The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: explain why it is essential for external auditors to be independent of their clients – Business and Technical Learning Resources

External auditor independence

External auditors are unable to fulfill their duties to shareholders if they are not independent of the entity on which they are reporting.
If external auditors have an interest in the financial statements on which they are reporting, they may not be objective. For example, if, in the case of a listed company, they have prepared the financial statements on which they are reporting, their view may not be considered objective.
If they have financial or employment connections with the company on which they are reporting they will not be objective.
If they provide a significant level of additional services to the entity, it is argued that they cannot report objectively as auditors to shareholders.

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The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities.Required:Explain the responsibilities of external auditors to directors and shareholders
The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: Describe the limitations of the external audit in relation to the detection and reporting of fraud
Explain the value derived from the work of external auditors
Outline the statutory provisions with regard to duties of external auditors
Give four examples of internal audit work that may e used by the external auditor
The National Metal Works Limited manufactures and retails door and window frames. The company recently dismissed their external auditors. The directors have approached your firm of accountants to act as their auditors and the directors have proposed a fee of KShs. 1, 000, 000 plus a bonus of 1% of profits after tax. Required: Explain the implications of fixing the audit fee by negotiation between the directors and the external auditors on the independence of the auditor
Many auditors now use laptops computers to perform various audit tasks. However, if audit firms use laptop computers they risk data being corrupted and appropriate controls must therefore be put in place to prevent the corruption of data;Explain six ways which auditors can use laptop computers in their audit work (other than computer-assisted audit techniques)
Why is an external audit necessary for companies registered under the Companies Act ?
In auditing the financial statements of companies which use computerized accounting systems, the auditors may find that this traditional (audit) trail is often obscured. Various techniques can be used in order to give the auditors greater assurance when the audit trail is lost. Required Outline how audit software can be used by the auditors in order to assist them in carrying out their analytical procedures
In auditing the financial statements of companies which use computerized accounting systems, the auditors may find that this traditional (audit) trail is often obscured. Various techniques can be used in order to give the auditors greater assurance when the audit trail is lost. Required; Explain why there is a possible loss of audit trail when companies utilize computerized accounting systems and why auditing through the computer assists the auditors in overcoming this loss of audit trail
Write briefly explanatory notes on the following types of audit: Statutory audit, Private audit, Balance sheet audit and Management audit;
In auditing the financial statements of companies which use computerized accounting systems, the auditors may find that this traditional (audit) trail is often obscured. Various techniques can be used in order to give the auditors greater assurance when the audit trail is lost. Required Explain how the auditors can use analytical procedures in order to give them greater assurance when there is a loss of audit trail
Many auditors now use laptops computers to perform various audit tasks. However, if audit firms use laptop computers they risk data being corrupted and appropriate controls must therefore be put in place to prevent the corruption of data; Briefly describe two types of software that might be used by auditors in their work other than Computer Assisted Audit techniques
Distinguish between a procedural audit and a balance sheet audit
Define the term audit programme
Auditors obtain several different confirmations from various sources during the course of their audit. Required: Describe the audit evidence provided by each of the confirmations listed below, the practical difficulties in obtaining them and the alternative audit evidence available when they are not provided; Management representations
What is an audit?
How does audit planning assist in the conduct of an audit?
Many auditors now use laptops computers to perform various audit tasks. However, if audit firms use laptop computers they risk data being corrupted and appropriate controls must therefore be put in place to prevent the corruption of data; describe the controls that auditors should implement when using laptop computers on audits
Write brief explanatory notes on the following audit terms: Vouching audit;
In the context of audit sampling, distinguish between the following terms: Sampling risk and non-sampling risk, Tolerable error and expected error and Audit risk and detection risk
You have recently been appointed as the external auditor of XYZ Ltd. Explain the stages you would in the conduct of your audit
List five limitations of an audit
List two advantages and two disadvantages of using standardised audit programmes during audit assignments
What do you consider to be the auditor‘s responsibilities in the course of the normal annual audit in relation to the detection of fraud?
Explain the computer assisted audit techniques listed below: Embedded audit facilities and Integrated test facilities
In auditing the financial statements of companies which use computerized accounting systems, the auditors may find that this traditional (audit) trail is often obscured. Various techniques can be used in order to give the auditors greater assurance when the audit trail is lost. Required Explain the possible reasons and implications (audit) of significant changes in the following ratios when compared to the prior years ratios: The debtors turnover ratio has decreased over the year and the stock turnover ratio has decreased from the previous year‘s rate
Distinguish between internal audit and internal check
Identify four factors that should be taken into consideration by an audit firm when allocating staff to audit assignments
What are computer assisted audit techniques (CAATs)?
List six contents of an unqualified audit report
What is an audit peer review? and state and briefly explain the objectives of an audit peer review
Describe external auditor‘s responsibilities and the work that the auditor should perform in relation to the going concern status of companies
Define and explain the meaning of an audit programme
Briefly explain the types of audit opinion that would normally arise from a limitation in the scope of audit
Explain why auditors carry out circularisation of debtors
You are in charge of a group of audit trainees who have just been employed by your audit firm. This is the audit trainees‘ first assignment and they are aware that they are supposed to prepare audit working papers but they do not know how to do so or what information they should include in the audit working paper.‘Required:Provide the audit trainees with guidelines on how they should prepare audit working papers
Explain the reliability of bank statements as audit evidence
Your audit firm, Kimani and Associates has been contracted by the government to audit the procurement system followed by the government. Required; Outline the audit procedures an audit firm should follow in the verification of a manufacturing company‘s liabilities
You are in charge of a group of audit trainees who have just been employed by your audit firm. This is the audit trainees‘ first assignment and they are aware that they are supposed to prepare audit working papers but they do not know how to do so or what information they should include in the audit working paper.‘Required: Identify the type of information that the audit trainees should include in the audit working papers

External auditor independence

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