Risk Management in Audits

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

Question

Messrs PK Industries Limited was incorporated and operates its business in Nigeria. The company has existed over the years. During most of this period, it imported some major components from China. Imports usually take some time to arrive after necessary forms have been completed and submitted to the bank.

Two of the directors have two other companies that supply fuel and other local resources needed by the company. The company’s directors are aware of this but prefer to do their business rather than patronize other suppliers.

In the last few years, the turnover of the company fluctuated between ₦500 million and ₦1 billion. The two other companies owned by the two directors are currently trading on loans granted by the company.

Following what was considered to be an increasingly harsh economic environment and high cost of power supply, the company registered a subsidiary company with a production outfit in Ghana while still maintaining its head office operations in Nigeria. Part of the raw materials needed in Ghana are procured in Nigeria and transported to Ghana through hired trailers. This process is being used until a suitable supplier is found in Ghana.

The company decided to hold the next Annual General Meeting (AGM) in the company’s premises in Ghana, with all the directors/shareholders traveling to Ghana on a direct flight from Abuja to Accra at the company’s expense. It was decided that this was an opportunity to evaluate the Ghanaian environment for further business decisions.

The audit of the Nigerian company and its Ghanaian company were done by different firms.

Required:

(a) Evaluate the risks involved in the scenario above. (5 Marks)

(b) Discuss the risk assessment procedures that the auditor of Messrs PK Industries Limited needs to adopt as required by ISA 550. (11 Marks)

Answer

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Tags: Audit risks, Group Audits, ISA 550, ISA 600, Related Party Transactions, Risk Assessment
Level: Level 3

Topic: Risk Management in Audits

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

Question

The rate of corporate ………… in the last ten years has tended to increase the risk exposure of the auditor.

Answer

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Tags: Audit Risk, Auditor, Corporate, Corporate Governance, Risk Exposure, Risk Management

Topic: Risk Management in Audits
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

Question

Money laundering is an attempt to ……………. the origin of the money by making it look legitimate or clean.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Anti-Money Laundering, Compliance, Financial Crime, Legitimization, Money laundering
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2012

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

Question

Reliance Ventures Limited has been trading in imported goods for many years. The company’s fortune has started to diminish as a result of the current economic environment. Your firm has been the auditor of the company in the last three years. You have noticed that the shareholders’ equity of the company has been eroded and is currently in deficit. This condition has raised significant doubt on the entity’s ability to continue as a going concern.

Required:

Identify and explain FOUR audit procedures to be performed by the audit team to determine the going concern status of the company. (10 Marks)
Discuss FOUR of the steps that the auditor should take if he considers that the going concern assumption is invalid whereas management considers it to be valid. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Financial Distress, Going Concern, Management's Assumptions
Level: Level 3

Topic: Risk Management in Audits
Series: MAY 2018

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

Question

The audit plan and scope was presented to the Audit Committee of Deinde Limited for the year ended December 31, 2020. The external auditors of the company stated:

“We would estimate materiality using profit before tax for the full year. We would estimate our preliminary materiality based on expected results for the full year. We will perform a materiality re-assessment at year-end to confirm adequacy or otherwise of our preliminary materiality. We will report to the Audit Committee on all unadjusted misstatements greater than our established threshold unless they are qualitatively immaterial.”

Your uncle, who is a member of the Audit Committee, discussed this matter with you and requested that you explain the issue further.

Required:

a. Explain the concepts of materiality and performance materiality in an audit of financial statements.

(3 Marks)

b. Explain the benchmark for determining materiality. (5 Marks)

c. Discuss the factors that may affect the identification of an appropriate benchmark. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Benchmarks, Financial Statement Audit, ISA Standards, Materiality, Performance Materiality, Risk Factors
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2022

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

Question

The management of Pony Bank Plc and its wholly owned subsidiary, Ponte Micro Finance Bank Limited, engaged in fraudulent activities involving the arrangement of bogus loans amounting to ₦5.5 billion in worthless assets, which were undetected by the previous auditors. The former auditors attributed the oversight to a well-organized group within Pony Bank that actively deceived and obstructed the audit process to conceal their actions.

Your firm, Vic Viv & Co, has recently taken on the audit of Pony Bank Plc.

Requirements:
a. Advise the engagement partner on the risks involved in taking up the audit.

(4 Marks)
b. Recommend appropriate actions for management and your firm to address financial statement risks.

(8 Marks)
c. Prepare a management letter with two matters suitable for submission to the directors.

(8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Planning, Audit Risk, Bogus Loans, Financial Statement Risk, Fraud Detection, Management letter
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2017

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

Question

The audit of the Nigerian company and its Ghanaian company were done by different firms.

Required:

(a) Evaluate the risks involved in the scenario above. (5 Marks)

(b) Discuss the risk assessment procedures that the auditor of Messrs PK Industries Limited needs to adopt as required by ISA 550. (11 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit risks, Group Audits, ISA 550, ISA 600, Related Party Transactions, Risk Assessment
Level: Level 3

Topic: Risk Management in Audits

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

Question

The rate of corporate ………… in the last ten years has tended to increase the risk exposure of the auditor.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Risk, Auditor, Corporate, Corporate Governance, Risk Exposure, Risk Management

Topic: Risk Management in Audits
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

Question

Money laundering is an attempt to ……………. the origin of the money by making it look legitimate or clean.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Anti-Money Laundering, Compliance, Financial Crime, Legitimization, Money laundering
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2012

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

Question

Required:

Identify and explain FOUR audit procedures to be performed by the audit team to determine the going concern status of the company. (10 Marks)
Discuss FOUR of the steps that the auditor should take if he considers that the going concern assumption is invalid whereas management considers it to be valid. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Financial Distress, Going Concern, Management's Assumptions
Level: Level 3

Topic: Risk Management in Audits
Series: MAY 2018

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

Question

The audit plan and scope was presented to the Audit Committee of Deinde Limited for the year ended December 31, 2020. The external auditors of the company stated:

“We would estimate materiality using profit before tax for the full year. We would estimate our preliminary materiality based on expected results for the full year. We will perform a materiality re-assessment at year-end to confirm adequacy or otherwise of our preliminary materiality. We will report to the Audit Committee on all unadjusted misstatements greater than our established threshold unless they are qualitatively immaterial.”

Your uncle, who is a member of the Audit Committee, discussed this matter with you and requested that you explain the issue further.

Required:

a. Explain the concepts of materiality and performance materiality in an audit of financial statements.

(3 Marks)

b. Explain the benchmark for determining materiality. (5 Marks)

c. Discuss the factors that may affect the identification of an appropriate benchmark. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Benchmarks, Financial Statement Audit, ISA Standards, Materiality, Performance Materiality, Risk Factors
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2022

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

Question

Your firm, Vic Viv & Co, has recently taken on the audit of Pony Bank Plc.

Requirements:
a. Advise the engagement partner on the risks involved in taking up the audit.

(4 Marks)
b. Recommend appropriate actions for management and your firm to address financial statement risks.

(8 Marks)
c. Prepare a management letter with two matters suitable for submission to the directors.

(8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Planning, Audit Risk, Bogus Loans, Financial Statement Risk, Fraud Detection, Management letter
Level: Level 3

Topic: Risk Management in Audits
Series: NOV 2017

Topic: Risk Management in Audits

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AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

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AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

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AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits"

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits"

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

You're reporting an error for "AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits"

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

You're reporting an error for "AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits"

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

You're reporting an error for "AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits"

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

You're reporting an error for "AAA – May 2023 – L3 – Q3 – Risk Management in Audits"

AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits

Identifies the corporate factor that has increased the risk exposure of auditors over the last decade.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q18 – Risk Management in Audits"

AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits

Defines money laundering as an attempt to legitimize the origin of illicit funds.

You're reporting an error for "AAA – Nov 2012 – L3 – AII – Q10 – Risk Management in Audits"

AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits

Identify and explain audit procedures to assess the going concern of Reliance Ventures Limited and steps if going concern assumption is invalid.

You're reporting an error for "AAA – May 2018 – L3 – SC – Q6 – Risk Management in Audits"

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

You're reporting an error for "AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits"

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

You're reporting an error for "AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits"

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