Fraud and Error – NBC Institute

AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

Question

Fraud and error present risks to an entity. Both internal and external auditors are required to deal with risks in an entity. However, the responsibilities of internal and external auditors in relation to the risk of fraud and error differ.

Required:

a. Explain how the internal audit function helps an entity with the risk of fraud and error. (7 Marks)

b. Explain the responsibilities of external auditors with respect to the risk of fraud and error in an audit of financial statements. (7 Marks)

c. Rock Holidays is an independent travel agency. It does not package holidays itself. It takes commission on holidays sold to customers through its chain of high street shops. Staff are partly paid on a commission basis. Well-established tour operators run the holidays that Rock Holidays sells. The network reservations system through which holidays are booked and the computerized accounting system are both well-established systems used by many independent travel agencies.

Payments by customers, including deposits, are accepted in cash and by debit and credit cards. Rock Holidays is legally required to pay an amount of money (based on its total sales for the year) into a central fund maintained to compensate customers if the agency should cease operations.

Describe the nature of the risks arising from fraud and error to which Rock Holidays is subject. (6 Marks)

Answer

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Tags: Auditor Responsibilities, Corporate Governance, External audit, Fraud risk, Internal Audit, Rock Holidays
Level: Level 2

Topic: Fraud and Error

AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

Question

Abati Quarries Limited was registered with the Corporate Affairs Commission in 2017 and commenced operations in 2019. The beginning was rough, as the property, plant, and equipment costs were beyond the initial projections, and the company had to make do with fairly used equipment, which kept breaking down along the line.

Products were meant for supply to its parent company, Abati Estates, which is into real estate. Abati Quarries Limited hardly had substantial finished goods (granites) as closing inventory. The Audit Manager later insisted that boulder rocks blasted at the site should be regarded as unfinished inventory or work-in-progress.

In addition, the performance of Abati Quarries Limited was at variance with the performance of competitors in the industry, as the company had been returning losses from inception. The Audit Manager then required that the audit team should intimate the General Manager of the company of the decision to determine the cost of the boulder rocks and include it in the financial statements as closing work-in-progress. The General Manager, however, disagreed.

The Audit Manager therefore instructed you, the Audit Senior, to draft appropriate paragraph(s) on Key Audit Matters (KAMs), suitable for inclusion in the Independent Auditor’s report, to bring this matter to the attention of the company’s shareholders.

Required:

a. Explain “Key Audit Matters” (KAMs) in relation to the Audit Report. (2 Marks)

b. Explain TWO types of audit in which the auditor is required to communicate Key Audit Matters, in accordance with ISA 701. (3 Marks)

c. Draft the “Key Audit Matters” section for inclusion in the auditor’s report of Abati Quarries Limited to capture the “boulders” issue. (6 Marks)

d. Highlight TWO important matters the auditor will consider before determining if a matter is a Key Audit Matter. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Abati Quarries, Audit Manager, Financial Statements, Key Audit Matters, Work in Progress
Level: Level 2

Topic: Fraud and Error
Series: MAY 2024

AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

Question

Required:

a. Explain how the internal audit function helps an entity with the risk of fraud and error. (7 Marks)

b. Explain the responsibilities of external auditors with respect to the risk of fraud and error in an audit of financial statements. (7 Marks)

Describe the nature of the risks arising from fraud and error to which Rock Holidays is subject. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Auditor Responsibilities, Corporate Governance, External audit, Fraud risk, Internal Audit, Rock Holidays
Level: Level 2

Topic: Fraud and Error

AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

Question

Required:

a. Explain “Key Audit Matters” (KAMs) in relation to the Audit Report. (2 Marks)

b. Explain TWO types of audit in which the auditor is required to communicate Key Audit Matters, in accordance with ISA 701. (3 Marks)

c. Draft the “Key Audit Matters” section for inclusion in the auditor’s report of Abati Quarries Limited to capture the “boulders” issue. (6 Marks)

d. Highlight TWO important matters the auditor will consider before determining if a matter is a Key Audit Matter. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Abati Quarries, Audit Manager, Financial Statements, Key Audit Matters, Work in Progress
Level: Level 2

Topic: Fraud and Error
Series: MAY 2024

Topic: Fraud and Error

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AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

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AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

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AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

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AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

You're reporting an error for "AA – Nov 2014 – L2 – Q4 – Fraud and Error"

AA – May 2024 – L2 – SA – Q7 – Fraud and Error

This question requires understanding of Key Audit Matters (KAMs) and their implications for Abati Quarries Limited's financial reporting.

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