Topic: Group audit

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AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

Question

When a client has control over a subsidiary, what is the most appropriate audit procedure to obtain evidence to verify subsidiary accounts before consolidation?
A. Arrange for independent valuation of the assets and liabilities of the subsidiary
B. Be involved in the appointment of the subsidiary auditors
C. Rely on additional work carried out by the internal auditors
D. Send a template of your expectation to subsidiary auditors
E. Provide audit program for the subsidiary auditors

Answer

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Tags: Audit Procedure, Consolidation, Group Audits, Subsidiary Accounts
Level: Level 3

Topic: Group audit
Series: NOV 2012

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

Question

You are the Group Engagement Partner on the audit of the consolidated financial statements of GoodLife Investment Plc for the year ended 31 December 2017. GoodLife Investment Plc is a group of companies with subsidiaries in various countries across Africa. Based on the relative size of the components in terms of revenue, profit before tax, total assets, total liabilities, and net assets, you have identified some of the subsidiaries as significant components.

Component materiality has been determined as N22 million. In addition, from your preliminary risk assessment, you have identified some components that are likely to contain significant risk of material misstatements in the group financial statements. You plan to request component auditors to perform work on the financial information of the following components as at 31 December 2017.

Component ID	Component Name	Component Auditor	Country	Classification of Component	Likely Significant Risks of Material Misstatement
GIP	Goodlife Investment Plc	JPM & Co. (Chartered Accountants)	Nigeria	Significant component	– Fraudulent revenue recognition
					– Credit risk (allowance for loan impairment and impairment of other financial assets)
					– Valuation of financial instruments
GISAL	Goodlife Investments South Africa Limited	QSS Audit (Chartered Accountants)	South Africa	Significant component
GIL	Goodlife Insurance Limited	JPM & Co. (Chartered Accountants)	Nigeria	Insignificant component	– Valuation of insurance liabilities
GPRS	Goodlife Properties & Real Estate Services	Adibe & Co. (Chartered Accountants)	Nigeria	Significant component
GSL	Goodlife Stores Limited	Kwesi & Co. (Chartered Accountants)	Ghana	Insignificant component

Required:

a. Identify four factors that need to be considered by the group auditor in determining the use of component auditors to work on the financial information of these components. (4 Marks)

b. Discuss three principles to be applied when determining the type of work to be performed on each of the components above. (Link specific consideration to relevant components as shown above). (9 Marks)

c. List four contents of a Group Audit Instruction to a component auditor. (2 Marks)

Answer

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Tags: Audit Instructions, Component Auditors, Financial Consolidation, Group Audit, Material Misstatement
Level: Level 3

Topic: Group audit

AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

Question

Mr. Johnson is the Senior Partner of Johnson, Odewole, Thomas & Co., Chartered Accountants. During the last audit of Mandarin Manufacturing Plc, which the firm did with Messrs Ark Professional Services (APS) for the year ended 30 September, 2020, Mr. Johnson expressed displeasure on some of the conclusions reached by APS on certain audit areas. The manager in charge of the audit at Johnson, Odewole, Thomas & Co. had drawn Mr. Johnson’s attention to matters marked “For Partner’s Attention.” Discussions with the corresponding partner of APS on these matters were considered unsatisfactory.

Mr. Johnson’s views differed significantly from those of the corresponding partner of APS. It was agreed to proceed to the board meeting where these disputed positions would be presented and discussed with the directors before a final decision was reached. Of significance is the acquisition of a property from a former staff member for the opening of a new branch warehouse. The acquisition process was hurried and exceeded the capital expenditure provisions for the period. Mr. Johnson’s team viewed the acquisition as a potential fraud on the company, while APS aligned with the director of finance, who considered it a normal transaction.

At the board meeting to discuss the financial statements, members were divided between the two audit firms’ views, leading the chairman to reschedule the meeting. He requested additional information on both parties’ positions and asked them to harmonize their views before the next meeting the following day.

Required:

a. Evaluate the justification or otherwise of an entity having joint auditors. (8 Marks)

b. Following the concerns of Johnson, Odewole, Thomas & Co., present the options available to the firm. (5 Marks)

c. Discuss the points on which the Chairman needs to base his decision, according to standard acquisition procedures. (7 Marks)

d. If the Chairman agrees with the position of Johnson, Odewole, Thomas & Co., determine the reporting requirement and draft an appropriate report for inclusion in the auditors’ report. (6 Marks)

e. Discuss the composition of items that could be marked “For Partner’s Attention” during the conclusion of an audit process. (4 Marks)

Answer

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Tags: Acquisition, Audit report, Fraud risk, oint Audit, Partner's Attention
Level: Level 3

Topic: Group audit
Series: NOV 2022

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Question

Chuks Roberts Plc (CRP) operates as an auto-parts manufacturing company in Nigeria with headquarters in Lagos. CRP plans to manufacture drones for parcel distribution across Africa and has acquired Zaka Roberts Limited (ZRL), a South African company based in Johannesburg, to bring this plan to fruition.

Zaka previously specialized in manufacturing computer-controlled equipment for laboratories and other industries in Africa and the Middle East. The company was owned by five directors/shareholders who accepted CRP’s offer on February 1, 2016, to purchase Zaka’s manufacturing equipment, technology (patent-protected), Cape Town factory, and Johannesburg head office for US$450 million, representing 75% of Zaka’s value.

Effective March 31, 2016, Zaka ceased manufacturing, making most employees redundant except for a select few in marketing, accounts, and administration, with one month’s notice. The restructured entity, now named Chuks Zaka Limited (CZL), will operate as a marketing arm selling CRP’s drones in the South African region, with CRP holding a 55% stake.

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

Required:
a. Analyse and evaluate the business risks that would be assessed by the management of CZL. (6 Marks)
b. Analyse and evaluate the business risks that would be assessed by the directors of CRP.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

Answer

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Tags: Audit risks, Business Risks, Financial Statement Risk, Mergers and Acquisitions, Planning, Subsidiary Audit
Level: Level 3

Topic: Group audit
Series: NOV 2017

AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

Question

Abuakwa Ltd acquired a property in April 2018 at a cost of GH¢2.64 million. The property was not in a good state of repair, but Abuakwa needed office space for critical administration functions in a central location and moved some staff in immediately. In January 2019, more suitable accommodation became available for the staff, who were quickly relocated. A decision was taken to sell the property. Hence, it was decided not to provide any depreciation on the property in respect of the year under review.

However, significant remedial work was needed before the sale could be completed. This was commenced in early February 2019. The cost of this work is being expensed as ‘Repairs and Maintenance’ as incurred.

The property has a reserve price of at least GH¢4.2 million at a public auction scheduled for 30 June 2019. The property is classified as ‘Held for Sale’ at the year-end under IFRS 5: Non-current Assets held for Sale and Discontinued Operations at a value of GH¢4.2 million, and a gain of GH¢1.56 million has been recognised in the draft Consolidated Statement of Profit or Loss and Other Comprehensive Income.

(8 marks)

Answer

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Tags: Consolidation, Equity Method, IFRS Compliance, Subsidiary Accounting
Level: Level 3

Topic: Group audit
Series: MAY 2019

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedure, Consolidation, Group Audits, Subsidiary Accounts
Level: Level 3

Topic: Group audit
Series: NOV 2012

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

Question

Component ID	Component Name	Component Auditor	Country	Classification of Component	Likely Significant Risks of Material Misstatement
GIP	Goodlife Investment Plc	JPM & Co. (Chartered Accountants)	Nigeria	Significant component	– Fraudulent revenue recognition
					– Credit risk (allowance for loan impairment and impairment of other financial assets)
					– Valuation of financial instruments
GISAL	Goodlife Investments South Africa Limited	QSS Audit (Chartered Accountants)	South Africa	Significant component
GIL	Goodlife Insurance Limited	JPM & Co. (Chartered Accountants)	Nigeria	Insignificant component	– Valuation of insurance liabilities
GPRS	Goodlife Properties & Real Estate Services	Adibe & Co. (Chartered Accountants)	Nigeria	Significant component
GSL	Goodlife Stores Limited	Kwesi & Co. (Chartered Accountants)	Ghana	Insignificant component

Required:

a. Identify four factors that need to be considered by the group auditor in determining the use of component auditors to work on the financial information of these components. (4 Marks)

c. List four contents of a Group Audit Instruction to a component auditor. (2 Marks)

Answer

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Tags: Audit Instructions, Component Auditors, Financial Consolidation, Group Audit, Material Misstatement
Level: Level 3

Topic: Group audit

AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

Question

Required:

a. Evaluate the justification or otherwise of an entity having joint auditors. (8 Marks)

b. Following the concerns of Johnson, Odewole, Thomas & Co., present the options available to the firm. (5 Marks)

c. Discuss the points on which the Chairman needs to base his decision, according to standard acquisition procedures. (7 Marks)

d. If the Chairman agrees with the position of Johnson, Odewole, Thomas & Co., determine the reporting requirement and draft an appropriate report for inclusion in the auditors’ report. (6 Marks)

e. Discuss the composition of items that could be marked “For Partner’s Attention” during the conclusion of an audit process. (4 Marks)

Answer

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Tags: Acquisition, Audit report, Fraud risk, oint Audit, Partner's Attention
Level: Level 3

Topic: Group audit
Series: NOV 2022

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Question

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit risks, Business Risks, Financial Statement Risk, Mergers and Acquisitions, Planning, Subsidiary Audit
Level: Level 3

Topic: Group audit
Series: NOV 2017

AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

Question

(8 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Consolidation, Equity Method, IFRS Compliance, Subsidiary Accounting
Level: Level 3

Topic: Group audit
Series: MAY 2019

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AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

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AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

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AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

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AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

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AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

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AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

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AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

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AAA – Nov 2018 – L3 – Q6 – Group Audits

Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit

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AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

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AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

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AAA – May 2019 – L3 – Q1c – Group Audits

Assess the validity of the non-consolidation of an acquired subsidiary and determine appropriate audit evidence.

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