Level 3 – Knowsia

AAA – L3 – Q4 – Public Sector Audit and KPIs

Evaluating school KPIs, debating Auditor General report timing, and discussing transparency principles for Supreme Audit Institutions.

Question

a) Ghana Education Service (GES), as part of its mandate, monitors the performance of schools through supervision, collection of data and evaluation of key indicators like learning outcomes, extracurricular activities and absenteeism. The performance of all schools is subject to annual audits, conducted by auditors, which examine schools in terms of a range of metrics determined by GES.

Okoro Primary School is located in Tema Junction, a suburb of Obuasi, which is the capital of Weija-Amanfro District. It is a former industrial zone, which now suffers from high levels of unemployment and crime. Many of its residents are among the poorest 20% of Weija-Amanfro’s population, whose children qualify to receive free school meals from the government.

Attendance levels at Okoro Primary School are poor, and the school has received reports from concerned citizens of school children wearing unkempt uniforms and being in the city centre at times when they should have been at school.

Okoro Primary School is required to report on key performance indicators (KPIs) in areas spanning the breadth of its activities. On the basis of these indicators, GES has recently assessed Okoro Primary School’s performance to be poor.

Okoro Primary School’s KPIs included the following:

Area measured	KPI
Academic performance	% of pupils in Primary 6 achieving grade “A” in June exams
School attendance	Average % of pupils absent from registration at 8:30 am
Participation in sport	Number of trophies won by school’s sports teams
Uniform	% of pupils whose school uniforms are in line with regulations

Required:
Using the information available:
i) Critically assess each KPI on Okoro Primary School, suggesting possible ways of improving upon any inadequacies you may find.
ii) Recommend alternative KPIs to measure performance in each area.

iii) State audit procedures to provide assurance on the accuracy of each alternative KPIs which you have recommended. (2 marks)

b) Publication of Auditor General’s reports in the media after lodgement with parliament before consideration by the Public Accounts Committee has always generated controversy. Some critics are of the view that the Public Accounts Committee should finish it probes before publication of the report by the Auditor General, as that will allow for mistakes in the report to be corrected.

Required:
Critically examine the above statement.

c) Supreme Audit Institutions (SAIs) are supposed to play a vital role in oversight by promoting transparency, verifying government accounts accuracy and reliability, evaluating spending compliance, assessing such spending’s efficiency and effectiveness, and supporting the fight against corruption.

Required:
According to **_INTOSAI-P 20: Principles of Transparency and Accountability, discuss FOUR principles of transparency and accountability expected of SAIs.

Answer

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Tags: Accountability, Audit Procedures, Auditor-General, INTOSAI, Key Performance Indicators, KPI Audit, Performance Measurement, Public Sector Audit, supreme audit institutions, Transparency
Level: Level 3

Topic: Assurance Services, Government external audit and public accountability, Public sector audit

AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

Question

As the Audit Manager of Zelton & Associates, you are responsible for conducting reviews on audit files where there is potential disagreement between your firm and clients.

You are looking at DuaKonta LTD’s audit file’s going concern section. DuaKonta LTD is a client with severe cash flow issues as well as other, less significant operational signs of going concern issues.

According to the working papers, DuaKonta LTD is now attempting to raise funds to support its operating cash flows, and if the funds are not obtained, there will be serious uncertainty over the company’s ability to continue as a going concern. After reviewing the working papers, it came to light that the going concern assumption is appropriate. However, it is advised that the financial statements include a note outlining the company’s cash flow issues, a description of the financing being sought and an assessment of the company’s going concern status. The Directors of DuaKonta LTD do not wish to include the note in the financial statements.

Required:
a) Compare and contrast the responsibilities of Management and of Auditors, in relation to the assessment of going concern. You should include a description of the procedures used in this assessment where relevant.

b) Consider and comment on FOUR possible reasons the Directors of DuaKonta LTD are reluctant to provide the note to the financial statements.

c) Identify and discuss the implications for the auditor’s report if:
i) The directors refuse to include the disclosure note.
ii) The directors agree to include the disclosure note

Answer

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Tags: Auditor Responsibility, Disclosure, Financial Statement Notes, Going Concern, ISA 570, Management Responsibility, Material Uncertainty, Modified Audit Report
Level: Level 3

Topic: Evaluation and review, Reporting

AAA – L3 – Q2 – Audit Evidence and Evaluation

Audit manager must address three issues: chemical cleanup costs, inventory held by third party, and related party transaction involving a residential apartment.

Question

You are the manager responsible for the audit of Gyamfin LTD (Gyamfin). The company’s principal activity is wholesaling frozen fish.
The draft consolidated financial statements for the year ended 31 March is as follows:

	2025	2024
	GH¢’million	GH¢’million
Revenue	100.5	93.45
Profit Before Tax	17.85	21.3
Total Assets	72.00	54.6

Issues arising during the audit have been noted below for your attention:

Chemical Leakage
Early in 2025, some of Gyamfin’s property became contaminated due to a chemical leak from refrigeration units. Gyamfin has paid a fine of GH¢45,000 to a regulatory body, GH¢0.45 million for cleanup expenses and GH¢0.9 million for unit modernisation to stop future leaks. These expenses have been capitalised as improvements, with the exception of the fine, which has been expensed.

Inventory
Gyamfin contracted with Nubari Warehousing (Nubari) to handle all of its cold storage needs while the refrigeration systems were being modernised. As of March 31, 2025, health and safety regulations prohibiting unauthorised access to cold storage spaces made it impossible to physically inspect Gyamfin’s inventory with Nubari. Management of Gyamfin has stated in writing that the inventory as of March 31, 2025, was GH¢15.15 million (2024 – GH¢10.05 million). This amount has been agreed to a costing of Nubari’s monthly return of quantities held at 31 March 2025.

Residential Apartment
Gyamfin owns a residential apartment above its head office. Until 31 December 2024 it was let for GH¢4,500 a month. Since 1 January 2025 it has been occupied rent-free by the senior sales executive.

Required:
For each of the above issues:
i) Comment on THREE matters that you should consider; and
ii) State FOUR audit evidence that should be appropriate for the audit.

Answer

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Topic: Audit Evidence, Evaluation and review

AAA – L3 – SA – Q5.9 – Audit-related services

Which term is not associated with prospective financial information?

Question

Which of the following terms is NOT normally associated with prospective financial information?

A Hypothetical assumptions

B Sensitivity analysis

C Projections

D Assertions

Answer

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Tags: assumptions, Projections, Prospective financial information, Sensitivity Analysis
Level: Level 3

Topic: Audit-Related Services

AAA – L3 – SA – Q5.8 – Audit-related services

What type of engagement is due diligence work for a client?

Question

Due diligence’ work for a client is:

A An attestation engagement

B a direct reporting engagement

C a compilation engagement

D an agreed-upon procedures engagement.

Answer

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Tags: Direct reporting, Due diligence, Engagement types, Professional services
Level: Level 3

Topic: Audit-Related Services

AAA – L3 – SA – Q5.7 – Audit evidence

Which statements about related party transactions are correct?

Question

Which of the following statements are correct?

1 With related party transactions, there is some risk of collusion and fraud.

2 A focus of audit attention with regard to related party transactions shall be on significant non-routine transactions.

A Statement 1 only is correct.

B Statement 2 only is correct.

C Both statements are correct.

D Neither statement is correct.

Answer

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Tags: Disclosures, Fraud Risk, Non-routine transactions, Related Party Transactions
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q5.6 – Audit evidence

What factors influence an auditor’s materiality decision?

Question

Which of the following will influence an auditor’s decision as to whether a matter is material?

1 Degree of approximation

2 Losses or low profits

3 Time of occurrence during the year

4 Offset and aggregation

A 1,2 and 3 only

B 1,3 and 4 only

C 2,3 and 4 only

D 1,2 and 4 only

Answer

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Tags: Aggregation, Approximation, Audit judgment, Materiality, Profitability
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

Question

What is the main justification for the use of a business risk approach to an audit of large companies?

A A systems-based approach and a substantive testing approach are unlikely to detect material misstatements in the financial statements of large companies.

B This approach forces the auditors to understand the client’s business in depth.

C It is more effective than other approaches to audit in detecting deficiencies in internal control.

D Major audit problems in large companies are more likely to result from business-related problems than from deficiencies in internal control.

Answer

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Tags: Business Risk Approach, Financial Statements, Internal controls, Large Companies
Level: Level 3

Topic: The audit approach

AAA – L3 – SA – Q5.4 – Evaluation and review

What is the key objective of an engagement quality review?

Question

The key objective of an engagement quality review is to:

A monitor the firm’s system of quality management

B ensure the audit procedures were carried out in accordance with professional standards

C ensure the auditor’s report issued is appropriate in the circumstances

D perform an objective evaluation of the significant judgments made by the audit team and the conclusions reached

Answer

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Tags: Audit Standards, Auditor judgments, Engagement quality review, Quality management
Level: Level 3

Topic: Evaluation and review

AAA – L3 – SA – Q5.3 – Professional responsibility and liability

What should an auditor do upon suspecting fraudulent activity by a director?

Question

An audit engagement partner suspects that a director of a client company has been carrying out fraudulent activity. What would be the most appropriate immediate course of action?

A Challenge the suspected individual

B Report the suspicions to the audit committee of the client company

C Report the suspicions to the chairman of the board of the client company

D Seek legal advice

Answer

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Tags: Audit committee, Auditor Response, Fraud suspicion, Governance, Legal advice
Level: Level 3

Topic: Professional responsibility and liability

Level (SQ): Level 3

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AAA – L3 – Q4 – Public Sector Audit and KPIs

Evaluating school KPIs, debating Auditor General report timing, and discussing transparency principles for Supreme Audit Institutions.

AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

AAA – L3 – Q2 – Audit Evidence and Evaluation

Audit manager must address three issues: chemical cleanup costs, inventory held by third party, and related party transaction involving a residential apartment.

AAA – L3 – SA – Q5.9 – Audit-related services

Which term is not associated with prospective financial information?

AAA – L3 – SA – Q5.8 – Audit-related services

What type of engagement is due diligence work for a client?

AAA – L3 – SA – Q5.7 – Audit evidence

Which statements about related party transactions are correct?

AAA – L3 – SA – Q5.6 – Audit evidence

What factors influence an auditor’s materiality decision?

AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

AAA – L3 – SA – Q5.4 – Evaluation and review

What is the key objective of an engagement quality review?

AAA – L3 – SA – Q5.3 – Professional responsibility and liability

What should an auditor do upon suspecting fraudulent activity by a director?

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