Question Tag: Audit evidence

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  • 15 Marks

AAA – May 2023 – L3 – Q5 – Audit Completion and Final Review

Discuss reasons for reviewing predecessor auditor’s work, audit procedures for sufficient evidence, and actions for insufficient audit evidence.

Vigo Microfinance Bank Limited was incorporated on July 1, 2014, as a public limited company under the Companies and Allied Matters Act. The bank obtained a Microfinance banking license from the Central Bank on August 5, 2015, to operate on a nationwide basis and commenced business operation on September 5, 2015. The bank’s principal business is to provide microfinance banking and related services to the poor and underserved segment of society to alleviate poverty under the Microfinance Institutions Ordinance.

In 2019, the bank decided to convert to a commercial bank and commenced business operations on August 10, 2019, after final approval from the regulator. As of December 31, 2019, the bank had five branches (2016: 24) in the Federal Capital and four other major geopolitical zones in the country.

With the new commercial banking license, the bank employed the services of F.K. George Professional Services to audit its financial statements. As part of the activities to be carried out on the initial engagement, the external auditors began a review of the books of account of the predecessor auditor, and the following issues emerged:

  1. Some property, plant, and equipment in the books of account and prior year financial statements had negative net carrying amounts.
  2. The basis for impairment included in prior year financial statements regarding loans and advances could not be established from the working papers.
  3. A material amount of pre-operating expenses included in receivables schedules could not be satisfactorily explained.
  4. Audit work performed on interest income in the prior year was not supported by sufficient appropriate audit evidence.
  5. Details of outstanding tax liabilities could not be provided, as the amount in the financial statements was the figure supplied by the tax consultant, and not reviewed by the former external auditor.
  6. There was no satisfactory explanation for nil balances in prior year financial statements on contingent liabilities, as no evidence existed that requests for confirmation were made from solicitors of the bank.
  7. Details of contraventions included in the examiner’s report were not considered for disclosures in the financial statements.

The Central Bank is requesting the financial statements of the bank, and management is worried about delays in releasing the financial statements by the new external auditors despite several notifications and reminders.

The Chief Finance Officer of the bank complained to you, as a member of the engagement team, about the delay in concluding the audit. He argued that your firm should not be concerned about prior period financial statement issues, as your firm did not express an opinion on them. Furthermore, the responsibility for the financial statements lies with the board of directors.

Required:

(a) Discuss why your firm needs to carry out the above exercise. (3 Marks)

(b) Analyze the nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence. (8 Marks)

(c) Evaluate what your firm might likely do in case of inability to obtain sufficient appropriate audit evidence from the exercise. (4 Marks)

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  • 5 Marks

AAA – Nov 2016 – L3 – Q3b – Use of Experts in Audits

Evaluate the significance of expert evidence and factors to consider before relying on a specialist’s report in audits.

In connection with Accountancy and Audit, an Expert or Specialist is a firm or person that possesses special skills in a profession other than Accountancy.

Required:
i. What is the significance of evidence from Experts to an auditor? (2 Marks)
ii. Identify THREE factors to be considered before placing reliance on the report of a Specialist. (3 Marks)

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  • 15 Marks

AAA – Nov 2016 – L3 – Q3a – Internal Audit and Corporate Governance

Evaluate reliance on internal auditors for cash sales testing and significance of specialist reports as audit evidence.

You are the Audit Manager in charge of the audit of Mix Biz, a company which runs a chain of snack bars operating in a number of strategic locations in Lagos. Your firm has been the auditor for a number of years and has always had to substantively test cash sales because of lack of control over the recording of takings. The audit reports to date have been unmodified.

You have recently been informed that the company has employed a newly qualified Chartered Accountant as Chief Internal Auditor and a partly qualified Assistant Internal Auditor. Since their appointment halfway through the year ended December 31, 2015, they have spent most of their time carrying out substantive tests on cash sales.

The Directors are hopeful that your audit fee this year will decrease because you will be able to rely on the work carried out by the Internal Auditors.

Required:
a. Explain the issues that will be relevant to your firm in deciding:
i. whether you can rely on the work performed by the Internal Auditors (8 Marks)
ii. how much reliance to place on that work (7 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

The main reasons why auditors send a letter of enquiry to the legal firm handling litigation or claims on behalf of their client is to provide:
A. Auditors with weak position in client litigation and claims
B. Auditors with written submission and statement of claims to the court
C. Information concerning the progress of outstanding cases to date
D. Auditors with corroborative audit evidence
E. Auditors with impact of legal opinion on financial statements

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Which of the following is an analytical procedure generally used to produce audit evidence?
A. Confirmations mailed directly to the auditor by the client’s customers
B. Physical observation of inventories
C. Relationship among current financial balances and prior balances, forecasts, and non-financial data
D. Detailed examination of external and internal documents
E. Circularisation letters to debtors and creditors of the company

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  • 8 Marks

AAA – Nov 2021 – L3 – Q3b – Audit of IT Systems and Data Analytics

Discuss audit team activities using CAATs on client premises and analyze two types of audit software.

You have been appointed as the auditor of a company that processes its accounting functions using a computer system. You have decided to use computer-assisted audit techniques (CAATs) to generate necessary audit evidence for this engagement.

Required:

i. Discuss the activities members of the audit team could perform with their computers in the client’s office. (4 Marks)

ii. Analyze TWO types of audit software in use in computer-based information systems. (4 Marks)

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q20 – Audit of IT Systems and Data Analytics.

Identifies the documentation that aids in understanding the internal control system.

To obtain an understanding of the internal control system, which ONE of the following computer documentations can assist the auditor?

  • A. System narrative
  • B. System flowchart
  • C. System counts
  • D. Record layout
  • E. Programme listing

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q19 – Use of Experts in Audits

Identifies an unnecessary factor when considering reliance on a specialist’s work in audits.

All the following are necessary when the auditor is considering whether to rely on the work of a specialist EXCEPT:

  • A. The independence of the specialist
  • B. The experience of the specialist
  • C. The fees charged by the specialist
  • D. The specialist’s relationship with the client
  • E. Compatibility of the data in preparing the financial statement

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  • 1 Marks

AAA – Nov 2011 – L3 – SA – Q17 – Audit Reporting

Identifies the technique involving ratios and statistical analysis to obtain audit evidence.

The computation of ratios and trends and the use of statistical formula to obtain audit evidence is:

  • A. Hot review
  • B. Audit sampling
  • C. Substantive test
  • D. Analytical review
  • E. Audit review

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  • 20 Marks

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

Question:
You are the Audit Manager at HWO, an audit firm. HWO has secured the audit of SIGMA For Africa, a not-for-profit organization. You have been assigned the audit of SIGMA For Africa. An extract of the unaudited financial statements is as follows:

SIGMA For Africa Statement of Financial Position
As at 31 December

Furthermore, you were assigned an audit senior. Based on preliminary discussions with your audit senior, you noted that the senior had no prior experience with audits of not-for-profit entities.

Required:
To help your audit senior understand how to audit a not-for-profit organization, prepare a presentation note summarizing the key considerations in the audit for the following areas:

a. Planning (4 Marks)
b. Risk analysis (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

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  • 20 Marks

AA – May 2017 – L2 – SA – Q2 – Audit Evidence

Discussion on sufficiency, reliability, and relevance principles for audit evidence as per ISA 500.

The Auditor is required by ISA 500 to design and perform appropriate audit procedures for obtaining sufficient and appropriate audit evidence.

You are required to:

  1. (a) Identify FIVE factors that an Auditor will consider in determining what constitutes sufficient audit evidence. (5 Marks)
  2. (b) Explain FIVE principles that would assist the Auditor in assessing the reliability of audit evidence. (5 Marks)
  3. (c) Explain FOUR principles that would assist the Auditor in assessing the relevance of audit evidence. (10 Marks)

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  • 30 Marks

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

Promise and Treasure are two good childhood friends. After their secondary education, Promise traveled abroad to further his education and obtained his degrees there. Treasure attended a university in Nigeria and graduated with a second-class lower degree. During his time abroad, Promise met some foreign associates and decided to start a company in Nigeria with Treasure.

The company, named Promise and Treasure Company Nigeria Limited, specializes in importing steel products with future plans to set up a local factory. The first-year accounts were prepared as of December 31, 2020. Your firm has been appointed as auditors for the company. Upon completing the audit, you requested a written representation from management. The Managing Director found this request unusual, as he believed all necessary information and documents had already been provided.

Required:

a. Explain to the Managing Director the objectives of the auditor in obtaining a written representation as per ISA 580. (4 Marks)

b. State the steps the auditor should take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. State THREE matters that are required of management in the letter of representation in line with ISA 580, requiring specific representation from management. (3 Marks)

d. Highlight SEVEN aspects of the form and contents of a letter of representation. (14 Marks)

e. State the steps the auditor should take if management refuses to provide the requested written representation. (3 Marks)

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  • 9 Marks

AA – Nov 2015 – L2 – Q3a – Internal Control Systems

Discussing the auditor's duties before, during, and after an inventory count.

You are the auditor of a Fast Food Company with many sales outlets. The company operates a central system of purchase and supply. The Goods Received Notes and Delivery Notes were not given utmost importance in the issuing and receiving of inventories. The suppliers’ ledger, stores’ ledger, and bin cards were not updated regularly. The outlet managers often complained of short supplies and shortages recorded against them regularly. Two of the outlet managers even complained directly to the Managing Director of the company concerning the shortages recently recorded against them. As a first step to solving the inherent weakness in the company’s inventory control process, management decided to undertake a physical inventory count.

Required:
a. Itemize the duties of the auditor in relation to inventories count under the following headings:
i. Before the count.
ii. During the count.
iii. After the count. (9 Marks)

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  • 20 Marks

AA – Nov 2015 – L2 – Q2 – Audit Evidence

Explaining the concept of audit evidence, its importance, and describing its sources and attributes.

a. The objective of an audit is for the auditor to express an opinion on the truth and fairness of the financial statements. In the performance of his duty, the auditor seeks to obtain acceptable evidence necessary for him to draw conclusions in order to express a valid opinion on the financial statements.
Required:
i. Describe audit evidence and justify why the auditor would require such evidence. (4 Marks)

b. Identify FOUR sources of audit evidence and illustrate how these sources would affect the auditor’s reliance on the evidence. (10 Marks)

c. Describe THREE attributes of audit evidence. (6 Marks)

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  • 20 Marks

AA – Nov 2016 – L2 – Q4 – Audit Documentation

This question covers the need for a letter of representation, its content, and steps to be taken when management refuses to sign the letter.

Polyet Nigeria Plc is into the manufacture of plastic materials. It has its factory in Apapa, Lagos, with distribution outlets spread across the country. A new Managing Director, Mr. KO has just been appointed. Shortly after the new Managing Director was appointed, your firm concluded the audit of the Company’s Financial Statements. A request was made from the newly engaged Managing Director for a letter of representation. He informs you in no uncertain terms that the company engaged you as the auditor to take responsibilities for your audit opinion, and that he is not ready to repeat in writing the information that the Chief Finance Officer, other accounting staff, and himself provided to you during the audit exercise. You tried to explain to him that it is standard practice to request a letter of representation from the Management, but he remained adamant.

Required:
a. Explain the need for the auditor to obtain a letter of representation from the management. (5 Marks)
b. Itemise TEN contents of a Letter of Representation. (10 Marks)
c. What steps should you take as the auditor if the Managing Director still persists in his refusal to sign the letter? (5 Marks)
(Total 20 Marks)

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  • 20 Marks

AA – May 2018 – L2 – Q2 – Audit Evidence

This question addresses the auditor’s determination of sufficient and reliable audit evidence as required by ISA 500.

The auditor is required by ISA 500 to design and perform appropriate audit procedures for obtaining sufficient and appropriate audit evidence.

Required: a. Explain briefly THREE factors that an auditor will consider in determining what constitutes sufficient audit evidence. (6 Marks) b. Explain briefly TWO principles that would assist an auditor in assessing the reliability of the audit evidence. (4 Marks) c. Describe FOUR principles that would assist an auditor in assessing the relevance of audit evidence. (10 Marks)

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  • 15 Marks

AA – Nov 2021 – L2 – Q7 – Auditing in a Computerized Environment

Explains the conditions for a systems-based approach, CAATs, major transaction cycles, and elements of sales systems.

The auditor takes a systems-based approach wherever possible and focuses on testing the systems and internal controls that produce the financial reporting figures of an organization rather than focusing on the figures themselves. Specialised techniques of obtaining audit evidence may be required by the auditors in an organization where the systems are Information Technology (IT) based.

Required:

a. Explain the TWO conditions that are necessary before the auditor can adopt a systems-based approach to audit assignment. (2 Marks)

b. Explain the term Computer-Assisted Audit Techniques (CAATs) and its disadvantages. (7 Marks)

c. Explain the term “Major Transaction Cycles” of an organization that the auditor should focus much of his audit work. (3 Marks)

d. State the elements of the sales system of an organization that the auditor should apply tests of controls. (3 Marks)

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  • 20 Marks

AA – Nov 2021 – L2 – Q3 – Internal Audits

Discuss audit considerations for Youthplus, a Not-for-Profit Organisation.

Youthplus is a Not-for-Profit Organisation (NFPO) established by well-meaning Nigerians. The aims and objectives of the NFPO include raising funds to assist youth corpers who, after their service, are unable to secure employment, to start small-scale businesses instead of waiting for white-collar jobs that are not in existence. NFPO solicits funds from the public, private, and foreign organisations. Youthplus has been in existence for five years, and your firm has been appointed as their auditors.

Required:
What factors would you put into consideration when carrying out the audit of Youthplus in the following areas?
a. Planning (4 Marks)
b. Risk (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

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  • 20 Marks

AA – Nov 2021 – L2 – Q2 – Audit Evidence

Discuss characteristics of good audit evidence and testing procedures for gathering it.

ISA 500 on audit evidence sets out the objective of the auditor is to design and perform audit procedures in such a way to enable him to:
(i) Obtain sufficient and appropriate audit evidence
(ii) Draw reasonable conclusions
(iii) Base his audit opinion

Required:
a. Identify THREE characteristics of a good audit evidence. (3 Marks)
b. List and explain briefly FIVE testing procedures for gathering audit evidence. (10 Marks)
c. What factors will the auditor consider when assessing the reliability of audit evidence? (7 Marks)
(Total 20 Marks)

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  • 15 Marks

AA – May 2019 – L2 – Q5 – Audit Evidence

Justification for requiring confirmations of receivables, payables, and bank balances, and contents of confirmation letters.

In the course of an audit assignment, an auditor requires an independent and external confirmation for the following items:

  • Receivables
  • Payables
  • Bank Balances

You are required to:

a. Justify the need for confirmation in respect of the items listed above. (9 Marks)

b. State the contents of each of the letters sent to request for confirmation in TWO of the items stated above. (6 Marks)

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