Topic: Forensic Auditing

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AAA – May 2019 – L3 – Q1 – Forensic Auditing

Analyze forensic accounting, discuss ethical principles, and outline procedures for Ayeniromo Microfinance Bank forensic investigation.

Question

Ayeniromo Microfinance Bank Limited has been operating for more than five years in Ekemode Local Government area of a state in Nigeria. The bank opened three cash centres in three locations in the local government area in 2013.

Business activities have been very encouraging in one of the cash centres until a sudden change in activities in 2016. This resulted in the negative performance of the cash centre. The managing director thereafter decided to investigate the causes of the problems in the cash centre.

An interim report of the preliminary investigation on the cash centre identified infractions on cash takings from customers by some staff of the cash centre during the year 2016.

The managing director and the board decided to engage your firm as forensic accountants with the following terms of reference:

Investigate whether fraud has actually occurred and if so, to obtain evidence to support that assertion in a court of law.
Identify the individual(s) who has/have committed the fraud and obtain evidence that can be used in a court of law to link them with the fraud.
Estimate the financial loss that has occurred because of the fraud.

You are required to:
a. Discuss the concept of forensic accounting and explain the nature of forensic investigation and forensic audit. (10 Marks)
b. Analyse and apply the FIVE fundamental principles of the IFAC’s Code of Ethics for professional accountants to forensic investigation. (10 Marks)
c. Explain the procedures to be followed in a forensic investigation engagement for Ayeniromo Microfinance Bank Limited. (10 Marks)

Answer

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Tags: Forensic Accounting, Fraud investigation, Investigation procedures, Professional Ethics
Level: Level 3

Topic: Forensic Auditing

AAA – May 2021 – L3 – Q5 – Forensic Auditing

Explanation of forensic accounting, investigation, audit, related government agencies, ethical principles, and procedures for conducting a forensic audit.

Question

Judi Nigeria Limited is a company that manufactures bicycles. The company acquired M&M Tires Limited, a manufacturer of tyres, in the 2018 financial year. Six months after the acquisition, M&M Tires declared bankruptcy.

The management of Judi Nigeria alleged that there had been financial impropriety by the previous management of M&M and that the 2017 financial statements of the company did not show a true and fair view of its financial performance. The management of Judi Nigeria Limited also alleged that the auditors of M&M had been negligent in carrying out the audit.

The Managing Director has asked your audit firm to carry out a forensic audit to determine if the auditors were negligent in their duties.

Required:

(a) Distinguish among forensic accounting, forensic investigation, and forensic audit. (6 Marks)
(b) Identify the various government agencies associated with forensic auditing. (4 Marks)
(c) Apply the fundamental ethical principles to the forensic auditor’s engagement. (5 Marks)
(d) Describe the procedures to be adopted by an auditor in a forensic audit. (5 Marks)

Answer

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Tags: Ethical Principles, Forensic Accounting, Forensic Audit, Forensic Investigation, Forensic Procedures
Level: Level 3

Topic: Forensic Auditing

AAA – Nov 2013 – L3 – AII -Q8 – Forensic Auditing

Explores the components of forensic accounting, including investigative aspects.

Question

Forensic accounting encompasses both …………… and investigative accounting.

Answer

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Tags: Audit Techniques, Forensic Accounting, Fraud Detection, Investigative Accounting
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2013

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

Question

At the annual general meeting of Aggressive Bank Limited for the year 2020, shareholders raised concerns over increasing cases of customer complaints about fraud. Shareholders emphasized that drastic actions were required to avoid brand damage and reputational issues.

In performing their oversight functions, the audit committee commissioned the internal audit unit to investigate fraud issues and likely causes. The internal audit report highlighted the following issues:

Hacking of Accounts: Unauthorized transfers due to poor information security systems.
Forgery: Forged cheques, signatures, and withdrawal slips used in collusion with bank staff.
Fictitious Accounts: Opening and operating fake accounts to facilitate illegal transfers due to incomplete KYC.
Loans to Fictitious Borrowers: Fictitious loans issued via fake accounts.
False Overtime Claims: Junior staff claiming overtime for hours not worked.
Suppression of Cash/Cheques: Diversion of customer deposits and loan repayments into fictitious accounts.
Alteration of Programs: Unauthorized access to systems to manipulate account balances.

Likely Causes:

Weak internal controls and supervision.
Non-compliance with KYC rules.
Poor IT and database management.
Negligence, inadequate training, and poor working conditions.
Fear of reporting fraud to regulators due to reputational concerns.

The audit committee mandated management to engage a forensic expert to investigate and report on the matter within four weeks. Your firm has been appointed for this engagement.

Required:

(a) Discuss the ethical principles applicable to this situation. (5 Marks)

(b) Advise on the procedures to gather evidence for an acceptable report to management. (5 Marks)

(c) Recommend the agencies and relevant laws management should use to tackle these problems, where legal actions might be required. (5 Marks)

Answer

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Tags: Ethical Principles, Evidence Gathering, Forensic Audit, Fraud investigation, Regulatory Compliance
Level: Level 3

Topic: Forensic Auditing

AAA – May 2023 – L3 – Q2 – Audit of IT Systems and Data Analytics

Discuss challenges and solutions for e-commerce assurance, ethical principles for forensic investigation, and assurance engagement reporting requirements.

Question

There is an indication of increasing application of technology in the business and commercial world. Many activities are now carried out on a real-time basis, and payment systems are gradually reducing the use of cheques.

Your new audit client is one of the companies that has recently enhanced its business settings with respect to receipts and payments. The previous auditor has little depth in information and communication technology despite the growing trend. The client’s management also thinks that its performance in the past has been inadequately reported due to the complicity of the key accounting staff and inadequacies of the previous auditor. The client is therefore considering its options in the circumstances.

Required:

(a) Discuss the challenges encountered in the provision of assurance engagements on e-commerce systems and the approach to address these challenges. (8 Marks)

(b) Evaluate the ethical principles that will be relevant in the conduct of forensic investigation of this client and the considerations the accountant needs to bear in mind in such an assignment. (7 Marks)

Answer

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Tags: Assurance engagements, E-commerce Systems, Ethical Principles, Forensic Investigation, Reporting Standards
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

Question

Havana Bank Plc was listed on the Nigerian Stock Exchange in February 2015. There was an initial public offer in the same period with proceeds of N5 billion. Part of the proceeds was expected to be utilized to strengthen the bank’s internet banking facility.

In November of the same year, the Managing Director/Chief Executive Officer (MD/CEO) proceeded on a three-week vacation to the United Kingdom but did not return at the time of concluding the audit of the 2015 financial statements early in 2016. It was observed that the MD/CEO had absconded with documents relating to the public offer. It was also noted that he kept drawing cash whilst in the United Kingdom amounting to N922 million.

The Bank closed its Gambian operations in June 2015 because it had made losses for two consecutive years. Prior to the two years before the closure, the operations in Gambia had grown into a network of five branches, contributing 15 percent of the gross income and 9.5 percent of the net profits of the group. The closure was not disclosed in the financial statements, but reference was made to the closure in the directors’ report.

As the Audit Manager in the firm of Chartered Accountants that audits Havana Bank Plc, you are required to:
a. Identify and explain the significant audit matters you will consider in forming an opinion in relation to the missing documents and the cash drawings by the absconded MD/CEO. (10 Marks)
b. Analyse and evaluate your views on the non-inclusion of the discontinued Gambian operations in the financial statements. (10 Marks)
c. Explain FIVE duties, as an auditor, in relation to the bank’s internet banking. (10 Marks)

Answer

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Tags: Audit opinion, Discontinued Operations, Financial Disclosures, Fraud investigation, Internet Banking Audit
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

AAA – Nov 2013 – L3 – A – Q8 – Forensic Auditing

This question assesses knowledge of the terms of reference that should be agreed upon by the investigating accountant with the client.

Question

The terms of reference to be agreed by the investigating accountant with the client before commencement of work do NOT include the
A. Organisational and management structure of the entity to be investigated
B. Purpose of the investigation
C. Basis on which fees will be charged
D. General scope of work to be covered
E. Time within which the assignment will be carried out

Answer

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Tags: Client Agreement, Forensic Auditing, Investigation, Terms of Reference
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SB – Q4 – Forensic Auditing

This question explores forensic audit, its application in fraud investigation, and compares auditor responsibilities in statutory versus forensic audits.

Question

In accordance with ISA 240, the primary responsibility for the prevention and detection of fraud rests with Management. But the issue of Accountants seeking specialization as forensic auditors has continued to dominate discussion on professional practice.

Required:
a. Explain forensic audit and how it applies to fraud investigation. (5 Marks)

b. Compare the responsibilities of the auditor in respect of fraud when conducting:
i. Statutory Audit (5 Marks)
ii. Forensic Audit (5 Marks)
(Total 15 Marks)

Answer

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Tags: Auditor Responsibilities, Forensic Audit, Fraud Detection, Professional Practice, Statutory Audit
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q17 – Forensic Auditing

Identifying inappropriate actions for material fraud detected in a banking audit.

Question

Which of the following actions is inappropriate to a material fraud detected during an audit of a banking institution?

A. Discuss the matter with at least one level of management above the perpetrators
B. Obtain further evidence
C. Mention it in the audit report
D. Suggest that the client consults with legal counsel about questions of law
E. Report the matter directly to the police

Answer

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Tags: Banking Audit, Forensic Auditing, Fraud Detection, Material Fraud, Reporting Procedures
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

Question

Which of the following is NOT an example of Revenue Related Fraud?

A. Accounting and documentary
B. Lifestyle of employees
C. Related party transactions
D. Management override of significant internal control activities
E. Sale of assets that is very similar to subsequent purchases at similar amounts

Answer

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Tags: Fraud Detection, Internal Controls, Related Party Transactions, Revenue Fraud
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – May 2019 – L3 – Q1 – Forensic Auditing

Analyze forensic accounting, discuss ethical principles, and outline procedures for Ayeniromo Microfinance Bank forensic investigation.

Question

An interim report of the preliminary investigation on the cash centre identified infractions on cash takings from customers by some staff of the cash centre during the year 2016.

The managing director and the board decided to engage your firm as forensic accountants with the following terms of reference:

Investigate whether fraud has actually occurred and if so, to obtain evidence to support that assertion in a court of law.
Identify the individual(s) who has/have committed the fraud and obtain evidence that can be used in a court of law to link them with the fraud.
Estimate the financial loss that has occurred because of the fraud.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Forensic Accounting, Fraud investigation, Investigation procedures, Professional Ethics
Level: Level 3

Topic: Forensic Auditing

AAA – May 2021 – L3 – Q5 – Forensic Auditing

Explanation of forensic accounting, investigation, audit, related government agencies, ethical principles, and procedures for conducting a forensic audit.

Question

The Managing Director has asked your audit firm to carry out a forensic audit to determine if the auditors were negligent in their duties.

Required:

Answer

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Tags: Ethical Principles, Forensic Accounting, Forensic Audit, Forensic Investigation, Forensic Procedures
Level: Level 3

Topic: Forensic Auditing

AAA – Nov 2013 – L3 – AII -Q8 – Forensic Auditing

Explores the components of forensic accounting, including investigative aspects.

Question

Forensic accounting encompasses both …………… and investigative accounting.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Techniques, Forensic Accounting, Fraud Detection, Investigative Accounting
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2013

AAA – May 2023 – L3 – Q7 – Forensic Auditing

Discuss ethical principles for fraud investigation, advise on evidence gathering procedures, and recommend laws and agencies for legal action.

Question

Hacking of Accounts: Unauthorized transfers due to poor information security systems.
Forgery: Forged cheques, signatures, and withdrawal slips used in collusion with bank staff.
Fictitious Accounts: Opening and operating fake accounts to facilitate illegal transfers due to incomplete KYC.
Loans to Fictitious Borrowers: Fictitious loans issued via fake accounts.
False Overtime Claims: Junior staff claiming overtime for hours not worked.
Suppression of Cash/Cheques: Diversion of customer deposits and loan repayments into fictitious accounts.
Alteration of Programs: Unauthorized access to systems to manipulate account balances.

Likely Causes:

Weak internal controls and supervision.
Non-compliance with KYC rules.
Poor IT and database management.
Negligence, inadequate training, and poor working conditions.
Fear of reporting fraud to regulators due to reputational concerns.

The audit committee mandated management to engage a forensic expert to investigate and report on the matter within four weeks. Your firm has been appointed for this engagement.

Required:

(a) Discuss the ethical principles applicable to this situation. (5 Marks)

(b) Advise on the procedures to gather evidence for an acceptable report to management. (5 Marks)

(c) Recommend the agencies and relevant laws management should use to tackle these problems, where legal actions might be required. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Ethical Principles, Evidence Gathering, Forensic Audit, Fraud investigation, Regulatory Compliance
Level: Level 3

Topic: Forensic Auditing

AAA – May 2023 – L3 – Q2 – Audit of IT Systems and Data Analytics

Discuss challenges and solutions for e-commerce assurance, ethical principles for forensic investigation, and assurance engagement reporting requirements.

Question

Required:

(a) Discuss the challenges encountered in the provision of assurance engagements on e-commerce systems and the approach to address these challenges. (8 Marks)

Answer

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Tags: Assurance engagements, E-commerce Systems, Ethical Principles, Forensic Investigation, Reporting Standards
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

AAA – Nov 2016 – L3 – Q1 – Forensic Auditing

Evaluate significant audit issues related to fraud by the MD/CEO, disclosure of discontinued operations, and audit responsibilities for internet banking.

Question

Answer

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Tags: Audit opinion, Discontinued Operations, Financial Disclosures, Fraud investigation, Internet Banking Audit
Level: Level 3

Topic: Audit of IT Systems and Data Analytics, Forensic Auditing

AAA – Nov 2013 – L3 – A – Q8 – Forensic Auditing

This question assesses knowledge of the terms of reference that should be agreed upon by the investigating accountant with the client.

Question

Answer

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Tags: Client Agreement, Forensic Auditing, Investigation, Terms of Reference
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SB – Q4 – Forensic Auditing

This question explores forensic audit, its application in fraud investigation, and compares auditor responsibilities in statutory versus forensic audits.

Question

Required:
a. Explain forensic audit and how it applies to fraud investigation. (5 Marks)

b. Compare the responsibilities of the auditor in respect of fraud when conducting:
i. Statutory Audit (5 Marks)
ii. Forensic Audit (5 Marks)
(Total 15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Auditor Responsibilities, Forensic Audit, Fraud Detection, Professional Practice, Statutory Audit
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q17 – Forensic Auditing

Identifying inappropriate actions for material fraud detected in a banking audit.

Question

Which of the following actions is inappropriate to a material fraud detected during an audit of a banking institution?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Banking Audit, Forensic Auditing, Fraud Detection, Material Fraud, Reporting Procedures
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

Question

Which of the following is NOT an example of Revenue Related Fraud?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fraud Detection, Internal Controls, Related Party Transactions, Revenue Fraud
Level: Level 3