- 20 Marks
Question
You are reviewing the planning stage analytical procedures on the audit of Okotan Engineering and note the documentation below by the senior associate.
“The value of Property, Plant & Equipment (PPE) increased from GH¢735,000 at the end of 2023 to GH¢815,000 at the end of 2024 due to the purchase of a new excavator XT773 to replace the old excavator XT770 which was determined to be at the end of its useful economic life and could no longer be used. There are no other entries in PPE.”
i) Explain THREE specific risks at the assertion level from the above.
ii) Recommend TWO audit procedures to address each of the risks identified in (i).
B) ISSAI 1705 provides supplementary guidance on ISA 705 (Revised): Modifications to the Opinion in the Independent Auditor’s Report for public sector auditors. ISA 705 deals with the auditor’s responsibility to issue an appropriate report in circumstances when, in forming an opinion in accordance with ISA 700 (Revised), the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary.
ISA 705 establishes three types of modified opinions: a qualified opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is appropriate depends upon: i) The nature of the matter giving rise to the modification, that is, whether the financial statements are materially misstated or inability to obtain sufficient appropriate audit evidence, and ii) The auditor’s judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements.
Required: Discuss FIVE additional factors public sector auditors consider before modifying their audit opinion in accordance with ISSAI 1705.
Answer
i) Risks at the assertion level • PPE may be impaired (the carrying value of XT770 may not be recoverable). • Depreciation has not been provided for. • Additions may be misstated or not properly recorded.
ii) Audit procedures to address the risks
PPE impairment • Understand management’s plan to recover the carrying value of XT770 • Obtain evidence supporting the fair value less costs to sell of XT770
Depreciation • Make inquiries of management of why there is no depreciation charge for the year. • Obtain and review the PPE register for unusual or unexpected items/ movements. • Evaluate appropriateness of useful lives of PPE. • Recompute depreciation and compare to depreciation charge for the year.
B) Additional factors for public sector auditors’ consideration • The audit mandate, or obligations for public sector entities, arising from compliance to laws and regulations and pronouncements issued by Authorities including the Local Authorities, Ministers, the Act setting up the Local Authority itself, legislation, regulation, ministerial directives, government policy requirements or resolutions of the legislature which may result in additional objectives. • Instances of management refusing to remove restrictions on access to audit evidence due to official secrecy regulations. • Non-compliance with provisions of Public Financial Management Act, expenditure not in compliance with budgetary allocation and other financial malfeasance. • There may be general public expectations in regard to public sector on reporting on the effectiveness of internal control. • there may be general public expectations in regard to the public sector on reporting on value for money (economic, efficiency and effectiveness of expenditure).
- Topic: Public sector audit
- Series: NOV 2025
- Uploader: Samuel Duah