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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  • 3 Marks

AA – Dec 2022 – L2 – Q5b – Audit and Assurance Risk Environment

Describes the factors that auditors should consider when assessing the competence and objectivity of an expert.

ISA 620: Using the Work of an Expert explains how an auditor may use an expert to obtain audit evidence.

Required:
State THREE (3) factors that the external auditor should consider when assessing the competence and objectivity of the expert.

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  • 6 Marks

AA – May 2016 – L2 – Q5c – Audit and Assurance Evidence

This question focuses on the substantive audit procedures for verifying the valuation, completeness, and rights and obligations of property, plant, and equipment.

(c) Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertions in relation to an entity’s property, plant and equipment:

(i) Valuation
(ii) Completeness
(iii) Rights and obligations.

(Note: Assume that the hospital adopts International Financial Reporting Standards). (6 marks)

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  • 4 Marks

AA – May 2016 – L2 – Q3d – Audit and Assurance Evidence

This question discusses the criteria that external auditors should consider when deciding whether to place reliance on the work performed by internal auditors.

(d) ISA 610 using the work of internal auditors provides guidance to external auditors on the use of internal audit work.

Required:
List and explain the various criteria that should be considered by external auditors when assessing whether to take reliance from work performed by internal audit.

(4 marks)

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  • 6 Marks

AA – May 2016 – L2 – Q3a – Planning and Approach for Audit and Assurance Engagements

This question examines how performing an interim audit impacts the final audit, especially regarding internal controls and factors affecting additional audit work.

deadlines. The auditors will carry out an interim audit during the period under review followed by a final audit shortly after the year-end. Work at the interim audit will often include obtaining audit evidence about the operating effectiveness of controls.

Required:

(i) Describe the impact on the final audit of performing work on internal controls at an interim audit. (2 marks)

(ii) Assuming an interim audit has taken place and work on internal controls was carried out, list the factors the auditor should consider when deciding how much more work is needed at the final audit in relation to internal controls. (4 marks)

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  • 15 Marks

AA – May 2016 – L2 – Q1a – Audit and Assurance Evidence

This question discusses the assessment of the validity and pertinence of different forms of audit evidence and auditing standards.

(a) ‘Audit evidence must be reviewed critically with respect to its validity and pertinence as evidence before it is permitted to influence the mind of the auditor with respect to the assertion at issue’.

(i) An Auditor is considering using a copy of credit sale invoices on a file as evidence for the credit sales figure in the accounts. How would he assess the validity and pertinence of this file as audit evidence? (3 marks)

(ii) A mail order company invoices its customers with up to five ladies’ dresses. Most customers accept and pay for one or two dresses and return the rest. A credit note is then issued. The accounts incorporate a provision for returnable dresses at the year end. The audit is completed very quickly and post-balance sheet events are not usable by the auditor as evidence. What evidence would the auditor regard as valid and pertinent in respect of the provision? (3 marks)

(iii) What factors would influence an auditor in considering the acceptability as evidence of certificates received from third parties? (3 marks)

(iv) A building contracting company has constructed an office block on its own land for its own use. State the evidence the auditor would require on the cost of the building. (3 marks)

(v) Discuss the different forms of audit evidence that would be available to auditors of very small companies and of very large companies. (3 marks)

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  • 5 Marks

AA – Dec 2022 – L2 – Q3a – Audit and Assurance Evidence

Outlines five general principles from ISA 500 for assessing the reliability of audit evidence provided by a client

You have been asked by your Audit Manager to assess the audit evidence provided by a client, a small company owned by Mr. and Mrs. Randolph-Phillips. You observed that the files have been neatly packaged and well referenced. You are however skeptical as to the quality of evidence provided because the year’s audit encountered many difficulties.

Required:
Outline FIVE (5) general principles in accordance with ISA 500: Audit Evidence, that will assist you in assessing the reliability of the audit evidence received.

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  • 6 Marks

AA – Nov 2016 – L2 – Q4a – Audit and Assurance Evidence

List and explain factors that influence the auditor’s judgment on the sufficiency of audit evidence.

List and explain FOUR factors that will influence the auditor’s judgment regarding the sufficiency of the evidence obtained.

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  • 13 Marks

AA – May 2020 – L2 – Q3a – Audit and Assurance Evidence

Explain the main assertions about account balances and give examples from the audit of trade receivables.

Audit Evidence requires the auditor to obtain sufficient, appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion. That evidence should be relevant to the financial statement assertions.

Required:
i) Explain the main assertions about account balances and provide an example of each one by reference to the audit of trade receivables. (8 marks)

ii) Identify FIVE (5) of the seven main audit testing procedures (e.g., inspection) and give an example of how each might be used in the audit of plant and machinery. State the assertion being tested in each case. (5 marks)

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  • 4 Marks

AA – May 2020 – L2 – Q2b – Types of Audit and Assurance Engagements

Describe audit procedures to obtain sufficient evidence regarding inventory.

ISA 501 – Audit Evidence – Specific Considerations for Selected Items deals with three specific items that may be contained within a set of general-purpose financial statements and for which the auditor may need to obtain sufficient appropriate audit evidence. It deals with specific considerations for inventory, litigation and claims, and segment information.

Required:
i) What should an auditor do to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory where inventory is material to the financial statements? (2 marks)

ii) What should an auditor do when physical inventory counting is conducted on a date other than the date of the financial statements? (2 marks)

 

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  • 4 Marks

AA – Aug 2022 – L2 – Q5b – Audit and Assurance Evidence

States factors that influence the reliability of audit evidence.

ISA 500: Audit Evidence requires among other things that audit evidence must be reliable.
Required:
State FOUR (4) factors that influence the reliability of audit evidence.

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