- 10 Marks
Question
You are a Senior Auditor at Dromo Audit Firm, assigned to audit a new client, Afroherb Pharma LTD, a multinational pharmaceutical company. During the initial stages of engagement planning, you discovered that Afroherb Pharma LTD operates in multiple jurisdictions, including Ghana, Liberia, Sierra Leone, and The Gambia. The parent company is in Ghana, and the companies in the other jurisdictions are all subsidiaries. All these jurisdictions have significant regulatory requirements and operational difficulties. The company has recently expanded its product line to include vaccine production following the introduction of The Vaccine Centre in Ghana. The production of vaccines is also subject to stringent regulatory reviews.
Required:
i) State FOUR audit procedures you could perform in relation to the consolidation of the financial statements of Afroherb Group.
ii) Identify TWO specific risks associated with auditing Afroherb Pharma LTD, particularly in relation to its expansion into vaccine products. How should these risks be managed?
iii) State TWO problems associated with the planning of group audits
Answer
i) Audit Procedures for Consolidation
- Clerical Accuracy: Verify accurate transfer of subsidiary figures into consolidation schedules.
- Investment Classification: Ensure proper categorization of subsidiaries as per IFRS 10.
- Intercompany Transactions: Reconcile intra-group transactions and balances.
- Adjustments Review: Validate unrealized profit adjustments and compliance with consolidation rules.
ii) Specific Risks & Audit Approach
- Regulatory Compliance Risk
- Risk: Non-compliance with strict vaccine production regulations.
- Mitigation: Review regulatory filings and assess compliance procedures.
- Financial Misstatement Risk
- Risk: Incorrect revenue recognition for vaccines.
- Mitigation: Validate revenue recognition policies against IFRS 15 and audit actual sales data.
iii) Problems in Planning Group Audits
- Diverse Accounting Standards: Some subsidiaries may use local GAAP instead of IFRS.
- Year-End Differences: Subsidiaries may have different reporting periods.
- Component Auditors: Different audit firms may audit subsidiaries, leading to coordination challenges.
- Topic: Group audit, Planning
- Series: Nov 2024
- Uploader: Salamat Hamid