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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  • 20 Marks

AA – Nov 2018 – L2 – Q3 – Planning an Audit

Explains materiality in accordance with ISA 320 and addresses steps for materiality and receivable circularization in an audit.

Holy Family Limited is a trading company that deals in furniture. The company is a major distributor to Happy Couples Limited that manufactures the furniture. The turnover of the company as at December 31, 2017, was ₦120,000,000. Also, in the statement of financial position is a figure of ₦2,500,000 that represents trade receivables. The auditor informs the Managing Director of the need to circularize the debtors. The Managing Director feels indifferent to circularization, saying that the figure of ₦2,500,000 is not material with a turnover of ₦120,000,000.

Required:
a. As an auditor, explain to the Managing Director the concept of materiality in accordance with ISA 320.
(5 Marks)

b. State the steps you are expected to take as regards materiality when planning and performing an audit.
(5 Marks)

c. Explain to him why you should confirm receivable balances through circularization.
(3 Marks)

d. If you decide to circularize only a sample of receivables, list the types of accounts that should not be overlooked in selecting the sample.
(7 Marks)

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  • 10 Marks

AA – July 2023 – L2 – Q4a – Completion Procedures and Reporting, Planning and Approach for Audit and Assurance Engagements

Explanation of going concern indicators for Kitchenhub Ltd and the stages when analytical procedures can be used.

a) You are an Audit Assistant of Abinchi & Associate and your firm is planning the audit of a client. You have been provided with draft financial statements extracts and the following information is about your client, Kitchenhub Ltd, who is a kitchen equipment manufacturer. The company’s year-end is 30 April 2022.

Kitchenhub Ltd has recently been experiencing trading difficulties, as its major customer who owes GH¢0.6 million to Kitchenhub Ltd has ceased trading, and it is unlikely any of this will be received. However, the balance is included in the financial statements extracts below. The sales director has recently left Kitchenhub Ltd and is yet to be replaced.

The monthly cash flow has shown a net cash outflow for the last two months of the financial year and is forecast as negative for the forthcoming financial year. As a result of this, the company is unable to settle suppliers whose payments are due, and some are threatening legal action to recover the sums owing.

Due to its financial difficulties, Kitchenhub Ltd defaulted on a loan repayment, and as a result of this breach in the loan contract, the bank has asked that the loan of GH¢4.8 million be repaid in full within six months. In view of this, the directors have decided not to pay dividends for the period.

Below is the Financial Statement extract for Kitchenhub Ltd for the year ended 30 April:

Draft 2022 (GH¢) Actual 2021 (GH¢)
Current assets
Inventory 3.4 1.6
Receivables 1.4 2.2
Cash – 1.2
Current liabilities
Trade payables 1.9 0.9
Overdraft 0.8 –
Loans 4.8 0.2

Required:
i) Explain SEVEN (7) factors that indicate that Kitchenhub Ltd may not be operating as a going concern entity. (7 marks)
ii) Identify THREE (3) stages of an audit when analytical procedures can be used by Abinchi & Associate. (3 marks)

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  • 5 Marks

AA – Nov 2023 – L2 – Q1c – Planning and Approach for Audit and Assurance Engagements

Explain five benefits of planning an audit as per ISA 300.

ISA 300: Planning an audit of financial statements provides guidance to assist Auditors in planning an audit.

Required:
Explain FIVE (5) benefits of audit planning.
(5 marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q1b – Planning and Approach for Audit and Assurance Engagements

Identify and explain five risks that should be considered when planning an audit for Akanji Ltd.

Your firm has been appointed as Auditor for Akanji Ltd for the year ended 31 December 2022. Akanji Ltd designs, manufactures, and retails traditional fabrics. In trying to understand Akanji Ltd’s business, you observed the following:

  • Inventory is held at the warehouse and at retail shops in three different locations.
  • Customers place orders online and review the designs before sales are made.
  • There was a sharp fall in revenue due to the influx of “pirated fabric” and the directors are uncertain whether this trend will stop.
  • One retail shop was closed during the year and the premises are still available for sale.
  • The Internal Auditor was dismissed in the course of the year and is pursuing a claim for unfair dismissal. The Finance Director currently doubles as the Internal Auditor.
  • The Managing Director is due to retire next year and is likely to request repayment of loans he advanced to the business. Negotiations with the bank in respect of a loan to repay the Managing Director have started.

Required:
Identify and explain FIVE (5) risks arising from the above that should be considered when planning the audit of Akanji Ltd.
(10 marks)

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  • 9 Marks

AA – Mar 2023 – L2 – Q1c – Planning and Approach for Audit and Assurance Engagements

Explain the concept of audit planning and enumerate its benefits in conducting audit engagements.

Preparing an audit plan is the first stage in conducting an audit engagement. It has become necessary for audit firms to plan their audit engagements to avoid risks and other litigation issues. ISA 300: Planning an Audit of Financial Statements emphasizes the importance of audit planning in ensuring an effective audit.

Required:
i) Explain audit planning. (3 marks)
ii) Enumerate FOUR (4) benefits or importance of audit planning. (6 marks)

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  • 4 Marks

AA – Nov 2020 – L2 – Q2b – Planning and Approach for Audit and Assurance Engagements

Explain key items to include in an audit strategy document.

ISA 300: Planning an audit of financial statements requires auditors to establish the overall strategy for an audit. An auditor is required to plan the audit by developing an audit strategy to guide the plan itself. Audit planning is necessary for a number of reasons, the foremost of which is to achieve audit efficiency and effectiveness. Audit planning involves risk assessment procedures, further audit procedures, and other audit procedures to obtain sufficient appropriate audit evidence. During the audit, if an auditor concludes that the initial plan requires alteration, the auditor shall consider revising the audit strategy.

Required:
Explain with justification FOUR (4) key items that should be included in an audit strategy document.
(4 marks)

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  • 15 Marks

AA – Nov 2020 – L2 – Q1b – Planning and Approach for Audit and Assurance Engagements

State benefits of audit planning and explain what an auditor should do to secure them.

Audit planning is a vital area of the audit primarily conducted at the beginning of an audit process to ensure that appropriate attention is devoted to important areas, potential risks are promptly identified, work is completed expeditiously, and work is properly coordinated.

Required:
i) State FIVE (5) benefits of audit planning.
(5 marks)

ii) Explain what an auditor should do to secure the benefits.
(10 marks)

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  • 6 Marks

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

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

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

Required:

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

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

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  • 12 Marks

AA – May 2017 – L2 – Q3b – Planning and Approach for Audit and Assurance Engagements

Definition of materiality and how its level is assessed during audit planning.

ISA 320 Materiality in Planning and Performing an Audit provides guidance on the concept of materiality in planning and performing an audit.

Required:
Define materiality and determine how the level of materiality is assessed.

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  • 3 Marks

AA – May 2017 – L2 – Q3a – Planning and Approach for Audit and Assurance Engagements

Explanation of the importance of audit planning.

It has become necessary that audit firms plan their activities well in order to avoid risk and other litigation issues. ISA 300 Planning an Audit of Financial Statements states that the auditor must plan the audit.

Required:
Explain audit planning.

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