5. N62,500
6. Activity-based costing
7. Attainable standard
8. Waste
9. Benchmarking
10. Selling Expenses
11. Profit Sharing Scheme
12. Just-in-time
13. Minimization
14. 0.48
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15.
8 2
18 2
16. 79.1%
17. Least cost
18. Subset
19. Vogel‟s approximation
20. Breaks even, profit will be maximum (in that order)
Workings
N
4. Sales 250,000
Variable cost 87,500
Total contribution 162,500
Contribution/unit Total contribution/Total goods sold
162,500/50,000
= N3.25
N
5. Total contribution 162,500
Less fixed cost (37,000)
Production
Selling & distribution (62,500)
Net profit 62,500
14. Pr (getting contract A) = 1 - 0.4 = 0.6
Pr (getting contract B) = 1 – 0.2 = 0.8
Pr (getting both A and B) = 0.6 x 0.8 = 0.48
15.
3 2
2 2
A
3 4
1 2
B
(3 2 4 3) (3 2 4 2)
(1 2) (2 3) (1 2 2 2)
3 2
2 2
3 4
1 2
BA
6 12 6 8
2 6 2 4
18 2
8 2
YI = QI x PI
QI = VI = 76.5 = 0.79
PI 96.7
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EXAMINERS‟ REPORT The questions cover a sizeable proportion of the syllabus. Virtually all the candidates attempted this part of the paper. Performance was good, as about half of the candidates score 50% or above. Improvement will come if candidates i. Improve on their knowledge of terminologies ii. Cover the entire syllabus more effectively SOLUTIONS TO SECTION B QUESTION 1
DOUBLE LEAVE LIMITED
APPORTIONMENT OF JOINT COST
JOINT COST FOR QUARTER 2
N
Raw material
750,000
Labour
240,120
Process overhead 25% of labour
60,030
1,050,150
Products
Units
Market
Total
Appointment of joint cost
Produced
Value/Litre
Value
N
N‟000
N
X
7,000
400
2,800
x 1,050, 150 = 195,897.40
15,010
Y
6,000
900
5,400
x 1,050,150 = 377,802.13
15,010
Z
4,000
1,200
4,800
x 1,050,150 = 335,824.12
15,010
W
1,000
2,010
2,010
x 1,050,150 = 140,626.35
15,010
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Cost Per litre N X = 195,897.40 = 27.99 7,000 Y = 377,802.13 = 62.97 6,000 Z = 335,824,12 = 83,96 4,000 W = 140,626.34 = 140.63 1,000
VALUATION OF CLOSING STOCK
Product
Litres
Value
Amount
N
N
X
300
27.98
8,394
Y
200
62.97
12,594
Z
800
83.96
67,168
W
50
140.62
7,031
95,187
EXAMINERS‟ REPORT The question tests candidate‟s ability to apportion common costs under process costing and valuation of closing stock. Few candidates, representing about 20% of the population, attempted the question. Performance was very poor as only about 3% of the candidates who attempted the question, scored 50% and above. Major pitfalls were as a result of i. Inability to compute apportionment ii. Wrong computation of cost for a litre of good production iii. Inaccurate calculation of closing stock figure iv. Poor presentation It is recommended that candidates should i. Read wider with a better coverage of the syllabus ii. Understand the requirement of any question before attempting to solve it
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QUESTION 2
MATITO MANUFACTURING COMPANY LIMTED
COMPUTATION OF BONUS TO EACH EMPLOYEE
JOY
GLAD
HOPE
Completed units
600
400
450
Time required per unit
12 mins
15 mins
20 mins
Time required for completed
Units (in hours)
120
100
150
Actual hours worked
80
70
90
Time saved (in hours)
40
30
60
Bonus paid for at 40% of N2.40 per hours saved
N38.40
N28.80
N57.60
COMPUTATION OF TOTAL WAGES PAYABLE TO EACH EMPLOYEE
JOY
GLAD
HOPE
Actual hours worked
80
70
90
Rate /hour
N2.40
N2.40
N2.40
N
N
N
Wages for actual hours worked
192.00
168.00
216.00
Bonus
38.40
28.80
57.60
General assignment (Working Week 2)
72.00
108.00
36.00
302.4
304.8
309.6
WAGES COST OF COMPLETED GOOD UNITS BY EACH EMPLOYEE
JOY
GLAD
HOPE
Units produced
600
400
450
Less defective units
20
24
30
Completed good units
580
376
420
Wages paid for completed units
230.4
196.6
273.6
Unit cost
N0.40K
N0.52K
N0.65K
WORKINGS ON GENERAL ASSIGNMENT HOUR – WEEK (2)
JOY
GLAD
HOPE
Average working hour/week
100
100
100
Actual hours worked
80
70
90
General assignment hours
20
30
10
(150% of general assignment hours x rate per hour )
N72
N108
N36
EXAMINERS‟ REPORT The question tests candidates‟ ability to compute Labour Remuneration. The question was fairly popular among candidates as about 60% of the entire population attempted the question. Performance was poor as only about 20% of the candidates, who attempted the question, scored 50% or above.
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Common shortcomings are the candidates‟ inability to i. Determine the amount of time saved for the computation of bonus ii. Present information in tabular format It is recommended that candidates should create more study time for improvement, preparation and subsequently enhanced performance. QUESTION 3
(a)
METALS NIGERIA LIMITED
Financial Ledger Control Account
N
N
Sales
1,700,00
Balance b/f
250,000
Bal c/d
281,000
Purchases
500,000
Wages
465,000
Salaries
180,000
Production Expenses
85,000
Admin. Expenses
125,000
Selling & Distribution Expenses
90,000
_________
Profit
286,000
1,981.000
1,981,000
Stores Ledger Control Account
N
N
Bal b/f
50,000
W.I.P
285,000
Purchases
500,000
Production overhead
147,500
Admin overhead
21,500
_______
Bal c/d
96,000
550,000
550,000
Finished Goods Control Account
N
N
Bal b/f
125,000
Cost of sales
990,000
WIP
945,000
Bal c/f
80,000
1,070,000
1,070,000
W. I. P Control Account
N
N
Balance b/f
75,000
Finished goods control
945,000
Stores ledger
285,000
Bal c/d
105,000
Direct wages
340,000
Production D/H
350,000
_______
1,050,000
1,050,000
Admin. Overhead Control Account
N
N
Admin. Expenses
125,000
Admin Overhead
210,000
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Admin. Salaries
60,000
Stores issues
21,500
O/H Adjustment
3,500
______
210,000
210,000
Production Overhead Control Account
N
N
Indirect wages
125,000
W.I.P
350,000
Factory maintenance
147,500
Overhead Adj. Account
7,500
Production expenses
85,000
_______
357,500
357,500
Selling & Distribution Overhead Control Account
N
N
Salaries
120,000
Absorbed
215,000
Expenses
90,000
Overhead Adj. Account
5,000
_______
215,000
215,000
Cost of Sales Account
N
N
Admin.
210,000
Profit & Loss
1,415,000
Selling & Distribution
215,000
F.G. Control account
990,000
________
1,415,000
1,415,000
Costing Profit & Loss
N
N
Cost of sales
1,415,000
Sales
1,700,000
Profit
286,000
Overhead Adj.
1,000
1,701,000
1,701,000
b)
Cost Ledger Closing Trial Balance
N
N
Financial Ledger Control Account
281,000
Stores Ledger Control Account
96,000
Finished Goods Control Account
80,000
W. I. P Control Account
105,000
_______
281,000
281,000
EXAMINERS‟ REPORT The question tests candidates‟ ability to draw up integrated and interlocking Ledger Accounts.
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About 25% of the entire candidates attempted the question. Performance was very poor, less than 5% of those who attempted the question scored more than 50% of the marks. Observed general pitfalls among the candidates include: i. Inability to appropriately post to the right sides of the ledger accounts ii. Inadequate understanding of the principles involved iii. Arithmetical errors iv. Accounts presented vertically instead of in „T‟ format It is recommended that candidates should i. Have more effective reading time ii. Improve on their understanding of the duality concept QUESTION 4 (a) (i) It is a contract where construction work is relatively of long duration, usually more than a year. (ii) The work is usually constructional in nature. (iii) A formal contractual agreement is made between the contractor and the client. (iv) A long-term contract is often executed at a site away from the client‟s office. (v) A long-term contract includes clauses for “penalty” for delay in completion. (vi) Construction work is done according to client‟s specific requirements and design. (vii) Payments for job done under long-term contracts are usually based on approved value of work done. (viii) An amount called “retention fee” is usually withheld to cater for defects after completion.
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b)
CONCRETE WORKS PLC.
CONTRACT ACCOUNT FOR THE PERIOD 1ST JULY – 31ST OCTOBER
N‟000
N‟000
Materials purchased
6,200
Plant c/f
800
Wages paid
1,400
Materials c/f
140
Plant
1,270
Work certified
7,208
Plant (see workings)
18
Work not yet certified (WIP)
740
8,888
8,888
Cost of work certified
7,208
Value of work measured
8,600
Profit taken (workings)
835
Profit not yet taken
557
_____
8,600
8,600
Balance at 1st January
-
Plant b/f
800
Materials b/d
140
Workings 1. Plant sent to site at valuation (1st July) N180,000 Depreciation at 20% = 20% x N180,000 = N36,000 ½ year depreciation = N36,000 2 = N18,000 2. Calculation of profits 2 of Apparent profit x Cash received 3 Work certified 2 x N1,392,000 x N7,740,000 3 N8,600,000 = N835,200 EXAMINERS‟ REPORT The question tests the theoretical and technical ability of the candidates in relation to long-term contracts. About 85% of the candidates attempted the question. Performance was fair as about half of the candidates, who attempted the question, scored 50% or above. Candidates‟ common shortcoming was candidates‟ inability to compute the profit to be taken during the years.
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It is recommended that i. Candidates should acquaint themselves with more relevant texts ii. Read the relevant ICAN Pathfinders diligently iii. Practise with sufficient past questions QUESTION 5
Commodity
Po
qo
Pn
qn
Po qo
Po qo
Pn qn
Po qn
A
36
120
35
75
4320
4200
2625
2700
B
70
14
85
13
980
1190
1105
910
C
42
18
51
19
756
918
969
798
D
5
126
8
42
630
1008
336
210
E
34
11400
100
1300
38760
114000
130000
44200
-
-
-
-
45446
121316
135035
48818
a) LPI = Σ Pn qo x 100 ΣPo qo = 121316 x 100 45446 = 226.95% PPI = Σ Pn qn x 100 ΣPo qn = 135035 x 100 48818 = 276.61% FI = 𝐿𝑃𝐼 𝑥 𝑃𝑃𝐼 = 266.95 𝑥 276.61 = 271.74% b) Marshall Edgeworth‟s Index = Σ Pn (qo + qn) x 100 ΣPo (qo + qn) = 35 (195) + 85 (27) + 51 (37) + 8 (168) + 100 (2440) x 100 36 (165) + 70 (27) + 42 (37) + 5 (168) + 34 (2440) = 6825 + 2295 + 1887 + 1344 + 244000 x 100 7020 + 1890 + 1554 + 840 + 82960 = 256351 x 100 94264 = 271.95%
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EXAMINERS‟ REPORT The question tests candidates‟ ability to construct Price Indices. The topic appears very popular among the candidates as about 95% of them attempted the question. Performance appears to be above average. About half of the candidates who attempted the question scored 60% or above. Commonest pitfalls in more cases include the following: i. Candidates‟ inability to construct Marshall Edgeworth Price Index ii. Inability of candidates to express indices to their appropriate units e.g. in percentage It is recommended that candidates should i. Have a good mastery of relevant formula in order to do well in this paper ii. Devote more quality study time iii. Practise past questions QUESTION 6 HYGIENIC NIGERIA LIMITED (a) Let A represent brand A B “ “ B C “ “ C The Euler-Venn diagram is as shown below n(U) = 200
n (c) = 50 nnnnnnn
b
𝑥
y
z
5
a
n (A) = 55
d
n (B) = 45
n (C) = 50
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(b) n (A or B) = n (A B) = n (A) + n (B) - n (A B)
80 = 55 + 45 – n (A B)
∴ n (A B) = 100 – 80 = 20
n (A or C) = n (A C) = n (A) + n (C) – n (A C)
90 = 55 + 50 – n (A C)
n (A C) = 105 – 90 = 15
n (B or C) = n (B C) = n (B) + n (C) – n (B C)
85 = 45 + 50 – n ( B C)
∴ n (B C) = 95 – 85 = 10
As shown on the Euler-Venn diagram,
n (A B) only = b, n (A C) only = a
𝐵 𝐶 𝑜𝑛𝑙𝑦 = 𝑑
∴ 𝑏 + 5 = 20 → b = 15
a + b = 15 → a = 10
d + 5 = 10 → d = 5
n (A only) = x, n(B only) = y and n (C only) = z
∴ 𝑥 + 𝑏 + 5 + 𝑎 = 55
∴ 𝑎 + 15 + 5 + 10 = 55 →𝑥 = 55 − 30
Similarly, y = 45 – (b+5+d) → y = 45 – 25 = 20
z = 50 – (a + b+ d) → z = 50 – 20 = 30
(iii) Total number of people that prefer the present brands
= 25 + 20 + 30 + 10 + 15 + 5 + 5
= 110
(iv) Total no of responses = 200
Ratio = 110 = 11 = 0.55
200 20
(c) Since 0.55 is not less than half of sampled population (i.e. 200/2 = 100), it is
recommended that the company should not embark on the development of
the new brand.
ALITER
Question 6
n (U) = 200
n (A) = 55
n (B) = 45
n (c) = 50
n (A ∪ 𝐵) = 80
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n (A ∪ 𝐶) = 90
n (B ∪ 𝐶) = 85
n (𝐴 𝐵 𝐶) = 5
(a) Euler-Venn diagram
(b) From Circle A,
a + e + d+ 5 = 55
a + e + d = 50
From Circle B
b + d + f = 40
From Circle C,
e + c + f + 5 = 50
e + c + f = 45
using n (A ∪ 𝐵) = 80
a + e + d + f + b + 5 = 80
d = 15
using (viii) in (iii)
e + c + f = 45
40 + f = 45
f = 5
using f = 5 in (vii)
f + b = 25
5 + b = 25
b = 20
a
b
d
C = 50
B = 45
5
e
c
A = 55
f
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using e = 10 in (viii) e + c = 40 10 + c =40 c = 30 using d = 15 in (ix) a + d = 40 a + 15 = 40 a = 25 Total number of people that prefer the present brand A, B and C is given by a + b + c + d + c + f + 5 i.e. 25 + 20 + 30 + 15 + 10 + 5 + 5 = 110 (c) Ratio 110 : 20 = 110 200 0.55 Since the Ratio (0.55) is greater than half of the sampled population (0.5), new brand D should not be developed by the company. EXAMINERS‟ REPORT The question tests candidates‟ ability to apply the concept of Set Theory. The topic was fairly familiar with the generality of candidates as above 80% attempted the question. Performance was very poor. Only 12% of the candidates, who attempted the question scored 50% or above. Candidates‟ shortcomings include the following: i. Inability to transform from Euler-Venne Diagram to mathematical equations ii. Deficiency in the interpretation of the results obtained iii. Exhibition of inadequacy in the use of ratios to support the interpretation of results
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It is recommended that candidates should
i. Be able to formulate mathematical equations required for decision making
ii. Spend enough time to understand the key requirements of the question
before taking management decisions
(a) QUESTION 7
X Y Z
Machine
hours
2 1 4
Labour hours 4 3 2
Let X be decision variables representing the number of type X paint produced
Let Y be a decision variable representing the number of type Y paint produced
Let Z be a decision variable representing the number of type Z paint produced
Objective function:
Maximize: z = 400x + 600y + 500z
Subject to:
2x + y + 4z ≤ 400 (machine hours constraint)
4x + 3y + 2z ≤ 600 (labour hours constraint)
x ≥ 0, y ≥ 0, z ≥ 0 (non-negativity constraint)
(b) By simplex method
Standard form:
Maximize: z = 400x + 600y + 500z + 0S
1
+ 0S
2
Subject to:
2x + y + 4z + S
1
= 400
4x + 3y + 2z + S
2
= 600
x ≥ 0, y ≥0, z ≥0, S
1
≥0, S
2
≥ 0
Initial Tableau
c
j
400 600 500 0 0
X Y z S
1
S
2
q R
R
1,
0 S
1
2 1 4 1 0 400
400
1
400
R
2,
0
S
2
4
2
0
1
600
3
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200
3
600
z
j
0 0 0 0 0 0
c
j
- z
j
400 600 500 0 0 PIVOT row
smaller of (400,
200)
Pivot column
(Highest in row c
j
- z
j
)
Note: S
2
is the outgoing variable while Y is the incoming variable
Use the elements in the PIVOT column to divide the corresponding values in column
q. The smaller value shows the PIVOT row. The intersection of PIVOT row and
column (3) is the PIVOT element.
First iteration
c
j
400 600 500 0 0
x y z S
1
S
2
q r
R
3
, 0
S
1
2/
3
0
1
–1/
3
200
60
10 3
200
pivot row
R
4
,600 y 4/
3
1 2/
3
0 1/
3
200
300
3 2
200
z
j
800 600 400 0 200 120,000
c
j
- z
j
–400 0 100 0 –200
S
1
is the outgoing variable, Z is the incoming variable and 10/
3
is the pivot element
R
3
= R
1
- R
2
(1/
3
)
R
4
= R
2
(1/
3
)
z
j
row: e.g under x = 0 (2/
3
) + 600 (4/
3
) = 800
10/3
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Second iteration
cj
400
600
500
0
0
R5 = R3 (3/10) R6 = R5 (-2/3) + R4 zj row: e.g under S1= 500 (3/10) + (600) (-1/5)= 30
x
y
z
S1
S2
q
R5500
z
1/5
0
1
3/10
–1/10
60
R6600
y
6/5
1
0
–1/5
2/5
160
zj
820
600
500
0
190
126,000
cj - zj
–420
0
0
–30
–190
Since all variables in cj - zj row are negative and zero, then optimal solution is reached and therefore the optimal level of production of the company is to produce zero unit of type X paint, 160 units of type Y, 60 units of type Z paints and make a profit of N126,000. EXAMINERS‟ REPORT The question tests candidates‟ understanding of Linear Programming (using Simplex Method). About 45% of the population attempted the question. Performance was poor as about 15% of the candidates, who attempted the question, scored 50% or above. Major shortcomings exhibited by candidates include the following: i. Inability to formulate the objective function ii. Poor understanding of the topic It is recommended that candidates should i. Attend good quality tuition houses ii. Read varied texts on this topic
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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA INTERMEDIATE EXAMINATIONS – MAY 2013 AUDIT AND ASSURANCE Time Allowed: 3 hours SECTION A: PART I ATTEMPT ALL QUESTIONS (20 Marks) MULTIPLE-CHOICE QUESTIONS Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in each of the following questions/statements.
1. The auditors‟ working papers serve the following purposes EXCEPT as
A. An aid in planning the subsequent year‟s audit assignment
B. A record of work done by the auditor
C. An evidence of the auditor‟s opinion in case of litigation
D. A basis for agreement of the auditor‟s remuneration
E. A basis for performance evaluation
2. Which of the following is NOT part of the auditor‟s permanent file?
A. A list of accounting policies adopted by the organisation
B. A list of principal officers of the organisation and organisation chart
C. A schedule of the organisation‟s insurance policies
D. Addresses of the organisation‟s registered offices and premises
E. Letter of representation from the management on non-current assets
3. The members of the National Pension Commission comprise of representatives of the following bodies EXCEPT
A. Federal Ministry of Finance
B. Office of the Auditor-General for the Federation
C. Securities and Exchange Commission
D. Central Bank of Nigeria
E. Nigerian Labour Congress
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4. A situation where an auditor promotes a client‟s position or opinion to the point that objectivity may be perceived to be compromised is................. threat
A. Self interest
B. Advocacy
C. Self review
D. Objectivity
E. Beneficial interest
5. The assessment of inherent risk in an organisation is subject to the following factors EXCEPT
A. Integrity of the director
B. Level of supervision of the business
C. Experience of management
D. Pressures on management decisions that might lead to financial
misstatements
E. Factors affecting the industry in which the organisation operates
6. Which of the following is NOT a component of an organisation‟s internal control system?
A. Control activities
B. Control risk
C. Control environment
D. Risk assessment
E. Communication and information
7. Programs written for the purpose of performing routine data processing functions such as sorting and printing of files are
A. Generalised programs
B. Routine programs
C. Test data programs
D. Utility programs
E. Embedded programs
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8. An audit software which allows tests to be carried out by the auditor simultaneously as it is being processed is
A. Test data packs
B. Integrated test facility
C. Computer assisted audit
D. Embedded audit facility
E. Simultaneous audit
9. Which of the following is NOT a function of the Auditor-General for the Federation?
A. Financial audit
B. Regularity audit
C. Effectiveness audit
D. Economical audit
E. Efficiency audit
10. The Chairman of the National Council on Public Procurement which was set up by Act No 141 2007 is
A. Head of Civil Service of the Federation
B. Economic Adviser to the President
C. Secretary to the Government of the Federation
D. Minister of Finance
E. Minister of Justice
11. The following documents are necessary to ascertain that due process has been adhered to in the spending of public fund EXCEPT
A. Tender returns
B. Contract award letter
C. Substantial evidence of advertisement
D. Interim Valuation and Certificates
E. Tax Clearance Certificate of the awardee
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12. Which of the following is NOT a type of uncertainty in forming an audit opinion?
A. Doubt about the outcome of a major litigation B. Inability to carry out a necessary audit procedure C. Adoption of an inappropriate accounting policy D. Inability to obtain necessary information and explanation E. Limitations in the scope of an audit
13. A clean audit report implies that the financial statements possess the following qualities EXCEPT
A. Compliance with Generally-Accepted-Accounting-Principles
B. Preparation by qualified auditing personnel
C. Consistency in application of accounting policies
D. Disclosure of all relevant information
E. Compliance with relevant statutes
14. The process of using a small sample of items to trace the existing accounting system in order to ensure proper understanding is known as ...................... test
A. Substantive
B. Compliance
C. Walkthrough
D. Audit
E. Sampling
15. The document which establishes a contractual relationship between the auditor and the client organisation is
A. Letter of representation
B. Memorandum of understanding
C. Confirmation letter
D. Engagement letter
E. Management letter
16. The factors to be considered by an external auditor before placing reliance on an internal auditor‟s work do NOT include the
A. Scope of work of the internal auditor
B. Quality of the internal auditor‟s report
C. Remuneration of the internal auditor
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D. Independence of the internal auditor
E. Experience of the internal auditor
17. A type of audit which involves a systematic review of an organisation‟s activities or a part thereof, in relation to the efficient and effective use of resources is ............ audit
A. Compliance
B. Operational
C. Forensic
D. Financial Statement
E. Public Accounts
18. Which of the following is NOT an example of assurance service?
A. System design
F. Information system reliability
G. Risk assessment
H. Healthcare performance measurement
I. Electronic commerce
19. In accordance with Section 358 of the Companies and Allied Matters Act. CAP c20 LFN 2004, which of the following shall be eligible for appointment as auditors of a company?
B. An officer or servant of the company
C. A member of an approved professional body
D. A person who is a partner or in the employment of an officer or servant of the company
E. A person or firm who or which offers the company professional advice in a consultancy capacity
F. A body corporate
20. Which of the following is NOT a right of an auditor?
A. Right of denial of access to all records, accounts and vouchers
B. Right to representation
C. Right to call on directors to summon an Extra Ordinary General Meeting
D. Right to attend Annual General Meeting
E. Right to receive notice of Annual General Meeting
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SECTION A: PART II ATTEMPT ALL QUESTIONS (20 Marks) SHORT-ANSWER QUESTIONS Write the answer that best completes each of the following questions/statements:
1. A method of obtaining information in response to an enquiry to corroborate information previously made available to the auditor in the course of the audit is known as.....................
2. An auditor is not expected to disclose information about his client except with the client‟s consent or................................... 3. Shareholders should be nominated as members of the audit committee at least..............days before the Annual General Meeting 4. A reserve kept by insurance companies to cover fluctuations in securities and variations in statistical estimates is known as................ 5. A director‟s indirect financial interest in a client organisation may lead to................... 6. The duty of ensuring that the statement of financial position of a company is prepared in line with laid down laws and regulations lies with the........................ 7. The identification, analysis and management of risks relevant to the preparation of financial statements in conformity with the Generally Accepted Accounting Principles is known as.................... 8. The process that is used to trace the status and contents of an individual transaction between output, processing and source document is called....................... 9. The power to appoint the Auditor-General for Local governments is vested in the.................. 10. A committee of the National Assembly set up for the purpose of exposing inefficiency or waste in the administration of funds is known as...............
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11. Controls set up in a computer environment to ensure the completeness and accuracy of processing and to ensure validity of the resulting accounting entries are called..................... 12. A qualified report stating that the auditor is unable to form an opinion as to whether the financial statements give a true and fair view is ....................... 13. Two methods of taking inventory in common use are ..............and.................. 14. The procedure for distinguishing one period‟s purchases and sales from those of the preceding and subsequent periods is known as.................... 15. The computer programs used by the auditor to examine the client‟s computer file is known as ......................... 16. The establishment of ownership, existence and valuation of assets in the statement of financial position and the correctness of liabilities as at that date is referred to as..................... 17. The means by which audit firms ensure that their expression of opinion on the financial statements always reflect the observance of approved auditing standards and relevant legal requirements is known as....................... 18. The attribute of audit evidence that concerns the objective to be achieved in a particular audit is termed............................... 19. The type of Computer Assisted Audit Technique used to verify the existence of program controls within the client computer system is................ 20. An auditor of a company needs to be familiar with all the internal rules and regulations guiding the operation of the company before carrying out the audit work. The document that contains these rules is known as................ SECTION B: ATTEMPT ANY FOUR QUESTIONS (60 Marks) QUESTION 1 In a computer based system, data stored may be accessible to all users that require it. The major control problem concerns the authorisation of data amendments and restriction of access to data.
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You are required to: a. Identify FOUR controls that are expected to be instituted in each of the following:
a. Prevention of unauthorised changes to program (4 Marks)
b. Prevention of errors during operations (4 Marks)
c. Ensuring integrity of the database system (4 Marks)
b. Highlight the control problems that are peculiar to computer-based systems, using personal computers (PC) (3 Marks) (Total 15 Marks) QUESTION 2 Section 359 schedule 6 of the Companies and Allied Matters Act CAP C20 LFN 2004 requires inclusion in the audit report of an opinion that the Financial Statements show a true and fair view of the State of Affairs of the company and were prepared in accordance with the provisions of the Act. You are required to: a. Present the essential elements of a typical audit report of a limited liability company. (5 Marks) b. Identify the major circumstances under which an auditor would qualify an audit report. (5 Marks) In compliance with Schedule 6 of the Companies and Allied Matters Act CAP C20 LFN 2004 c. Identify the matters that should be expressly stated in the auditor‟s report in compliance with schedule 6 of the Companies and Allied Matters Act CAP C20 LFN 2004. (5 Marks) (Total 15 Marks) QUESTION 3 The IFAC Code of Ethics for Professional Accountants gives a list of threats to auditors‟ independence.
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You are required to: Explain the following types of threats and give TWO examples each of circumstances that may lead to the threats: a. Self Review (3 Marks) b. Self Interest (3 Marks) c. Familiarity (3 Marks) d. Advocacy (3 Marks) e. Intimidation (3 Marks) (Total 15 Marks) QUESTION 4 Every public limited liability company is expected to set up an audit committee in line with the provisions of Companies and Allied Matters Act CAP C20 LFN 2004 You are required to: a. Explain the establishment of an audit committee in terms of the: i. Composition of the committee (2 Marks) ii. Tenure of the committee (1 Mark) iii. Process of appointing the members of the committee (2 Marks) b. Identify FIVE statutory functions of the committee (5 Marks) c. Present THREE merits and TWO limitations of the committee (5 Marks) (Total 15 Marks) QUESTION 5 You are the Audit manager assigned to a medium sized client. The partner in charge has asked you for information required to plan the audit. You are required to: a. Explain the term Audit Planning Memorandum. (2 Marks) b. State the information in an audit planning memorandum. (5 Marks)
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c. Identify the factors that could constitute hinderances towards a successful implementation of an audit plan. (5 Marks) d. List THREE advantages of documenting an audit plan. (3 Marks) (Total 15 Marks) QUESTION 6 There is need for managers to report their stewardship to the owners of business and other stakeholders. You are required to: a. Explain FOUR reasons why the stewardship report prepared must be audited by an independent auditor (8 Marks) b. Identify FOUR qualities required of an independent auditor (4 Marks) c. State THREE assurance assignments that can be performed by an independent auditor besides statutory audit (3 Marks) (Total 15 Marks) SOLUTIONS TO SECTION A PART I MULTIPLE-CHOICE QUESTIONS
1. D
2. E
3. B
4. B
5. B
6. B
7. D
8. D
9. D
10. D
11. E
12. C
13. B
14. C
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15. D
16. C
17. B
18. A
19. B
20. A
EXAMINERS‟ REPORT The questions are varied and cover a wide area of the syllabus. The performance of the candidates was generally average. Better preparation in future will enhance candidate‟s performance. PART II SHORT-ANSWER QUESTIONS
1. Third party confirmation
2. Where he is required by law/in the public interest/he has a professional right to disclose
3. 21
4. Contingency reserve
5. Self interest threat
6. Directors
7. Risk management
8. Audit Trail
9. State Governor
10. Public Accounts Committee
11. Application controls
12. Disclaimer of opinion
13. Continuous, periodic
14. Cut off procedures
15. Audit software
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16. Verification
17. Quality control
18. Relevance
19. Test data packs
20. Articles of Association EXAMINERS‟ REPORT The questions cover various parts of the syllabus. The candidates performed poorly in this part. Thus underscores the fact that candidates failed to understand the requirement of the questions. Candidates are advised to: i. spend more time in preparation for future examinations. ii. Acquaint themselves with recommended text books.
iii. Practise with past question papers.
SOLUTIONS TO SECTION B QUESTION 1 (a) (i) Controls to prevent unauthorised changes to programs include:
restricted access to the central computer, server and terminals
no access to live program files by any personnel except for the operational personnel at the central computer.
Password protection of programs
Periodic comparison of live production programs to control copies and supporting documentation.
Maintenance of a console log and; scrutiny by the data processing manager or responsible official and by an independent party such as the internal auditors.
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Use of anti-virus software
(ii) Controls to prevent errors during operation:
Maintenance of logs showing unauthorised attempts to access and; regular scrutiny by the data processing manager and internal auditors
Restrictions of programs to certain fields
Physical protection of data files
Data communication controls - encryption of data
Satisfactory application controls over input, processing and master files and their contents
Use of operations manuals and training of all users
Training in emergency procedures
(iii) Controls to ensure integrity of the database system
Preparation and update as necessary of user manuals in conjunction with the data dictionary.
Restriction of access to the data dictionary
Liaison between the database administration function and systems development personnel
Segregation of duties between the data processing manager, the database administration function and systems development personnel
Proper control of utility program by the Information Technology (IT) Staff
Antivirus Management
Read only mode should be put in place to ensure integrity of data base system
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(b) The problems associated with using PCs can be grouped under three headings:
i. Lack of planning over the acquisition and the use of PCs
ii. Lack of documentary evidence
iii. Lack of security and confidentiality
All these areas could produce problems for the auditors, giving them difficulties when attempting to access the documentation the adequacy of design processes and testing completeness, accuracy and integrity of data and audit trails are also relevant. EXAMINERS‟ REPORT The question tests candidates‟ knowledge on controls in a computer based system. About 30% of the candidates attempted the question and the performance was poor. It is evident that candidates did not prepare well for this part of the syllabus. The major pitfalls of candidates is lack of preparation for this part of the syllabus. Candidates are advised to get themselves acquainted with questions on computer based system considering the global emphasis on Information Technology.
QUESTION 2 a. The essential elements of a typical audit report are as follows: i. Title: The auditor should use an appropriate title to help the reader identify the audit report and to distinguish it from other reports. ii. Those to whom the report is addressed: The auditor should address the report to the client or otherwise, as required by the terms of the engagement or statutory requirements. iii. The financial statements to which the report refers: The audit report must identify the financial statements being audited by name or by reference to their location in the document. iv. Respective responsibilities of Directors and Auditors: The report should highlight the responsibilities of the Directors and the Auditor as regards the Financial statements being reported on
QUESTION 2 a. The essential elements of a typical audit report are as follows: i. Title: The auditor should use an appropriate title to help the reader identify the audit report and to distinguish it from other reports. ii. Those to whom the report is addressed: The auditor should address the report to the client or otherwise, as required by the terms of the engagement or statutory requirements. iii. The financial statements to which the report refers: The audit report must identify the financial statements being audited by name or by reference to their location in the document. iv. Respective responsibilities of Directors and Auditors: The report should highlight the responsibilities of the Directors and the Auditor as regards the Financial statements being reported on
PATHFINDER
INTERMEDIATE – MAY 2013
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