- 15 Marks
Question
Fela Idaewor is the auditor for Matty Co. Ltd, a rapidly expanding retail business based in Lekki. This is her first year as the audit manager. During her engagement planning, she observed multiple risk factors, such as the company’s strong interest in maintaining earnings and share prices, unrealistic financial forecasts, and high reliance on debt financing for expansion. Additionally, there were strong indications that fraud might have been committed by top management.
Required
(a) What should Idaewor do about the possibility of fraud at the planning stage? (7 Marks)
(b) What documentation is required for identifying risk factors? (5 Marks)
(c) If Idaewor has evidence suggesting fraud, what are her communication responsibilities to management? (3 Marks)
Answer
(a) At the planning stage, Idaewor should adopt increased professional skepticism, adjust audit procedures to detect possible fraud, assign experienced auditors, and incorporate forensic specialists if necessary.
(b) Documentation should include significant decisions on identified risk factors, audit responses, and management communication protocols.
(c) If fraud evidence is confirmed, she must inform the audit committee and assess if regulatory reporting is required.
- Topic: Application of Audit and Assurance Principles
- Series: NOV 2011
- Uploader: Dotse