Past Questions & Answers
- 15 Marks
AAA – May 2019 – L3 – Q7 – Group Audits
Explain joint audit, its benefits, and challenges in the context of an automotive company’s acquisition.
Question
You are an audit manager in a firm of Chartered Accountants. Your firm has been appointed as joint auditors with another firm to carry out the audit of Opeloyeru Automotive Company Limited, which has acquired another company in the same industry to expand its business across six states in the southwest zone of Nigeria.
Required:
a. Explain the concept of joint audit. (5 Marks)
b. Discuss the reasons why joint audit is considered desirable. (5 Marks)
c. Explain possible setbacks for engagement in joint audits. (5 Marks)
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- 15 Marks
AAA – May 2019 – L3 – Q6 – Audit Reporting
Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.
Question
During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.
Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.
The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.
Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)
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- Tags: Audit evidence, Audit Reporting, Financial Statements, ISA 570
- Level: Level 3
- Topic: Audit Reporting
- 15 Marks
AAA – May 2019 – L3 – Q5 – Risk Management in Audits
Assess inherent risks and identify specific audit risks related to auditing the financial statements of Insurgency Relief Providers (IRP).
Question
Insurgency Relief Providers (IRP) is a non-governmental organization set up by a popular philanthropist from the southwest part of the country. The philanthropist sits as the chairman of the board of trustees and has a manager who is a close relative of the chief executive officer. All the management activities are in the hands of the manager, and the board of trustees sits occasionally to formalize major decisions. Initially, the sum of ₦50,000,000 was provided by the philanthropist, and fundraising was organized to raise an additional ₦200,000,000 in cash and pledges by political associates. The activity of IRP has been carried out with these and other donations from friends and well-wishers.
Activities of IRP are essentially performed in the northeastern region of the country. These activities include food and material supply using chartered vehicles and police/military escorts. The distribution is carried out with the involvement of some staff of the NGO who travel by air and within the safe zones of the region.
Due to the successes recorded and the need to increase these activities, the chairman of the board of trustees has made appeals to some foreign-friendly associates to be involved in his organization’s activities by providing financial support. A number of these organizations have shown interest and would want to review the operational activities and financial statements of IRP over the past three years.
For the purpose of the current request from foreign associates and other agencies, a statutory audit of the financial statements is required.
Your firm was appointed and has accepted the engagement.
Required:
a. Assess the inherent risks associated with the audit of the financial statements of IRP. (10 Marks)
b. Identify FIVE audit risks to be addressed by the auditor. (5 Marks)
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- Tags: Audit risks, Inherent Risks, NGO Operations, Statutory Audit
- Level: Level 3
- Topic: Risk Management in Audits
- 20 Marks
AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions
Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.
Question
Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.
The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.
The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.
In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.
Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.
Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)
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- 20 Marks
AAA – May 2019 – L3 – Q3 – Audit of IT Systems and Data Analytics
Explain COBIT as an IT governance tool, its purpose, and six specific components of the framework.
Question
Jemigboran Commercial Industries has been operating for some years. Its management has sought your input as the auditor of the company on a proposal by the information technology (IT) team of the company to introduce a framework as “Control Objectives for Information and Related Technologies (COBIT)” for its operations.
Required:
a. Explain COBIT as an IT governance tool, and the purpose it serves in an organisation. (8 Marks)
b. Identify and explain SIX specific components of COBIT. (12 Marks)
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