Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
You are a manager in Puposola & Company (Chartered Accountants) responsible for the audit of the Honey Group (the Group), a quoted company. The Group’s main activity is steel manufacturing and it comprises of a parent company and three subsidiaries. Your firm currently audits all components of the Group. You are working on the audit of the Group’s financial statements for the year ended June 30, 2017. This morning, the audit engagement partner left a note for you.
“Hello
I have gone through the draft consolidated financial statements and accompanying notes which summarise the key audit findings and some background information.
Although, at the planning stage, materiality was initially determined to be N900,000, and was calculated based on the assumption that Honey Group is a high-risk client due to its listing status. However, due to a number of issues that arose during the audit, there is a need to revise the materiality level for the financial statements as a whole. The revised level of materiality should now be N700,000.
Thank you.”
The Group’s draft consolidated financial statements, with notes referenced to key audit findings, are shown below:
Draft Consolidated Statement of Comprehensive Income
| Note | June 30, 2017 Draft (N’000) | June 30, 2016 Actual (N’000) |
|---|---|---|
| Revenue | 98,795 | 103,100 |
| Cost of sales | (75,250) | (74,560) |
| Gross profit | 23,545 | 28,540 |
| Operating expenses | (14,900) | (17,500) |
| Operating profit | 8,645 | 11,040 |
| Share of profit of associate | 1,010 | 900 |
| Finance costs | (380) | (340) |
| Profit before tax | 9,275 | 11,600 |
| Taxation | (3,200) | (3,500) |
| Profit for the year | 6,075 | 8,100 |
| Other comprehensive income for the year, net of tax: | ||
| Gain on property revaluation | 800 | —– |
| Actuarial losses on defined benefit plan | (1,100) | (200) |
| Other comprehensive loss | (300) | (200) |
| Total comprehensive income for the year | 5,775 | 7,900 |
Notes: Key Audit Findings on Statement of Comprehensive Income
Draft Consolidated Statement of Financial Position
| Note | June 30, 2017 Draft (N’000) | June 30, 2016 Actual (N’000) |
|---|---|---|
| ASSETS | ||
| Non-current assets | ||
| Property, plant and equipment | 81,800 | 76,300 |
| Goodwill | 5,350 | 5,350 |
| Investment in associate | 4,230 | 4,230 |
| Non-current assets held for sale | 7,800 | – |
| Total non-current assets | 99,180 | 85,880 |
| Current assets | ||
| Inventory | 8,600 | 8,000 |
| Receivables | 8,540 | 7,800 |
| Cash and cash equivalents | 2,100 | 2,420 |
| Total current assets | 19,240 | 18,220 |
| Total assets | 118,420 | 104,100 |
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Share capital | 12,500 | 12,500 |
| Revaluation reserve | 3,300 | 2,500 |
| Retained earnings | 33,600 | 29,400 |
| Non-controlling interest | 4,350 | 4,000 |
| Total equity | 53,750 | 48,400 |
| Non-current liabilities | ||
| Defined benefit pension plan | 10,820 | 9,250 |
| Long-term borrowings | 43,000 | 35,000 |
| Deferred tax | 1,950 | 1,350 |
| Total non-current liabilities | 55,770 | 45,600 |
| Current liabilities | ||
| Trade and other payables | 6,200 | 7,300 |
| Provisions | 2,700 | 2,800 |
| Total current liabilities | 8,900 | 10,100 |
| Total liabilities | 64,670 | 55,700 |
| Total equity and liabilities | 118,420 | 104,100 |
Notes: Key Audit Findings on Statement of Financial Position
Required:
a. Explain why auditors may need to reassess materiality as the audit progresses. (4 Marks)
b. Assess the implications of the key audit findings for the completion of the audit.
Note: Your assessment must consider whether the key audit findings indicate a risk of material misstatement. Where the key audit findings refer to audit evidence, you must also consider the adequacy of the audit evidence obtained, but you do not need to recommend further specific procedures. (18 Marks)
c. Discuss TWO advantages and TWO disadvantages of a joint audit being performed on the financial statements. (8 Marks)
(Total 30 Marks)
Find Related Questions by Tags, levels, etc.
ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.
ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.
There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.
Required:
a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)
b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)
c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)
Find Related Questions by Tags, levels, etc.
BP Fashion Limited is trading and expanding in the fashion industry. Over the years, the company has been audited by LMP Professional Services. The company is considering going to the stock market to raise funds through an increase in its issued share capital for the purpose of expansion into new markets.
The summarised two-year financial statements and the nine (9) months accounts of the company are given below:
BP Fashion Limited
Summarised Income Statement For the Years Ended December 31,
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Revenue | ₦2,952m | ₦3,510m | ₦4,139m |
| Cost of sales | (₦1,402m) | (₦1,671m) | (₦1,987m) |
| Gross profit | ₦1,550m | ₦1,839m | ₦2,152m |
| Other income | ₦15m | ₦21m | ₦25m |
| Operating costs: | |||
| – Employee costs | (₦390m) | (₦460m) | (₦538m) |
| – Occupancy costs | (₦262m) | (₦312m) | (₦373m) |
| – Other operating costs | (₦278m) | (₦326m) | (₦389m) |
| Earnings before interests, taxes, depreciation and amortisation (EBITDA) | ₦635m | ₦762m | ₦877m |
Summarised Statement of Financial Position
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | ₦375m | ₦470m | ₦470m |
| Deferred tax | ₦30m | ₦35m | ₦40m |
| Total non-current assets (A) | ₦405m | ₦505m | ₦510m |
| Current assets | |||
| Inventories | ₦425m | ₦525m | ₦655m |
| Trade and other receivables | ₦125m | ₦150m | ₦175m |
| Cash and equivalents | ₦425m | ₦545m | ₦780m |
| Total current assets (B) | ₦975m | ₦1,220m | ₦1,610m |
| Total assets (A + B) | ₦1,380m | ₦1,725m | ₦2,120m |
Equity and Liabilities
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Share capital and reserves | ₦885m | ₦1,135m | ₦1,430m |
| Long-term loans | ₦125m | ₦125m | ₦125m |
| Employees’ benefits | ₦20m | ₦35m | ₦50m |
| Deferred tax | ₦55m | ₦65m | ₦70m |
| Non-current liabilities | ₦200m | ₦225m | ₦245m |
| Trade and other payables | ₦270m | ₦335m | ₦410m |
| Tax payable | ₦25m | ₦30m | ₦35m |
| Current liabilities | ₦295m | ₦365m | ₦445m |
| Total equity and liabilities | ₦1,380m | ₦1,725m | ₦2,120m |
It has become necessary, and as part of the NGX Exchange Limited‟s requirements,
to appoint another firm of accountants to review the financial statements for some
specified periods. Your firm Stratcom Partners has been approached to carry out the
necessary review.
Required:
a. Highlight the features of professional engagements as contained in ISRE 2410:
International Standard on Review Engagement and ISRS 4410 (revised):
International standard on Related Services. (8 Marks)
b. Detail out the procedures to be carried out in the review of interim financial
information. (6 Marks)
c. In view of the changes in inventories in the financial statements given above,
between the last two periods, provide the substantive procedures that would
be carried out to establish a reliable evidence of the change. (6 Marks)
d. Prepare the outline of the reporting requirements of a compilation engagement.
(10 Marks)
Find Related Questions by Tags, levels, etc.
The Financial Controller (FC) of Poki Limited made an observation on the draft engagement letter sent by the external auditors to the company, an extract of which is as stated below:
“The responsibility for safeguarding the assets of the company and for the prevention and detection of fraud, error, and non-compliance with laws or regulations rests with the company’s directors. In accordance with auditing standards, we shall endeavor to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records (including any material misstatements resulting from fraud, error, or non-compliance with laws or regulations). However, because any internal control structure, no matter how effective, cannot eliminate the possibility that errors or irregularities may occur and remain undetected and because we use selective testing in our audit, we cannot guarantee that errors or irregularities, if present, will be detected. Accordingly, our audit should not be relied upon to disclose all such material misstatements or frauds, errors, or instances of non-compliance as may exist. The best safeguard against irregularities and fraud is a sound system of internal control.”
The FC accused the auditors of running away from their responsibilities of exposing to the owners of the company fraudulent financial reporting and misappropriation of assets. To him, what is the purpose of audit when fraud and errors could not be discovered? He has threatened to discuss with the Board of Directors and insists that the engagement letter will not be signed until those sections are removed. You are a senior member of the audit team.
Required:
a. Outline the objectives of auditors in relation to fraud. (6 Marks)
b. Explain fraudulent financial reporting and misappropriation of assets. (7 Marks)
c. State the procedures auditors should perform to identify the risks of material misstatement due to fraud. (7 Marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
You are a manager in Puposola & Company (Chartered Accountants) responsible for the audit of the Honey Group (the Group), a quoted company. The Group’s main activity is steel manufacturing and it comprises of a parent company and three subsidiaries. Your firm currently audits all components of the Group. You are working on the audit of the Group’s financial statements for the year ended June 30, 2017. This morning, the audit engagement partner left a note for you.
“Hello
I have gone through the draft consolidated financial statements and accompanying notes which summarise the key audit findings and some background information.
Although, at the planning stage, materiality was initially determined to be N900,000, and was calculated based on the assumption that Honey Group is a high-risk client due to its listing status. However, due to a number of issues that arose during the audit, there is a need to revise the materiality level for the financial statements as a whole. The revised level of materiality should now be N700,000.
Thank you.”
The Group’s draft consolidated financial statements, with notes referenced to key audit findings, are shown below:
Draft Consolidated Statement of Comprehensive Income
| Note | June 30, 2017 Draft (N’000) | June 30, 2016 Actual (N’000) |
|---|---|---|
| Revenue | 98,795 | 103,100 |
| Cost of sales | (75,250) | (74,560) |
| Gross profit | 23,545 | 28,540 |
| Operating expenses | (14,900) | (17,500) |
| Operating profit | 8,645 | 11,040 |
| Share of profit of associate | 1,010 | 900 |
| Finance costs | (380) | (340) |
| Profit before tax | 9,275 | 11,600 |
| Taxation | (3,200) | (3,500) |
| Profit for the year | 6,075 | 8,100 |
| Other comprehensive income for the year, net of tax: | ||
| Gain on property revaluation | 800 | —– |
| Actuarial losses on defined benefit plan | (1,100) | (200) |
| Other comprehensive loss | (300) | (200) |
| Total comprehensive income for the year | 5,775 | 7,900 |
Notes: Key Audit Findings on Statement of Comprehensive Income
Draft Consolidated Statement of Financial Position
| Note | June 30, 2017 Draft (N’000) | June 30, 2016 Actual (N’000) |
|---|---|---|
| ASSETS | ||
| Non-current assets | ||
| Property, plant and equipment | 81,800 | 76,300 |
| Goodwill | 5,350 | 5,350 |
| Investment in associate | 4,230 | 4,230 |
| Non-current assets held for sale | 7,800 | – |
| Total non-current assets | 99,180 | 85,880 |
| Current assets | ||
| Inventory | 8,600 | 8,000 |
| Receivables | 8,540 | 7,800 |
| Cash and cash equivalents | 2,100 | 2,420 |
| Total current assets | 19,240 | 18,220 |
| Total assets | 118,420 | 104,100 |
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Share capital | 12,500 | 12,500 |
| Revaluation reserve | 3,300 | 2,500 |
| Retained earnings | 33,600 | 29,400 |
| Non-controlling interest | 4,350 | 4,000 |
| Total equity | 53,750 | 48,400 |
| Non-current liabilities | ||
| Defined benefit pension plan | 10,820 | 9,250 |
| Long-term borrowings | 43,000 | 35,000 |
| Deferred tax | 1,950 | 1,350 |
| Total non-current liabilities | 55,770 | 45,600 |
| Current liabilities | ||
| Trade and other payables | 6,200 | 7,300 |
| Provisions | 2,700 | 2,800 |
| Total current liabilities | 8,900 | 10,100 |
| Total liabilities | 64,670 | 55,700 |
| Total equity and liabilities | 118,420 | 104,100 |
Notes: Key Audit Findings on Statement of Financial Position
Required:
a. Explain why auditors may need to reassess materiality as the audit progresses. (4 Marks)
b. Assess the implications of the key audit findings for the completion of the audit.
Note: Your assessment must consider whether the key audit findings indicate a risk of material misstatement. Where the key audit findings refer to audit evidence, you must also consider the adequacy of the audit evidence obtained, but you do not need to recommend further specific procedures. (18 Marks)
c. Discuss TWO advantages and TWO disadvantages of a joint audit being performed on the financial statements. (8 Marks)
(Total 30 Marks)
Find Related Questions by Tags, levels, etc.
ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.
ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.
There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.
Required:
a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)
b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)
c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)
Find Related Questions by Tags, levels, etc.
BP Fashion Limited is trading and expanding in the fashion industry. Over the years, the company has been audited by LMP Professional Services. The company is considering going to the stock market to raise funds through an increase in its issued share capital for the purpose of expansion into new markets.
The summarised two-year financial statements and the nine (9) months accounts of the company are given below:
BP Fashion Limited
Summarised Income Statement For the Years Ended December 31,
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Revenue | ₦2,952m | ₦3,510m | ₦4,139m |
| Cost of sales | (₦1,402m) | (₦1,671m) | (₦1,987m) |
| Gross profit | ₦1,550m | ₦1,839m | ₦2,152m |
| Other income | ₦15m | ₦21m | ₦25m |
| Operating costs: | |||
| – Employee costs | (₦390m) | (₦460m) | (₦538m) |
| – Occupancy costs | (₦262m) | (₦312m) | (₦373m) |
| – Other operating costs | (₦278m) | (₦326m) | (₦389m) |
| Earnings before interests, taxes, depreciation and amortisation (EBITDA) | ₦635m | ₦762m | ₦877m |
Summarised Statement of Financial Position
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | ₦375m | ₦470m | ₦470m |
| Deferred tax | ₦30m | ₦35m | ₦40m |
| Total non-current assets (A) | ₦405m | ₦505m | ₦510m |
| Current assets | |||
| Inventories | ₦425m | ₦525m | ₦655m |
| Trade and other receivables | ₦125m | ₦150m | ₦175m |
| Cash and equivalents | ₦425m | ₦545m | ₦780m |
| Total current assets (B) | ₦975m | ₦1,220m | ₦1,610m |
| Total assets (A + B) | ₦1,380m | ₦1,725m | ₦2,120m |
Equity and Liabilities
| 2019 | 2020 | 2021 (9 months) | |
|---|---|---|---|
| Share capital and reserves | ₦885m | ₦1,135m | ₦1,430m |
| Long-term loans | ₦125m | ₦125m | ₦125m |
| Employees’ benefits | ₦20m | ₦35m | ₦50m |
| Deferred tax | ₦55m | ₦65m | ₦70m |
| Non-current liabilities | ₦200m | ₦225m | ₦245m |
| Trade and other payables | ₦270m | ₦335m | ₦410m |
| Tax payable | ₦25m | ₦30m | ₦35m |
| Current liabilities | ₦295m | ₦365m | ₦445m |
| Total equity and liabilities | ₦1,380m | ₦1,725m | ₦2,120m |
It has become necessary, and as part of the NGX Exchange Limited‟s requirements,
to appoint another firm of accountants to review the financial statements for some
specified periods. Your firm Stratcom Partners has been approached to carry out the
necessary review.
Required:
a. Highlight the features of professional engagements as contained in ISRE 2410:
International Standard on Review Engagement and ISRS 4410 (revised):
International standard on Related Services. (8 Marks)
b. Detail out the procedures to be carried out in the review of interim financial
information. (6 Marks)
c. In view of the changes in inventories in the financial statements given above,
between the last two periods, provide the substantive procedures that would
be carried out to establish a reliable evidence of the change. (6 Marks)
d. Prepare the outline of the reporting requirements of a compilation engagement.
(10 Marks)
Find Related Questions by Tags, levels, etc.
The Financial Controller (FC) of Poki Limited made an observation on the draft engagement letter sent by the external auditors to the company, an extract of which is as stated below:
“The responsibility for safeguarding the assets of the company and for the prevention and detection of fraud, error, and non-compliance with laws or regulations rests with the company’s directors. In accordance with auditing standards, we shall endeavor to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records (including any material misstatements resulting from fraud, error, or non-compliance with laws or regulations). However, because any internal control structure, no matter how effective, cannot eliminate the possibility that errors or irregularities may occur and remain undetected and because we use selective testing in our audit, we cannot guarantee that errors or irregularities, if present, will be detected. Accordingly, our audit should not be relied upon to disclose all such material misstatements or frauds, errors, or instances of non-compliance as may exist. The best safeguard against irregularities and fraud is a sound system of internal control.”
The FC accused the auditors of running away from their responsibilities of exposing to the owners of the company fraudulent financial reporting and misappropriation of assets. To him, what is the purpose of audit when fraud and errors could not be discovered? He has threatened to discuss with the Board of Directors and insists that the engagement letter will not be signed until those sections are removed. You are a senior member of the audit team.
Required:
a. Outline the objectives of auditors in relation to fraud. (6 Marks)
b. Explain fraudulent financial reporting and misappropriation of assets. (7 Marks)
c. State the procedures auditors should perform to identify the risks of material misstatement due to fraud. (7 Marks)
Find Related Questions by Tags, levels, etc.
Elevate your professional expertise across key business domains with our comprehensive training programs
Follow us on our social media and get daily updates.
This feature is only available in selected plans.
Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.
If you’re not subscribed to a plan, click on the button below to choose a plan