Question Tag: Independence

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q14 – Regulatory Framework and Professional Standards

This question assesses knowledge of factors that weaken local auditing standards and identifies an unrelated factor.

Factors that contribute to the weaknesses of local auditing standards include the following EXCEPT:
A. Standard setters being subject to political pressures
B. Having inadequate resources
C. Being insufficiently timed in response to market needs
D. Loss of investment by stakeholders
E. Having sources of fund which raise questions about their independence

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  • 20 Marks

AAA – Nov 2020 – L3 – Q6 – Ethical Issues in Auditing

Preparation of briefing notes on audit tendering, ICAN requirements for advertising, fees, and assessment of client suitability.

Nash Investigations Limited specializes in conducting investigations for corporate clients. It employs ex-police officers, security consultants, IT, and fraud specialists. Nash Investigations recently dropped its firm of auditors and has approached your firm to participate in a tender process for selecting the new auditor. You are a manager in the audit firm and will be working with a senior auditor on this assignment. The senior auditor has never been involved in a tender process or appointment of a new auditor. You have been provided with the following information:

  1. Nash Investigations is a major service provider to your firm, particularly in the provision of IT and fraud consultancy.
  2. Nash Investigations has acrimoniously dropped their previous auditors and is withholding fees, pending the resolution of a number of issues, particularly accusations concerning the auditors’ competence.
  3. Nash Investigations is currently facing a hostile takeover bid from Technical Investigations Group, a company also audited by your firm.
  4. Media reports of a fraud allegation have been leveled against one of the directors of Nash Investigations.
  5. One of the partners in the audit firm is also a director of Nash Investigations.

Required:

Prepare briefing notes to explain the following matters to the audit senior:

a. The audit tendering process in terms of the stages that the audit firm will go through should it decide to participate in the tender.
(5 Marks)

b. The requirements of the ICAN Code of Conduct on advertising and publicity.
(5 Marks)

c. The requirements of the ICAN Code of Conduct on fees.
(5 Marks)

d. The impact of each additional piece of information provided above and how this information would influence your decision to participate in the audit tender for Nash Investigations.
(5 Marks)

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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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  • 20 Marks

AAA – May 2018 – L3 – SB – Q4 – Ethical Issues in Auditing

Educate staff on IFAC’s Code of Ethics principles, types of independence, and general sources of ethical threats in accounting.

You are the HR partner in Ekemode & Company (Chartered Accountants). As part of the continuous training program of your firm, you are to organize an in-house seminar to educate the staff of your firm on Rules of Professional Conduct. You have decided to emphasize the IFAC’s Code of Ethics for Professional Accountants published by the International Ethics Standard Board for Accountants (IESBA), which was recently adopted by ICAN into their localized code called “The Professional Code of Conduct and Guide for Members.”

Required:

a. Explain briefly the FIVE fundamental principles of the IFAC’s Code of Ethics for Professional Accountants. (7½ Marks)

b. Explain independence of mind and independence of appearance to the staff. (5 Marks)

c. Explain briefly THREE general sources of threat to the fundamental principles of the IFAC’s Code of Ethics for Professional Accountants. (7½ Marks)

(Total 20 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.

The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:

  • Cheque suppression
  • Fraudulent bookkeeping to overstate income
  • Inflation of the worth of the company’s assets
  • Intercepting replaced customers’ cards
  • Fraudsters impersonating Senior Managers or Chief Executive Officer
  • Online banking fraud, such as phishing, malware attacks, and clone websites
  • Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)

The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.

After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.

Required:

a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)

b. Outline the advantages and disadvantages of outsourcing. (10 Marks)

c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)

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  • 15 Marks

MGE – Nov 2014 – L2 – Q6 – Corporate Governance

Evaluating stakeholder impact and ethical principles in response to financial reporting manipulation.

Gloria Okeke is the Chairman and Chief Executive Officer of Magi and Magi Pharmaceuticals, which produces drugs for the Lagoona region of the country. Gloria is convinced that the company is doing quite well and the management is following due process in terms of structure and governance. She believes that this is the reason for the company’s steady growth in terms of revenue, profit, and earnings.

In 2013, Magi and Magi Pharmaceuticals made a profit of 70% over and above the 2012 results. Mr. Joeb, the Chief Accountant, is quite impressed and is of the opinion that the company should make full disclosure of its profits in the Financial Statements, thinking this would engender greater confidence and attract additional investment in the company.

However, Gloria, claiming to be the boss, instructed Joeb to increase her compensation and inflate the cost of production of pharmaceutical drugs to reduce the disclosed profit of the company.

Joeb outrightly disagreed with Gloria’s instruction, giving her a long talk about his duty to comply with his Institute’s professional rules of conduct. However, Gloria cut short the meeting, saying that she did not wish to entertain any further discussion about her decision. She advised Joeb, in his own interest, to implement her instructions.

Required:

a. As a chartered accountant, specify any THREE categories of stakeholders that Joeb should consider in taking any professional decision or action with regard to the instruction stated above and give reasons for your choice.
(7½ Marks)

b. Discuss the basic principles of ethics that Joeb, as a chartered accountant, should comply with in the course of carrying out his professional responsibilities.
(7½ Marks)

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  • 30 Marks

AA – Nov 2014 – L2 – Q1 – Risk Assessment and Internal Control

Analyze audit risks and ethical considerations for a new audit engagement with a telecommunication firm.

You are the Principal Partner in charge of a four-partner firm of Chartered Accountants. Your firm has been invited to tender for the audit of Poles Apart Limited for the year ended 31 December 2013.

Poles Apart Limited was established two years ago and provides mobile phone service for individuals and businesses. The system established by the company comprises:

  1. Small portable mobile phones, which allow subscribers to contact or be contacted by any other telephone.
  2. The mobile phones can be used within the range of a local relay station that receives and sends calls to the mobile phone.
  3. The local relay stations are linked to a central computer that connects the calls to other users, often through a computer telephone network.
  4. Currently, the local relay stations cover one large city with a population of about 1,000,000. In the next year, the system will expand to all cities in Nigeria with populations over 250,000. By 2017, it will cover all motorways and cities with populations over 100,000, which will involve substantial capital expenditure and require additional borrowings.
  5. The cost of the relay stations and central computer is capitalized and amortized over six years.
  6. The mobile phones are manufactured by other companies and sold through retailers. Poles Apart Limited pays ₦2,000 to the retailer for each phone sold, which is capitalized and amortized over four years.
  7. Subscribers are invoiced monthly with a fixed line rental and a variable call charge. Charges for calls from other operators are also calculated by the company’s main computer.
  8. All shares are owned by three wealthy individuals who serve as non-executive directors. They receive a fixed allowance and do not plan further investment in the company.
  9. Establishing the network of relay stations and subscribers will result in losses for at least three years, with current borrowings at about 20% of shareholders’ funds. It is expected that the company will be highly geared by 2016.
  10. As the company will not be immediately profitable, executive directors receive a basic salary and a bonus based on the number of subscribers.
  11. The owners plan to float the company on the local Stock Exchange in 2016. The flotation will involve issuing new shares to the public and the three non-executive directors selling some of their shares.
  12. Poles Apart Limited has several large competitors, each with comprehensive coverage of over 90% of the population.

Required:

a. Consider the risks associated with the audit of Poles Apart Limited. (12 Marks)

b. Describe the ethical matters you should consider in deciding whether your audit firm should accept the audit engagement. This should include considering whether your firm has the technical and logistical ability to carry out the audit. (12 Marks)

c. Advise on whether you should accept or decline the audit assignment, giving your principal reasons for coming to this decision. (6 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2b – The Role and Responsibilities of Auditors

This question explains the steps an incoming auditor must take after accepting an appointment when there is a change in professional auditors.

Explain in brief the measures to be taken by incoming Independent Auditors after accepting an appointment and when there is a change in professional appointment.

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  • 5 Marks

AA – Nov 2016 – L2 – Q2a – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

This question addresses the ethical issues auditors face when accepting clients and engagements, focusing on independence and professional conduct.

Audit practice around the world is generally a business, and its objective is to make profit. However, this does not mean that the practice should automatically accept every audit engagement that is offered to it to maximise profit. Circumstances may arise where it is appropriate to decline the offer of an audit engagement for either commercial or ethical reasons.

Required:
a. Discuss the ethical issues to be considered by an independent auditor in the following matters:
i. Client Acceptance
ii. Engagement Acceptance
(5 Marks)

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  • 40 Marks

AA – Nov 2019 – L2 – Q1 – Introduction to Auditing

Discuss the objectives of external audit services, eligibility for external auditors, rights and duties of external auditors, and management responsibilities.

Boniface Bank Limited placed an advert in the national dailies requesting for proposals for external audit services.

You are provided with the following information:

Boniface Bank Limited was licensed as a commercial bank in 2018. The shareholders’ fund is N25 billion and the bank is mainly in the retail business. The bank is a national bank with presence in the state capitals of the six geopolitical zones in Nigeria. The bank is gaining recognition as an institution that finances small and medium scale enterprises in the country.

The policy of the bank is to have an auditor for a 10-year tenure and a partner rotation every five years.

Scope of work

In line with best practices, external auditors are expected to be independent and conduct the audit of the books of the bank in conformity with the International Financial Reporting Standards (IFRS) and the International Standards on Auditing (ISA). They are also expected to provide other services as the need arises that will not compromise their independence.

To be specific, the successful firm will be required to:

  • Conduct an audit and report on the state of affairs and operations of the bank for the year ended December 31, 2018;
  • Advise management on the treatment and disclosures of certain items in the financial statements as the need arises, for example, new and revised standards;
  • Make presentations to shareholders on the state of affairs and operations of the bank at the Annual General Meeting; and
  • Present the management letter on weaknesses identified during the audit.

Qualifications of the firm

The audit firm to be selected should have at least six partners with good quality control processes and robust audit software. In addition, the firm must have subject matter experts in the International Financial Reporting Standards.

The proposal should state the firm’s experience in bank audits, fee quote, the proposed engagement team, the audit approach, and relevant activities for smooth operation of the audit including steps necessary to conduct a hitch-free audit.

Independence

The proposal should indicate how the firm will ensure that it maintains its independence and avoids conflicts of interest throughout the period of appointment as auditors.

Submission

You are expected to submit your proposal not later than 5p.m. on December 13,
2018.
The shortlisted firms shall be invited for presentations as soon as possible and will
be finally contacted for follow up interviews if successful.
(For any further clarification, please contact Olaolu Aki on 0071562534.)
The partners of your firm are interested in the proposal of Boniface Bank Limited.
You have been requested to make input for the proposal as soon as possible.

Required:

Discuss the following:
a. Objectives of the external audit of Boniface Bank Limited. (4 Marks)
b. Eligibility for qualification as external auditor. (10 Marks)
c. Rights and duties of external auditors under the Companies and Allied
Matters Act CAP C20 LFN 2004. (10 Marks)
d. Responsibility of management and those charged with governance.
(10 Marks)
e. Requirements of auditors in relation to International Standards on Auditing
(ISA 200). (6 Marks)

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  • 20 Marks

AA – Nov 2020 – L2 – Q4 – Internal Audits

Differentiate between internal and external audit, list internal auditors' activities, justify the need for internal audits, and explain measures to protect auditor independence.

Range Nigeria Limited is a large private company, with a financial year end of March 31, 2020, and has been an audit client of your firm for several years. The board of directors has asked your firm if they would be able to provide internal audit services to the company.

Required:
a. Differentiate between internal and external audits. (6 Marks)
b. List the activities of internal auditors. (4 Marks)
c. Justify the need for internal audits. (4 Marks)
d. Explain the measures that can be taken to protect the independence of auditors, given that auditors are expected to be independent, including internal audit. (6 Marks)

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  • 1 Marks

FA – May 2014 – L1 – SA – Q2 – Accounting Concepts

Identifies the concept that implies independence of judgment.

Which concept connotes independence of judgment on the part of the Accountant preparing financial statements?

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  • 10 Marks

AA – Nov 2023 – L2 – Q4d – Internal Audit and Its Relationship with External Audit

This question identifies measures to ensure the independence of the internal auditor.

The independence of an internal auditor can be challenging, especially if he or she is a full-time employee, as compared to the external auditor who is not an officer of the company. For that matter, companies try to ensure the independence of the internal auditor through various methods.

Required:
Identify and explain FIVE (5) measures that can be put in place to ensure the independence of the internal auditor.
(10 marks)

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  • 10 Marks

AA – Nov 2019 – L2 – Q2b – Professional and Ethical Considerations

Discusses whether the audit firm complied with the IFAC Code of Ethics in relation to independence in two scenarios.

Sowah Quartey & Co., a firm of Auditors with a number of clients listed on the Ghana Stock Exchange, recently held a staff training session on quality control. During the session, staff raised matters from their experience relating to the ethical code on independence. Some of these matters are outlined below:

i) Shortly before commencing the final audit of a large listed company, a Junior Staff member on the audit team inherited a substantial number of shares in that company. No action was taken because, although representing a large investment for the staff member concerned, the number of shares was totally immaterial with respect to the company. Moreover, the partner knew that if the company’s results are announced, there will be a rise in the share price, and he did not think it was fair to require the staff member to sell them beforehand.
(5 marks)

ii) The Management Accountant of another listed client company had an accident and was away from work for three months. At the time of the accident, the audit senior was winding up the prior year’s audit. Given his familiarity with the company’s management accounting system, it was agreed that he would take over as Management Accountant for the three months.
(5 marks)

Required:
Discuss whether Sowah Quartey & Co had complied with the IFAC’s Code of Ethics or had acted unprofessionally in any other way with respect to each of the above scenarios.

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  • 5 Marks

AA – Mar 2023 – L2 – Q2b – Professional and Ethical Considerations

Discuss the conceptual framework for maintaining independence in audit and assurance engagements.

The independence of a practicing accounting firm needs to be critically assessed, whether performing an audit or other assurance engagements. The independence requirements for audit and review engagements apply to the firm, network firms, and members of the audit review team. The IESBA Code for Professional Accountants outlines a key conceptual framework approach to be applied by accountants in practice.

Required:
Discuss this key conceptual framework approach.

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  • 8 Marks

AA – Nov 2020 – L2 – Q3b – Audit and Assurance Evidence

Outline factors to consider when appointing an auditor’s expert.

Future Prospects Company Ltd is a multinational company operating in Ghana. Its core operations include management of pension funds and real estate development. In preparing the financial statements, they carry out an appraisal of the pension funds to assess its ability to pay benefits to contributors. Periodic revaluation of lands and buildings was also carried out.

Required:
Outline FOUR (4) factors you will consider when deciding to appoint an auditor’s expert.
(8 marks)

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  • 4 Marks

AA – May 2016 – L2 – Q3b – Institutional Regulation and Standard-Setting

This question explains how an audit committee benefits both external and internal auditors by enhancing communication, independence, and oversight.

(b) Businesses may establish an audit committee to help improve corporate governance within a company. This can provide benefits to both internal and external auditors.

Required:
Explain how an audit committee can benefit both the external auditors and the internal auditors of an entity. (4 marks)

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  • 12 Marks

AA – May 2016 – L2 – Q2a – Professional and Ethical Considerations

This question examines ethical threats and their mitigation in the context of audit engagements.

(a) You are a manager in the audit firm of ABC & Co; and this is your first time you have worked on one of the firm’s established clients, Tark Co. The main activity of Tark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities, and investing in tax-efficient savings schemes. Tark is regulated by the relevant financial services authority.

You have been asked to start the audit planning for Tark Co, by Mr. Soon, a partner in ABC & Co. Mr. Soon has been the engagement partner for Tark Co for the past nine years and has excellent knowledge of the client. Mr. Soon has informed you that he would like his daughter, Afi, to be part of the audit team this year; Afi is currently studying for her first set of knowledge-level papers for her ICAG qualification. Mr. Soon also informs you that Mr. Fac, the audit senior, received investment advice from Tark Co during the year and intends to do the same next year.

In an initial meeting with the finance director of Tark Co, you learned that the audit team will not be entertained on Tark Co.’s yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved, and he trusts that your firm will accept a fixed fee for representing Tark Co in a dispute regarding the amount of sales tax payable to the taxation authorities.

Required:

(i) Explain the ethical threats which may affect the auditor of Tark Co. (6 marks)

(ii) For each ethical threat, discuss how the effect of the threat can be mitigated. (6 marks)

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  • 10 Marks

AA – May 2021 – L2 – Q4c – Internal Audit and Its Relationship with External Audit

Explain limitations of the Internal Audit Unit and steps to ensure independence.

Internal audit is one of the supporting functions within an organisation. This function is set up reluctantly in many entities. It is most of the time denied the recognition and resources it requires to operate. Internal Auditors report administratively to the CEO’s of organisations even though they are required to functionally report to the Audit Committees of their respective organisations on professional issues.

Required:
Explain FIVE (5) limitations of the Internal Audit Unit and discuss steps that the Internal Audit Unit can initiate to remain independent even though they are employees of a company. (10 marks)

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  • 4 Marks

AA – Nov 2021 – L2 – Q3c – Professional and Ethical Considerations

Discusses threats to audit independence due to personal relationships and financial incentives during audit engagements and suggests safeguards.

Kom & Associates, an audit firm, has regularly been auditing Ake Ltd. At the beginning of the current financial year, the wife of Koffie, the engagement partner of Kom & Associates, was appointed the personal assistant to the Chief Executive of Ake Ltd. In the course of the fieldwork, the audit team was given lunch and money for transport by Ake Ltd.

Required:
Discuss the threats and safeguards for the audit.

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