nta level 7, marking scheme auditing

8/9/2019 NTA LEVEL 7, Marking Scheme Auditing

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Marking Scheme for NTA LEVEL-7

Elements of Auditing- 4th Semester

No. Details Marks

a)Question no. one. Total marks =20 marksManagement Consultant is an examination of the health of a business by a specialist is called management consultancy.

Management consultancy relates only to specific problems and

provides solution only to those problems which are posed to it. Itand is problem oriented. is always adhoc while involving externalexperts. (4marks)

Full mark of 3will be issued if

student

demonstrate

h/his skill inmanagement

consultancy

idea

b) (4 marks)S/No. MANAGEMENT AUDIT MANAGEMENT CONSULTANCY

1 Institutional or individual

oriented

Problem oriented.

2 Overall review of all

managerial policies,

procedures and actions

Dealing with specific problems and

their solutions.

3 Periodical but regular Casual and adhoc4 Internal experts External experts.

One mark for

each point of

differentiation

between

management

consultancy

and

management

audit

c) Step one diagnosing the problem - From the data given bycustomer it is clear that gross profit is affected by costs of

production and not sales (as some time sales dropping are the

sources of problem but not in this case) a constant increase inmanufacturing costs in clear indication that management is not

efficient in production and acquisition of raw material and labor

cost.

Possible reasons for high costs:

1. It may be is inefficiency in finishing of bottles,

2. Raw materials including bottles are purchased at high costs

comparatively,3. There is an increase in production cost without

corresponding increase in selling prices.

What to do then?

1. Client should buy read made bottles and compare the price

with one that is finished within client factory,

2. Raw material should be purchased in big quantity to enjoy

bulk discount,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 competitors6. Timing of purchase to avoid adverse exchange rate that will

render production costs to rise7. Watch out companys overheads, uses of Generator should

avoided unless is necessary.

8. Think about changing more automated machines rather thanold version. (12 marks)

Here studentis test his/her

ability to

analyze thesituation and

providing

good solution

on the saidproblem.

Discussion

with examplewill earn mark

easily.

Answer is justan indicative;

student may

site other

relevant case.

1 Zanzibar Institute of Financial Administration -Chwaka


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a) i

ii

Question no. two, total marks=20Economy 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, humanand information. The question of economy is relevant to the

acquisition of resources. Auditors try to determine whether theresources 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 foreconomy is to accept the lowest open bid for buying an asset.

(6

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 risein market process.

4. Nonpayment/Settlement of certain obligations e.g. staff

overtime without justifiable reasons.

5. Existence of savings not matching with the level ofperformance.

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.

1. The public sector in Tanzania is generally malfunctioningdue to mismanagement, misuse, and underutilization of

resources both financial, non-financial and humanresources.

2. The government budget is characterized of persistentdeficits due to excessive expenditures of the votes and

institutional budgets

3. Public officers are overstaffed due to uncontrolledrecruitment.

4. Fraud and embezzlement are rampant in the public sector

coffers due to lack of accountability5. 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

Just pointsmentioning.

2 marks forevery point

mentioned



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system due to rampant irregularities in the use of publicmoneys 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 toprovide 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

processingiii. 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 systemoften are not prepared or if prepared may not be readily

available for review.

Input data can alter or affect the processing ofsubsequent 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 physicalcontrol

c. Unauthorized access. If terminals are not secure it

might be possible for unauthorized users to obtain orcorrupt 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 systemunless adequate restrictions are placed on the

processing functions available to each user.

d. Systems break down. If system does not incorporateback up data procedures there might be a loss-if the

system breakdown for any reasons such as power

failure.

(5 marks)



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

line use additional safeguards because of the increased vulnerabilitycreated 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 ofcontrolling daily computer operations, establishing

safeguarding against processing errors, and ensuring that

operations could continue in the event of physical disaster orother 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 auditsoftware 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 programmelibraries.

Compliance tests of EDP application controls-for example

the use of test data to test data to test the functioning of aprogrammed procedure

(5 marks)a Question no. four, total marks=20

Advice opinion is suitable for this particular case as departuresfrom accounting policy are fundamental and material to thecompany 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 itsoperations and cash flow information for the year then ended in



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conformity with IFRS and in the manner required by the companiesordinance. (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

iQuestion no. five, total marks=20Fraud: obtaining a material advantage by unfair or wrongful

means.

fraud is the use of deceit to obtain an advantage or avoid anobligation.

Frauddivided 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 ordeprive 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 personentrusted with its custody, thus breaching the trust or fiduciary

responsibility

in embezzlement the person is legally authorized by its owner totake or receive possession of the property at least for the time being

(2.5 marks)

b Screening:

1. Adequate employee screening is powerful tool, Hiringhonest employees is best way, It can best done by out-

sourcing2. Screening tests include -lie detector and drug tests and

fingerprinting of employees. background checks of

information on resumes and applications, an employer canelicit significantly more information and determine if the

original information is accurate



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1. It should have BOD approval, It must comply with the lawand existing organizational policy eg

The extent, who have responsibility

Levels of checking used Whether existing staff should be included or internal

promotions and transfersQuestion 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 directline managers and HR, for last five years

Supreme court record searches

(10 marks)

The end


nta level 7, marking scheme auditing

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