Topic: Completion Procedures and Reporting

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  • 10 Marks

AA – July 2023 – L2 – Q4a – Completion Procedures and Reporting, Planning and Approach for Audit and Assurance Engagements

Explanation of going concern indicators for Kitchenhub Ltd and the stages when analytical procedures can be used.

a) You are an Audit Assistant of Abinchi & Associate and your firm is planning the audit of a client. You have been provided with draft financial statements extracts and the following information is about your client, Kitchenhub Ltd, who is a kitchen equipment manufacturer. The company’s year-end is 30 April 2022.

Kitchenhub Ltd has recently been experiencing trading difficulties, as its major customer who owes GH¢0.6 million to Kitchenhub Ltd has ceased trading, and it is unlikely any of this will be received. However, the balance is included in the financial statements extracts below. The sales director has recently left Kitchenhub Ltd and is yet to be replaced.

The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecast as negative for the forthcoming financial year. As a result of this, the company is unable to settle suppliers whose payments are due, and some are threatening legal action to recover the sums owing.

Due to its financial difficulties, Kitchenhub Ltd defaulted on a loan repayment, and as a result of this breach in the loan contract, the bank has asked that the loan of GH¢4.8 million be repaid in full within six months. In view of this, the directors have decided not to pay dividends for the period.

Below is the Financial Statement extract for Kitchenhub Ltd for the year ended 30 April:

Draft 2022 (GH¢) Actual 2021 (GH¢)
Current assets
Inventory 3.4 1.6
Receivables 1.4 2.2
Cash – 1.2
Current liabilities
Trade payables 1.9 0.9
Overdraft 0.8 –
Loans 4.8 0.2

Required:
i) Explain SEVEN (7) factors that indicate that Kitchenhub Ltd may not be operating as a going concern entity. (7 marks)
ii) Identify THREE (3) stages of an audit when analytical procedures can be used by Abinchi & Associate. (3 marks)

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  • 3 Marks

AA – Nov 2023 – L2 – Q4c – Completion Procedures and Reporting, Audit and Assurance Evidence

This question explains the auditor's actions if management refuses to provide representations.

ISA 580: Written Representations guides the use of management representations as audit evidence, the procedures to be applied in evaluating and documenting management representations, and the action to be taken if management refuses to provide appropriate representations.

Required:
Explain the action to be taken by the auditor if management refuses to provide representations.
(3 marks)

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  • 10 Marks

AA – Nov 2019 – L2 – Q5b – Completion Procedures and Reporting

Discusses authoritative sources for the auditor’s report and explains the importance of management and auditor responsibility paragraphs.

The basic objective of an audit is to form and express an opinion on the financial statements. The tangible means by which the auditor achieves this objective is the Auditors Report that is issued to members of the company after the completion of the audit.

Required:
i) Discuss TWO (2) authoritative sources which govern the form and content of the auditor’s report to members. (4 marks)
ii) Explain the essence or importance of Management Responsibility and Auditor’s Responsibility paragraphs in the auditor’s report. (6 marks)

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  • 10 Marks

AA – Mar 2023 – L2 – Q5c – Completion Procedures and Reporting

Explain the objectives of communicating with those charged with governance and list matters to be communicated by an auditor.

In addition to the Auditor’s Report, the auditor communicates with those charged with governance and audit committees of their clients.

Required:
i) What are the objectives of an auditor communicating with those charged with governance or audit committees? (3 marks)
ii) State SEVEN (7) matters to be communicated with those charged with governance or audit committees of a non-listed company by an auditor. (7 marks)

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  • 5 Marks

AA – Mar 2023 – L2 – Q5b – Completion Procedures and Reporting

List the responsibilities of an auditor in auditing historical financial statements under ISA 700.

Your manager is presenting to the Engagement Partner the draft opinion on the financial statements of a recently audited client. Your manager has tasked you to research into the responsibilities of an external auditor for auditing historical financial statements in line with ISA 700 (Revised): Forming an Opinion and Reporting on Financial Statements.

Required:
State FIVE (5) responsibilities of an auditor in line with the above standard.

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  • 10 Marks

AA – Mar 2023 – L2 – Q4a – Completion Procedures and Reporting

Explain the auditor's responsibilities regarding subsequent events and how a legal claim should be reported in financial statements.

You are an audit assistant for an audit client with a year-end of 31 December 2021. A major customer has instituted a legal action against the company for faulty goods supplied after the year-end. A recently recruited intern who was part of your team was of the opinion that because of the cut-off assertion, any event after 31 December 2021 should not affect the financial statements and therefore the auditor should have no responsibility for issues occurring after the reporting year.

Following your audit of the client, you have concluded that there is a possibility, but not a probability, that the claim will be successful. However, management has decided not to make a provision or disclosure in the financial statements for this matter.

Required:
In reference to the preamble:
i) Describe the auditor’s responsibility for subsequent events occurring between:

  • The year-end date and the date the auditor’s report is signed; and
  • The date the auditor’s report is signed and the date the financial statements are issued. (6 marks)

ii) Explain how the matter should be reported in the financial statements. (4 marks)

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  • 3 Marks

AA – Nov 2017 – L2 – Q5b – Completion Procedures and Reporting

Explain three matters that should be communicated to those charged with governance as per ISA 260.

ISA 260 Communication with those charged with governance requires that certain issues are communicated to those charged with governance. You are an audit manager of Adiepena and Co. Chartered Accountants, and one of the junior staff has asked you about concerns that can be communicated to those charged with governance.

Required:
Explain three matters that could be communicated to those charged with governance.
(3 marks)

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  • 20 Marks

AA – Nov 2015 – L2 – Q5 – Completion Procedures and Reporting, Audit and Assurance Evidence

Discussing financial statement amendments for inventory valuation, depreciation, and contingent liabilities, and their impact on the auditor’s report.

Big Build is a listed construction company with an annual revenue of GHS350m. Big Build’s draft statement of profit or loss shows a profit before tax for the year ended December 31, 2008, of GHS40m.

Big Build’s audit firm is conducting an audit. This is the first audit of Big Build that this audit firm has conducted. An enquiry to the previous audit firm revealed no reasons for concern. On completing audit work at the company’s premises, the audit senior drafts a memo, extracts from which are reproduced below:

(a) Inventory valuation:
Inventories include GHS7m, at cost, for scrap rubber from used car tyres. This material is widely used as a road surface in other countries. Contracts for road building with this country’s Highways Agency, the state authority for road construction, do not currently permit the use of this material. However, the matter was known to be under review, and Big Build speculated on a favourable outcome of this review and purchased the material. In February 2009, shortly before the financial statements were approved by the directors, the Highways Agency reported that it would not, currently, accept the use of this material. If used on non-Highways Agency contracts, the material’s net realisable value would not exceed GHS2m.

The finance director maintains that the issue of the Highways Agency report was a non-adjusting event after the reporting period. The write-down of the inventory should, therefore, be reflected in the next period’s financial statements.

(b) Depreciation:
During the year ended December 31, 2005, the company purchased two computer-controlled earth movers at a cost of GHS2,500,000 each and a further two at the same price during the year ended December 31, 2006. Depreciation has been provided at 10% straight line, the same basis as it previously depreciated conventional earth movers. This year, 2008, the company has decided that improvements in technology made it worthwhile scrapping their first two computer-controlled earth movers and replacing them with the latest model at a cost of GHS6,000,000 each. The company provides a full year’s depreciation charge in the year of acquisition and none in the year of disposal.

The company’s chief engineer tells you that technology is developing so rapidly it appears likely they will continue to replace these machines every five years. In spite of this, the finance director claims that the depreciation rate of 10% is in line with the industry standard and reflects the physical life of the machines. He urges that continued improvements in technology cannot be foreseen, and that there is no justification for increasing depreciation to 20% because of the possibility of technological obsolescence.

(c) Contingent liability:
The company is being sued for GHS50m by the Highways Agency for defective work on a recently completed road. The company maintains that it met the Highways Agency’s specification and it is the Agency’s engineers who are at fault in drawing up the specification. Big Build maintains that it has no case to answer, that the possibility of loss is remote, and that the claim need not be disclosed as a contingent liability. An investigative journalist has recently published an article suggesting that other roads constructed by the company exhibit similar faults. The managing director has admitted that the company’s road building techniques are under investigation by the Highways Agency. If the company were to lose the case, its future going concern would be threatened. No disclosure has been made in the financial statements.

Required:
For each of the following three issues, discuss whether the financial statements require amendment and describe the impact on the auditor’s report if the issue remains unresolved.
a) Inventory valuation.
(6 marks)
b) Depreciation.
(7 marks)
c) Contingent liability.
(7 marks)

Total: 20 marks

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  • 14 Marks

AA – Nov 2015 – L2 – Q2a and b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

This question covers auditors’ responsibilities for subsequent events and going concern assessments, as well as internal control reporting.

You are an audit senior for an audit firm and are currently working on the audit of Technolab, a company that produces sophisticated electronic laboratory equipment. The company imports a high proportion of the components it uses from China. The equipment is used by some laboratories dealing with hazardous chemicals.

As the audit draws to a close, the partner in charge has asked you to ensure that all procedures relating to subsequent events and going concern are properly performed. You are to consider the audit work to be performed in relation to ISA 560 Subsequent Events and ISA 570 Going Concern.

Required:

a) Describe the auditor’s responsibilities for subsequent events occurring between:
i. The year-end date and the date the auditor’s report is signed.
ii. The date the auditor’s report is signed and the date the financial statements are issued.
(6 marks)

b) Going concern relates to the judgment that an entity will continue to trade for the foreseeable future.
i. Explain the responsibilities of directors and auditors in relation to going concern.
(3 marks)
ii. Explain the audit procedures that the auditor could carry out when conducting the going concern review of Technolab.
(4 marks)

c) Technolab has an internal audit department. The partner in charge of the audit is seeking clarification regarding how any deficiencies in internal control should be identified and communicated to management. The partner feels the report produced by the external auditors may duplicate the report produced by the internal audit function.

Required:
Explain how the purpose and content of an internal auditor’s report on internal control deficiencies differ from one prepared by the external auditor.
(7 marks)

Total: 20 marks

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  • 8 Marks

AA – Nov 2015 – L2 – Q1b – Audit and Assurance Evidence, Completion Procedures and Reporting

This question covers the audit procedures to confirm inventory existence, completeness, and valuation at the year-end.

Describe the audit procedures that the auditor should perform at the year-end to confirm each of the following:
i. The existence of inventory.
ii. The completeness of inventory.
iii. The valuation of inventory.
(8 marks)

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  • 10 Marks

AA – May 2018 – L2 – Q3b – Audit and Assurance Risk Environment, Completion Procedures and Reporting

Explains the importance of professional skepticism and audit procedures for subsequent events in the audit process.

ii) Auditors are required to plan and perform an audit with professional skepticism, to exercise professional judgment, and to comply with ethical standards.

Required:
Explain what is meant by ‘professional skepticism’ and why it is so important that the auditor maintains professional skepticism throughout the audit. (5 marks)

b)
i) International Standard on Auditing (ISA) 560: Subsequent Events deals with the auditor’s responsibility towards events that occur after the reporting date and especially before the auditor’s report is issued.

Required:
Explain FIVE audit procedures to test subsequent events. (5 marks)

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  • 5 Marks

AA – May 2019 – L2 – Q5a – Completion Procedures and Reporting

Explains the circumstances under which a qualified or adverse audit opinion is issued.

a) When there is a material disagreement between the Auditor and management of a client, this could lead to the Auditor expressing a qualified opinion or an adverse opinion.
Required:
Evaluate the circumstances, when due to disagreement between Management and the auditor, an audit firm may express a qualified opinion or an adverse opinion in its report on the financial statements of a company.
(5 marks)

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  • 15 Marks

AA – Nov 2018 – L2 – Q5 – Completion Procedures and Reporting

Evaluates the use of an adverse opinion and the inclusion of an emphasis of matter paragraph in audit reports.

The auditors of ABC Ltd issued an adverse opinion on the financial statements of the company for the year ended 31 December 2017. This was due to the fact that management could not make available the cash book, general ledger, and debtors ledger to the auditors for examination.

Some of the engagement team members may not agree to the issue of an adverse opinion and are suggesting an unmodified report with an emphasis of matter paragraph.

Required:
a. Comment on the action of the auditors to issue an adverse opinion. (10 marks)
b. Explain to your team members the circumstances that will make auditors include an emphasis of matter paragraph in the Independent Auditor’s report. (5 marks)

(Total: 15 marks)

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  • 10 Marks

AA – April 2022 – L2 – Q5b – Completion Procedures and Reporting

Comments on the appropriateness of issuing an adverse opinion and suggests an alternative opinion under ISA 705 for a company facing a data loss due to hacking.

b) The Auditor of Pegasus Technologies, a fintech company, issued an adverse opinion on the financial statements for the year ended 31 December 2020. This was due to the fact that management could not make available the sales ledger, cash book, and other ledgers to the auditors due to a massive hack suffered by the company. Hackers used SIM cards to gain access to the company’s mobile money platform, stole funds, and destroyed company records. The hackers have been caught, and the IT unit has fixed the loophole that led to the hacking.

Required:
Comment on the Auditor’s issue of an adverse opinion and suggest whether another opinion would be more appropriate under ISA 705 (revised): Modifications to the Opinion in the Independent Auditor’s Report. (10 marks)

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