Topic: The audit approach

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 20 Marks

AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting

Evaluate quality control issues and their implications for audit completion, including actions to be taken.

The audit of Nkwa Ltd’s financial statements for the year ended 30 November 2022 is nearing completion, and the auditor’s report is due to be signed next week. Nkwa Ltd manufactures parts and components for the aviation industry. You are conducting an engagement quality control review on the audit of Nkwa Ltd, which is a listed entity and a significant new client of your firm. The draft financial statements recognize revenue of GH¢8.7 million, assets of GH¢15.2 million, and profit before tax of GH¢1.8 million.

You have identified the following issues as a result of your review:

a) The planned audit approach to trade payables was to place reliance on purchasing controls and keep substantive tests to a minimum. During control testing on trade payables, from a random statistical sample, the audit team identified three purchase orders that had not been authorized by the procurement manager. On review of the supporting documentation, the audit team concluded that the items were legitimate business purchases and therefore decided that no additional procedures were required. (4 marks)

b) Following a review of petty cash transactions, the audit assistant identified that the petty cashier paid for taxi fares for personal, non-business journeys with a total value of GH¢175. Following discussions with the Audit Assistant, you have ascertained that he did not report the matter as the amount is immaterial. The audit assistant also commented that the petty cashier is his brother, and that he did not want to get him into trouble. (6 marks)

c) Cut-off testing on revenue has identified two goods despatch notes, dated 2 December 2022, for items sent to Chinn Co, with a combined sales value of GH¢17,880, which had been included in revenue for the year ended 30 November 2022. The client’s financial controller, David Mount, has explained that Chinn Co does not order on a regular basis from Nkwa Ltd. In the absence of a regular payment history with Chinn Co, and in order to minimize the receivables collection period from this particular customer, the sales invoice was raised and sent to the customer on the same day that the sales order was received. The average time period between the receipt of an order and despatching the goods to the customer is approximately one to two weeks. The audit working papers have concluded that no further investigation is necessary. (6 marks)

d) The Finance Director, Leslie Gray, has not completed the tax computation for the year ended 30 November 2022. He has recently asked the audit assistant to compute the company’s tax payable for the year on the basis that as a newly qualified chartered accountant, the audit assistant was more up to date with recent changes in tax legislation. (4 marks)

Required:
Evaluate the quality control issues and the implications for the completion of the audit, including any further actions that should be taken by your audit firm. Your answer should include the matters to be communicated to management and those charged with governance in relation to the audit of Nkwa Ltd.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting"

  • 20 Marks

AAA – July 2023 – L3 – Q2 – Assurance services | The audit approach | Planning

Discuss matters to consider before accepting a review engagement and recommend procedures for examining a cash flow forecast.

Eebuks Ltd is a retailer of academic textbooks that sells through its own network of bookshops and online through its website. The revenue from the website includes both cash sales and sales on credit to educational institutions. The company has provided historical analysis from its trade receivables ledger indicating that for sales made on credit, 25% payment is received in the month of sale, 70% after 30 days, and the remainder are irrecoverable debts.

You are a Manager in Makafui & Associates, a firm of Chartered Accountants offering a range of services from audit to non-audit for its clients. On 1 July 2023, your firm was asked by Eebuks Ltd, a company that is not an audit client of your firm, to consider a potential engagement to review and provide an assurance report on Prospective Financial Information. Makafui & Associates has already conducted specific client identification procedures in line with money laundering regulations with satisfactory results.

Additionally, Eebuks Ltd has approached your firm to obtain an independent assurance opinion on its cash flow forecast, which is being prepared for its bankers in support of an application for an increase in its existing overdraft facility.

Required:

a) In line with ISAE 3400: The Examination of Prospective Financial Information, discuss FIVE (5) matters to be considered by Makafui & Associates before accepting the engagement to review and report on Eebuks Ltd’s Prospective Financial Information. (10 marks)

b) Assuming Makafui & Associates accepts the engagement, recommend EIGHT (8) procedures to be performed in respect of Eebuks Ltd’s cash flow forecast. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – July 2023 – L3 – Q2 – Assurance services | The audit approach | Planning"

  • 10 Marks

AAA – July 2023 – L3 – Q1a – The audit approach | Audit-related services Planning |

Discuss five factors to consider before developing an audit proposal for a multinational company facing financial challenges.

Your firm has been approached to tender for an audit assignment by STK Ghana Ltd. The company is a multinational with its headquarters in Europe. STK Ghana Ltd is a manufacturing company that has operated in Ghana since 2010 and has made steady profits over the years. However, over the past few years, the company’s profits have been dwindling, and the group director in charge of Anglophone West Africa subsidiaries has charged the company to reduce its costs.

In a meeting with the country manager, you ascertained the following information:

  • Several creditors are pursuing the company for payment of their outstanding debt, including the previous auditor who is being owed for the past three years of audit work. The company has negotiated a payment plan for all its creditors.
  • Staff wages have been frozen, staff morale is very low, and several have left.
  • The company’s liquidity challenges commenced when the license of Glow Savings and Loans was revoked as part of the banking sector crisis with STK Ghana Ltd funds exceeding GH¢1 million locked up in short and long-term investments.

In the Terms of Reference (TOR) for the audit engagement, you are required to provide timelines for the overall audit and a financial proposal that is competitive. Upon receiving the TOR, a debate ensued among the partners on the relevance of submitting a proposal in response to the TOR.

Required:
Discuss FIVE (5) factors to be considered prior to developing a proposal for submission. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – July 2023 – L3 – Q1a – The audit approach | Audit-related services Planning |"

  • 4 Marks

AAA – Dec 2023 – L3 – Q5B – Audit Approach

Discuss the audit strategy BLA should adopt for a small company and an investment company.

Brotherlink & Associates (BLA) has been appointed as Auditors of Kontiba Ltd and Bambi
Ltd. Kontiba Ltd is a small company and Bambi Ltd is an investment company whose assets
and liabilities are substantial in relation to its transactions.
Required:
Discuss the audit strategy/approach BLA should adopt in auditing both companies.
(4 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Dec 2023 – L3 – Q5B – Audit Approach"

  • 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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Dec 2023 – L3 – Q1b – Practice Management | The Audit Approach, Quality Control"

  • 10 Marks

AAA – Nov 2020 – L3 – Q5b – The Audit Approach

Identify and comment on the implications of findings related to quality control policies and procedures during an audit engagement.

You are a Partner in Green & Co., a firm of Chartered Accountants, with specific responsibility for the quality of audits. Green & Co. was appointed auditor of Cleanup Co, a provider of waste management services, in July 2019. You have just visited the audit team at the head office of Cleanup Co. The audit team comprises an audit manager, an audit senior, and two audit trainees.

During your visit, a review of the audit working papers revealed the following:

i) On the audit planning checklist, the audit senior has crossed through the analytical procedures section and written ‘not applicable – new client’. The audit planning checklist has not been signed off as having been reviewed.

ii) The audit manager last visited Cleanup Co.’s office when the final audit commenced two weeks ago on 1 August. The audit senior has since completed the audit of tangible non-current assets (including property and service equipment) which amount to GH¢ 600,000 as at 30 June 2019 (2018 – GH¢ 600,000). The audit manager spends most of his time working from Green & Co’s office and is currently allocated to three other assignments as well as Cleanup Co.’s audit.

iii) At 30 June 2019, trade receivables amounted to GH¢ 2.1 million (2018 – GH¢ 900,000). One of the trainees has just finished sending out requests for direct confirmation of customers’ balances as at the end of the reporting period.

iv) The other trainee has been assigned the audit of the consumable supplies, which includes inventory amounting to GH¢ 88,000 (2018 – GH¢ 53,000). The trainee has carried out tests of controls over the perpetual inventory records and confirmed the ‘roll-back’ of a sample of current quantities to book quantities as at the year end.

v) The audit manager has noted the following matter for your attention. The financial statements as at 30 June 2018 disclosed, as unquantifiable, a contingent liability for pending litigation. However, the audit manager has seen a letter confirming that the matter was settled out of court for GH¢ 450,000 on 14 September 2018. The auditor’s report on the financial statements for the year ended 30 June 2018 was unmodified and signed on 19 September 2018. The audit manager believes that management of Cleanup Co. is not aware of the error and has not brought it to their attention.

Required:
Identify and comment on the implications of these findings for Green & Co’s quality control policies and procedures. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2020 – L3 – Q5b – The Audit Approach"

  • 2 Marks

AAA – Nov 2020 – L3 – Q2c – The Audit Approach

Discuss two problems in implementing quality control procedures in a small firm of Chartered Accountants and recommend solutions.

Discuss TWO (2) problems that you may face in implementing quality control procedures in a small firm of Chartered Accountants and recommend how these problems may be overcome. (2 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2020 – L3 – Q2c – The Audit Approach"

  • 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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2020 – L3 – Q1b – The audit approach | Practice management | Professional responsibility and liability"

  • 20 Marks

AAA – May 2021 – L3 – Q3 – Reporting | The audit approach

Evaluate the appropriateness of draft auditor’s reports for two clients and discuss the use of emphasis of matter and other matter paragraphs in audit reports.

You have recently been promoted to Senior Manager of Life Matters and Associates, a firm of Chartered Accountants. As part of your job description, you are to handle two clients in a given month. Below are some issues you will be faced with during the audit of these clients. The financial year-end for each client is 30 September 2020.

You are reviewing the Audit Senior’s draft auditor’s reports for the two clients, Factory Co Ltd and Toys Co Ltd.

Toy Co Ltd

The Audit Senior suggests that Toys Co Ltd’s audit opinion should not be qualified but should include an emphasis of matter paragraph after the audit opinion to highlight the situation below:

In October 2020, a legal claim was filed against Toys Co Ltd by a toy retailer. The suit was from a customer who slipped on a greasy step outside one of the retail outlets. The matter has been fully disclosed as a material contingent liability in the notes to the financial statements. Audit working papers also provided sufficient evidence that no provision is necessary as Toys Co Ltd’s lawyers have stated in writing that the likelihood of the claim succeeding is remote. The amount of the claim is fixed and is adequately covered by cash resources.

Factory Co Ltd

Factory Co Ltd, a listed company, permanently closed several branches in May 2020, with all closure costs finalised and paid in August 2020. The said branches all produced the same items, which contributed 10% of Factory Co Ltd’s total revenue for the year ended 30 September 2020 (2019 – 23%). The closure has been discussed accurately and fully in the Chairman’s statement and Directors’ Report. However, the closure was not stated in the notes to the financial statements nor separately disclosed on the financial statements.

The audit senior has proposed an unmodified audit opinion for Factory Co Ltd as the matter has been fully addressed in the Chairman’s statement and Directors’ Report.

Required:

a) Evaluate whether the Audit Senior’s draft auditor’s report is appropriate, and where you disagree, recommend the amendment necessary to the draft auditor’s report of:

i) Toy Co Ltd (4 marks)

ii) Factory Co Ltd (6 marks)

b) Assuming the auditors of Life Matters and Associates are contemplating whether to use an emphasis of matter paragraph and other matter paragraph in the audit report, explain both options and the situations when each is relevant. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2021 – L3 – Q3 – Reporting | The audit approach"

  • 10 Marks

AAA – May 2021 – L3 – Q1b – The audit approach | Internal audit and outsourcing

Draft a report on the factors influencing the external auditor’s reliance on the work of internal auditors according to ISA 610.

Your audit client, Asuoyeboa Ltd, has recently hired an Internal Auditor to deal with increased regulatory requirements. Afrakoma, the CEO of Asuoyeboa Ltd, has indicated that she believes the presence of the Internal Auditor will dramatically reduce the work that your audit firm will have to perform. She anticipates that this will have an impact on the audit fee.

Required:

Draft a report indicating factors that will influence the extent to which the external auditors will rely on the Internal Auditors’ work as per the requirements imposed by ISA 610: Using the Work of Internal Auditors. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2021 – L3 – Q1b – The audit approach | Internal audit and outsourcing"

  • 5 Marks

AAA – May 2016 – L3 – Q1a – The regulatory environment | The audit approach | Planning

Discuss types of information indicating non-compliance and evaluate the impact on financial statements per ISA 250.

a) Everclean Water Limited processes and packages portable water for local consumption. The factory is situated in a valley in a first-class residential area of the city. A major road used by most residents runs in front of the factory. Often this road is flooded with spill-over of water from the factory thus hindering vehicular and pedestrian movement. Management of the company on such occasions uses the services of a contractor to pump out the water from the road. This situation contravenes the provisions of the Factories, Offices and Shops Act 1970, Act 328. Everclean Water Limited has engaged Nadab and Associates as the auditors. In their preliminary tour of the factory the senior partners became aware of the flooding situation in the area. Back in the office the senior partners consulted ISA 250 “Consideration of laws and regulations in an audit of financial statements” for guidance on the auditor’s responsibility to consider laws and regulations in an audit of financial statements before carrying out the audit assignment.

i) State examples of the possible type of information that might have come to the auditors’ attention that might indicate non-compliance with the Factories, Offices, and Shops Act. (5 marks)

ii) Evaluate the possible effect on the financial statements for non-compliance with the law according to ISA 250. (5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – May 2016 – L3 – Q1a – The regulatory environment | The audit approach | Planning"

  • 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.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2023 – L3 – Q1c – The Audit Approach, Practice Management"

  • 20 Marks

AAA – Nov 2019 – L3 – Q2 – The audit approach, Planning, Audit evidence

Evaluate five business risks facing Retail Specialist Co. Ltd (RSCL) during audit planning.

Retail Specialist Co. Ltd (RSCL) is a large company, operating in the retail industry, with a year ended 31 December 2018. You are a manager in Jen & Co, responsible for the audit of Retail Specialist Co. Ltd (RSCL), and you have recently attended a planning meeting with Olivia Danso, the finance director of the company. As this is the first year that your firm will be acting as auditor for Retail Specialist Co. Ltd (RSCL), you need to gain an understanding of the business risks facing the new client. Notes from your meeting are as follows:

Retail Specialist Co. Ltd (RSCL) sells clothing, with a strategy of selling high fashion items under the RSCL brand name. New ranges of clothes are introduced to stores every eight weeks. The company relies on a team of highly skilled designers to develop new fashion ranges. The designers must be able to anticipate and quickly respond to changes in consumer preferences. There is a high staff turnover in the design team.

Most sales are made in-store, but there is also a very popular catalogue, from which customers can place an order online, or over the phone. The company has recently upgraded the computer system and improved the website, at significant cost, in order to integrate the website sales directly into the general ledger, and to provide an easier interface for customers to use when ordering and entering their credit card details. The new online sales system has allowed overseas sales for the first time.

The system for phone ordering has recently been outsourced. The contract for outsourcing went out to tender and Retail Specialist Co. Ltd (RSCL) awarded the contract to the company offering the least cost. The company providing the service uses an overseas phone call centre where staff costs are very low.

Retail Specialist Co. Ltd (RSCL) has recently joined the Ethical Trading Initiative. This is a ‘fair-trade’ initiative, which means that any products bearing the RSCL brand name must have been produced in a manner which is clean and safe for employees, and minimises the environmental impact of the manufacturing process. A significant advertising campaign promoting Retail Specialist Co. Ltd (RSCL)’s involvement with this initiative has recently taken place. The RSCL brand name was purchased a number of years ago and is recognised at cost as an intangible asset, which is not amortised. The brand represents 12% of the total assets recognised on the statement of financial position.

The company owns numerous distribution centres, some of which operate close to residential areas. A licence to operate the distribution centres is issued by each local government authority in which a centre is located. One of the conditions of the licence is that deliveries must only take place between 8 am and 6 pm. The authority also monitors the noise level of each centre, and can revoke the operating licence if a certain noise limit is breached. Two licences were revoked for a period of three months during the year.

To help your business understanding, Olivia Danso has e-mailed to you extracts from the draft statement of comprehensive income, and the relevant comparative figures, which are shown below.

Extract from draft Statement of Comprehensive Income
Year ending 31 December

Revenue: Retail outlets 2018 Draft (GH¢ million) 2017 Actual (GH¢ million)
Phone and on-line sales 1,030 1,140
Total revenue 425 395
Operating profit 1,455 1,535
Finance costs 245 275
Profit before tax (25) (22)
Profit before tax 220 253

Additional Information:

Number of stores 2018 Draft 2017 Actual
Number of stores 210 208
Average revenue per store GH¢ 4·905 mn GH¢ 5·77 mn
Number of phone orders 680,000 790,000
Number of on-line orders 1,020,000 526,667
Average spend per order GH¢ 250 GH¢ 300

Required:

a) Prepare briefing notes to be used at a planning meeting with your audit team, in which you evaluate FIVE (5) business risks facing Retail Specialist Co. Ltd (RSCL) to be considered when planning the final audit for the year ended 31 December 2018.

(10 marks)

b) Using the information provided, identify and explain FIVE (5) risks of material misstatements that may affect the financial statements you are going to audit. (10 marks)

 

 

 

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2019 – L3 – Q2 – The audit approach, Planning, Audit evidence"

  • 10 Marks

AAA – Nov 2016 – L3 – Q2a – Practice management | The audit approach

Discuss the quality control issues in an audit firm when key personnel changes occur and there are challenges in handling a major client.

a)

Nii Adjei & Associates is a firm of Chartered Accountants that provides various services (including Audit, Assurance, Tax, and Advisory services) to clients undertaking various services. Nii Adjei & Associates has offices in Accra, Tema, Koforidua, and Kumasi.

Owusu Mensah was the quality control partner of Nii Adjei & Associates. Owusu Mensah had started the implementation of an ethical compliance system for the assurance staff when he was involved in an accident on the Tema motorway on his way home and died. The said system required that staff should confirm in writing their compliance with the code of ethics of The Institute of Chartered Accountants (Ghana). Arrangement to get a replacement for Owusu Mensah had not been completed.

Osei Acquah was the engagement partner in charge of C. Kokuvi Ltd. (a major client that Nii Adjei & Associates provides audit service, preparation of tax computations, and other advisory services). Osei Acquah had an attack on his brain which resulted in a stroke. This forced Nii Adjei & Associates to engage Thomas Essien as the new engagement partner to take charge of the audit of C. Kokuvi Ltd. C. Kokuvi Ltd is not prepared to increase the audit fees from that of the previous year despite the fact that additional work has to be performed as a result of the introduction of a new computer system.

In addition, the starting date of the audit has been delayed as a result of problems with the new system.

Required:

Discuss any quality control issues identified in the above scenarios and recommend the action which should be taken by Nii Adjei and Associates. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2016 – L3 – Q2a – Practice management | The audit approach"

  • 10 Marks

AAA – Nov 2017 – L3 – Q3b – The Audit Approach, Professional Responsibility and Liability

Discuss the concept of professional skepticism and its importance, and assess areas where high levels of skepticism are needed in an audit.

You are the audit manager in charge of the audit of Vulnerable Company Limited, which has been making losses in its operations owing to many factors including competition, impairment of some of its non-current assets, and losses incurred on derivatives in its hedging activities as well as problems of complying with many laws and regulations governing its operations.

During your briefing meeting with the Engagement Partner, he drew your attention to the Question and Answer paper on Professional Skepticism issued by the International Auditing and Assurance Standards Board (IAASB) and requested you to discuss its contents with the audit team before commencement of the field work.

Required:

i) Discuss the concept of Professional Skepticism and its importance in audit. (4 marks)

ii) Assess and evaluate the areas in an audit of your client where the audit team members need to exercise a high level of professional skepticism.

(6 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2017 – L3 – Q3b – The Audit Approach, Professional Responsibility and Liability"

  • 10 Marks

AAA – Nov 2017 – L3 – Q2b – Practice Management, Audit Approach

Discuss the role of direction and supervision in ensuring quality control in an audit engagement.

Your assurance firm is currently auditing the financial statements of one of your major clients for the year 2016. As the engagement partner, you are concerned with the quality of the audit, so you want to comply with ISA 220: Quality control for an audit of financial statements.

Specifically, you want to ensure that the factors involved in engagement performance regarding direction, supervision, and review of the audit are properly considered. This would give you the assurance that the audit complies with professional standards and that any report issued would be appropriate in the circumstances.

Required:
i) Discuss the important role direction plays in engagement performance. (5 marks)

ii) Why is it important to supervise staff assigned to audit engagement? (5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2017 – L3 – Q2b – Practice Management, Audit Approach"

  • 10 Marks

AAA – Nov 2017 – L3 – Q1b – Audit Evidence, The Audit Approach

Describe the auditor's procedures and evidence required in relation to related party transactions.

Central to a number of government investigations in various countries have been companies trading with organisations or individuals other than at arm’s length. Such transactions were made possible by a degree of control or influence exercised by directors over both parties. Directors are responsible for the identification of such related party relationship and transactions, however, the auditor has a responsibility of ensuring good reporting in that area.

You are the audit senior of an audit firm preparing to audit a group company and its subsidiaries and sub-subsidiaries, which also trade with companies owned by some directors of the parent company.

Required:
What procedures and evidence should the auditor consider to discharge his responsibility in relation to related party transactions?

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2017 – L3 – Q1b – Audit Evidence, The Audit Approach"

  • 20 Marks

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

You are an Audit Manager in Aboto & Associates, responsible for the audit of the Obina Group (the Group). You are reviewing the audit working papers for the consolidated financial statements relating to the year ended 31 March 2021. The Group specializes in the wholesale supply of steel plate and sheet metals. The draft consolidated financial statements recognize revenue of GH¢7,670 million (2020 – GH¢7,235 million), profit before taxation of GH¢55 million (2020 – GH¢80 million) and total assets of GH¢1,560 million (2020 – GH¢1,275 million). Aboto & Associates audits all of the individual company financial statements as well as the Group consolidated financial statements. The Audit Senior has brought the following matters, regarding a number of the Group’s companies, to your attention:

  1. Fuga Plc
    The Group purchased 40% of the share capital and voting rights in Fuga Plc on 1 May 2020. Fuga Plc is listed on the Ghana Alternative Market. The Group has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable in 18 months from 1 May 2021. Fuga Plc’s draft financial statements for the year ended 31 March 2021 reveals revenue of GH¢90 million and a loss before tax of GH¢12 million. The Group’s Finance Director has recognized Fuga Plc as an associate in this year’s group accounts and has included a loss before tax of GH¢4.4 million in the consolidated statement of profit or loss.
    (7 marks)
  2. Bavi Plc
    Bavi Plc is a foreign subsidiary whose functional and presentational currency is the same as Obina Plc and the remainder of the Group. The subsidiary specializes in the production of stainless steel and holds a significant portfolio of forward commodity options to hedge against fluctuations in raw material prices. The local jurisdiction does not mandate the use of IFRS and the Audit Senior has noted that Bavi Plc follows local GAAP, whereby derivatives are disclosed in the notes to the financial statements but are not recognized as assets or liabilities in the statement of financial position. The disclosure notes include details of the maturity and exercise terms of the options and a directors’ valuation stating that they have a total fair value of GH¢6.1 million as at 31 March 2021. The disclosure notes state that all of the derivative contracts were entered into in the last three months of the reporting period and that they required no initial net investment.                                         (6 marks)
  3. Kontomo Plc
    Kontomo Plc is a long-standing subsidiary in which the Group parent has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kontomo Plc has revealed sales of aluminum to its parent company in March 2021 amounting to GH¢77 million which have been recorded in the subsidiary’s financial statements. However, the audit procedures have identified that the receipt of aluminum was not recorded by the parent company until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kontomo Plc makes a 10% profit margin on the sale of aluminum.                                                            (7 marks)

Required:
Comment on the matters to be considered and the audit evidence you should expect to find during your review of the Group audit working papers in respect of each of the issues raised above.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach"

  • 10 Marks

AAA – March 2023 – L3 – Q1b – Professional responsibility and liability, The audit approach

Discuss the ethical issues and other matters to consider before accepting Kita Ltd as a client.

You are a Senior manager in Bintu & Associates, a firm of Chartered Accountants which offers a range of assurance services. You are responsible for the audit of Mmatan Ltd, a company which provides approximately 10% of your firm’s practice income each year. The Finance Director of Mmatan Ltd has recently contacted you to provide information about another company, Kita Ltd, which is looking to appoint a provider of assurance services.

An extract from an email received from the Finance Director of Mmatan Ltd to you is stated below:

“One of my friends, Mr. Preprah, is the Managing Director of Kita Ltd, a small company which is seeking to expand in the next few years. I know that Mr. Preprah has approached the company’s bankers for GH¢6 million to finance the expansion. To support this loan application, Mr. Preprah will need to present its audited Financial Statements, hence the need for an Auditor immediately. Mr. Preprah is also in need of a firm to provide tax planning advice and also to prepare both the company’s and his personal tax computations for submission to the tax authorities. In this regard, I have asked Mr. Preprah to contact you, and I hope that Bintu & Associates will be able to provide these services to Kita Ltd for a low fee. If the fee you suggest is too high, and unacceptable to Mr. Preprah, then I will recommend that Mr. Preprah approaches Kwateng & Associates instead. Should the arrangement with Kita Ltd not go through, then Mmatan Ltd would also advise itself.”

Kwateng & Associates is a firm of Chartered Accountants which has an office in the same town as Bintu & Associates. The company is owner-managed, with Mr. Preprah’s family owning 90% of the share capital. Mr. Preprah is a director and majority shareholder of three other companies. An article in a newspaper from several years ago about Mr. Preprah indicated that one of his companies was once fined for a breach of employment law and that he had used money from one of the company’s pension funds to set up a business abroad, appointing his son as the Managing Director of that business.

Required:
Discuss the ethical issues and other matters which should be considered in relation to Bintu & Associates’s potential acceptance of Kita Ltd as its client. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – March 2023 – L3 – Q1b – Professional responsibility and liability, The audit approach"

  • 10 Marks

AAA – Mar 2024 – L3 – Q1b – The regulatory environment, Practice management, The audit approach

Discussion of issues with an audit engagement letter for Kumanji Ltd in accordance with ISA 210.

Ayesu & Associates, a reputable auditing firm, was approached by Kumanji Ltd to conduct an annual financial audit for the fiscal year ending December 31, 2023. Below is the audit engagement letter.

Re: Engagement Letter for the Audit of Financial Statements of Kumanji Ltd

We are pleased to confirm the terms of our engagement for the audit of your financial statements for the year ended December 31, 2023. This letter will serve as our agreement with Kumanji Ltd and outlines the scope of our services, responsibilities, and fee structure. Please review this letter carefully and let us know if you have any questions or concerns.

Audit Period: The audit will cover the financial statements of Kumanji Ltd for the fiscal year beginning January 1, 2023, and ending on March 31, 2023.

Audit Fees: Our fee structure will be based on a fixed fee of GH¢5,000 for the audit, payable in two installments. The first installment of GH¢2,500 will be due at the commencement of the audit, and the remaining GH¢2,500 will be due upon completion of the audit.

Timeline for Reporting: We will deliver the audit report and financial statements to you within two months after the conclusion of our fieldwork.

Conflicts of Interest: We do not anticipate any conflicts of interest that may affect our independence or objectivity during the audit. If any conflicts arise, we will address them promptly.

Audit Scope: We will perform audit procedures in accordance with Generally Accepted Auditing Standards (GAAS) to obtain reasonable assurance about whether the financial statements are free from material misstatement. Specific audit procedures will be determined during the audit process.

Contingency Plan: We do not have a contingency plan in place for unexpected disruptions or events that may affect the audit process.

Please acknowledge your agreement to the terms outlined in this letter by signing and returning a copy to us at your earliest convenience. If you have any questions or require clarification on any aspect of this engagement, do not hesitate to contact us.

We look forward to working with you and providing high-quality audit services to Kumanji Ltd. Thank you for entrusting us with this important engagement.

Required:
In accordance with ISA 210: Agreeing the terms of audit engagements, discuss FIVE (5) issues with the engagement letter. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Mar 2024 – L3 – Q1b – The regulatory environment, Practice management, The audit approach"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan