Question Tag: ISA Compliance

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  • 30 Marks

AA – Nov 2022 – L2 – Q1 – Audit Opinion and Standards

Explores the auditor's opinion, ISA 200 objectives, audit scope, and regulatory roles in auditing standards compliance.

In an accountancy class on “Audit Opinion in International Standards on Auditing”, Ado, a lecturer at ICAN University, was explaining to the students that the end product of external audit work is the auditor‟s opinion expressed on the financial statements. He stated that a general purpose financial statement was in compliance with the financial reporting framework designed to meet the common financial information needs of a wide variety of users.

The role of audit is to provide a high level of assurance to the users of the financial statements and that it is necessary for users to have confidence that consistent auditing standards have been applied to the audits of financial statements of companies. He went further to explain that the overall objectives of the independent auditor is to ensure that the conduct of an audit is in accordance with International Standards on Auditing. He concluded that the auditor‟s report shall include a section with the heading “Opinion” as stated below
Opinion
We have audited the financial statements of Inajit Plc set out on pages XXX to XXXX which comprise the statement of financial position as at year end date, and the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of financial position of Inajit Plc as at year end date, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies and Allied Matters Act 2020 and Financial Reporting Council Act,2011. At the end of the lecture a student in the class came to you for further explanation on the topic.
Required:
a. State the objectives of the independent auditor as stated in International Standards on Auditing. (5 Marks)
b. Outline what ISA 200 requires the auditor to do in relation to the audit of financial statements. (10 Marks)
c. Explain the scope of audit as described in the independent auditor’s report. (5 Marks)
d. Highlight the role of regulatory bodies in ensuring that audits are carried out in line with standards. (10 Marks)

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  • 20 Marks

AA – May 2023 – L2 – SA – Q4 – Ethical Issues in Auditing

Identify threats to auditor independence, assess circumstances affecting independence, and suggest safeguards.

Cringe Professional Services has been auditing Kogberegbe Limited for about 20 years. Being a limited liability company, no regulation imposed restriction on the tenure of the auditors.

The firm also provides taxation and valuation services for the company. The company has just adopted International Financial Reporting Standards and has employed the services of Cringe Professional Services for conversion services from local GAAP. The firm experienced a high staff turnover in the year and has no choice but to include the daughter of the Managing Director of the company as part of the engagement team, although as a support staff.

Management has indicated in confidence that the audit fee for the year will not be increased, except the firm can guarantee them that no adverse management letter will be issued and no loss will be made by the company as they are planning to go to the capital market to raise capital for expansion. With poor management letter and loss position, they believe that it will be difficult to achieve this.

At the end of the audit exercise, the company made a huge profit even with unfavorable economic climate, thanks to challenges associated with COVID-19. There was public outcry because it was believed that the financial statements of the company were misstated, and the auditor was accused of negligence. This necessitated the Financial Reporting Council to conduct an investigation on the company. It was found that the company restructured its debt portfolio, which was denominated in foreign currency with attendant foreign exchange risks to Naira.

The company restructured a huge intercompany loan to a 7-year principal payment holiday with principal repayment commencing September 30, 2025. The interest on the loan for the period was not brought into the books of account.

The company accrued for a NGN70.60m benefit from a transaction in 2019 from operating fees. This has been treated as income in the financial statements.

There were identified defaults by the company in relation to the payment of interests and principal on its outstanding loans and borrowings.

There were adverse ratios in the company’s financial performance ratios in the year due to interest on borrowings from financial institutions and related parties.

A revisit of the operating performance for the year revealed the following:

  • The entity made an operating loss of N1.22 billion.
  • It generated negative operating cashflows of N2.15 billion.
  • There was positive working capital as the current assets exceeded the current liabilities by N1.2 billion in the year.
  • The net assets position of the company was in the negative as the total liabilities exceeded the total assets by N9.8 billion.

The Financial Reporting Council concluded that there were threats to the auditors’ independence, hence the professional firm was penalized for that.

A concerned staff of the company asks you of the implications of the issues raised by the Financial Reporting Council.

Required:

a. Identify and explain the threats to independence of the auditor in the above scenario. (7 Marks)

b. Discuss circumstances that could give rise to threats to independence. (7 Marks)

c. Suggest appropriate safeguards which could be put in place to mitigate the identified threats. (6 Marks)

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  • 30 Marks

AA – Nov 2022 – L2 – Q1 – Audit Opinion and Standards

Explores the auditor's opinion, ISA 200 objectives, audit scope, and regulatory roles in auditing standards compliance.

In an accountancy class on “Audit Opinion in International Standards on Auditing”, Ado, a lecturer at ICAN University, was explaining to the students that the end product of external audit work is the auditor‟s opinion expressed on the financial statements. He stated that a general purpose financial statement was in compliance with the financial reporting framework designed to meet the common financial information needs of a wide variety of users.

The role of audit is to provide a high level of assurance to the users of the financial statements and that it is necessary for users to have confidence that consistent auditing standards have been applied to the audits of financial statements of companies. He went further to explain that the overall objectives of the independent auditor is to ensure that the conduct of an audit is in accordance with International Standards on Auditing. He concluded that the auditor‟s report shall include a section with the heading “Opinion” as stated below
Opinion
We have audited the financial statements of Inajit Plc set out on pages XXX to XXXX which comprise the statement of financial position as at year end date, and the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of financial position of Inajit Plc as at year end date, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies and Allied Matters Act 2020 and Financial Reporting Council Act,2011. At the end of the lecture a student in the class came to you for further explanation on the topic.
Required:
a. State the objectives of the independent auditor as stated in International Standards on Auditing. (5 Marks)
b. Outline what ISA 200 requires the auditor to do in relation to the audit of financial statements. (10 Marks)
c. Explain the scope of audit as described in the independent auditor’s report. (5 Marks)
d. Highlight the role of regulatory bodies in ensuring that audits are carried out in line with standards. (10 Marks)

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  • 20 Marks

AA – May 2023 – L2 – SA – Q4 – Ethical Issues in Auditing

Identify threats to auditor independence, assess circumstances affecting independence, and suggest safeguards.

Cringe Professional Services has been auditing Kogberegbe Limited for about 20 years. Being a limited liability company, no regulation imposed restriction on the tenure of the auditors.

The firm also provides taxation and valuation services for the company. The company has just adopted International Financial Reporting Standards and has employed the services of Cringe Professional Services for conversion services from local GAAP. The firm experienced a high staff turnover in the year and has no choice but to include the daughter of the Managing Director of the company as part of the engagement team, although as a support staff.

Management has indicated in confidence that the audit fee for the year will not be increased, except the firm can guarantee them that no adverse management letter will be issued and no loss will be made by the company as they are planning to go to the capital market to raise capital for expansion. With poor management letter and loss position, they believe that it will be difficult to achieve this.

At the end of the audit exercise, the company made a huge profit even with unfavorable economic climate, thanks to challenges associated with COVID-19. There was public outcry because it was believed that the financial statements of the company were misstated, and the auditor was accused of negligence. This necessitated the Financial Reporting Council to conduct an investigation on the company. It was found that the company restructured its debt portfolio, which was denominated in foreign currency with attendant foreign exchange risks to Naira.

The company restructured a huge intercompany loan to a 7-year principal payment holiday with principal repayment commencing September 30, 2025. The interest on the loan for the period was not brought into the books of account.

The company accrued for a NGN70.60m benefit from a transaction in 2019 from operating fees. This has been treated as income in the financial statements.

There were identified defaults by the company in relation to the payment of interests and principal on its outstanding loans and borrowings.

There were adverse ratios in the company’s financial performance ratios in the year due to interest on borrowings from financial institutions and related parties.

A revisit of the operating performance for the year revealed the following:

  • The entity made an operating loss of N1.22 billion.
  • It generated negative operating cashflows of N2.15 billion.
  • There was positive working capital as the current assets exceeded the current liabilities by N1.2 billion in the year.
  • The net assets position of the company was in the negative as the total liabilities exceeded the total assets by N9.8 billion.

The Financial Reporting Council concluded that there were threats to the auditors’ independence, hence the professional firm was penalized for that.

A concerned staff of the company asks you of the implications of the issues raised by the Financial Reporting Council.

Required:

a. Identify and explain the threats to independence of the auditor in the above scenario. (7 Marks)

b. Discuss circumstances that could give rise to threats to independence. (7 Marks)

c. Suggest appropriate safeguards which could be put in place to mitigate the identified threats. (6 Marks)

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