Question Tag: Audit Planning

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  • 5 Marks

AAA – Nov 2016 – L3 – Q4b – Audit of IT Systems and Data Analytics

Identify solutions to address the loss of an audit trail in computer-assisted or manual testing.

The availability of Computer-Assisted Audit Techniques should be considered by the Auditor when planning the nature, extent, and timing of tests in an audit. The Auditor must determine their testing strategies, which will depend on their choice of either using a Manual Testing Method or a Computer-Assisted Method.

Required:
Identify FIVE solutions to the loss of an audit trail. (5 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

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  • 15 Marks

AAA – Nov 2021 – L3 – Q7 – Audit of IT Systems and Data Analytics

Discuss control environment requirements of ISA 315 and evaluate control activities for Egunje Distributors Ltd.

Egunje Distributors Limited is a private company in which Chief Idowu is the major shareholder. Chief Idowu set up the business to help provide resources for his philanthropic gestures. He has been involved in the major control activities, and the business was achieving its purpose, and things were working well.

After a number of years, Chief Idowu stepped aside from the business and handed over effective management to one of his subordinates, whom he elevated to the rank of General Manager (GM). The GM followed Chief Idowu’s control processes for only one year and then introduced new ideas and processes, resulting in undue amounts being transferred into his private accounts rather than the company’s accounts. This has affected the results of the company.

While Chief Idowu has not decided to take any hasty action, he has decided to bring in your firm, due to its size, so that through your work, he may understand the reasons for the dwindling performance. It has been discussed and agreed that your report on the audit will provide insight into the reasons for the observed decline in performance.

Required:

a. Discuss the control environment, focusing on the requirements of ISA 315 – Identifying and assessing the risk of material misstatement through understanding the entity and its environment, that will be relevant to this situation. (9 Marks)

b. Evaluate the control activities that will require your attention. (6 Marks)

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  • 15 Marks

AAA – Nov 2021 – L3 – Q6 – Audit of IT Systems and Data Analytics

Outline application controls for computerised systems and develop an audit strategy following ISA 300 for large, computerised clients.

The firm you work for has considered the growing development in some sectors of the economy and the opportunities this development portends.

Your firm is a sole practitioner, and though the partner has the skills and professional competences necessary to undertake big jobs, applications for big jobs have always been turned down.

To get involved and secure some of these big jobs, your partner has dialogued with some other sole practitioners who share the same view. They have agreed to operate a merged firm starting in the year 2022. Appropriate registration of the new practice name with the Corporate Affairs Commission and application for a license in the new name from the Institute are being processed. To prepare for securing and executing some of these big jobs, preparations are set to commence once the registrations are approved. Some of the target jobs involve computerised entities, so your partner has assigned you some preparatory tasks, as he is the lead partner.

Required:

a. Prepare a document showing the application controls that will be focused on in the computerised systems of the entities. (7 Marks)

b. Develop an appropriate audit strategy in accordance with ISA 300, “Planning an audit of financial statements.” (8 Marks)

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  • 15 Marks

AAA – Nov 2011 – L3 – SB – Q1 – Application of Audit and Assurance Principles

Evaluate the steps for identifying and responding to fraud risk during audit planning.

Fela Idaewor is the auditor for Matty Co. Ltd, a rapidly expanding retail business based in Lekki. This is her first year as the audit manager. During her engagement planning, she observed multiple risk factors, such as the company’s strong interest in maintaining earnings and share prices, unrealistic financial forecasts, and high reliance on debt financing for expansion. Additionally, there were strong indications that fraud might have been committed by top management.

Required
(a) What should Idaewor do about the possibility of fraud at the planning stage? (7 Marks)
(b) What documentation is required for identifying risk factors? (5 Marks)
(c) If Idaewor has evidence suggesting fraud, what are her communication responsibilities to management? (3 Marks)

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  • 20 Marks

AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.

ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.

There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.

Required:

a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)

b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)

c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q5 – Audit Planning and Strategy

Discuss professional skepticism, benefits of audit planning, audit strategy, and audit stages.

At the weekly meeting of an audit firm, it was reported that a new audit client (Salisa Limited) has just been won. An implementation team has been constituted with a manager as the head. At the meeting of the implementation team, the manager stated that there is a need for the team to work on the audit planning strategy; the contents of which will form the audit planning memorandum that will be presented to the audit committee. He stated further that a professional clearance has to be sent to the former auditor after which, a background check will be performed on the directors and other principal officers of the company. It is also believed that for proper risk assessment, there is a need to understand the business operations of the company. He stated further that the audit will be structured into both interim and final audits.

An experienced member of the team also mentioned the need for the auditor to adopt an attitude of professional skepticism. He emphasized that planning the audit will involve the whole engagement team to establish an understanding of the terms of the engagement as required by ISA 210, which will help establish an overall strategy for the audit. Developing the audit plan will include the nature, timing, and extent of planned risk assessment procedures, further audit procedures, and documentation of the overall audit strategy.

Required:

a. Explain professional skepticism. (2 Marks)

b. State how adequate planning can benefit the audit team. (3 Marks)

c. Explain and illustrate what the establishment of the overall audit strategy involves. (3 Marks)

d. Discuss the elements of interim and final audits.

(7 Marks)

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  • 20 Marks

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

The management of Pony Bank Plc and its wholly owned subsidiary, Ponte Micro Finance Bank Limited, engaged in fraudulent activities involving the arrangement of bogus loans amounting to ₦5.5 billion in worthless assets, which were undetected by the previous auditors. The former auditors attributed the oversight to a well-organized group within Pony Bank that actively deceived and obstructed the audit process to conceal their actions.

Your firm, Vic Viv & Co, has recently taken on the audit of Pony Bank Plc.

Requirements:
a. Advise the engagement partner on the risks involved in taking up the audit.

(4 Marks)
b. Recommend appropriate actions for management and your firm to address financial statement risks.

(8 Marks)
c. Prepare a management letter with two matters suitable for submission to the directors.

(8 Marks)

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  • 20 Marks

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.

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  • 5 Marks

AAA – Nov 2016 – L3 – Q4b – Audit of IT Systems and Data Analytics

Identify solutions to address the loss of an audit trail in computer-assisted or manual testing.

The availability of Computer-Assisted Audit Techniques should be considered by the Auditor when planning the nature, extent, and timing of tests in an audit. The Auditor must determine their testing strategies, which will depend on their choice of either using a Manual Testing Method or a Computer-Assisted Method.

Required:
Identify FIVE solutions to the loss of an audit trail. (5 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

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  • 15 Marks

AAA – Nov 2021 – L3 – Q7 – Audit of IT Systems and Data Analytics

Discuss control environment requirements of ISA 315 and evaluate control activities for Egunje Distributors Ltd.

Egunje Distributors Limited is a private company in which Chief Idowu is the major shareholder. Chief Idowu set up the business to help provide resources for his philanthropic gestures. He has been involved in the major control activities, and the business was achieving its purpose, and things were working well.

After a number of years, Chief Idowu stepped aside from the business and handed over effective management to one of his subordinates, whom he elevated to the rank of General Manager (GM). The GM followed Chief Idowu’s control processes for only one year and then introduced new ideas and processes, resulting in undue amounts being transferred into his private accounts rather than the company’s accounts. This has affected the results of the company.

While Chief Idowu has not decided to take any hasty action, he has decided to bring in your firm, due to its size, so that through your work, he may understand the reasons for the dwindling performance. It has been discussed and agreed that your report on the audit will provide insight into the reasons for the observed decline in performance.

Required:

a. Discuss the control environment, focusing on the requirements of ISA 315 – Identifying and assessing the risk of material misstatement through understanding the entity and its environment, that will be relevant to this situation. (9 Marks)

b. Evaluate the control activities that will require your attention. (6 Marks)

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  • 15 Marks

AAA – Nov 2021 – L3 – Q6 – Audit of IT Systems and Data Analytics

Outline application controls for computerised systems and develop an audit strategy following ISA 300 for large, computerised clients.

The firm you work for has considered the growing development in some sectors of the economy and the opportunities this development portends.

Your firm is a sole practitioner, and though the partner has the skills and professional competences necessary to undertake big jobs, applications for big jobs have always been turned down.

To get involved and secure some of these big jobs, your partner has dialogued with some other sole practitioners who share the same view. They have agreed to operate a merged firm starting in the year 2022. Appropriate registration of the new practice name with the Corporate Affairs Commission and application for a license in the new name from the Institute are being processed. To prepare for securing and executing some of these big jobs, preparations are set to commence once the registrations are approved. Some of the target jobs involve computerised entities, so your partner has assigned you some preparatory tasks, as he is the lead partner.

Required:

a. Prepare a document showing the application controls that will be focused on in the computerised systems of the entities. (7 Marks)

b. Develop an appropriate audit strategy in accordance with ISA 300, “Planning an audit of financial statements.” (8 Marks)

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  • 15 Marks

AAA – Nov 2011 – L3 – SB – Q1 – Application of Audit and Assurance Principles

Evaluate the steps for identifying and responding to fraud risk during audit planning.

Fela Idaewor is the auditor for Matty Co. Ltd, a rapidly expanding retail business based in Lekki. This is her first year as the audit manager. During her engagement planning, she observed multiple risk factors, such as the company’s strong interest in maintaining earnings and share prices, unrealistic financial forecasts, and high reliance on debt financing for expansion. Additionally, there were strong indications that fraud might have been committed by top management.

Required
(a) What should Idaewor do about the possibility of fraud at the planning stage? (7 Marks)
(b) What documentation is required for identifying risk factors? (5 Marks)
(c) If Idaewor has evidence suggesting fraud, what are her communication responsibilities to management? (3 Marks)

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  • 20 Marks

AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.

ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.

There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.

Required:

a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)

b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)

c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q5 – Audit Planning and Strategy

Discuss professional skepticism, benefits of audit planning, audit strategy, and audit stages.

At the weekly meeting of an audit firm, it was reported that a new audit client (Salisa Limited) has just been won. An implementation team has been constituted with a manager as the head. At the meeting of the implementation team, the manager stated that there is a need for the team to work on the audit planning strategy; the contents of which will form the audit planning memorandum that will be presented to the audit committee. He stated further that a professional clearance has to be sent to the former auditor after which, a background check will be performed on the directors and other principal officers of the company. It is also believed that for proper risk assessment, there is a need to understand the business operations of the company. He stated further that the audit will be structured into both interim and final audits.

An experienced member of the team also mentioned the need for the auditor to adopt an attitude of professional skepticism. He emphasized that planning the audit will involve the whole engagement team to establish an understanding of the terms of the engagement as required by ISA 210, which will help establish an overall strategy for the audit. Developing the audit plan will include the nature, timing, and extent of planned risk assessment procedures, further audit procedures, and documentation of the overall audit strategy.

Required:

a. Explain professional skepticism. (2 Marks)

b. State how adequate planning can benefit the audit team. (3 Marks)

c. Explain and illustrate what the establishment of the overall audit strategy involves. (3 Marks)

d. Discuss the elements of interim and final audits.

(7 Marks)

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  • 20 Marks

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

The management of Pony Bank Plc and its wholly owned subsidiary, Ponte Micro Finance Bank Limited, engaged in fraudulent activities involving the arrangement of bogus loans amounting to ₦5.5 billion in worthless assets, which were undetected by the previous auditors. The former auditors attributed the oversight to a well-organized group within Pony Bank that actively deceived and obstructed the audit process to conceal their actions.

Your firm, Vic Viv & Co, has recently taken on the audit of Pony Bank Plc.

Requirements:
a. Advise the engagement partner on the risks involved in taking up the audit.

(4 Marks)
b. Recommend appropriate actions for management and your firm to address financial statement risks.

(8 Marks)
c. Prepare a management letter with two matters suitable for submission to the directors.

(8 Marks)

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  • 20 Marks

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.

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