- 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.
Question
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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