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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  • 5 Marks

AA – Aug 2022 – L2 – Q3b – Completion Procedures and Reporting

Lists items that could be included in a management representation letter as part of audit evidence.

ISA 580: Management Representations provides guidance on the use of management representations as audit evidence.

Required:
List FIVE (5) items that could be included in a management representation letter.

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  • 10 Marks

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

Explains factors that influence the sufficiency of audit evidence obtained during an audit.

Sophie & Co., a firm of Chartered Accountants, is preparing the end-of-year audit for GH Mobile, a client that is listed on the Ghana Stock Exchange. You have been selected to be part of the team to audit the non-current assets of GH Mobile. As an audit associate, you were provided with evidence that you have assessed as not sufficient. Also, you have raised issues regarding the omission of important items in the management representation letter of the client.

Required:
Explain FIVE (5) factors that will influence the auditor’s judgement regarding the sufficiency of the evidence obtained.

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  • 15 Marks

AA – Aug 2022 – L2 – Q1b – Audit and Assurance Evidence

Defines the term management’s expert and explains audit approaches for obtaining audit evidence.

Auditors may need to rely on other parties such as management’s experts, internal auditors, or component auditors during an audit engagement. Auditors may also use various audit approaches to obtain audit evidence.

Required:
i) Define the term management’s expert.
(2 marks)

ii) State FIVE (5) factors which the auditor should consider before relying on management’s expert as a means of audit evidence.
(10 marks)

iii) Distinguish between substantive approach and system approach in the audit of financial statements.
(3 marks)

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  • 2 Marks

AA – May 2021 – L2 – Q1c – Audit and Assurance Risk Environment, Audit and Assurance Evidence

State instances where the auditor applies the concept of materiality.

Materiality is a fundamental concept in both auditing and accounting. The Framework for the preparation of financial statements states that information is material if its omission, misstatement, or non-disclosure could influence the economic decisions of users taken based on the financial statements.

Required:
State TWO (2) instances which require the Auditor to apply the concept of materiality. (2 marks)

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  • 3 Marks

AA – Nov 2021 – L2 – Q1c – Audit and Assurance Evidence

Explains three purposes of audit documentation in line with ISA 230.

Audit evidence may come in many forms. For instance, enquiries may be verbal, while confirmations may be in written form. Regardless of the form of audit evidence they obtain, auditors need to document their procedures. The process of documenting audit evidence is known as audit documentation.

Required:
Explain THREE (3) purposes of audit documentation in line with ISA 230: Audit Documentation.
(3 marks)

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  • 9 Marks

AA – May 2018 – L2 – Q4a – Audit and Assurance Evidence

Describes substantive audit procedures for depreciation of assets and a legal claim involving food poisoning.

BDE Company Limited operates a hotel providing accommodation, leisure facilities, and restaurants. Its year-end is 31 March. You are the senior associate of ABC and Associates and are currently preparing the audit programmes for the year-end audit of BDE Company Limited. You are reviewing the notes of last week’s meeting between the audit manager and finance director, where two material issues were discussed.

Depreciation
BDE Company Limited incurred significant capital expenditure during the year for refurbishing the restaurant facilities for the hotel. The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the straight-line method.

Food Poisoning
BDE’s directors received correspondence in January from a group of customers who attended a wedding at the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are claiming substantial damages. BDE’s lawyers have received the claim and believe that the lawsuit against the company is unlikely to be successful.

Required:
i) Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above two issues. (6 marks)

ii) List and explain the purpose of three items that should be included on every working paper prepared by the audit team during the audit of depreciation and food poisoning of BDE Company Limited. (3 marks)

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  • 12 Marks

AA – May 2019 – L2 – Q2b – Audit and Assurance Evidence

Explains the components of internal control per ISA 315 and reasons for focusing on internal controls during substantive testing.

b) For many firms, the audit evidence that they obtain does not focus on a client’s internal systems and controls; rather, the work is focused on the substantive testing of the transactions and balances which make up the entity’s accounts. Consequently, many practitioners do not believe that they are required to spend much time documenting a client’s internal systems and controls or indeed to test whether any of the controls actually operate in practice in any detail. However, to ignore this area will mean that the requirements of ISA 315: Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment are not complied with.

Required:
i) Explain the components of an internal control system in line with ISA 315.
(5 marks)
ii) Why is the work on internal controls necessary when auditors take the substantive approach?
(4 marks)

iii) Why is the work on internal controls necessary when auditors take the substantive approach?
(4 marks)

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  • 10 Marks

AA – Mar 2024 – L2 – Q3b – Audit and Assurance Evidence

Identify examples of external confirmations and their corresponding audit assertions.

ISA 500: Audit Evidence identifies seven main testing procedures. One of these is external confirmation.

Required:
i) List FOUR (4) examples of external confirmation. (2 marks)
ii) For each of the examples in (i) above, explain: ONE (1) audit assertion that the external confirmation supports, and ONE (1) audit assertion that the external confirmation does not support. (8 marks)

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  • 10 Marks

AA – Mar 2024 – L2 – Q3a – Audit and Assurance Evidence

Explain audit procedures to obtain sufficient and appropriate audit evidence for Galito Ltd's inventories.

Galito Ltd is a Ghanaian company that operates in multiple industries and has several subsidiaries. Due to the complexity of its operations, its inventories and properties are scattered across the country and used by any of its subsidiaries.

Required:
As the auditor of Galito Ltd, explain FIVE (5) audit procedures to help obtain sufficient and appropriate audit evidence for its inventories.

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  • 6 Marks

AA – Mar 2024 – L2 – Q1a – Audit and Assurance Evidence

Ways in which management can support auditors in obtaining appropriate and sufficient audit evidence.

Management of Bagabu Ltd has a filing system that is largely manual. Their external auditors have expressed concern about how to obtain appropriate and sufficient evidence to support their opinion.
Required:
State FIVE (5) ways management of Bagabu Ltd can support the auditors to obtain appropriate and sufficient audit evidence to support their opinion.

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