Topic: Practice management

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AAA – Dec 2023 – L3 – Q1b – Practice Management | The Audit Approach, Quality Control

Review the quality of the audit performed for Kaaklo Plc, identifying issues related to audit planning, performance, and ethical considerations.

You are the Audit Manager in Peptom Partners, a firm of Chartered Accountants. Your role includes performing post-issuance audit quality reviews. You have been tasked to review the audit work performed on Kaaklo Plc for the financial year ended 31 January 2021. The following information was gathered from your review of the audit file:

Audit team and fees
Kaaklo Plc is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Kaaklo Plc has been an audit client of Peptom Partners for eight years, and Kofi Sika has been the Audit Engagement Partner during this time. Kaaklo Plc’s auditor’s report was signed by Kofi Sika and issued last week. The report contained an unmodified opinion.

Peptom Partners requires its staff to record each hour they spend working on each client in the firm’s time management system.

From reviewing the time records relating to the audit of Kaaklo Plc, you identified that Kofi Sika and the other audit team members recorded the following hours on the audit:

  • Kofi Sika – Audit Engagement Partner: 2 hours
  • Coffie – Senior Audit Manager: 6 hours
  • Mabel – Audit Manager: 35 hours
  • Six Audit Assistants: 130 hours

Total time spent on audit: 173 hours

It is apparent from your review that almost all the detailed review of the audit working papers was completed by Mabel, who has evidenced her review by stating ‘final review’ on each page of the audit file. She has recently been promoted to the position of Audit Manager.

You are also aware that Kofi Sika booked a total of 40 hours to Kaaklo Plc in respect of non-audit work performed. The only information you can find in the file is that the non-audit work related to a ‘special investigation,’ and that Kofi Sika confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was GH¢250,000 and the fee for the ‘special investigation’ was GH¢890,000.

Going concern
From reviewing the audit working papers, you are aware that Kaaklo Plc’s ability to continue operating into the foreseeable future was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the company’s construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.

Most of the audit work on going concern was performed by Mary Lamptey, an audit assistant who has just written her last professional exam and is not yet qualified. The majority of the audit work performed on the going concern focused on a review of five major contracts to determine their profitability. The management of Kaaklo Plc identified the major contracts for review and provided Mary with forecasts indicating that the contracts would have little impact on profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary concluded that there is no significant uncertainty over Kaaklo Plc operating into the foreseeable future.

Required:
Comment on the quality of the planning and performance of the audit of Kaaklo Plc. (10 marks)

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  • 10 Marks

AAA – Nov 2020 – L3 – Q1b – The audit approach | Practice management | Professional responsibility and liability

Evaluate five risk considerations and issues before accepting an engagement from Phobia Foods Ltd, focusing on financial position, client expectations, and fee structure.

You have been recently promoted as the Ethics Partner in Famous Chartered Accountants, a licensed audit firm. At your first visit to the Managing Partner, he informs you of an appointment by Phobia Foods Ltd (PFL), and gives you a file to go through. You open the file and find a copy of an e-mail from the Managing Director of PFL, extracts which read as follows:

From: Managing Director, Phobia Foods Ltd.
To: Managing Partner, Famous Chartered Accountants
Subject: Evaluation of Business Expansion Plan and Associated Items

Congratulations on your offer of appointment as auditor cum advisor of our company. As discussed in our earlier meeting, Phobia Foods Ltd (PFL) would like to open three more outlets, two in Sunyani and one in Sogakope. The necessary financing will be obtained through a new bank loan and the rescheduling of the payments of the existing loan, which is technically in default.

Your appointment and fees
Your audit fee will be GH¢16,000 for the year ended 30 June 2018.Your fee for evaluation of our expansion plan and advisory services in relation to obtaining a bank loan will be GH¢9,000. For advisory services and business efficiency and strategic decisions, your fee will be GH¢3,400 per month for the next two years.

Shareholders and key management issues
Five founding directors, each with equal shares, incorporated PFL which commenced trading in 2009. I still maintain my original 20% holding.

Audit and accounts 2016-2018
Ofosu-Mensah & Associates., a firm of licensed auditors audited the accounts for the years ended 30 June 2016 to 30 June 2018 inclusive. The audit of PFL for the year ended 30 June 2018 was signed off on 16 November 2018 with an unqualified opinion, notwithstanding that qualified opinions had been published on the previous two years’ accounts. The shareholders of PFL approved your firm’s appointment at the annual general meeting held on 15 April 2019 for the year ended 30 June 2019.

The funds raised by the new bank loan will be used for expansion of the business. Your firm is also expected to advise the company on the application for the new bank loan and the rescheduling of repayments of the existing loan in default.

Yours sincerely,
Managing Director.

Required:

Evaluate FIVE (5) risk considerations and issues for Famous Chartered Accountants that should be identified prior to accepting this engagement. (10 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q5a – Audit-related services | Practice management

Compare and contrast the audit of completed financial statements with the review of interim financial statements, focusing on key differences and similarities.

Your audit firm has been the statutory auditors for Apenkwa Co. Ltd. for the last three years. The company prepares its financial statements to December 31 each year. Due to the size of the company, it has been the practice of the client to prepare interim financial information to June 30 every year. At the request of the client, you have been reviewing the interim financial information each year it is prepared.

Required:

Compare and contrast the audit of completed financial statements and the review of interim financial statements. (10 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q2a – Professional responsibility and liability | Practice management

Discuss ethical and professional issues related to tax consultancy services, contingent fees, and suspected illegal activities in a first-time audit engagement.

Your firm, Osei and Associates, has been appointed as the auditors of Dadeka Limited for the first time to perform the audit of the company for the year ended 31 December 2015. The company is in the agro-processing industry, and it sells most of its products to overseas customers. The following are two issues:

i) Tax consultancy services:

The directors appointed a tax consultant to perform certain corporate taxation services for the tax year ended 31 December 2014. On the start of the audit of the financial statements for the year ended 31 December 2015, and a review of the Income tax paid, your firm discovered that the Company did not take advantage of the special tax rate of 8% available for companies in the “export of Non-Traditional goods” in section 1.2(1) of the then Internal Revenue Act 2000 (Act 592). On discussion of this with management of the company, your firm accepted an engagement to act on behalf of the company to negotiate with Ghana Revenue Authority (GRA) and re-open the tax assessment for 2014 and submit a new Tax Assessment. One of the provisions in the engagement letter was that your firm would be paid a fee of 20% of any tax savings the company enjoys as a result of the engagement.

ii) Suspected Illegal Act:

During the observation of the inventory count at the company’s warehouse on 31 December 2015, the representative of your firm discovered that certain items on the premises were sealed and had inscriptions “Do not tamper with seal,” and these were not counted as part of the company’s inventory. On enquiry, the staff member was advised to ‘pretend she has not seen that’. It is suspected that the items contain either illegal drugs or ammunitions. This cannot be confirmed.

Required:

Identify and discuss the ethical and other professional issues raised by items (i) and (ii) above, and recommend what action, if any, your firm should take.

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  • 10 Marks

AAA – May 2016 – L3 – Q2b – Internal audit and outsourcing | Practice management

Draft a report assessing the need for an internal audit department in a growing company.

Adepa Ltd, a fruit processing company, has been in operation for many years. It has managed to grow the business over the years and now has eight branches, four in rural areas and four in urban towns in addition to the head office. The management and those charged with governance are looking forward to the company adopting the latest technology in production – Advanced Technology Manufacturing (ATM) – and marketing and sales through the internet.

During the last audit of the financial statements of the company, the Managing Director suggested to the Senior Partner an assessment of the need for an internal audit department in the company. You were the audit manager who led the engagement team to do the audit. The Senior Partner has therefore asked you to carry out the assignment to assess the need for an internal audit in Adepa Ltd.

Required:
Draft a report to the Senior Partner on the assessment of the need for an internal audit department for Adepa Ltd., highlighting the factors to be considered in such assessment. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q2a – Practice management | Professional responsibility and liability

Advise on the matters to consider in relation to accepting a new audit client according to ISQC 1.

Papa Nii and Papa Nana who just qualified as Professional Accountants have decided to enter into professional practice under a firm name Nana Nii & Associates. These two have been trainee accountants of an Audit and Assurance firm for three years before qualifying.

For their first engagement, the CEO of Mberdane Ltd. has nominated Nana Nii & Associates for appointment as auditors of his company though Mberdane Ltd was a former client of their former firm, Papa Nii and Papa Nana were never on the engagement team of Mberdane Ltd. As beginners, Papa Nii and Papa Nana have intended to follow best practices as required by ISQC 1 “Quality control for firms that perform audits and reviews of financial statements, and other assurance related services”. However, they are not clear on the matters that they have to consider in their acceptance decision according to the standard. They have approached you, a senior partner of their former firm, for advice.

Required:
Advise Papa Nii and Papa Nana on the matters that they may have to consider in relation to the acceptance decision on their nomination. (10 marks)

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  • 10 Marks

AAA – Nov 2023 – L3 – Q1c – The Audit Approach, Practice Management

Explain five responsibilities of engagement partners for managing and achieving quality on audits as per ISA 220.

You have recently been employed by a small firm of Chartered Accountants “Osei Peprah and Associates”. The firm has been in operations since 1985 and the two main partners, Mr. Osei and Mr. Peprah, are above 70 years old. They are mostly inactive in the main audit work and rely on three audit trainees and one Audit Senior for the performance of the audit engagement for their 30 clients. The three audit trainees were recently employed after their national service with the firm. You are the only qualified accountant besides the partners.

On your first meeting with Mr. Osei, he explained that the firm needs to improve its quality control procedures and audit working papers. He highlighted that the recent audit of the firm’s activities by the Quality Assurance Monitoring department of ICAG revealed several quality control issues as well as non-compliance with ISAs in their audit engagements.

Required: In accordance with ISA 220 (Revised): Quality Management for an Audit of Financial Statements, explain FIVE (5) responsibilities of the engagement partners for managing and achieving quality on audits.

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  • 20 Marks

AAA – Aug 2022 – L3 – Q1 – Professional responsibility and liability | Practice management

Discuss the audit expectation gap, recommend ways to close it, and evaluate client acceptance decisions for a new audit client.

The potential liability of auditors has become an important topic in recent years, due to the growing complexity of the audit business environment and an increase in legal actions against auditors. One argument put forward to explain the high number of legal actions against auditors is the “expectation gap”.

i) Explain the Audit Expectation Gap and the elements in the Gap.
(4 marks)

ii) Recommend TWO (2) ways of closing the audit expectation gap.
(2 marks)

b) International Standards on Auditing (ISA) defines professional scepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatements due to error or fraud and a critical assessment of audit evidence. It explicitly requires auditors to plan and perform an audit with professional scepticism recognising that circumstances may exist that may cause financial statements to be misstated.

Required:

Recommend FOUR (4) approaches or ways that the professional practice firms and auditors could adopt to create the awareness of the importance of professional scepticism and its application.
(4 marks)

c) Opelee Partners, a firm of Chartered Accountants is considering the acceptance of a new client, The Monkoo Group Plc (The Group).

The Group is a listed company, and it has a total of 14 subsidiaries, 10 of which are foreign subsidiaries. The Group is a food processing company and each of its foreign subsidiaries provides a particular ingredient used in the Group’s main processing plant, which is based in Ghana. The subsidiaries produce raw ingredients including corn, wheat, vegetables, and nuts.

If Opelee Partners decides to accept the appointment, it will perform the audit of the Group’s consolidated financial statements, and that of the financial statements of some of the individual subsidiaries. The Group audit committee has suggested that, in order to keep the audit fee as low as possible, Opelee Partners could audit the companies based in Ghana but the foreign subsidiaries would be audited by local firms. These foreign subsidiaries contribute 60% to the Group’s total assets.

As the Managing Partner of Opelee Partners, you have also obtained the following information from an internet search regarding the Group:

  • Local protestors: One subsidiary, Konti Plc, has been accused of environmental damage, due to its operations impacting on the rainforest and causing harm to wildlife. There have been some protests by concerned citizens in the country where Konti Plc is located. Digital recordings of these protests have spread world-wide on social media.
  • Expansion of operations: The Group has recently expanded its operations in a certain country by acquiring a large area of land on which to grow wheat. To receive government approval for the acquisition, a significant ‘incentive payment’ was made to a government minister. This has been reported widely in the media.

Required:

Evaluate the matters Opelee Partners should consider before accepting the audit of The Group under the following areas:

i) The audit firm’s capabilities
(4 marks)

ii) Ethical issues
(4 marks)

iii) Client integrity
(2 marks)

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  • 10 Marks

AAA – Nov 2019 – L3 – Q1b – Professional responsibility and liability, Practice management

Evaluation of challenges and risks when auditing a Non-Governmental Organization (NGO).

b) You are a partner in a two-partner practice in a small rural town in Ashanti Region. Some local community groups recently got together and established a Non-Governmental Organisation (NGO). It aims to reduce poverty and inequality by supporting, influencing and advocacy around three interconnected pillars; Agriculture, Essential Services and Extractive Industry Governance.

The organisation is registered as a charity with a legal requirement to reinvest any excess of income over expenditure into the operation, or into other local community initiatives, as the management committee sees fit. The organisation is run by a management committee consisting of a member of the community council, the principal of the local school, two local business people, and the Parish Priest. Although, between them, they have considerable experience of various ‘for-profit’ and ‘not-for-profit’ ventures, none has particular experience of managing NGOs or charity organisations. The organisation is run on a day-to-day basis by the manager who is the only full-time employee experienced in the type of businesses involved. There is one other paid part-time employee – the assistant manager – but all other staff are volunteers.

It has been just over a year since the NGO was incorporated, and you are approached by a member of the management committee (a local business owner who is also one of your largest clients) to become the auditor of the NGO. He tells you that the committee, of course, would not expect you to provide this service entirely pro bono (free of charge). He also mentions that he knows you wouldn’t want to be seen to turn down this opportunity, given the way that “news can travel around in a small town”.

He is well aware that the revenue generated by the organisation is very low. The committee feels that the absence of an audit could be perceived as “negligent” or a “cover up” should any problems involving, for example, the misappropriation of assets emerge in the future.

Required:

Evaluate FIVE (5) challenges and other risks presented to your practice as a result of the request from your client to become the auditor of this NGO. (10 marks)

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  • 12 Marks

AAA – Nov 2017 – L3 – Q5a – Practice Management, Professional Responsibility and Liability

Identify the causes of failure in a microfinance company and recommend actions to prevent recurrence.

You are an Audit Manager in the firm Taiplan Chartered Accountants, a firm in public practice registered with the Institute of Chartered Accountants (Ghana) (ICAG). Bank of Ghana (BOG) has appointed your firm to investigate reasons for the failure of DC Microfinance Limited (DCM) and your investigation has revealed the following as some of the reasons for the failure:

i) The board of directors of the company is made up only of Mr. and Mrs. David Commodore;

ii) The failure of the Bank of Ghana to examine or detect the non-submission of the fidelity returns submitted to it by the company and monitor the company adequately;

iii) The auditors have been the auditors of the company since its incorporation over ten years ago;

iv) The failure of the auditors of the company to spot and question some dubious accounting treatments adopted by the company. This is partly due to the fact that the consulting arm of the audit firm has been performing all the consultancy work needed by the company since its incorporation and particularly at the time of its application for the microfinance operating permit from BOG.

Required:
For points (i) to (iv) above, state for each point, and show what would contribute to the failure of the company and make ONE recommendation to ensure that this would not re-occur in DCM or any other microfinance company in Ghana. (12 marks)

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  • 10 Marks

AAA – Dec 2023 – L3 – Q1b – Practice Management | The Audit Approach, Quality Control

Review the quality of the audit performed for Kaaklo Plc, identifying issues related to audit planning, performance, and ethical considerations.

You are the Audit Manager in Peptom Partners, a firm of Chartered Accountants. Your role includes performing post-issuance audit quality reviews. You have been tasked to review the audit work performed on Kaaklo Plc for the financial year ended 31 January 2021. The following information was gathered from your review of the audit file:

Audit team and fees
Kaaklo Plc is a listed company operating in the construction industry. The company complies with corporate governance regulations and has an audit committee. Kaaklo Plc has been an audit client of Peptom Partners for eight years, and Kofi Sika has been the Audit Engagement Partner during this time. Kaaklo Plc’s auditor’s report was signed by Kofi Sika and issued last week. The report contained an unmodified opinion.

Peptom Partners requires its staff to record each hour they spend working on each client in the firm’s time management system.

From reviewing the time records relating to the audit of Kaaklo Plc, you identified that Kofi Sika and the other audit team members recorded the following hours on the audit:

  • Kofi Sika – Audit Engagement Partner: 2 hours
  • Coffie – Senior Audit Manager: 6 hours
  • Mabel – Audit Manager: 35 hours
  • Six Audit Assistants: 130 hours

Total time spent on audit: 173 hours

It is apparent from your review that almost all the detailed review of the audit working papers was completed by Mabel, who has evidenced her review by stating ‘final review’ on each page of the audit file. She has recently been promoted to the position of Audit Manager.

You are also aware that Kofi Sika booked a total of 40 hours to Kaaklo Plc in respect of non-audit work performed. The only information you can find in the file is that the non-audit work related to a ‘special investigation,’ and that Kofi Sika confirms that it does not create a threat to auditor objectivity. The total fee charged for the audit was GH¢250,000 and the fee for the ‘special investigation’ was GH¢890,000.

Going concern
From reviewing the audit working papers, you are aware that Kaaklo Plc’s ability to continue operating into the foreseeable future was identified as a significant audit risk at the planning stage of the audit due to low profit margins or losses being made on many of the company’s construction contracts and increasing economic uncertainty. The company typically has 20 contracts ongoing at any time.

Most of the audit work on going concern was performed by Mary Lamptey, an audit assistant who has just written her last professional exam and is not yet qualified. The majority of the audit work performed on the going concern focused on a review of five major contracts to determine their profitability. The management of Kaaklo Plc identified the major contracts for review and provided Mary with forecasts indicating that the contracts would have little impact on profit. Mary confirmed that the assumptions used in the forecasts agreed to assumptions used in previous years and concluded that the contracts which she had reviewed support the going concern status of the company. Having reviewed these major contracts, Mary concluded that there is no significant uncertainty over Kaaklo Plc operating into the foreseeable future.

Required:
Comment on the quality of the planning and performance of the audit of Kaaklo Plc. (10 marks)

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  • 10 Marks

AAA – Nov 2020 – L3 – Q1b – The audit approach | Practice management | Professional responsibility and liability

Evaluate five risk considerations and issues before accepting an engagement from Phobia Foods Ltd, focusing on financial position, client expectations, and fee structure.

You have been recently promoted as the Ethics Partner in Famous Chartered Accountants, a licensed audit firm. At your first visit to the Managing Partner, he informs you of an appointment by Phobia Foods Ltd (PFL), and gives you a file to go through. You open the file and find a copy of an e-mail from the Managing Director of PFL, extracts which read as follows:

From: Managing Director, Phobia Foods Ltd.
To: Managing Partner, Famous Chartered Accountants
Subject: Evaluation of Business Expansion Plan and Associated Items

Congratulations on your offer of appointment as auditor cum advisor of our company. As discussed in our earlier meeting, Phobia Foods Ltd (PFL) would like to open three more outlets, two in Sunyani and one in Sogakope. The necessary financing will be obtained through a new bank loan and the rescheduling of the payments of the existing loan, which is technically in default.

Your appointment and fees
Your audit fee will be GH¢16,000 for the year ended 30 June 2018.Your fee for evaluation of our expansion plan and advisory services in relation to obtaining a bank loan will be GH¢9,000. For advisory services and business efficiency and strategic decisions, your fee will be GH¢3,400 per month for the next two years.

Shareholders and key management issues
Five founding directors, each with equal shares, incorporated PFL which commenced trading in 2009. I still maintain my original 20% holding.

Audit and accounts 2016-2018
Ofosu-Mensah & Associates., a firm of licensed auditors audited the accounts for the years ended 30 June 2016 to 30 June 2018 inclusive. The audit of PFL for the year ended 30 June 2018 was signed off on 16 November 2018 with an unqualified opinion, notwithstanding that qualified opinions had been published on the previous two years’ accounts. The shareholders of PFL approved your firm’s appointment at the annual general meeting held on 15 April 2019 for the year ended 30 June 2019.

The funds raised by the new bank loan will be used for expansion of the business. Your firm is also expected to advise the company on the application for the new bank loan and the rescheduling of repayments of the existing loan in default.

Yours sincerely,
Managing Director.

Required:

Evaluate FIVE (5) risk considerations and issues for Famous Chartered Accountants that should be identified prior to accepting this engagement. (10 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q5a – Audit-related services | Practice management

Compare and contrast the audit of completed financial statements with the review of interim financial statements, focusing on key differences and similarities.

Your audit firm has been the statutory auditors for Apenkwa Co. Ltd. for the last three years. The company prepares its financial statements to December 31 each year. Due to the size of the company, it has been the practice of the client to prepare interim financial information to June 30 every year. At the request of the client, you have been reviewing the interim financial information each year it is prepared.

Required:

Compare and contrast the audit of completed financial statements and the review of interim financial statements. (10 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q2a – Professional responsibility and liability | Practice management

Discuss ethical and professional issues related to tax consultancy services, contingent fees, and suspected illegal activities in a first-time audit engagement.

Your firm, Osei and Associates, has been appointed as the auditors of Dadeka Limited for the first time to perform the audit of the company for the year ended 31 December 2015. The company is in the agro-processing industry, and it sells most of its products to overseas customers. The following are two issues:

i) Tax consultancy services:

The directors appointed a tax consultant to perform certain corporate taxation services for the tax year ended 31 December 2014. On the start of the audit of the financial statements for the year ended 31 December 2015, and a review of the Income tax paid, your firm discovered that the Company did not take advantage of the special tax rate of 8% available for companies in the “export of Non-Traditional goods” in section 1.2(1) of the then Internal Revenue Act 2000 (Act 592). On discussion of this with management of the company, your firm accepted an engagement to act on behalf of the company to negotiate with Ghana Revenue Authority (GRA) and re-open the tax assessment for 2014 and submit a new Tax Assessment. One of the provisions in the engagement letter was that your firm would be paid a fee of 20% of any tax savings the company enjoys as a result of the engagement.

ii) Suspected Illegal Act:

During the observation of the inventory count at the company’s warehouse on 31 December 2015, the representative of your firm discovered that certain items on the premises were sealed and had inscriptions “Do not tamper with seal,” and these were not counted as part of the company’s inventory. On enquiry, the staff member was advised to ‘pretend she has not seen that’. It is suspected that the items contain either illegal drugs or ammunitions. This cannot be confirmed.

Required:

Identify and discuss the ethical and other professional issues raised by items (i) and (ii) above, and recommend what action, if any, your firm should take.

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  • 10 Marks

AAA – May 2016 – L3 – Q2b – Internal audit and outsourcing | Practice management

Draft a report assessing the need for an internal audit department in a growing company.

Adepa Ltd, a fruit processing company, has been in operation for many years. It has managed to grow the business over the years and now has eight branches, four in rural areas and four in urban towns in addition to the head office. The management and those charged with governance are looking forward to the company adopting the latest technology in production – Advanced Technology Manufacturing (ATM) – and marketing and sales through the internet.

During the last audit of the financial statements of the company, the Managing Director suggested to the Senior Partner an assessment of the need for an internal audit department in the company. You were the audit manager who led the engagement team to do the audit. The Senior Partner has therefore asked you to carry out the assignment to assess the need for an internal audit in Adepa Ltd.

Required:
Draft a report to the Senior Partner on the assessment of the need for an internal audit department for Adepa Ltd., highlighting the factors to be considered in such assessment. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q2a – Practice management | Professional responsibility and liability

Advise on the matters to consider in relation to accepting a new audit client according to ISQC 1.

Papa Nii and Papa Nana who just qualified as Professional Accountants have decided to enter into professional practice under a firm name Nana Nii & Associates. These two have been trainee accountants of an Audit and Assurance firm for three years before qualifying.

For their first engagement, the CEO of Mberdane Ltd. has nominated Nana Nii & Associates for appointment as auditors of his company though Mberdane Ltd was a former client of their former firm, Papa Nii and Papa Nana were never on the engagement team of Mberdane Ltd. As beginners, Papa Nii and Papa Nana have intended to follow best practices as required by ISQC 1 “Quality control for firms that perform audits and reviews of financial statements, and other assurance related services”. However, they are not clear on the matters that they have to consider in their acceptance decision according to the standard. They have approached you, a senior partner of their former firm, for advice.

Required:
Advise Papa Nii and Papa Nana on the matters that they may have to consider in relation to the acceptance decision on their nomination. (10 marks)

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  • 10 Marks

AAA – Nov 2023 – L3 – Q1c – The Audit Approach, Practice Management

Explain five responsibilities of engagement partners for managing and achieving quality on audits as per ISA 220.

You have recently been employed by a small firm of Chartered Accountants “Osei Peprah and Associates”. The firm has been in operations since 1985 and the two main partners, Mr. Osei and Mr. Peprah, are above 70 years old. They are mostly inactive in the main audit work and rely on three audit trainees and one Audit Senior for the performance of the audit engagement for their 30 clients. The three audit trainees were recently employed after their national service with the firm. You are the only qualified accountant besides the partners.

On your first meeting with Mr. Osei, he explained that the firm needs to improve its quality control procedures and audit working papers. He highlighted that the recent audit of the firm’s activities by the Quality Assurance Monitoring department of ICAG revealed several quality control issues as well as non-compliance with ISAs in their audit engagements.

Required: In accordance with ISA 220 (Revised): Quality Management for an Audit of Financial Statements, explain FIVE (5) responsibilities of the engagement partners for managing and achieving quality on audits.

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  • 20 Marks

AAA – Aug 2022 – L3 – Q1 – Professional responsibility and liability | Practice management

Discuss the audit expectation gap, recommend ways to close it, and evaluate client acceptance decisions for a new audit client.

The potential liability of auditors has become an important topic in recent years, due to the growing complexity of the audit business environment and an increase in legal actions against auditors. One argument put forward to explain the high number of legal actions against auditors is the “expectation gap”.

i) Explain the Audit Expectation Gap and the elements in the Gap.
(4 marks)

ii) Recommend TWO (2) ways of closing the audit expectation gap.
(2 marks)

b) International Standards on Auditing (ISA) defines professional scepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatements due to error or fraud and a critical assessment of audit evidence. It explicitly requires auditors to plan and perform an audit with professional scepticism recognising that circumstances may exist that may cause financial statements to be misstated.

Required:

Recommend FOUR (4) approaches or ways that the professional practice firms and auditors could adopt to create the awareness of the importance of professional scepticism and its application.
(4 marks)

c) Opelee Partners, a firm of Chartered Accountants is considering the acceptance of a new client, The Monkoo Group Plc (The Group).

The Group is a listed company, and it has a total of 14 subsidiaries, 10 of which are foreign subsidiaries. The Group is a food processing company and each of its foreign subsidiaries provides a particular ingredient used in the Group’s main processing plant, which is based in Ghana. The subsidiaries produce raw ingredients including corn, wheat, vegetables, and nuts.

If Opelee Partners decides to accept the appointment, it will perform the audit of the Group’s consolidated financial statements, and that of the financial statements of some of the individual subsidiaries. The Group audit committee has suggested that, in order to keep the audit fee as low as possible, Opelee Partners could audit the companies based in Ghana but the foreign subsidiaries would be audited by local firms. These foreign subsidiaries contribute 60% to the Group’s total assets.

As the Managing Partner of Opelee Partners, you have also obtained the following information from an internet search regarding the Group:

  • Local protestors: One subsidiary, Konti Plc, has been accused of environmental damage, due to its operations impacting on the rainforest and causing harm to wildlife. There have been some protests by concerned citizens in the country where Konti Plc is located. Digital recordings of these protests have spread world-wide on social media.
  • Expansion of operations: The Group has recently expanded its operations in a certain country by acquiring a large area of land on which to grow wheat. To receive government approval for the acquisition, a significant ‘incentive payment’ was made to a government minister. This has been reported widely in the media.

Required:

Evaluate the matters Opelee Partners should consider before accepting the audit of The Group under the following areas:

i) The audit firm’s capabilities
(4 marks)

ii) Ethical issues
(4 marks)

iii) Client integrity
(2 marks)

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  • 10 Marks

AAA – Nov 2019 – L3 – Q1b – Professional responsibility and liability, Practice management

Evaluation of challenges and risks when auditing a Non-Governmental Organization (NGO).

b) You are a partner in a two-partner practice in a small rural town in Ashanti Region. Some local community groups recently got together and established a Non-Governmental Organisation (NGO). It aims to reduce poverty and inequality by supporting, influencing and advocacy around three interconnected pillars; Agriculture, Essential Services and Extractive Industry Governance.

The organisation is registered as a charity with a legal requirement to reinvest any excess of income over expenditure into the operation, or into other local community initiatives, as the management committee sees fit. The organisation is run by a management committee consisting of a member of the community council, the principal of the local school, two local business people, and the Parish Priest. Although, between them, they have considerable experience of various ‘for-profit’ and ‘not-for-profit’ ventures, none has particular experience of managing NGOs or charity organisations. The organisation is run on a day-to-day basis by the manager who is the only full-time employee experienced in the type of businesses involved. There is one other paid part-time employee – the assistant manager – but all other staff are volunteers.

It has been just over a year since the NGO was incorporated, and you are approached by a member of the management committee (a local business owner who is also one of your largest clients) to become the auditor of the NGO. He tells you that the committee, of course, would not expect you to provide this service entirely pro bono (free of charge). He also mentions that he knows you wouldn’t want to be seen to turn down this opportunity, given the way that “news can travel around in a small town”.

He is well aware that the revenue generated by the organisation is very low. The committee feels that the absence of an audit could be perceived as “negligent” or a “cover up” should any problems involving, for example, the misappropriation of assets emerge in the future.

Required:

Evaluate FIVE (5) challenges and other risks presented to your practice as a result of the request from your client to become the auditor of this NGO. (10 marks)

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  • 12 Marks

AAA – Nov 2017 – L3 – Q5a – Practice Management, Professional Responsibility and Liability

Identify the causes of failure in a microfinance company and recommend actions to prevent recurrence.

You are an Audit Manager in the firm Taiplan Chartered Accountants, a firm in public practice registered with the Institute of Chartered Accountants (Ghana) (ICAG). Bank of Ghana (BOG) has appointed your firm to investigate reasons for the failure of DC Microfinance Limited (DCM) and your investigation has revealed the following as some of the reasons for the failure:

i) The board of directors of the company is made up only of Mr. and Mrs. David Commodore;

ii) The failure of the Bank of Ghana to examine or detect the non-submission of the fidelity returns submitted to it by the company and monitor the company adequately;

iii) The auditors have been the auditors of the company since its incorporation over ten years ago;

iv) The failure of the auditors of the company to spot and question some dubious accounting treatments adopted by the company. This is partly due to the fact that the consulting arm of the audit firm has been performing all the consultancy work needed by the company since its incorporation and particularly at the time of its application for the microfinance operating permit from BOG.

Required:
For points (i) to (iv) above, state for each point, and show what would contribute to the failure of the company and make ONE recommendation to ensure that this would not re-occur in DCM or any other microfinance company in Ghana. (12 marks)

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