Topic: Audit Completion and Final Review

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  • 15 Marks

AAA – May 2023 – L3 – Q5 – Audit Completion and Final Review

Discuss reasons for reviewing predecessor auditor’s work, audit procedures for sufficient evidence, and actions for insufficient audit evidence.

Vigo Microfinance Bank Limited was incorporated on July 1, 2014, as a public limited company under the Companies and Allied Matters Act. The bank obtained a Microfinance banking license from the Central Bank on August 5, 2015, to operate on a nationwide basis and commenced business operation on September 5, 2015. The bank’s principal business is to provide microfinance banking and related services to the poor and underserved segment of society to alleviate poverty under the Microfinance Institutions Ordinance.

In 2019, the bank decided to convert to a commercial bank and commenced business operations on August 10, 2019, after final approval from the regulator. As of December 31, 2019, the bank had five branches (2016: 24) in the Federal Capital and four other major geopolitical zones in the country.

With the new commercial banking license, the bank employed the services of F.K. George Professional Services to audit its financial statements. As part of the activities to be carried out on the initial engagement, the external auditors began a review of the books of account of the predecessor auditor, and the following issues emerged:

  1. Some property, plant, and equipment in the books of account and prior year financial statements had negative net carrying amounts.
  2. The basis for impairment included in prior year financial statements regarding loans and advances could not be established from the working papers.
  3. A material amount of pre-operating expenses included in receivables schedules could not be satisfactorily explained.
  4. Audit work performed on interest income in the prior year was not supported by sufficient appropriate audit evidence.
  5. Details of outstanding tax liabilities could not be provided, as the amount in the financial statements was the figure supplied by the tax consultant, and not reviewed by the former external auditor.
  6. There was no satisfactory explanation for nil balances in prior year financial statements on contingent liabilities, as no evidence existed that requests for confirmation were made from solicitors of the bank.
  7. Details of contraventions included in the examiner’s report were not considered for disclosures in the financial statements.

The Central Bank is requesting the financial statements of the bank, and management is worried about delays in releasing the financial statements by the new external auditors despite several notifications and reminders.

The Chief Finance Officer of the bank complained to you, as a member of the engagement team, about the delay in concluding the audit. He argued that your firm should not be concerned about prior period financial statement issues, as your firm did not express an opinion on them. Furthermore, the responsibility for the financial statements lies with the board of directors.

Required:

(a) Discuss why your firm needs to carry out the above exercise. (3 Marks)

(b) Analyze the nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence. (8 Marks)

(c) Evaluate what your firm might likely do in case of inability to obtain sufficient appropriate audit evidence from the exercise. (4 Marks)

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  • 20 Marks

AAA – Nov 2021 – L3 – Q4 – Audit Completion and Final Review

Discuss auditor responsibilities for detecting misstatements in different reporting periods and associated audit procedures.

Your firm is the auditor of Sharp Electronics Co. Plc, a listed company, which assembles electronic home appliances for sale on retail and wholesale bases. The electronic appliances parts are purchased from within and outside the country. The extract from the statement of financial position of the company is as follows:

Sharp Electronics Co. Plc – Statement of Financial Position

You have been asked by the partner in charge of the audit to consider your firm’s audit responsibilities with respect to subsequent events, and the associated audit procedures for such matters.

Required:

a. Discuss the responsibilities of the auditors for detecting misstatements in the financial statements during the following periods:

i. From the end of the reporting period up to the date of the audit report. (8 Marks)

ii. After the date of the audit report and before financial statements are issued. (6 Marks)

iii. After the financial statements have been issued. (3 Marks)

b. State the details of the work you will carry out in period (a)(ii) above to identify significant subsequent events affecting the financial statements. (5 Marks)

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  • 20 Marks

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

You are the engagement partner on the audit of Uchenna & Associates. The audit senior sent you the schedule of uncorrected misstatements, shown below, including notes to explain each matter in the schedule. Profit or loss Statement of financial position is as follows:

The audited financial statements recognized revenue of N250 million and total assets of N1.24 billion. The materiality threshold was determined as N12.5 million.

You are holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.

Notes:

  1. Litigation Provision: Uchenna & Associates was involved in a dispute over goods quality, resulting in a court judgment against them for N20 million. Uchenna & Associates has appealed the judgment, and its solicitors are confident of a favorable outcome. Management has not recognized the provision, believing they are likely to win. The audit conclusion is that a provision should be included in the financial statements.
  2. Restructuring Provision: Management recognized a provision for closing one of its factories. Although the board approved the closure in April 2019, no employee announcements were made. The audit conclusion is that the provision should not be recognized.
  3. Depreciation Correction: The audit team’s recomputation identified an understatement of N5,000,000 in depreciation expense.

Required:
a. Explain the requirements of ISA 450: Evaluation of Misstatements Identified during the Audit, with regard to uncorrected audit misstatements. (15 Marks)
b. Discuss the matters to be addressed with management for each uncorrected misstatement. (5 Marks)

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  • 20 Marks

AAA – Nov 2018 – L3 – Q3 – Audit Completion and Final Review

Training new associates on procedures for gathering and assessing audit evidence

You are the auditor in charge of the audit of Big Bank Plc. Two new associates who recently joined the firm have been assigned to your team, and you need to provide them on-the-job training on the audit process. The training should focus on audit evidence and testing procedures for gathering audit evidence.

Required:

a. Explain six procedures for gathering audit evidence. (6 Marks)

b. Explain to members of your team the terms “sufficient” and “appropriate” audit evidence. (2 Marks)

c. Explain four principles that an auditor uses in assessing the reliability of audit evidence in line with ISA 500. (4 Marks)

d. You have allocated the following audit areas to the two new associates on your team:

  • i. Bank and cash balances; and
  • ii. Payroll.

Identify the audit procedures that you will discuss with your team members for substantive testing of the audit areas mentioned above. (8 Marks)

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  • 15 Marks

AAA – May 2023 – L3 – Q5 – Audit Completion and Final Review

Discuss reasons for reviewing predecessor auditor’s work, audit procedures for sufficient evidence, and actions for insufficient audit evidence.

Vigo Microfinance Bank Limited was incorporated on July 1, 2014, as a public limited company under the Companies and Allied Matters Act. The bank obtained a Microfinance banking license from the Central Bank on August 5, 2015, to operate on a nationwide basis and commenced business operation on September 5, 2015. The bank’s principal business is to provide microfinance banking and related services to the poor and underserved segment of society to alleviate poverty under the Microfinance Institutions Ordinance.

In 2019, the bank decided to convert to a commercial bank and commenced business operations on August 10, 2019, after final approval from the regulator. As of December 31, 2019, the bank had five branches (2016: 24) in the Federal Capital and four other major geopolitical zones in the country.

With the new commercial banking license, the bank employed the services of F.K. George Professional Services to audit its financial statements. As part of the activities to be carried out on the initial engagement, the external auditors began a review of the books of account of the predecessor auditor, and the following issues emerged:

  1. Some property, plant, and equipment in the books of account and prior year financial statements had negative net carrying amounts.
  2. The basis for impairment included in prior year financial statements regarding loans and advances could not be established from the working papers.
  3. A material amount of pre-operating expenses included in receivables schedules could not be satisfactorily explained.
  4. Audit work performed on interest income in the prior year was not supported by sufficient appropriate audit evidence.
  5. Details of outstanding tax liabilities could not be provided, as the amount in the financial statements was the figure supplied by the tax consultant, and not reviewed by the former external auditor.
  6. There was no satisfactory explanation for nil balances in prior year financial statements on contingent liabilities, as no evidence existed that requests for confirmation were made from solicitors of the bank.
  7. Details of contraventions included in the examiner’s report were not considered for disclosures in the financial statements.

The Central Bank is requesting the financial statements of the bank, and management is worried about delays in releasing the financial statements by the new external auditors despite several notifications and reminders.

The Chief Finance Officer of the bank complained to you, as a member of the engagement team, about the delay in concluding the audit. He argued that your firm should not be concerned about prior period financial statement issues, as your firm did not express an opinion on them. Furthermore, the responsibility for the financial statements lies with the board of directors.

Required:

(a) Discuss why your firm needs to carry out the above exercise. (3 Marks)

(b) Analyze the nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence. (8 Marks)

(c) Evaluate what your firm might likely do in case of inability to obtain sufficient appropriate audit evidence from the exercise. (4 Marks)

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  • 20 Marks

AAA – Nov 2021 – L3 – Q4 – Audit Completion and Final Review

Discuss auditor responsibilities for detecting misstatements in different reporting periods and associated audit procedures.

Your firm is the auditor of Sharp Electronics Co. Plc, a listed company, which assembles electronic home appliances for sale on retail and wholesale bases. The electronic appliances parts are purchased from within and outside the country. The extract from the statement of financial position of the company is as follows:

Sharp Electronics Co. Plc – Statement of Financial Position

You have been asked by the partner in charge of the audit to consider your firm’s audit responsibilities with respect to subsequent events, and the associated audit procedures for such matters.

Required:

a. Discuss the responsibilities of the auditors for detecting misstatements in the financial statements during the following periods:

i. From the end of the reporting period up to the date of the audit report. (8 Marks)

ii. After the date of the audit report and before financial statements are issued. (6 Marks)

iii. After the financial statements have been issued. (3 Marks)

b. State the details of the work you will carry out in period (a)(ii) above to identify significant subsequent events affecting the financial statements. (5 Marks)

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  • 20 Marks

AAA – Nov 2020 – L3 – Q2 – Audit Completion and Final Review

Requirements of ISA 450 for uncorrected misstatements, including discussions on litigation, restructuring, and depreciation adjustments.

You are the engagement partner on the audit of Uchenna & Associates. The audit senior sent you the schedule of uncorrected misstatements, shown below, including notes to explain each matter in the schedule. Profit or loss Statement of financial position is as follows:

The audited financial statements recognized revenue of N250 million and total assets of N1.24 billion. The materiality threshold was determined as N12.5 million.

You are holding a meeting with management tomorrow, at which the uncorrected misstatements will be discussed.

Notes:

  1. Litigation Provision: Uchenna & Associates was involved in a dispute over goods quality, resulting in a court judgment against them for N20 million. Uchenna & Associates has appealed the judgment, and its solicitors are confident of a favorable outcome. Management has not recognized the provision, believing they are likely to win. The audit conclusion is that a provision should be included in the financial statements.
  2. Restructuring Provision: Management recognized a provision for closing one of its factories. Although the board approved the closure in April 2019, no employee announcements were made. The audit conclusion is that the provision should not be recognized.
  3. Depreciation Correction: The audit team’s recomputation identified an understatement of N5,000,000 in depreciation expense.

Required:
a. Explain the requirements of ISA 450: Evaluation of Misstatements Identified during the Audit, with regard to uncorrected audit misstatements. (15 Marks)
b. Discuss the matters to be addressed with management for each uncorrected misstatement. (5 Marks)

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  • 20 Marks

AAA – Nov 2018 – L3 – Q3 – Audit Completion and Final Review

Training new associates on procedures for gathering and assessing audit evidence

You are the auditor in charge of the audit of Big Bank Plc. Two new associates who recently joined the firm have been assigned to your team, and you need to provide them on-the-job training on the audit process. The training should focus on audit evidence and testing procedures for gathering audit evidence.

Required:

a. Explain six procedures for gathering audit evidence. (6 Marks)

b. Explain to members of your team the terms “sufficient” and “appropriate” audit evidence. (2 Marks)

c. Explain four principles that an auditor uses in assessing the reliability of audit evidence in line with ISA 500. (4 Marks)

d. You have allocated the following audit areas to the two new associates on your team:

  • i. Bank and cash balances; and
  • ii. Payroll.

Identify the audit procedures that you will discuss with your team members for substantive testing of the audit areas mentioned above. (8 Marks)

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