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Find Related Questions by Tags, levels, etc.
You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.
The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:
Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.
(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.
(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.
(5 Marks)
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ISA 530 Audit sampling states that the objective of the auditor when using audit sampling is to provide a reasonable basis to draw conclusions about the population from which the sample is drawn.
Required:
a. In accordance with ISA 530, what are the requirements the auditor should consider in designing a sample size? (6 Marks)
b. Explain FIVE sampling methods that are available for the use of the auditor. (10 Marks)
c. State FOUR circumstances where sampling may not be appropriate for use by the auditor. (4 Marks)
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Musky Fresh Limited has been in existence, for a number of years, importing perfume. The managing director had built up the business using contacts he already had in the industry. The company imports only one brand of perfume which is manufactured exclusively by one company. The perfume is distributed via ‘shops within shops’ at 20 branches of a well-known store. Under this agreement, Musky Fresh Limited pays a percentage of its takings to the store, with a minimum annual payment of N100,000 per store.
The audit is nearing completion, but you have just heard that the Arabian manufacturer is facing serious financial difficulties, and that supplies have ceased.
Required:
a. Set out the further information the auditor would require before reaching his audit opinion. (6 Marks)
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Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.
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You are part of an audit team engaged on the audit of an engineering company which has a substantial amount of plant and machinery in its books. While reviewing the accounts, you also observed that there were some current assets and liabilities that may require external confirmations.
Required:
a. How would you establish the amount and level of audit evidence required for the current assets and liabilities? (5 Marks)
b. State which procedures will be applied to generate audit evidence in the following scenarios:
i. Confirming the accuracy of figures in the trade receivables account
ii. Confirming that the plant and machinery purchased in the year is actually in use during the year
iii. Ascertaining that the change in performance is in line with expectations
iv. Confirming the accuracy of the total receivable figures in the statement of financial position
v. Confirming contingent liability as to legal fees (5 Marks)
c. State the audit procedures you would take concerning the disposal of plant and machinery. (5 Marks)
d. State the requirements of ISA 505 concerning maintaining control over the external confirmation requests of current assets and liabilities. (5 Marks)
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Radcliffe Co.
ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”
Required:
a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)
b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:
| Description | 2013 | 2012 |
|---|---|---|
| Trade payables | 884,824 | 816,817 |
| Accruals | 56,903 | 51,551 |
| Provision for legal action | 60,000 | – |
| Total | 1,001,727 | 868,368 |
The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.
List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.
Marks are allocated as follows:
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JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:
i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;
ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;
iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;
iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and
v. Figures in the financial statements could not be traced to the respective working papers.
As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.
You are required to explain:
a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)
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The following is the statement of Profit or Loss and other comprehensive income of ABRICON NIGERIA LIMITED for the year ended December 31, 2016.
ABRICON NIGERIA LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016
Requirements:
(a) Perform analytical tests on the figures given. (16 Marks)
(b) Identify unusual features. (8 Marks)
(c) Provide possible explanations why some apparently unusual items were not selected in (b) above. (6 Marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.
The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:
Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.
(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.
(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.
(5 Marks)
Find Related Questions by Tags, levels, etc.
ISA 530 Audit sampling states that the objective of the auditor when using audit sampling is to provide a reasonable basis to draw conclusions about the population from which the sample is drawn.
Required:
a. In accordance with ISA 530, what are the requirements the auditor should consider in designing a sample size? (6 Marks)
b. Explain FIVE sampling methods that are available for the use of the auditor. (10 Marks)
c. State FOUR circumstances where sampling may not be appropriate for use by the auditor. (4 Marks)
Find Related Questions by Tags, levels, etc.
Musky Fresh Limited has been in existence, for a number of years, importing perfume. The managing director had built up the business using contacts he already had in the industry. The company imports only one brand of perfume which is manufactured exclusively by one company. The perfume is distributed via ‘shops within shops’ at 20 branches of a well-known store. Under this agreement, Musky Fresh Limited pays a percentage of its takings to the store, with a minimum annual payment of N100,000 per store.
The audit is nearing completion, but you have just heard that the Arabian manufacturer is facing serious financial difficulties, and that supplies have ceased.
Required:
a. Set out the further information the auditor would require before reaching his audit opinion. (6 Marks)
Find Related Questions by Tags, levels, etc.
Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.
Find Related Questions by Tags, levels, etc.
You are part of an audit team engaged on the audit of an engineering company which has a substantial amount of plant and machinery in its books. While reviewing the accounts, you also observed that there were some current assets and liabilities that may require external confirmations.
Required:
a. How would you establish the amount and level of audit evidence required for the current assets and liabilities? (5 Marks)
b. State which procedures will be applied to generate audit evidence in the following scenarios:
i. Confirming the accuracy of figures in the trade receivables account
ii. Confirming that the plant and machinery purchased in the year is actually in use during the year
iii. Ascertaining that the change in performance is in line with expectations
iv. Confirming the accuracy of the total receivable figures in the statement of financial position
v. Confirming contingent liability as to legal fees (5 Marks)
c. State the audit procedures you would take concerning the disposal of plant and machinery. (5 Marks)
d. State the requirements of ISA 505 concerning maintaining control over the external confirmation requests of current assets and liabilities. (5 Marks)
Find Related Questions by Tags, levels, etc.
Radcliffe Co.
ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”
Required:
a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)
b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:
| Description | 2013 | 2012 |
|---|---|---|
| Trade payables | 884,824 | 816,817 |
| Accruals | 56,903 | 51,551 |
| Provision for legal action | 60,000 | – |
| Total | 1,001,727 | 868,368 |
The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.
List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.
Marks are allocated as follows:
Find Related Questions by Tags, levels, etc.
JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:
i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;
ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;
iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;
iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and
v. Figures in the financial statements could not be traced to the respective working papers.
As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.
You are required to explain:
a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)
Find Related Questions by Tags, levels, etc.
The following is the statement of Profit or Loss and other comprehensive income of ABRICON NIGERIA LIMITED for the year ended December 31, 2016.
ABRICON NIGERIA LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016
Requirements:
(a) Perform analytical tests on the figures given. (16 Marks)
(b) Identify unusual features. (8 Marks)
(c) Provide possible explanations why some apparently unusual items were not selected in (b) above. (6 Marks)
Find Related Questions by Tags, levels, etc.
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