Question Tag: Audit Planning

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  • 10 Marks

AAA – Nov 2024 – L3 – Q4a – Audit of Ghana’s Domestic Debt Exchange Programme

Describe how to plan and execute an audit of Ghana’s domestic debt exchange program.

a) The Minister for Finance on December 5, 2022, invited holders of domestic bonds to voluntarily exchange GH¢137.3 (US$14.3) billion of the bonds and notes including E.S.L.A and Daakye Bonds for a package of 12 new eligible domestic bonds.

As Director of Audit at the Ghana Audit Service, describe how you would plan and execute an audit of the implementation of Ghana’s domestic debt exchange program as a form of CPD for a section of staff of the Ghana Audit Service.

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  • 20 Marks

AAA – May 2017 – L3 – Q2 – Risk Management in Audits

Describe audit risk and its components, and identify inherent risks in auditing a charity.

Home Care is a charity that provides accommodation for unemployed young people.
The constitution of the charity explains how the charity’s income could be spent and also contains a requirement that administrative expenditure cannot exceed 10% of income in any year.

The charity’s income is mainly derived from voluntary cash donations collected by volunteers from members of the public. Recently, the charity’s income has been impacted by the current global economic and financial meltdown.

Required:

a. Describe the term ‘audit risk’ and explain the THREE elements of risk that contribute to total audit risk. (8 Marks)

b. Using the information provided in the question, identify FOUR areas of inherent risk to be taken into account in planning the audit of Home Care and explain the effect of each of these risks on the audit approach. (12 Marks)

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  • 15 Marks

AAA – Nov 2014 – L3 – SC – Q7 – Audit of IT Systems and Data Analytics

Evaluates factors influencing the use of CAATs in audit planning and identifies solutions to address audit trail loss.

CAATs

The availability of Computer Assisted Audit Techniques (CAATs) should be considered by auditors when planning the nature, extent, and timing of tests in an audit. Auditors must determine their testing strategies which will depend on their choice of either using a manual testing method or a computer-assisted method.

Required:

(a) Explain FIVE factors that will determine auditors’ choice of method of testing in the planning of an audit in a computer environment. (10 Marks)

(b) Identify FIVE solutions to loss of audit trail. (5 Marks)

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  • 15 Marks

AAA – Nov 2014 – L3 – SC – Q5 – Environmental and Sustainability Audits

Steps in the audit process to identify environmental issues and major social concerns in a company's social policy report.

Green Issues

Oil and Gas Limited is a company involved in the upstream petroleum activities in the Delta Region. The restiveness of the youth in this area of operation was a result of environmental degradation of the region. Your firm has just been appointed as the auditors to the company. During the preliminary planning stage of the audit, you realised that the environmental issues could have an impact on the financial statements.

Required:

(a) Enumerate EIGHT steps you would include in the audit process in order to highlight environmental issues that may be apparent in the client’s business.

(8 Marks)

(b) Identify SEVEN major social issues that an auditor will be concerned with in a company’s social policy report. (7 Marks)

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  • 20 Marks

AAA – Nov 2014 – L3 – SB – Q4 – Group Audits

Plan and control the group audit of the Cinnamon Group, assess subsidiary issues, and define the relationship with component auditors.

The Cinnamon Group is an international business made up of ten subsidiaries and a head office. You are the manager in charge at the firm undertaking the group audit, but there are separate local auditors for the Cayenne subsidiary in the United States, the Habenaro subsidiary in Mexico, and the Hybrid subsidiary in Columbia. You are aware of the following information:

  1. Hybrid Issues: Hybrid is a loss-making subsidiary with current year-end losses totaling ₦27 million. There are significant control problems, high levels of bad debts, and 25% staff turnover. The local auditors have stated their intention to give a qualified opinion for the year just ended due to material issues.
  2. Cayenne Financial Year Misalignment: Cayenne operates to a financial year ending October 2013, differing from the group’s December 2013 year-end.
  3. Habenaro Sale: Shortly after the year-end in January 2014, the Cinnamon Group announced the sale of Habenaro for ₦250 million, and this disposal is currently ongoing.
  4. Loan Guarantees: The Cinnamon Group is guaranteeing loans of approximately ₦100 million for its subsidiaries.

Required:

a. Set out how you would plan and control the group audit of the Cinnamon Group.
(5 Marks)

b. Consider the impact of each of the above issues on the group audit.
(10 Marks)

c. Explain the nature of the relationship between your firm and the auditors of the subsidiaries, making particular reference to the extent to which your firm may rely on the component auditors’ work and to the considerations involved where joint audits are conducted.
(5 Marks)

(Total: 20 Marks)

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  • 30 Marks

AAA – Nov 2014 – L3 – SA – Q1 – Group Audits

Identify business risks, audit planning effects, and implications of acquisitions for the consolidated financial statements audit of Wasp Ltd.

You are an audit manager in Ruby & Co, a firm of Chartered Accountants. One of your audit clients, Wasp Ltd., provides satellite broadcasting services in a rapidly growing market.

In February 2014, Wasp Ltd. purchased Xstatic Ltd., a competitor group of companies. Significant revenue, cost, and capital expenditure synergies are expected as the operations of Wasp Ltd. and Xstatic Ltd. are being combined into one group of companies.

The following financial and operating information consolidates the results of the enlarged Wasp Ltd. group:

Year-end 31 December 2014 (Budget) 2013 (Actual)
Revenue ₦6,827m ₦4,404m
Cost of Sales (₦3,109m) (₦1,991m)
Distribution Costs and Administrative Expenses (₦2,866m) (₦1,700m)
Research and Development Costs (₦25m) (₦22m)
Depreciation and Amortization (₦927m) (₦661m)
Interest Expense (₦266m) (₦202m)
Loss Before Tax (₦366m) (₦172m)
Number of Subscribers 14.9m 7.6m
Average Revenue Per Subscriber (ARPS) ₦437 ₦556

In November 2014, Wasp Ltd. purchased MTbox Ltd., a large cable communications provider in Gambia, where your firm has no representation. The financial statements of MTbox Ltd. for the year ending 31 December 2014 will continue to be audited by a local firm of Chartered Accountants. MTbox Ltd.’s activities have not been reflected in the above estimated results of the group.

Wasp Ltd. is committed to introducing its corporate image into Gambia.

In order to sustain growth, significant costs are expected to be incurred as operations are expanded, networks upgraded, and new products and services introduced.

Required:

a. Identify and describe the principal business risks for the Wasp group. (9 Marks)

b. Explain what effect the acquisitions will have on the planning of Ruby & Co’s audit of the budgeted consolidated financial statements of Wasp Ltd. group for the year ending 31 December 2014. (10 Marks)

c. Explain the role of a Letter of Comfort as evidence in the audit of financial statements. (6 Marks)

d. Discuss how non-consolidated entities under common control affect the scope of an audit and the audit work undertaken. (5 Marks)

(Total 30 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

You have just concluded the audit of Roico Limited for the year ended 31 December, 2012. During the review of the working paper file, the partner in charge discovered that no information is available on activities after year-end. The partner instructed the team leader to carry out a review of the company’s activities after year-end. The team leader was not comfortable with the instruction and wants to know why it is necessary to examine accounting information relating to the next accounting period.

You are required to:

(a) Enumerate the audit procedures which would be carried out in order to identify any material subsequent events. (10 Marks)

(b) Discuss the purpose and importance of subsequent events review. (5 Marks)

(Total: 15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q4 – Audit of IT Systems and Data Analytics

Discuss factors influencing the choice of audit testing methods in a computer environment and propose solutions to address the loss of audit trail.

The availability of computer-assisted audit techniques should be considered by the auditor when planning the nature, extent, and timing of tests in an audit. The auditor must determine his testing strategies which will depend on his choice of either using a manual testing method or computer-assisted method.

You are required to:

(a) Explain FIVE factors that will determine the auditor’s choice of method of testing in the planning of an audit in a computer environment. (10 Marks)

(b) Identify FIVE solutions to loss of audit trail. (5 Marks)

(Total: 15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

XYL Limited has been granted a license to operate in the extractive industry in the middle belt of the country, where there is an abundant mineral resource called Topaz. This mineral is in great demand in the manufacturing industries of Western Europe.

Due to the need for heavy equipment requiring intensive capital outlay, indigenous companies could not invest in the sector. Moreover, the technical expertise required in mining this product is not locally available.

The company was not only granted the license but also granted a pioneer status. The local community where operations take place supply the necessary labor, both skilled and unskilled. After a year, the workers’ union found out that they were paid far less than what the company is paying in similar operations in nearby countries. As a result of labor union activities, many workers were retrenched, and the company started making use of locals who had just completed secondary school education. Union activities were proscribed.

Being an extractive industry, the local people were affected as they could no longer carry out their economic activities as before.

Your firm has just been appointed as auditors of XYL Limited after three years of operation.

You are required to:

Explain SEVEN areas of concern that would be of interest to you as auditor and provide reasons for their importance. (15 Marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q2 – Audit Planning and Strategy

Outline reasons for audit planning and describe procedures for planning the audit of an existing client.

Planning an audit involves establishing the overall audit strategy for the engagement and development of an audit plan.

You are required to:

(a) Enumerate SEVEN reasons for audit planning. (7 Marks)

(b) Explain EIGHT audit procedures you would consider in planning the audit of an existing client. (8 Marks)

(Total: 15 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Describe a series of questions used by auditors to evaluate accounting and control policies.

A series of questions about accounting and control policies and procedures that the auditor considers necessary to prevent material misstatements in the presentation of financial statements is………………………

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  • 5 Marks

AAA – Nov 2016 – L3 – Q4b – Audit of IT Systems and Data Analytics

Identify solutions to address the loss of an audit trail in computer-assisted or manual testing.

The availability of Computer-Assisted Audit Techniques should be considered by the Auditor when planning the nature, extent, and timing of tests in an audit. The Auditor must determine their testing strategies, which will depend on their choice of either using a Manual Testing Method or a Computer-Assisted Method.

Required:
Identify FIVE solutions to the loss of an audit trail. (5 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

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  • 15 Marks

AAA – Nov 2021 – L3 – Q7 – Audit of IT Systems and Data Analytics

Discuss control environment requirements of ISA 315 and evaluate control activities for Egunje Distributors Ltd.

Egunje Distributors Limited is a private company in which Chief Idowu is the major shareholder. Chief Idowu set up the business to help provide resources for his philanthropic gestures. He has been involved in the major control activities, and the business was achieving its purpose, and things were working well.

After a number of years, Chief Idowu stepped aside from the business and handed over effective management to one of his subordinates, whom he elevated to the rank of General Manager (GM). The GM followed Chief Idowu’s control processes for only one year and then introduced new ideas and processes, resulting in undue amounts being transferred into his private accounts rather than the company’s accounts. This has affected the results of the company.

While Chief Idowu has not decided to take any hasty action, he has decided to bring in your firm, due to its size, so that through your work, he may understand the reasons for the dwindling performance. It has been discussed and agreed that your report on the audit will provide insight into the reasons for the observed decline in performance.

Required:

a. Discuss the control environment, focusing on the requirements of ISA 315 – Identifying and assessing the risk of material misstatement through understanding the entity and its environment, that will be relevant to this situation. (9 Marks)

b. Evaluate the control activities that will require your attention. (6 Marks)

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  • 15 Marks

AAA – Nov 2021 – L3 – Q6 – Audit of IT Systems and Data Analytics

Outline application controls for computerised systems and develop an audit strategy following ISA 300 for large, computerised clients.

The firm you work for has considered the growing development in some sectors of the economy and the opportunities this development portends.

Your firm is a sole practitioner, and though the partner has the skills and professional competences necessary to undertake big jobs, applications for big jobs have always been turned down.

To get involved and secure some of these big jobs, your partner has dialogued with some other sole practitioners who share the same view. They have agreed to operate a merged firm starting in the year 2022. Appropriate registration of the new practice name with the Corporate Affairs Commission and application for a license in the new name from the Institute are being processed. To prepare for securing and executing some of these big jobs, preparations are set to commence once the registrations are approved. Some of the target jobs involve computerised entities, so your partner has assigned you some preparatory tasks, as he is the lead partner.

Required:

a. Prepare a document showing the application controls that will be focused on in the computerised systems of the entities. (7 Marks)

b. Develop an appropriate audit strategy in accordance with ISA 300, “Planning an audit of financial statements.” (8 Marks)

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  • 15 Marks

AAA – Nov 2011 – L3 – SB – Q1 – Application of Audit and Assurance Principles

Evaluate the steps for identifying and responding to fraud risk during audit planning.

Fela Idaewor is the auditor for Matty Co. Ltd, a rapidly expanding retail business based in Lekki. This is her first year as the audit manager. During her engagement planning, she observed multiple risk factors, such as the company’s strong interest in maintaining earnings and share prices, unrealistic financial forecasts, and high reliance on debt financing for expansion. Additionally, there were strong indications that fraud might have been committed by top management.

Required
(a) What should Idaewor do about the possibility of fraud at the planning stage? (7 Marks)
(b) What documentation is required for identifying risk factors? (5 Marks)
(c) If Idaewor has evidence suggesting fraud, what are her communication responsibilities to management? (3 Marks)

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  • 20 Marks

AAA – Nov 2023 – L3 – SB – Q2 – Audit of Complex Entities

Outline procedures for consolidated audit, risk approach, and communication with new auditors.

ABC Limited is owned and controlled by DOBS Plc, which is involved in the manufacture of car fittings and accessories. TRC & Co (Chartered Accountants), where you work, has been auditing DOBS Plc for the last five (5) years.

ABC Limited is preparing for its first AGM, and at its last board of directors meeting, a member proposed appointing another firm, different from TRC & Co, as its auditors. The appointment will subsequently be approved at the said AGM. With the directives from DOBS Plc, the idea was accepted, and Tim Brown & Co. (Chartered Accountants) was appointed for the year under consideration.

There are issues with the marketing of the products of ABC Limited, and there have been criticisms in the public domain over the last two quarters. The audits of the two companies are ongoing concurrently by the two firms.

Required:

a. Prepare the list of items to be included in the “letter of instruction” TRC & Co. should send to Tim Brown & Co.
(6 Marks)

b. For the purpose of ensuring that the financial statements are properly consolidated, prepare a document outlining the audit procedures TRC & Co. needs to adopt.
(9 Marks)

c. Evaluate the nature of the business risk approach to be adopted by TRC & Co. in the review of ABC Limited during the audit.
(5 Marks)
(Total 20 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q5 – Audit Planning and Strategy

Discuss professional skepticism, benefits of audit planning, audit strategy, and audit stages.

At the weekly meeting of an audit firm, it was reported that a new audit client (Salisa Limited) has just been won. An implementation team has been constituted with a manager as the head. At the meeting of the implementation team, the manager stated that there is a need for the team to work on the audit planning strategy; the contents of which will form the audit planning memorandum that will be presented to the audit committee. He stated further that a professional clearance has to be sent to the former auditor after which, a background check will be performed on the directors and other principal officers of the company. It is also believed that for proper risk assessment, there is a need to understand the business operations of the company. He stated further that the audit will be structured into both interim and final audits.

An experienced member of the team also mentioned the need for the auditor to adopt an attitude of professional skepticism. He emphasized that planning the audit will involve the whole engagement team to establish an understanding of the terms of the engagement as required by ISA 210, which will help establish an overall strategy for the audit. Developing the audit plan will include the nature, timing, and extent of planned risk assessment procedures, further audit procedures, and documentation of the overall audit strategy.

Required:

a. Explain professional skepticism. (2 Marks)

b. State how adequate planning can benefit the audit team. (3 Marks)

c. Explain and illustrate what the establishment of the overall audit strategy involves. (3 Marks)

d. Discuss the elements of interim and final audits.

(7 Marks)

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  • 20 Marks

AAA – Nov 2017 – L3 – Q4 – Risk Management in Audits

Assess audit risks in taking on Pony Bank Plc, recommend management and audit firm actions to address financial statement risks, and draft a management letter.

The management of Pony Bank Plc and its wholly owned subsidiary, Ponte Micro Finance Bank Limited, engaged in fraudulent activities involving the arrangement of bogus loans amounting to ₦5.5 billion in worthless assets, which were undetected by the previous auditors. The former auditors attributed the oversight to a well-organized group within Pony Bank that actively deceived and obstructed the audit process to conceal their actions.

Your firm, Vic Viv & Co, has recently taken on the audit of Pony Bank Plc.

Requirements:
a. Advise the engagement partner on the risks involved in taking up the audit.

(4 Marks)
b. Recommend appropriate actions for management and your firm to address financial statement risks.

(8 Marks)
c. Prepare a management letter with two matters suitable for submission to the directors.

(8 Marks)

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