Series: NOV 2012

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AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries

This question tests knowledge of reserves that may or may not be reviewed during the audit of a non-life insurance company.

Question

Regarding the audit of a non-life insurance company, which of the following reserves may NOT be reviewed?
A. Reserve for unexpired risks
B. Reserve for outstanding claims
C. Contingent reserve
D. External reserve
E. Statutory reserve

Answer

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Tags: Audit, Non-Life Insurance, Reserves, Specialized Industries
Level: Level 3

Topic: Audit of Specialized Industries
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance

This question identifies assignments that qualify as continuous audit functions.

Question

Which of the following assignments can be regarded as a continuous audit function?
A. Examining the effectiveness, efficiency, and economy of a cement project
B. Evaluating the adequacy of the security and control measures of the information technology
C. Ascertaining the fairness of the annual financial statements and notes to the accounts
D. Reviewing the internal control procedures before commencing the audit
E. Reviewing the company’s compliance with relevant guidance and release of financial information periodically

Answer

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Tags: Compliance, Continuous Audit, Financial Reporting, Internal Control
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting

This question assesses knowledge of the main users of financial reports that auditors focus on.

Question

The main users of financial reports that auditors need to be primarily concerned about are:
A. Management and directors of the company
B. The general public
C. Banks and other financial institutions that provide working capital
D. Suppliers
E. Shareholders of the company

Answer

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Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

Question

Yakubu Chukwu & Co was sued by one of its clients who alleged that the firm failed to satisfy the auditing standards in identifying substandard and obsolete inventory while attending end-of-year stock take. Which of the following is the firm’s best defence?
A. It is quite impossible to expect the firm to identify substandard and obsolete inventory due to the special nature of the inventory
B. Yakubu Chukwu & Co has to prove that its audit has been carried out with reasonable skill, care, and diligence
C. Auditing standards are not legislated, therefore, the client has no right to sue the firm
D. The contributory negligence of the client
E. Identification of substandard and obsolete stock requires an expert opinion

Answer

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Tags: Audit Standards, Auditor Liability, Defence, Obsolete Inventory
Level: Level 3

Topic: Auditor’s Legal Liability
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

Question

When a client has control over a subsidiary, what is the most appropriate audit procedure to obtain evidence to verify subsidiary accounts before consolidation?
A. Arrange for independent valuation of the assets and liabilities of the subsidiary
B. Be involved in the appointment of the subsidiary auditors
C. Rely on additional work carried out by the internal auditors
D. Send a template of your expectation to subsidiary auditors
E. Provide audit program for the subsidiary auditors

Answer

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Tags: Audit Procedure, Consolidation, Group Audits, Subsidiary Accounts
Level: Level 3

Topic: Group audit
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

Question

The main reasons why auditors send a letter of enquiry to the legal firm handling litigation or claims on behalf of their client is to provide:
A. Auditors with weak position in client litigation and claims
B. Auditors with written submission and statement of claims to the court
C. Information concerning the progress of outstanding cases to date
D. Auditors with corroborative audit evidence
E. Auditors with impact of legal opinion on financial statements

Answer

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Tags: Audit evidence, Legal claims, Letter of Enquiry, Litigation
Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

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.

Question

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

Answer

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Tags: Audit Standards, Independence, Local Auditing Standards, Regulatory Framework
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits

This question assesses the scope of social audit and identifies an area it does not cover.

Question

Social audit has to do with the extent to which a company gets involved and interacts with the society in which it operates. This means that social audit does not extend to ONE of the following:
A. Corporate code of conduct and business ethics
B. Pricing policy, product safety, and quality control
C. Transaction audit
D. Employee health and safety
E. Environmental pollution

Answer

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Tags: Business Ethics, Corporate Responsibility, Environmental audit, Social Audit
Level: Level 3

Topic: Environmental and Sustainability Audits
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Question

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

Answer

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Tags: Audit Planning, Audit strategy, Internal Control
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Question

Which of the following is an analytical procedure generally used to produce audit evidence?
A. Confirmations mailed directly to the auditor by the client’s customers
B. Physical observation of inventories
C. Relationship among current financial balances and prior balances, forecasts, and non-financial data
D. Detailed examination of external and internal documents
E. Circularisation letters to debtors and creditors of the company

Answer

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Tags: Analytical procedures, Audit evidence, Audit Techniques
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – SB – Q3 – Public Sector Audit

This question covers the terms related to public sector audit, procedures for auditing revenue, and the distinction between regulatory and financial audits.

Question

a. Explain the following terms in relation to Public Sector Audit:
i. Self-Accounting Unit (2 Marks)
ii. Sub-Accounting Unit (2 Marks)

b. As a staff in the Auditor-General’s office, outline SIX procedures for the audit of revenue collected on behalf of the government. (6 Marks)

c. i. Distinguish between Regulatory Audit and Financial Audit. (2 Marks)
ii. State SIX documents an auditor of a Public Sector Organisation may require in conducting a Compliance Audit. (3 Marks)
(Total 15 Marks)

Answer

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Tags: Compliance Audit, Financial audit, Public Sector Audit, Regulatory Audit, Revenue Collection
Level: Level 3

Topic: Public sector audit
Series: NOV 2012

AAA – Nov 2012 – L3 – SB – Q2 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

This question discusses the audit steps required to assess the true position of a loan portfolio and the provision for doubtful debts.

Question

Your firm, Alheri & Co, has been appointed to carry out an audit assignment on Barders Bank Limited. The Bank’s year ended 30 September 2010. In the process of carrying out this assignment, it was discovered that no provision was made for doubtful debts. Total loans and advances of N50 billion consisting of 200 customers were found to be at various stages of performance except a N1 billion term loan granted to a Director’s relation’s company on 31 December 2009 to be repaid in N100 million monthly equal instalments commencing from 31 January 2010. Interest was simply agreed at N100,000 per month.

As at the time of this audit, no repayment had been made on this loan.

Required:
a. What audit steps should be taken to ascertain the true position of the loan portfolio? (5 Marks)
b. State the basis and determine the provision that should be made on the loan portfolio. (10 Marks)
(Total 15 Marks)

Answer

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Tags: Audit, Doubtful Debts, Financial Reporting, Loans, Provisions
Level: Level 3

Topic: Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)
Series: NOV 2012

AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing

This case examines ethical issues in auditing related to fraudulent practices in a company involved in human trafficking.

Question

You have just been appointed the Auditor of Sheerahmog Manufacturing Company Limited, which manufactures 2.0 ml syringes specifically used by veterinary doctors. Recently, it was discovered that the 2.0 ml syringes are used on human beings due to the shortage of syringes for human use.

The Federal Government has decided to phase out the 2.0ml syringe in the next three years. In order to diversify into production of carbonated water, the Finance Director suggested that the company approach a bank for a complementary N1.26 billion required to finance the diversification program.

In spite of their proposal and cashflow to Bank of Akowonjo Plc, which was described as being fantastic, their loan application was not granted. As a result, the company is likely to go into liquidation with its numerous staff disengaged, if viable alternative is not provided to raise the required fund.

In carrying out the analysis of the sources of funds at the end of the year under review, you found that the company made much money from human trafficking to enable it accomplish the proposed plan of diversification.

At the next meeting with management of the company, you brought your findings to their knowledge and threatened to disclose it as an extraordinary item in the income schedule. Management frowned at it and were considering reviewing your appointment including fee which is currently 52% of your annual income.

Required:
a. Identify the ethical issues involved as they relate to the auditor. (2 Marks)
b. What are the THREE elements of fraudulent practices presented in this case? (6 Marks)
c. What are the safeguards for the ethical issues identified? (4 Marks)
d. List the issues that should be brought to the attention of the company by the auditors as regards the disclosure of the illegal act. (3 Marks)
(Total 15 Marks)

Answer

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Tags: Auditing, Disclosure, Ethical Issues, Fraud, Legal Issues
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q20 – Advanced Audit Planning and Strategy

Identifies an essential element of the audit process that reduces time and cost.

Question

Audit …………….. is essential in every audit process as this reduces audit time and invariably the cost.

Answer

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Tags: Audit Efficiency, Audit Process, Cost reduction, Planning, Time Management
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q19 – Auditor’s Legal Liability

Identifies the conditions under which auditors can have a lien on the client's books and records.

Question

For the auditors to have a right of lien on the books and records of the client, they must have obtained ………… by …………… means.

Answer

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Tags: Audit Ethics, Auditor’s Lien, Client’s Records, Financial Documentation, Legal Rights
Level: Level 3

Topic: Auditor’s Legal Liability
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

Question

The rate of corporate ………… in the last ten years has tended to increase the risk exposure of the auditor.

Answer

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Tags: Audit Risk, Auditor, Corporate, Corporate Governance, Risk Exposure, Risk Management

Topic: Risk Management in Audits
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q17 – Quality Control in Audit Firms

Identifies the requirement for documenting and communicating quality control policies in audit firms.

Question

Audit firms are required to ensure that their quality control policies and procedures are documented and ……………… to the firm’s personnel.

Answer

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Tags: Audit Firms, Communication, Documentation, Policies, Procedures, Quality control
Level: Level 3

Topic: Quality Control in Audit Firms
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q16 – Assurance Engagements

Identifies the linkage of responsible parties in assurance engagements to financial statement examination.

Question

To examine financial statements, in Assurance Engagements, “Responsible Parties” are linked to ………………

Answer

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Tags: Assurance engagements, Audit, Financial Statements, Responsible Parties, Stakeholders
Level: Level 3

Topic: Assurance Engagements
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q15 – Regulatory Framework and Professional Standards

Identifies a major deficiency of local standards compared to IFRS in the presentation of non-current assets.

Question

One of the major deficiencies of our Local Standards over IFRS’s presentation of Non-current Assets is that our Local Standards do not recognise ……………. process.

Answer

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Tags: Accounting Standards, IFRS, Local Standards, Non-current Assets, Regulatory Differences
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

Question

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

Answer

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Tags: Audit Engagement, Audit Planning, Audit strategy, Resource Allocation, Staff Scheduling
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

Series: NOV 2012

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AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries

This question tests knowledge of reserves that may or may not be reviewed during the audit of a non-life insurance company.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries"

AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance

This question identifies assignments that qualify as continuous audit functions.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance"

AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting

This question assesses knowledge of the main users of financial reports that auditors focus on.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting"

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability"

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q16 – Group Audits"

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting"

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.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q14 – Regulatory Framework and Professional Standards"

AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits

This question assesses the scope of social audit and identifies an area it does not cover.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits"

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

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AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

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AAA – Nov 2012 – L3 – SB – Q3 – Public Sector Audit

This question covers the terms related to public sector audit, procedures for auditing revenue, and the distinction between regulatory and financial audits.

You're reporting an error for "AAA – Nov 2012 – L3 – SB – Q3 – Public Sector Audit"

AAA – Nov 2012 – L3 – SB – Q2 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)

This question discusses the audit steps required to assess the true position of a loan portfolio and the provision for doubtful debts.

You're reporting an error for "AAA – Nov 2012 – L3 – SB – Q2 – Audit of Accounting Estimates and Fair Value Measurements (IAS 36, IFRS 13)"

AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing

This case examines ethical issues in auditing related to fraudulent practices in a company involved in human trafficking.

You're reporting an error for "AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing"

AAA – Nov 2012 – L3 – AII – Q20 – Advanced Audit Planning and Strategy

Identifies an essential element of the audit process that reduces time and cost.

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AAA – Nov 2012 – L3 – AII – Q19 – Auditor’s Legal Liability

Identifies the conditions under which auditors can have a lien on the client's books and records.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q19 – Auditor’s Legal Liability"

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits"

AAA – Nov 2012 – L3 – AII – Q17 – Quality Control in Audit Firms

Identifies the requirement for documenting and communicating quality control policies in audit firms.

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AAA – Nov 2012 – L3 – AII – Q16 – Assurance Engagements

Identifies the linkage of responsible parties in assurance engagements to financial statement examination.

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AAA – Nov 2012 – L3 – AII – Q15 – Regulatory Framework and Professional Standards

Identifies a major deficiency of local standards compared to IFRS in the presentation of non-current assets.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q15 – Regulatory Framework and Professional Standards"

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy"

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