ICMA.

MODEL PAPER
RISK MANAGEMENT AND
AUDIT (BAF-502)

Pakistan

Time Allowed: 3 hours

SEMESTER-5

Maximum Marks: 100

Roll No.:

(i)

Attempt all questions.

(ii)

Answers must be neat, relevant and brief.

(iii)

In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.

(iv)

Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.

(v)

Use of non-programmable scientific calculators of any model is allowed.

(vi)

DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.

(vii)

Question Paper must be returned to invigilator before leaving the examination hall.

Marks
Q. 1

(a)

Milestone-dot-com is an online retailer, offers various electronic products including

mobiles phones, televisions, refrigerators and microwave ovens on its website.
Customers select their desired products and pay via credit cards. The system of
revenue recording is complex as it involves information technology and companys
interface/ interlink for comprehensive operations.

Required:

(b)

Q. 2

(a)

On the basis of the information mentioned above, identify any six (06) risks which may
be associated with the revenue and general operations of Milestone-dot-com and also
describe the measures which can be taken to mitigate such risks.

12

Risk identification is a continuous process so that new risks and changes affecting
existing risks may be identified before they can cause unacceptable losses. Discuss
various means of identifying conditions leading to risks (potential sources of loss).

07

Recent worldwide events of fraud have raised several questions over the role of external
auditors in relation to identification of fraud.

Required:
(i)
(ii)

(b)

Q. 3

RMA-MP

(a)

Define the term fraud and describe any two major categories of fraud.

10

There are certain conditions that are generally present when fraud exists.
Identify such conditions.

03

As per the International Standards on Auditing, the assertions used by the auditor to
consider different types of potential misstatements that may occur, are divided into three
categories. Briefly discuss the assertions about classes of transactions and events for
the period under audit.

05

Auditors are regulated by professional bodies and should follow recognized auditing
standards such as International Standards on Auditing (ISAs). Explain why it is
important that audit is to be conducted in accordance with auditing standards that are
common to all audits?

05

1 of 2
(Note: The number of questions and their marks may vary in the examination paper)

PTO

Marks
(b)

M/s. Farooq Enterprises, a trading company, has recently engaged M/s. APNG & Co.,
Chartered Accountants to audit its accounts for the year ended December 31, 2013.
You are working as an Auditor of the firm and your Engagement Manager has given you
a task to prepare the audit procedures for M/s. Farooq Enterprise for the test of control.

Required:
Discuss any six (06) audit procedures for M/s. Farooq Enterprise for the test of control of
the following:

Q. 4

(a)

(b)

(c)

Q. 5

(i)

Cash payment

06

(ii)

Payroll

06

Under ISA 501, when and how does the auditor design and perform audit procedures in
order to identify litigation and financial claims against the company?

04

State the circumstances that necessitate direct communication of an external auditor

with the entitys external legal counsel in respect of litigation and financial claims.
Further, describe the matters which should be discussed in such a communication.

09

State the situations where the auditor shall modify the opinion in the auditors report
during the course of performing audit procedures regarding litigation and claims of the
entity.

05

ABC and Co., manufactures and sells consumer goods in local markets and it has in-house
internal audit function led by a professional accountant. The company has appointed a CMA
Firm as its external auditors. The management advised the Firm of external auditors to
cooperate with the internal auditors to complete their audit in efficient manner and rely on
certain work already performed by the internal audit function.
It was informed that the internal auditors provide the following services to the company:
(i) A periodic audit of the operation of internal controls in the companys major functions
(operations, finance, customer support and information services);
(ii) Annual review of the structure of internal controls in each major function of the company;
(iii) An annual review of the effectiveness of measures put in place by the management to
minimize the major risks facing the company.
During the current year, the company has gone through a major internal restructuring in its
information services function and the internal auditors have been closely involved in the
preparation of plans for restructuring, and in the related post-implementation review.

Required:
(a) Describe the information that external auditors will seek from the internal auditors of
ABC and Co., in order to determine the extent of their reliance.
(b)

Q.6

(a)

(b)

Under what circumstances and in which major areas would it be necessary for the
external auditor to perform his own work in addition to relying on the work performed by
internal auditor of the company?

07

Describe the key aspects that a cost auditor should consider at the planning stage while
employing the personnel for cost audit.

08

Briefly narrate the criteria laid down for ineligibility in relation to appointment of the cost
auditor under Rule 3(4) of the Companies (Audit of Cost Accounts) Rules, 1998.

07

THE END
RMA-MP

06

2 of 2
(Note: The number of questions and their marks may vary in the examination paper)