Question Tag: Key Audit Areas

Giant Club has been in existence for about 6 years. The club membership comprises of eminent individuals in society and has a certificate of registration under the relevant laws. It has an approximate enrollment of 1,000 members. The club’s funding is supported by membership fees, parking fees, rental fees, voluntary donations, and income from endowment investments.

The club has been named as a beneficiary under the wills of two deceased members. Collection on the proceeds of the estate is made subsequent to the balance sheet date. Collections from the will receivable in the amount of N6,200,000 have been recorded based on the available information from the estate administrators. During the 2020 financial year, the club was committed to giving scholarships to seven students in various higher institutions. Accordingly, the club has agreed to pay these individuals regular pocket money in addition to providing medical coverage as needed. Since it is a non-for-profit organisation (NFPO), the club has not been conducting an independent statutory audit of the financial statements since inception. However, the club has been appointing its officers as and when due every two years.

The new Treasurer, who is a professional accountant, took over the control of the treasury and his review revealed that:

• There was no periodic review of inventory items and background check on vendors/suppliers;
• There were calls from vendors stating they haven’t been paid when records show payments have been made;
• There were cases of cash takings not banked;
• No control over cheque lodgments and reconciliation of the bank account;
• No background check for those who handled money;
• The computers used for transactions did not have protective passwords;
• No evidence that the organisation sent acknowledgements to contributors with a record of such acknowledgements kept on file;
• When new members were admitted and they made yearly subscription payments, the club did not issue pre-numbered tickets, which could then be compared to funds deposited;
• When cheques were issued, supporting documentation of expenses and approvals at the time of signing cheques were not available; and
• Requests for reimbursement were not checked for arithmetical accuracy and reasonableness before approval.

The new management of Giant Club has just appointed your firm as the external auditor, and you have been selected as the senior in charge of the audit.

Required:

a. Discuss the activities you will carry out when performing the audit of the Club. (10 Marks)

b. Evaluate the key audit areas that you will focus on to get enough audit evidence on this type of audit.

(5 Marks)

c. Determine other factors that should be of concern in this type of audit. (5 Marks)
(Total 20 Marks)