Question Tag: Audit evidence

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  • 20 Marks

TAI – Feb 2020 – L1 – Q5 – Tax Audit Engagements and Investigations

Outline audit evidence, substantive tests, and tax implications for payroll audit of Eastwood Engineering Limited.

You have been assigned by the audit manager of your firm to conduct a payroll audit of Eastwood Engineering Limited, a plastic manufacturing company with a turnover of GH¢25 million. The head office sited in Abokobi includes the manufacturing unit, the accounting department and the main administration. There are a number of sales officers in different parts of the country.

The wages records are computerized, and all the wages information are processed at the head office. Some of the employees in the manufacturing unit are paid cash and all the other employees are paid directly into their bank accounts. Manufacturing employees are paid their wages a week in arrears. All other employees are paid at the end of the week.

There is also a personnel department, which is independent of the wages department. The personnel department maintains the records of the employees including the starting date, grade, current salary and date of separation.

Previous tax audit reports by Ghana Revenue Authority in accordance with Section 36 of Revenue Administration Act, 2016 (Act 915) have revealed that:
i) The company failed to deduct appropriate taxes on wages and salaries of staff especially the casual employees.
ii) Paying fictitious employees and failing to account for the payment on the payroll.
iii) Paying employees after they have left.

Due to these abnormalities detected in the earlier audits by the Ghana Revenue Authority, the audit manager has asked you do consider audit procedures you would carry out to obtain sufficient appropriate evidence of the existence of employees and to ensure that appropriate taxes have been deducted and paid to the Commissioner General of Ghana Revenue Authority.

You are required to prepare a briefing paper which should guide the audit team you are required to lead in the field in the form of a memorandum for the consideration of your audit manager outlining:
i) The audit evidence you would obtain to verify the existence of employees whose wages are paid both in cash and directly into their bank accounts.

ii) The substantive test you would carry out to verify that appropriate taxes are deducted and paid to the Commissioner General of Ghana Revenue Authority.

iii) The tax implications both now and in the future of the company’s infractions as indicated in the tax audit report.

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  • 20 Marks

TAI – Feb 2020 – L1 – Q3 – Audit Evidence Sources

List and explain five significant sources of audit evidence and the nature of evidence expected from each.

a) The auditor should obtain sufficient and appropriate audit evidence in order to be able to form an audit opinion.

Required: a) Enumerate five (5) significant sources of audit evidence and for each source explain briefly the nature of evidence expected.

b) What is sufficient audit evidence depends upon auditor’s judgment. Explain three matters which influence such judgment.

c) Identify and explain three situations which restrict the auditor’s ability to obtain sufficient appropriate audit evidence. Give two examples for each situation.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above.                                                                                                                                                                                                                                                                                                                                                                                                                             (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

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  • 5 Marks

AAA – Nov 2024 – L3 – Q2b – Audit Procedures for Long-term Loan in Ecowud Co. LTD

Audit procedures to obtain sufficient appropriate evidence for a long-term loan.

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company operates across Ghana and West Africa and has secured a GH¢3.5 million long-term loan as part of its financial restructuring. The loan agreement has bank-imposed financial conditions, including maintaining a minimum total asset level. If these conditions are breached, the loan becomes immediately repayable.

As part of the audit procedures, you are required to obtain sufficient and appropriate audit evidence regarding the GH¢3.5 million long-term loan.

Required:
Describe FIVE audit procedures you would perform to obtain sufficient appropriate evidence in relation to the long-term loan of GH¢3.5 million.

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  • 6 Marks

AA – Nov 2024 – L2 – Q5b – Substantive Testing of Accounts Receivable

Explain three substantive tests for verifying accounts receivable balance.

Baaba & Associates, an audit firm, is conducting a year-end audit of Rashida LTD. The audit team is particularly concerned about the accuracy of the accounts receivable balance reported on the statement of financial position as of December 31, 2023. Therefore, as part of their audit procedures, they need to perform substantive tests to identify any material misstatements, errors, or fraud that could impact the accuracy of the financial statements.

Required:
Explain THREE substantive tests that the audit team at Baaba & Associates should perform to obtain sufficient appropriate audit evidence regarding the accuracy of Rashida LTD’s accounts receivable balance.

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  • 5 Marks

AA – Nov 2024 – L2 – Q3b – Audit Assertions for the Income Statement

Explain two key audit assertions for the income statement.

Audit assertions are claims made by management regarding the accuracy and completeness of various elements of financial statements. These assertions are used by auditors to develop audit procedures and gather evidence to support their audit opinion. Assertions are categorised into those related to the income statement and those related to the statement of financial position.

Required:
Explain TWO key Audit Assertions for the Income Statement.

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  • 15 Marks

AA – Nov 2024 – L2 – Q3a – Management’s Expert and Audit Evidence

Explain the term "management’s expert" and four factors to consider before relying on their work as audit evidence.

Question:
ISA 500: Audit Evidence provides guidance for auditors intending to rely on the work of a management’s expert. If the information to be used as audit evidence has been prepared using the work of a management’s expert, the auditor must evaluate the management’s expert.

Required:
i) Explain the term “management’s expert.” 
ii) Explain FOUR factors to consider before relying on the work of a management’s expert as audit evidence.

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  • 6 Marks

AAA – May 2017 – L3 – Q3c – Internal Audit and Corporate Governance

Provide examples of internal audit reports used by external auditors.

Give THREE examples of internal audit activity reports that might be used by the external auditor. (6 Marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q6 – Audit Reporting

Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.

During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.

Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.

The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.

Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q15 – Audit Reporting

Determine the audit opinion expressed when there is an extreme scope limitation and insufficient audit evidence.

Opinion expressed when the possible effect of a limitation on scope is an extreme case and the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial report is………………..opinion.

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  • 20 Marks

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:

i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;

ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;

iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;

iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and

v. Figures in the financial statements could not be traced to the respective working papers.

As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.

You are required to explain:

a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)

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  • 15 Marks

AA – May 2017 – L2 – SC – Q5 – Internal Control Systems

Examination of internal control meaning, examples, and sources of audit evidence for completeness, ownership, and valuation.

You are the Auditor of Bistro Bottling Limited (BBL), a major manufacturer and distributor of fruit juice drinks based in Lagos. A review of the previous year’s audit working papers revealed some weaknesses in internal controls with regard to safeguarding the company’s non-current assets.

The company uses a combination of both owned and leased motor vehicles for operational activities, including deliveries to customers. It has recently sold some old vehicles and bought new ones in a bid to lower motor vehicle running expenses.

During the planning of the audit, you have decided that motor vehicles will be a key area because of the likelihood of weaknesses in the company’s system of internal control over non-current assets.

You are required to:

  1. (a) Explain with suitable illustration the meaning of Internal Control. (4 Marks)
  2. (b) List FIVE examples of internal controls. (5 Marks)
  3. (c) Identify TWO sources of audit evidence you will obtain for each of the following: completeness, ownership, and valuation, to provide reasonable assurance with regard to the company’s assets and liabilities. (6 Marks)

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  • 20 Marks

AA – May 2017 – L2 – SA – Q2 – Audit Evidence

Discussion on sufficiency, reliability, and relevance principles for audit evidence as per ISA 500.

The Auditor is required by ISA 500 to design and perform appropriate audit procedures for obtaining sufficient and appropriate audit evidence.

You are required to:

  1. (a) Identify FIVE factors that an Auditor will consider in determining what constitutes sufficient audit evidence. (5 Marks)
  2. (b) Explain FIVE principles that would assist the Auditor in assessing the reliability of audit evidence. (5 Marks)
  3. (c) Explain FOUR principles that would assist the Auditor in assessing the relevance of audit evidence. (10 Marks)

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  • 30 Marks

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

Promise and Treasure are two good childhood friends. After their secondary education, Promise traveled abroad to further his education and obtained his degrees there. Treasure attended a university in Nigeria and graduated with a second-class lower degree. During his time abroad, Promise met some foreign associates and decided to start a company in Nigeria with Treasure.

The company, named Promise and Treasure Company Nigeria Limited, specializes in importing steel products with future plans to set up a local factory. The first-year accounts were prepared as of December 31, 2020. Your firm has been appointed as auditors for the company. Upon completing the audit, you requested a written representation from management. The Managing Director found this request unusual, as he believed all necessary information and documents had already been provided.

Required:

a. Explain to the Managing Director the objectives of the auditor in obtaining a written representation as per ISA 580. (4 Marks)

b. State the steps the auditor should take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. State THREE matters that are required of management in the letter of representation in line with ISA 580, requiring specific representation from management. (3 Marks)

d. Highlight SEVEN aspects of the form and contents of a letter of representation. (14 Marks)

e. State the steps the auditor should take if management refuses to provide the requested written representation. (3 Marks)

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  • 9 Marks

AA – Nov 2015 – L2 – Q3a – Internal Control Systems

Discussing the auditor's duties before, during, and after an inventory count.

You are the auditor of a Fast Food Company with many sales outlets. The company operates a central system of purchase and supply. The Goods Received Notes and Delivery Notes were not given utmost importance in the issuing and receiving of inventories. The suppliers’ ledger, stores’ ledger, and bin cards were not updated regularly. The outlet managers often complained of short supplies and shortages recorded against them regularly. Two of the outlet managers even complained directly to the Managing Director of the company concerning the shortages recently recorded against them. As a first step to solving the inherent weakness in the company’s inventory control process, management decided to undertake a physical inventory count.

Required:
a. Itemize the duties of the auditor in relation to inventories count under the following headings:
i. Before the count.
ii. During the count.
iii. After the count. (9 Marks)

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  • 20 Marks

AA – Nov 2015 – L2 – Q2 – Audit Evidence

Explaining the concept of audit evidence, its importance, and describing its sources and attributes.

a. The objective of an audit is for the auditor to express an opinion on the truth and fairness of the financial statements. In the performance of his duty, the auditor seeks to obtain acceptable evidence necessary for him to draw conclusions in order to express a valid opinion on the financial statements.
Required:
i. Describe audit evidence and justify why the auditor would require such evidence. (4 Marks)

b. Identify FOUR sources of audit evidence and illustrate how these sources would affect the auditor’s reliance on the evidence. (10 Marks)

c. Describe THREE attributes of audit evidence. (6 Marks)

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  • 20 Marks

AA – Nov 2016 – L2 – Q4 – Audit Documentation

This question covers the need for a letter of representation, its content, and steps to be taken when management refuses to sign the letter.

Polyet Nigeria Plc is into the manufacture of plastic materials. It has its factory in Apapa, Lagos, with distribution outlets spread across the country. A new Managing Director, Mr. KO has just been appointed. Shortly after the new Managing Director was appointed, your firm concluded the audit of the Company’s Financial Statements. A request was made from the newly engaged Managing Director for a letter of representation. He informs you in no uncertain terms that the company engaged you as the auditor to take responsibilities for your audit opinion, and that he is not ready to repeat in writing the information that the Chief Finance Officer, other accounting staff, and himself provided to you during the audit exercise. You tried to explain to him that it is standard practice to request a letter of representation from the Management, but he remained adamant.

Required:
a. Explain the need for the auditor to obtain a letter of representation from the management. (5 Marks)
b. Itemise TEN contents of a Letter of Representation. (10 Marks)
c. What steps should you take as the auditor if the Managing Director still persists in his refusal to sign the letter? (5 Marks)
(Total 20 Marks)

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  • 20 Marks

AA – May 2018 – L2 – Q2 – Audit Evidence

This question addresses the auditor’s determination of sufficient and reliable audit evidence as required by ISA 500.

The auditor is required by ISA 500 to design and perform appropriate audit procedures for obtaining sufficient and appropriate audit evidence.

Required: a. Explain briefly THREE factors that an auditor will consider in determining what constitutes sufficient audit evidence. (6 Marks) b. Explain briefly TWO principles that would assist an auditor in assessing the reliability of the audit evidence. (4 Marks) c. Describe FOUR principles that would assist an auditor in assessing the relevance of audit evidence. (10 Marks)

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  • 15 Marks

AA – Nov 2021 – L2 – Q7 – Auditing in a Computerized Environment

Explains the conditions for a systems-based approach, CAATs, major transaction cycles, and elements of sales systems.

The auditor takes a systems-based approach wherever possible and focuses on testing the systems and internal controls that produce the financial reporting figures of an organization rather than focusing on the figures themselves. Specialised techniques of obtaining audit evidence may be required by the auditors in an organization where the systems are Information Technology (IT) based.

Required:

a. Explain the TWO conditions that are necessary before the auditor can adopt a systems-based approach to audit assignment. (2 Marks)

b. Explain the term Computer-Assisted Audit Techniques (CAATs) and its disadvantages. (7 Marks)

c. Explain the term “Major Transaction Cycles” of an organization that the auditor should focus much of his audit work. (3 Marks)

d. State the elements of the sales system of an organization that the auditor should apply tests of controls. (3 Marks)

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  • 20 Marks

AA – Nov 2021 – L2 – Q3 – Internal Audits

Discuss audit considerations for Youthplus, a Not-for-Profit Organisation.

Youthplus is a Not-for-Profit Organisation (NFPO) established by well-meaning Nigerians. The aims and objectives of the NFPO include raising funds to assist youth corpers who, after their service, are unable to secure employment, to start small-scale businesses instead of waiting for white-collar jobs that are not in existence. NFPO solicits funds from the public, private, and foreign organisations. Youthplus has been in existence for five years, and your firm has been appointed as their auditors.

Required:
What factors would you put into consideration when carrying out the audit of Youthplus in the following areas?
a. Planning (4 Marks)
b. Risk (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

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