Audit evidence – Page 9

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.

Question

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.

Answer

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Tags: Audit evidence, Compliance, Debt Classification, Financial Statements, Loan
Level: Level 3

Topic: Audit evidence, Loan Compliance
Series: Nov 2024

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

Explain three substantive tests for verifying accounts receivable balance.

Question

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.

Answer

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Tags: Accounts Receivable, Audit evidence, Audit Procedures, Financial Reporting, Risk Assessment, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

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

Explain two key audit assertions for the income statement.

Question

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.

Answer

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Tags: Audit Assertions, Audit evidence, Financial Reporting, Financial Statements, Income Statement, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

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

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.

Answer

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Tags: Audit evidence, Audit Reliability, External audit, Financial Reporting, Management’s expert, Professional Judgment, Risk Management
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

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

Provide examples of internal audit reports used by external auditors.

Question

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

Answer

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Tags: Audit evidence, External audit, Internal Audit Reports
Level: Level 3

Topic: Internal Audit and Corporate Governance

AAA – May 2019 – L3 – Q6 – Audit Reporting

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

Question

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)

Answer

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Tags: Audit evidence, Audit Reporting, Financial Statements, ISA 570
Level: Level 3

Topic: Audit Reporting

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

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

Question

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.

Answer

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Tags: Audit evidence, Disclaimer of Opinion, Scope Limitation
Level: Level 3

Topic: Audit Reporting
Series: NOV 2013

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

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

Question

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.

Answer

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Tags: Audit evidence, Audit Procedures, Confirmation, Debtor Balance, Direct Communication
Level: Level 3

Topic: Audit evidence
Series: NOV 2013

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

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

Question

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………………….

Answer

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Tags: Audit evidence, Balance Confirmation, Discrepancy, Fraud, Reporting Dates
Level: Level 3

Topic: Audit evidence
Series: MAY 2013, NOV 2013

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.

Question

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:

Some property, plant, and equipment in the books of account and prior year financial statements had negative net carrying amounts.
The basis for impairment included in prior year financial statements regarding loans and advances could not be established from the working papers.
A material amount of pre-operating expenses included in receivables schedules could not be satisfactorily explained.
Audit work performed on interest income in the prior year was not supported by sufficient appropriate audit evidence.
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.
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.
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)

Answer

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Tags: Audit evidence, Audit Procedures, Financial Statement Review, Initial Engagements, Predecessor Auditor
Level: Level 3

Topic: Audit Completion and Final Review

AAA – April 2022 – L3 – Q2 – Evaluation and review, Group audits, Current issues

Comment on matters raised and state audit evidence required for Lartey Company Ltd for the year ended 30 September 2020.

Question

Lartey Company Ltd (LCL) is a Private Limited Liability Company that was incorporated several years ago under the Companies Act, 1963 (Act 179) now Companies Act, 2019 (Act 992). The company is currently listed on the Ghana Stock Exchange. LCL is one of the world’s leading leisure travel providers, operating under several brand names to sell packaged holidays. The company catered for more than 10 million customers in the last 12 months. Draft figures for the year ended 30 September 2020 show revenue of GH¢320 million, profit before tax of GH¢15 million, and total assets of GH¢410 million. LCL’s executives earn a bonus based on the profit before tax.

You are the senior manager responsible for the audit of LCL. The final audit is nearing completion, and the following points have been noted by the audit senior for your attention:

Acquisition of Esinam Co. Ltd. On 15 November 2020, LCL acquired Esinam Co. Ltd, a company offering adventure holidays for independent travelers. Esinam Co. Ltd represents a significant acquisition, but this has not been recognised in the financial statements.
Aseye Cruises One part of the company’s activities, operating under the Aseye Cruises brand, provides cruise holidays. Due to the economic recession owing to the Covid-19 pandemic, the revenue of the Aseye Cruises business segment has fallen by 25% this year, and profit before tax has fallen by 35%. Aseye Cruises contributed GH¢64 million to total revenue for the year ended 30 September 2020, and has identifiable assets of GH¢23.5 million, including several large cruise liners. The Aseye Cruises brand is not recognised as an intangible asset, as it was internally generated.
Compensation Claim In July 2020, thousands of holiday-makers were left stranded abroad after the company operating the main airline chartered by LCL suffered Covid-19 restrictions. The holiday-makers were forced to wait an average of two weeks before they could be returned home using an alternative airline. They have formed a group which is claiming compensation for the time they were forced to spend abroad, with the total claim amounting to GH¢2 million. The reasons for the group claiming compensation include accommodation and subsistence costs, lost income, and distress caused by the situation. The claim has not been recognised or disclosed in the draft financial statements, as management argues that the full amount payable will be covered by LCL’s insurance cover.

Required: Comment on the matters raised and in your review of the working papers, state the audit evidence required to draw reasonable conclusions for the year ended 30 September 2020.

Answer

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Tags: Acquisition, Audit evidence, Audit Review, Compensation Claim, IAS 10, IAS 36, IAS 37, Impairment
Level: Level 3

Topic: Current issues, Evaluation and review, Group audits
Series: APR 2022

Question Tag: Audit evidence

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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.

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

Explain three substantive tests for verifying accounts receivable balance.

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

Explain two key audit assertions for the income statement.

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.

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

Provide examples of internal audit reports used by external auditors.

AAA – May 2019 – L3 – Q6 – Audit Reporting

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

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

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

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

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

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

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

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.

AAA – April 2022 – L3 – Q2 – Evaluation and review, Group audits, Current issues

Comment on matters raised and state audit evidence required for Lartey Company Ltd for the year ended 30 September 2020.

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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.

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

Explain three substantive tests for verifying accounts receivable balance.

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

Explain two key audit assertions for the income statement.

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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.

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

Provide examples of internal audit reports used by external auditors.

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AAA – May 2019 – L3 – Q6 – Audit Reporting

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

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

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

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

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

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

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

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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.

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AAA – April 2022 – L3 – Q2 – Evaluation and review, Group audits, Current issues

Comment on matters raised and state audit evidence required for Lartey Company Ltd for the year ended 30 September 2020.

You're reporting an error for "AAA – April 2022 – L3 – Q2 – Evaluation and review, Group audits, Current issues"

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