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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  • 20 Marks

AAA – July 2023 – L3 – Q3 – The audit approach | Audit evidence | Reporting

Evaluate quality control issues and their implications for audit completion, including actions to be taken.

The audit of Nkwa Ltd’s financial statements for the year ended 30 November 2022 is nearing completion, and the auditor’s report is due to be signed next week. Nkwa Ltd manufactures parts and components for the aviation industry. You are conducting an engagement quality control review on the audit of Nkwa Ltd, which is a listed entity and a significant new client of your firm. The draft financial statements recognize revenue of GH¢8.7 million, assets of GH¢15.2 million, and profit before tax of GH¢1.8 million.

You have identified the following issues as a result of your review:

a) The planned audit approach to trade payables was to place reliance on purchasing controls and keep substantive tests to a minimum. During control testing on trade payables, from a random statistical sample, the audit team identified three purchase orders that had not been authorized by the procurement manager. On review of the supporting documentation, the audit team concluded that the items were legitimate business purchases and therefore decided that no additional procedures were required. (4 marks)

b) Following a review of petty cash transactions, the audit assistant identified that the petty cashier paid for taxi fares for personal, non-business journeys with a total value of GH¢175. Following discussions with the Audit Assistant, you have ascertained that he did not report the matter as the amount is immaterial. The audit assistant also commented that the petty cashier is his brother, and that he did not want to get him into trouble. (6 marks)

c) Cut-off testing on revenue has identified two goods despatch notes, dated 2 December 2022, for items sent to Chinn Co, with a combined sales value of GH¢17,880, which had been included in revenue for the year ended 30 November 2022. The client’s financial controller, David Mount, has explained that Chinn Co does not order on a regular basis from Nkwa Ltd. In the absence of a regular payment history with Chinn Co, and in order to minimize the receivables collection period from this particular customer, the sales invoice was raised and sent to the customer on the same day that the sales order was received. The average time period between the receipt of an order and despatching the goods to the customer is approximately one to two weeks. The audit working papers have concluded that no further investigation is necessary. (6 marks)

d) The Finance Director, Leslie Gray, has not completed the tax computation for the year ended 30 November 2022. He has recently asked the audit assistant to compute the company’s tax payable for the year on the basis that as a newly qualified chartered accountant, the audit assistant was more up to date with recent changes in tax legislation. (4 marks)

Required:
Evaluate the quality control issues and the implications for the completion of the audit, including any further actions that should be taken by your audit firm. Your answer should include the matters to be communicated to management and those charged with governance in relation to the audit of Nkwa Ltd.

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  • 5 Marks

AAA – Aug 2022 – L3 – Q5b – Audit evidence

Explain the relevance of CAATs in evaluating audit evidence.

Computer-Assisted Audit Techniques (CAATs) is a growing field within the IT audit profession. CAATs is the practice of using computers to automate the IT audit processes.

Required:
Explain THREE (3) relevance of CAATs in evaluating audit evidence.

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  • 20 Marks

AAA – Aug 2022 – L3 – Q3 – Audit evidence

Discuss the implications of fraud on audit completion and the sufficiency of audit evidence for development costs.

You are the Senior Manager of Posterity Chartered Accountants. Security-Watch Ltd is an audit client of your firm, and the audit for the financial year ended 31 December 2021 is at the completion stage. The company installs and maintains security systems for businesses and residential customers.

Materiality for the audit of the company’s financial statements has been determined to be GH¢600,000. You are reviewing the audit working papers, and have gathered the following information:

Fraud
The Company’s Finance Director has informed the audit team that during the year, a fraud was suspected to have been committed by a Finance Officer, Ama Fofie, in the procurement department of the company. The Finance Officer is alleged to have raised fictitious supplier invoices and paid the invoiced amounts into her personal bank account. When questioned by the company’s Finance Director, Ama Fofie is alleged to have confessed that she had stolen GH¢50,000 from the company. The Finance Director asked the audit team not to perform any procedures in relation to the alleged fraudulent act, as the amount is immaterial. The Finance Director also stated that the financial statements would not be adjusted in relation to the fraud.
The only audit evidence on file is a written representation from management acknowledging the existence of the fraud, and a list of the fictitious invoices which is alleged to have been raised by Ama Fofie, provided by the Finance Director. The audit working papers conclude that the fraud is immaterial and that no further work is needed.
(6 marks)

Development Costs
In July 2021, the company commenced the development of a new security system, and incurred expenditure of GH¢1,000,000 up to the financial year end, which has been capitalised as an intangible non‑current asset. The only audit evidence obtained in relation to this balance is as follows:

  • Attachment of a sample of the costs included in the GH¢1,000,000 capitalised to supporting documentation such as supplier invoices.
  • Cash flow projection for the project, which indicates that a positive cash flow will be generated by 2022. The projection has been arithmetically checked.
  • A written representation from management stating that ‘management considers that the development of this new product will be successful’.

You are aware that when the Finance Director was asked about the cash flow projection which he had prepared, he was reluctant to answer questions, simply saying that ‘the assumptions underlying the projection have been agreed to be assumptions contained in the company’s business plan’. He provided a spreadsheet showing the projection, but the underlying information could not be accessed as the file was password protected and the Finance Director would not provide the password to the audit team.

Required:
a) Discuss the implications of the fraud for the completion of the audit, and the actions to be taken by Posterity Chartered Accountants.
(6 marks)

b) In respect of the development costs:
i) Comment on the sufficiency and appropriateness of the audit evidence obtained.
(10 marks)
ii) Recommend TWO (2) ways Posterity Chartered Accountants could obtain further evidence about the new security system.
(4 marks)

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  • 6 Marks

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

You are the audit manager in charge of the audit of Sandy Snacks, a company which runs a chain of snack bars operating in a number of beach holiday resorts. Your firm has been the auditor for a number of years and has always had to substantively test cash sales because of a lack of control over the recording of takings. The auditor’s reports to date have been unmodified.

You have recently been informed that the company has taken on a newly qualified chartered accountant as chief internal auditor and an unqualified assistant internal auditor. Since their appointment halfway through the year ended 31 December 2022 the two have spent most of their time carrying out substantive procedures on cash sales.

The directors are hopeful that your audit fee this year will decrease because you will be able to use the work carried out by the internal auditors.

Required:
Explain the issues that will be relevant to your firm in deciding whether you can use the work performed by the internal auditors. (6 marks)

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  • 20 Marks

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

You are an Audit Manager in Aboto & Associates, responsible for the audit of the Obina Group (the Group). You are reviewing the audit working papers for the consolidated financial statements relating to the year ended 31 March 2021. The Group specializes in the wholesale supply of steel plate and sheet metals. The draft consolidated financial statements recognize revenue of GH¢7,670 million (2020 – GH¢7,235 million), profit before taxation of GH¢55 million (2020 – GH¢80 million) and total assets of GH¢1,560 million (2020 – GH¢1,275 million). Aboto & Associates audits all of the individual company financial statements as well as the Group consolidated financial statements. The Audit Senior has brought the following matters, regarding a number of the Group’s companies, to your attention:

  1. Fuga Plc
    The Group purchased 40% of the share capital and voting rights in Fuga Plc on 1 May 2020. Fuga Plc is listed on the Ghana Alternative Market. The Group has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable in 18 months from 1 May 2021. Fuga Plc’s draft financial statements for the year ended 31 March 2021 reveals revenue of GH¢90 million and a loss before tax of GH¢12 million. The Group’s Finance Director has recognized Fuga Plc as an associate in this year’s group accounts and has included a loss before tax of GH¢4.4 million in the consolidated statement of profit or loss.
    (7 marks)
  2. Bavi Plc
    Bavi Plc is a foreign subsidiary whose functional and presentational currency is the same as Obina Plc and the remainder of the Group. The subsidiary specializes in the production of stainless steel and holds a significant portfolio of forward commodity options to hedge against fluctuations in raw material prices. The local jurisdiction does not mandate the use of IFRS and the Audit Senior has noted that Bavi Plc follows local GAAP, whereby derivatives are disclosed in the notes to the financial statements but are not recognized as assets or liabilities in the statement of financial position. The disclosure notes include details of the maturity and exercise terms of the options and a directors’ valuation stating that they have a total fair value of GH¢6.1 million as at 31 March 2021. The disclosure notes state that all of the derivative contracts were entered into in the last three months of the reporting period and that they required no initial net investment.                                         (6 marks)
  3. Kontomo Plc
    Kontomo Plc is a long-standing subsidiary in which the Group parent has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kontomo Plc has revealed sales of aluminum to its parent company in March 2021 amounting to GH¢77 million which have been recorded in the subsidiary’s financial statements. However, the audit procedures have identified that the receipt of aluminum was not recorded by the parent company until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kontomo Plc makes a 10% profit margin on the sale of aluminum.                                                            (7 marks)

Required:
Comment on the matters to be considered and the audit evidence you should expect to find during your review of the Group audit working papers in respect of each of the issues raised above.

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  • 20 Marks

AAA – May 2020 – L3 – Q3 – Audit evidence, Evaluation and review

Discusses audit procedures for accounting estimates, the appropriateness of written representations, and additional audit procedures.

GGC Co. Ltd (GGCL) specializes in manufacturing equipment which can help to reduce toxic emissions in the production of chemicals. The company has grown rapidly over the past eight years, and this is partly due to the warranties that the company gives to its customers. It guarantees its products for five years, and if problems arise during this period, it undertakes to fix them or provide a replacement.

You are the manager responsible for the audit of GGCL, and you are performing the final review stage of the audit and have come across the following issues:

Receivable balance owing from Nhyira Co. Ltd
GGCL has a material receivable balance owed by its customer, Nhyira Co. Ltd. During the year-end audit, your team reviewed the aging of this balance and found that no payments had been received from Nhyira Co. Ltd for over six months. GGCL would not allow this balance to be circularized. Instead, management has assured your team that they will provide a written representation confirming that the balance is recoverable.

Warranty provision
The warranty provision included within the statement of financial position is material. The audit team has performed testing over the calculations and assumptions which are consistent with prior years. The team has requested a written representation from management confirming that the basis and amount of the provision are reasonable. Management is yet to confirm acceptance of this representation.

Required:

  1. Describe the audit procedures required in respect of accounting estimates.
    (8 marks)
  2. For each of the two issues above:
    i) Discuss the appropriateness of written representations as a form of audit evidence; and
    (6 marks)
    ii) Describe additional procedures the auditor should now perform in order to reach a conclusion on the balance to be included in the financial statements.
    (6 marks)

(Total: 20 marks)

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  • 8 Marks

AAA – Nov 2018 – L3 – Q1b – Audit evidence, Planning

Discuss the auditor’s need to identify related party transactions during an audit.

Central to a number of government investigations in Ghana have been companies trading with organisations or individuals other than at arm’s length. Such transactions were made possible by a degree of control or influence by directors over both parties to the transactions. ISA 550: Related parties covers this area.

Management is responsible for the identification of related party transactions. Such transactions should be properly approved as they are frequently not at arm’s length. Management is also responsible for the disclosure of related party transactions.

As a senior partner of your audit firm, you are considering how to identify all the related party transactions of your audit client whose financial statement for the year ended December 31, 2017, you are about to audit.

Required:
Discuss FOUR (4) reasons why the auditor needs to identify related parties transactions during an audit. (8 marks)

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  • 8 Marks

Title: AAA – May 2019 – L3 – Q1a – The audit approach, Audit evidence, Reportin

Analyze the impact of a significant explosion on financial statements, assess contingent liabilities, and determine appropriate audit evidence.

Abuakwa Ltd (Abuakwa) is a multinational mining group that is involved in different operations. The draft financial statements for the year ended 31 March 2019 show the following:

Financial Statement Extracts 2019 (draft) 2018 (audited)
Revenue GH¢30.60 million GH¢28.08 million
Profit before tax GH¢3.12 million GH¢3.00 million
Total net assets GH¢29.76 million GH¢27.24 million

You are the manager responsible for the audit for the year ended 31 March 2019. You have just visited the client’s premises to review the audit team’s work to date. The audit senior has drafted the following “points for the attention of the manager”.

a) On 12 March 2019, an explosion occurred in one of Abuakwa’s premises, destroying about one quarter of the premises. Luckily, the explosion happened at night when the premises were empty, and there were no injuries to any persons. Structural engineers and surveyors are currently assessing the stability of the remainder of the premises, and it is, as yet, unclear whether they can be repaired or will need to be demolished and rebuilt in their entirety.

In the last few days, notifications have been received from the owners of four nearby businesses claiming that the structural integrity of their premises may have been compromised by the impact of the explosion.

They also advised that structural engineers are currently assessing their premises to ensure they are still safe. These business owners have formally notified Abuakwa that if their premises were adversely affected by the explosion, they will claim an “appropriate and justifiable” level of compensation from Abuakwa.

Abuakwa’s insurers have been informed but at this point are refusing to comment on the situation until, they say, all the facts are clear in relation to the explosion and its effects.

(8 marks)

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  • 5 Marks

AAA – April 2022 – L3 – Q5b(i) – Audit evidence, Professional responsibility and liability

Describe substantive procedures to address a cut-off error in the purchase ledger.

Asogli has been in existence since 2005, operating a car repair and servicing business. The car service solutions offered to its clients are diagnosis, ECU programming, key programming, body works, electrical works, and air conditioning. Its year-end was 31 October 2020. You are the senior audit manager of KK and Associates, the Auditor of Asogli. The audit is due to commence, and Asogli intends to sign the audit report on 20 November 2020.

Your attention has been drawn to the following matter by the Partner-in-charge:

  1. Cut-Off Error:
    Asogli’s Finance Director has notified you that an error occurred in closing the purchase ledger at the year-end. Rather than closing on 31 October, it accidentally closed one week earlier on 24 October. All purchase invoices received between 25 October and the year-end have been posted to the 2021 year-end purchase ledger.

Required: Describe substantive procedures you would perform to obtain sufficient and appropriate audit evidence in relation to the above. (5 marks)

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  • 20 Marks

AAA – May 2018 – L3 – Q1 -Planning, Audit Evidence, Evaluation and Review

This set of questions requires a comprehensive approach to investigating the losses incurred by PQR Ltd., focusing on key areas such as planning the investigation, evaluating potential undervaluation of inventory, performing tests to quantify any undervaluation, identifying reasons for high material consumption, and verifying the accuracy of material consumption in the management accounts. The investigation involves considerations like resource allocation, scope definition, inventory count accuracy, valuation methods, wastage, theft, and cut-off procedures.

As the Senior Audit Manager in MNO & Co, a firm of Chartered Accountants, you have
just had a meeting with a Senior Partner at the firm, in which he informed you that you
have to carry out an investigation requested by the Management of ECO Ltd.

i) One of ECO Ltd’s subsidiaries, PQR Ltd, has been making losses for the past year. ECO Ltd’s management is concerned about the accuracy of PQR’s most recent quarter’s management accounts. The summarised statements of profit or loss for the last three quarters are as follows:

Quarter to 31-Mar 2018

GH¢’000

 Quarter to 31-Dec 2017

GH¢’000

 Quarter to 30-Sep 2017

GH¢’000
Revenue 429  334  343
Opening inventory 180 163 203
Materials 318 251 200
Direct wages 62 54 74
560 468 477
Less closing inventory (162) (180) (163)
Cost of goods sold 398 288 314
Gross profit 31 46 29
Less overheads (63) (75) (82)
Net loss (32) (29) (53)
Gross profit (%) 7.2% 13.8% 8.5%
Materials (% of revenue) 78.3% 70.1% 70.0%
Labour (% of revenue) 14.5% 16.2% 21.6%

ii) ECO Ltd’s management board believes that the high material consumption as a percentage of revenue for the quarter to 31 March 2018 is due to one or more of the following factors:

  • Under-counting or under-valuation of closing inventory
  • Excessive consumption or wastage of materials
  • Material being stolen by employees or other individuals

iii) PQR Ltd has a small number of large customers and manufactures its products to each customer’s specification. The selling price of the product is determined by:

  • Estimating the cost of materials;
  • Estimating the labour cost; and
  • Adding a mark-up to cover overheads and provide a normal profit.

iv) The estimated costs are not compared with actual costs. Although it is possible to analyse purchase invoices for materials between customers’ orders, this analysis has not been done.

v) A physical inventory count is carried out at the end of each quarter. Items of inventory are entered on inventory sheets and valued manually. The company does not maintain perpetual inventory records and a full physical count is to be carried out at the financial year end, 30 June 2018.

vi) The direct labour cost included in the inventory valuation is small and should be assumed to be constant at the end of each quarter.

vii) Historically, the cost of materials consumed has been about 70% of revenue. The management accounts to 31 March 2018 are to be assumed to be correct.

Required:

a) Identify and describe the matters that you should consider and the procedures you should carry out in order to plan an investigation of PQR Ltd.’s losses. (10 marks)

b) Explain the matters you should consider to determine whether closing inventory at 31 March 2018 is undervalued. (3 marks)

c) Describe the tests you should plan to perform to quantify the amount of any undervaluation. (3 marks)

d) Identify and explain the possible reasons for the apparent high materials consumption in the quarter ended 31 March 2018. (2 marks)

e) Describe the tests you should plan to perform to determine whether materials consumption, as shown in the management accounts, is correct. (2 marks)

(Total: 20 marks)

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