Question Tag: Audit evidence

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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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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q3 – Audit Evidence

Explores the type of confirmation sent directly to a debtor for balance verification.

A letter addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct, and if incorrect by what amount is………………………….confirmation.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q2 – Audit Evidence

Audit Evidence, Balance Confirmation, Reporting Dates, Discrepancy, Fraud

A reported difference in a confirmation of balances by a debtor to a client due to different reporting date but not due to misstatement or fraud is known as………………….

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  • 15 Marks

AAA – May 2023 – L3 – Q5 – Audit Completion and Final Review

Discuss reasons for reviewing predecessor auditor’s work, audit procedures for sufficient evidence, and actions for insufficient audit evidence.

Vigo Microfinance Bank Limited was incorporated on July 1, 2014, as a public limited company under the Companies and Allied Matters Act. The bank obtained a Microfinance banking license from the Central Bank on August 5, 2015, to operate on a nationwide basis and commenced business operation on September 5, 2015. The bank’s principal business is to provide microfinance banking and related services to the poor and underserved segment of society to alleviate poverty under the Microfinance Institutions Ordinance.

In 2019, the bank decided to convert to a commercial bank and commenced business operations on August 10, 2019, after final approval from the regulator. As of December 31, 2019, the bank had five branches (2016: 24) in the Federal Capital and four other major geopolitical zones in the country.

With the new commercial banking license, the bank employed the services of F.K. George Professional Services to audit its financial statements. As part of the activities to be carried out on the initial engagement, the external auditors began a review of the books of account of the predecessor auditor, and the following issues emerged:

  1. Some property, plant, and equipment in the books of account and prior year financial statements had negative net carrying amounts.
  2. The basis for impairment included in prior year financial statements regarding loans and advances could not be established from the working papers.
  3. A material amount of pre-operating expenses included in receivables schedules could not be satisfactorily explained.
  4. Audit work performed on interest income in the prior year was not supported by sufficient appropriate audit evidence.
  5. Details of outstanding tax liabilities could not be provided, as the amount in the financial statements was the figure supplied by the tax consultant, and not reviewed by the former external auditor.
  6. There was no satisfactory explanation for nil balances in prior year financial statements on contingent liabilities, as no evidence existed that requests for confirmation were made from solicitors of the bank.
  7. Details of contraventions included in the examiner’s report were not considered for disclosures in the financial statements.

The Central Bank is requesting the financial statements of the bank, and management is worried about delays in releasing the financial statements by the new external auditors despite several notifications and reminders.

The Chief Finance Officer of the bank complained to you, as a member of the engagement team, about the delay in concluding the audit. He argued that your firm should not be concerned about prior period financial statement issues, as your firm did not express an opinion on them. Furthermore, the responsibility for the financial statements lies with the board of directors.

Required:

(a) Discuss why your firm needs to carry out the above exercise. (3 Marks)

(b) Analyze the nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence. (8 Marks)

(c) Evaluate what your firm might likely do in case of inability to obtain sufficient appropriate audit evidence from the exercise. (4 Marks)

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  • 15 Marks

AA – Nov 2018 – L2 – Q5 – Audit Evidence

Outline the audit tests for purchased goodwill and development projects, and the conditions for recognizing development projects in financial statements.

The intangible assets that can be recognized in the statement of financial position are purchased goodwill, intangibles having a readily ascertainable market value, and development costs.

Required:
a. State five audit tests required to obtain audit evidence on purchased goodwill.
(5 Marks)

b. Identify five audit tests relevant to obtaining evidence on development projects.
(5 Marks)

c. Itemize five conditions that must be fulfilled before development projects can be recognized in the financial statements.
(5 Marks)

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  • 10 Marks

AA – July 2023 – L2 – Q5c – Completion Procedures and Reporting

Identification of circumstances leading to modified audit opinions and types of opinions issued in each case.

c) According to ISA 705: Modification of the auditor’s report, the auditor’s opinion on financial statements other than unmodified opinion depends on his/her judgement on two major circumstances.

Required:
i) State the TWO (2) circumstances that may result in an audit opinion being modified. (2 marks)
ii) Discuss the types of opinion that may be issued under each of the two circumstances. (8 marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q3b – Audit and Assurance Evidence

This question asks for the verification procedures to be followed for assets, liabilities, and equity in an audit.

Automech Ltd is a manufacturer of automotive parts based in Ghana. The company’s accountant has been manipulating the accounts payable balance by teeming and lading to misrepresent the financial position of the company. The accountant has been recording fictitious invoices and payments to suppliers to increase the accounts payable balance and misrepresent the company’s expenses.

The external auditor, who was engaged to audit the financial statements of the company, performed substantive testing for transaction cycles and verification procedures for assets, liabilities, and equity items. However, the auditor failed to identify the risk of teeming and lading in the accounts payable balance.

During the audit, the auditor reviewed the accounts payable balance and performed confirmation procedures to verify the balance with the suppliers. However, the accountant had provided the auditor with fake confirmation responses, and the auditor failed to detect the fraud.

Although the financial statements of Automech Ltd were misstated, the Auditor issued an unqualified opinion, stating that the financial statements were presented fairly, in all material respects, in accordance with the applicable financial reporting framework. After the audit, the fraud was discovered by a whistle-blower, and the accountant was fired. The company’s reputation was damaged, and the external auditor faced legal action for failing to detect the fraud.

Required:
State and explain the procedures that should be followed for verification of assets, liabilities, and equity items in Automech Ltd.
(10 marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q3a – Audit and Assurance Evidence

This question asks for four substantive testing methods that could detect fraud in the accounts payable balance.

Automech Ltd is a manufacturer of automotive parts based in Ghana. The company’s accountant has been manipulating the accounts payable balance by teeming and lading to misrepresent the financial position of the company. The accountant has been recording fictitious invoices and payments to suppliers to increase the accounts payable balance and misrepresent the company’s expenses.

The external auditor, who was engaged to audit the financial statements of the company, performed substantive testing for transaction cycles and verification procedures for assets, liabilities, and equity items. However, the auditor failed to identify the risk of teeming and lading in the accounts payable balance.

During the audit, the auditor reviewed the accounts payable balance and performed confirmation procedures to verify the balance with the suppliers. However, the accountant had provided the auditor with fake confirmation responses, and the auditor failed to detect the fraud.

Although the financial statements of Automech Ltd were misstated, the Auditor issued an unqualified opinion, stating that the financial statements were presented fairly, in all material respects, in accordance with the applicable financial reporting framework. After the audit, the fraud was discovered by a whistle-blower, and the accountant was fired. The company’s reputation was damaged, and the external auditor faced legal action for failing to detect the fraud.

Required:
State and explain FOUR (4) substantive testing that would have detected the fraud being perpetuated by the Accountant.
(10 marks)

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  • 20 Marks

AA – Nov 2019 – L2 – Q3 – Audit and Assurance Evidence

Discusses the audit objectives, sources of evidence for inventory audit, and why stocks present high audit risk.

The information in the financial statements of your client, Honesty Company Limited, represents claims by management in relation to its responsibility to prepare financial statements that give a true and fair view of the company’s state of affairs and results of operations for the year under review. These claims are referred to as financial statement assertions.

Required:
a) Outline the audit objectives for the audit of stock (inventories) in the financial statements. Your answer should relate to the financial statement assertions. (8 marks)

b) Discuss FOUR (4) sources from which evidence can be obtained to confirm the quantities and value of stocks. (8 marks)

c) Explain why stocks present high audit risk. (4 marks)

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  • 10 Marks

AA – Nov 2019 – L2 – Q2a – Audit and Assurance Evidence

Explains examples of external confirmations and identifies relevant and irrelevant audit assertions.

ISA: 505 External Confirmations states that ‘the auditor should determine whether the use of external confirmations is necessary to obtain sufficient appropriate audit evidence at the assertion level’. An Auditor may obtain external confirmations from third parties to corroborate the audit evidence already available with the auditor. The Auditor shall determine whether positive or negative request is appropriate given the condition.

Responses or events of non-responses are required to be evaluated. Responses may be unreliable if they are served indirectly to the auditor, not served by the intended person, or transmission is compromised, and the auditor may have to perform additional procedures to resolve doubts and suspicion. In events of non-responses or management refusal to permit the auditor to seek confirmations, the auditor shall assess if modification in the auditor’s report is necessary.

Required:
Explain FOUR (4) examples of external confirmations and for each one identify:
i) An audit assertion that the external confirmation supports; and
ii) An audit assertion that the external confirmation does NOT support.
(10 marks)

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  • 5 Marks

AA – Nov 2017 – L2 – Q3c – Audit and Assurance Evidence

List and explain three factors to consider when determining the extent of reliance on analytical procedures as substantive audit evidence.

ISA 520 Analytical Procedures provides guidance to auditors on the use of analytical procedures during the course of the external audit.

Required:
When using analytical procedures as substantive audit procedures, list and briefly explain with examples three factors to consider when determining the extent of reliance that can be placed on the results of such procedures.

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  • 15 Marks

AA – Nov 2017 – L2 – Q3a – Audit and Assurance Risk Environment

Describe four factors affecting judgment about materiality in an audit context.

Anaba Sampson is an audit assistant at Global Accountants, a firm of Chartered Accountants. During the audit of a client’s account, for the year ended 31 December 2011, Anaba detected an error amounting to GH¢10.00 in respect to each interest payment, which recurred multiple times. The Chief Accountant advised Anaba not to request any adjustment entry, claiming the errors were insignificant. The company had 3,000 deposit accounts, and interest was paid half-yearly.

Required:
i) Describe four factors affecting judgment about materiality.

ii) Discuss the advice of the Chief Accountant.

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  • 12 Marks

AA – Nov 2017 – L2 – Q2b – Audit and Assurance Evidence

Tabulate four tests of controls the auditor would perform on the sales system of Animo Company Limited, along with their objectives.

Animo Company Ltd has been operating in the manufacturing sector for over a decade. The company achieved significant growth but had weak internal controls in its early stages. To meet increasing demand, Animo acquired a large manufacturing plant and six warehouses for final product storage. Sales ordering, goods despatch, and invoicing customers are organized using unique reference numbers, and a price list is updated quarterly. Customers also receive discounts for bulk purchases. Sales orders are managed electronically, with despatch lists and goods delivery notes generated automatically for each order.

Required:
i) Tabulate four tests of controls the auditor would normally carry out on the sales system of Animo Company Limited and state the objective for each test.

ii) Describe two substantive procedures the auditor should perform to confirm Animo Company Limited’s year-end receivables balance.

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  • 10 Marks

AA – Nov 2020 – L2 – Q4a – Completion Procedures and Reporting

Outline reasons for obtaining a letter of representation before signing the audit report.

The audit engagement team of which you are a member, for the audit of Survival Ltd, has almost completed the audit of the financial statements for the year ended 31 October 2019. You have been told that your firm will need to obtain a letter of representation from management as part of the audit evidence needed to form an opinion on the financial statements.

Required:
i) Outline FOUR (4) reasons why your audit firm needs to obtain a letter of representation before the audit report is signed.
(6 marks)

ii) Outline TWO (2) factors you will consider determining the adequacy of management representation as audit evidence.
(4 marks)

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