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Audit firms have been castigated over the years by the public whenever their clients have any financial or operational crises. The potential liability of auditors has also become an important topic in recent years due to the growing complexity of the business and legal environment and an increase in legal actions against auditors. One reason put forward to explain the high number of legal actions against auditors is the “expectation gap.”
Required:
a) Explain “expectation gap” and describe its THREE main elements. (5 Marks)
b) Discuss the strategies that could assist in closing the expectation gap. (10 Marks)
c) i. Explain briefly the concept of professional skepticism. (2 Marks)
ii. Evaluate the importance of professional skepticism in the audit of financial statements. (3 Marks)
(Total 20 Marks)
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Bode, Ugo, Musa and Company is a firm of Chartered Accountants that has existed for over 20 years and achieved a strong reputation for quality audit work. The firm has expanded significantly over the past ten years – doubling its client base across different sectors of the Nigerian economy. The firm currently audits two banks, five listed entities, and over seventy other companies. It has also increased its audit staff base and grown the number of its partners from two to seven over the same period.
However, in the last two years, the firm has had a series of regulatory reviews due to several instances of errors noted in some financial statements audited by the firm. One of the clients, the shareholders of NigerKap Plc, petitioned the regulator over a misstatement in the value of their investment property. This resulted in an overstatement of profit and overpayment of taxes by the company based on the financial statements for the year ended December 31, 2015. The shareholders also threatened to take legal action against the firm.
The Managing Partner (MP) of the firm is very concerned about this situation and has commenced internal procedures to evaluate the quality of audits performed by the firm, especially for the NigerKap audit of 2015. A committee has been set up…
Required:
Discuss the internal procedures that Bode, Ugo, Musa and Company should implement to improve audit quality and prevent further regulatory issues.
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Auditors are regulated by professional bodies and should follow recognised auditing standards such as International Standards on Auditing (ISAs).
Required:
Explain why it is important for audits to be conducted in accordance with Auditing Standards that are common to all audits.
Find Related Questions by Tags, levels, etc.
Audit engagement rests on mutual understanding and respect between the auditor and the auditee. The Auditor, while not viewing the auditee as dishonest, must also have at the back of his mind that to err is human and must therefore not accept evidence from the auditee without further cross-checking the facts. The attitude should be that the auditor must have an enquiring mind. This is known as professional skepticism; while trusting, he must verify.
Required:
i) What FOUR (4) issues should be considered in Professional Skepticism assessment during performance audit? (5 marks)
ii) State FIVE (5) circumstances that can hinder Professional Skepticism at the engagement level. (5 marks)
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You are the Audit Manager in Peptom Partners, a firm of Chartered Accountants. Your role includes performing post-issuance audit quality reviews. You have been tasked to review the audit work performed on Kaaklo Plc for the financial year ended 31 January 2021. The following information was gathered from your review of the audit file:
Audit team and fees
Kaaklo Plc is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Kaaklo Plc has been an audit client of Peptom Partners for eight years, and Kofi Sika has been the Audit Engagement Partner during this time. Kaaklo Plc’s auditor’s report was signed by Kofi Sika and issued last week. The report contained an unmodified opinion.
Peptom Partners requires its staff to record each hour they spend working on each client in the firm’s time management system.
From reviewing the time records relating to the audit of Kaaklo Plc, you identified that Kofi Sika and the other audit team members recorded the following hours on the audit:
Total time spent on audit: 173 hours
It is apparent from your review that almost all the detailed review of the audit working papers was completed by Mabel, who has evidenced her review by stating ‘final review’ on each page of the audit file. She has recently been promoted to the position of Audit Manager.
You are also aware that Kofi Sika booked a total of 40 hours to Kaaklo Plc in respect of non-audit work performed. The only information you can find in the file is that the non-audit work related to a ‘special investigation,’ and that Kofi Sika confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was GH¢250,000 and the fee for the ‘special investigation’ was GH¢890,000.
Going concern
From reviewing the audit working papers, you are aware that Kaaklo Plc’s ability to continue operating into the foreseeable future was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the company’s construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.
Most of the audit work on going concern was performed by Mary Lamptey, an audit assistant who has just written her last professional exam and is not yet qualified. The majority of the audit work performed on the going concern focused on a review of five major contracts to determine their profitability. The management of Kaaklo Plc identified the major contracts for review and provided Mary with forecasts indicating that the contracts would have little impact on profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary concluded that there is no significant uncertainty over Kaaklo Plc operating into the foreseeable future.
Required:
Comment on the quality of the planning and performance of the audit of Kaaklo Plc. (10 marks)
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Audit Quality has been a topical issue for discussion in the accountancy profession in recent times. The International Auditing and Assurance Standards Board (IAASB) has recently issued a publication on the Framework for Audit Quality. The objectives of this publication are to raise awareness of the key elements of audit quality; to encourage key stakeholders to explore ways to improve audit quality; and to facilitate greater dialogue between key stakeholders on the topic. Although audit quality is principally the responsibility of auditors, there are many factors that contribute to it. The IAASB describes these other factors as contextual, inputs, outputs, and key interactions.
Required:
Discuss with examples what factors affect Audit Quality according to the recent publication of the IAASB on Audit Quality. (10 marks)
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You are the audit manager in charge of training in one of the audit firms in Ghana. The Institute of Chartered Accountants (Ghana) invited you to be a resource person of a Continuing Professional Development (CPD) programme to be organised. You are to talk on Professional Scepticism in an audit of Financial Statements.
Required:
Identify and discuss the matters that you will include in your training material.
NB: Your answer should consider the IAASB Q & A paper on professional scepticism.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Audit firms have been castigated over the years by the public whenever their clients have any financial or operational crises. The potential liability of auditors has also become an important topic in recent years due to the growing complexity of the business and legal environment and an increase in legal actions against auditors. One reason put forward to explain the high number of legal actions against auditors is the “expectation gap.”
Required:
a) Explain “expectation gap” and describe its THREE main elements. (5 Marks)
b) Discuss the strategies that could assist in closing the expectation gap. (10 Marks)
c) i. Explain briefly the concept of professional skepticism. (2 Marks)
ii. Evaluate the importance of professional skepticism in the audit of financial statements. (3 Marks)
(Total 20 Marks)
Find Related Questions by Tags, levels, etc.
Bode, Ugo, Musa and Company is a firm of Chartered Accountants that has existed for over 20 years and achieved a strong reputation for quality audit work. The firm has expanded significantly over the past ten years – doubling its client base across different sectors of the Nigerian economy. The firm currently audits two banks, five listed entities, and over seventy other companies. It has also increased its audit staff base and grown the number of its partners from two to seven over the same period.
However, in the last two years, the firm has had a series of regulatory reviews due to several instances of errors noted in some financial statements audited by the firm. One of the clients, the shareholders of NigerKap Plc, petitioned the regulator over a misstatement in the value of their investment property. This resulted in an overstatement of profit and overpayment of taxes by the company based on the financial statements for the year ended December 31, 2015. The shareholders also threatened to take legal action against the firm.
The Managing Partner (MP) of the firm is very concerned about this situation and has commenced internal procedures to evaluate the quality of audits performed by the firm, especially for the NigerKap audit of 2015. A committee has been set up…
Required:
Discuss the internal procedures that Bode, Ugo, Musa and Company should implement to improve audit quality and prevent further regulatory issues.
Find Related Questions by Tags, levels, etc.
Auditors are regulated by professional bodies and should follow recognised auditing standards such as International Standards on Auditing (ISAs).
Required:
Explain why it is important for audits to be conducted in accordance with Auditing Standards that are common to all audits.
Find Related Questions by Tags, levels, etc.
Audit engagement rests on mutual understanding and respect between the auditor and the auditee. The Auditor, while not viewing the auditee as dishonest, must also have at the back of his mind that to err is human and must therefore not accept evidence from the auditee without further cross-checking the facts. The attitude should be that the auditor must have an enquiring mind. This is known as professional skepticism; while trusting, he must verify.
Required:
i) What FOUR (4) issues should be considered in Professional Skepticism assessment during performance audit? (5 marks)
ii) State FIVE (5) circumstances that can hinder Professional Skepticism at the engagement level. (5 marks)
Find Related Questions by Tags, levels, etc.
You are the Audit Manager in Peptom Partners, a firm of Chartered Accountants. Your role includes performing post-issuance audit quality reviews. You have been tasked to review the audit work performed on Kaaklo Plc for the financial year ended 31 January 2021. The following information was gathered from your review of the audit file:
Audit team and fees
Kaaklo Plc is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Kaaklo Plc has been an audit client of Peptom Partners for eight years, and Kofi Sika has been the Audit Engagement Partner during this time. Kaaklo Plc’s auditor’s report was signed by Kofi Sika and issued last week. The report contained an unmodified opinion.
Peptom Partners requires its staff to record each hour they spend working on each client in the firm’s time management system.
From reviewing the time records relating to the audit of Kaaklo Plc, you identified that Kofi Sika and the other audit team members recorded the following hours on the audit:
Total time spent on audit: 173 hours
It is apparent from your review that almost all the detailed review of the audit working papers was completed by Mabel, who has evidenced her review by stating ‘final review’ on each page of the audit file. She has recently been promoted to the position of Audit Manager.
You are also aware that Kofi Sika booked a total of 40 hours to Kaaklo Plc in respect of non-audit work performed. The only information you can find in the file is that the non-audit work related to a ‘special investigation,’ and that Kofi Sika confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was GH¢250,000 and the fee for the ‘special investigation’ was GH¢890,000.
Going concern
From reviewing the audit working papers, you are aware that Kaaklo Plc’s ability to continue operating into the foreseeable future was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the company’s construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.
Most of the audit work on going concern was performed by Mary Lamptey, an audit assistant who has just written her last professional exam and is not yet qualified. The majority of the audit work performed on the going concern focused on a review of five major contracts to determine their profitability. The management of Kaaklo Plc identified the major contracts for review and provided Mary with forecasts indicating that the contracts would have little impact on profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary concluded that there is no significant uncertainty over Kaaklo Plc operating into the foreseeable future.
Required:
Comment on the quality of the planning and performance of the audit of Kaaklo Plc. (10 marks)
Find Related Questions by Tags, levels, etc.
Audit Quality has been a topical issue for discussion in the accountancy profession in recent times. The International Auditing and Assurance Standards Board (IAASB) has recently issued a publication on the Framework for Audit Quality. The objectives of this publication are to raise awareness of the key elements of audit quality; to encourage key stakeholders to explore ways to improve audit quality; and to facilitate greater dialogue between key stakeholders on the topic. Although audit quality is principally the responsibility of auditors, there are many factors that contribute to it. The IAASB describes these other factors as contextual, inputs, outputs, and key interactions.
Required:
Discuss with examples what factors affect Audit Quality according to the recent publication of the IAASB on Audit Quality. (10 marks)
Find Related Questions by Tags, levels, etc.
You are the audit manager in charge of training in one of the audit firms in Ghana. The Institute of Chartered Accountants (Ghana) invited you to be a resource person of a Continuing Professional Development (CPD) programme to be organised. You are to talk on Professional Scepticism in an audit of Financial Statements.
Required:
Identify and discuss the matters that you will include in your training material.
NB: Your answer should consider the IAASB Q & A paper on professional scepticism.
Find Related Questions by Tags, levels, etc.
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