Question Tag: Audit risks

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  • 15 Marks

AAA – May 2019 – L3 – Q5 – Risk Management in Audits

Assess inherent risks and identify specific audit risks related to auditing the financial statements of Insurgency Relief Providers (IRP).

Insurgency Relief Providers (IRP) is a non-governmental organization set up by a popular philanthropist from the southwest part of the country. The philanthropist sits as the chairman of the board of trustees and has a manager who is a close relative of the chief executive officer. All the management activities are in the hands of the manager, and the board of trustees sits occasionally to formalize major decisions. Initially, the sum of ₦50,000,000 was provided by the philanthropist, and fundraising was organized to raise an additional ₦200,000,000 in cash and pledges by political associates. The activity of IRP has been carried out with these and other donations from friends and well-wishers.

Activities of IRP are essentially performed in the northeastern region of the country. These activities include food and material supply using chartered vehicles and police/military escorts. The distribution is carried out with the involvement of some staff of the NGO who travel by air and within the safe zones of the region.

Due to the successes recorded and the need to increase these activities, the chairman of the board of trustees has made appeals to some foreign-friendly associates to be involved in his organization’s activities by providing financial support. A number of these organizations have shown interest and would want to review the operational activities and financial statements of IRP over the past three years.

For the purpose of the current request from foreign associates and other agencies, a statutory audit of the financial statements is required.

Your firm was appointed and has accepted the engagement.

Required:
a. Assess the inherent risks associated with the audit of the financial statements of IRP. (10 Marks)
b. Identify FIVE audit risks to be addressed by the auditor. (5 Marks)

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  • 20 Marks

AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions

Identify going concern risks for Woes Limited and outline post-reporting date audit matters to assess its ability to continue as a going concern.

You are responsible for the audit of Woes Limited for the year-ended 31 December 2013. The principal activity of Woes Ltd is the provision of high-quality packaging services for manufacturing companies. The company was established three years ago and has significantly exceeded its growth targets in each of those years.

Historically, the packaging process was labour-intensive, but in September 2013, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a term specifying that the company’s debt: equity ratio should not exceed 1:1.

A comparison of the draft accounts for the year ended 31 December 2013 with the previous year indicates a significant increase in revenue with a small increase in profit. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency, including a reduction in labour costs, will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind in its payments to the tax authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last three months’ instalments.

Required:

a. Identify and explain, from the information provided above, factors which indicate that Woes Ltd may not be a going concern. (10 Marks)
b. Outline the matters to which you would direct your attention in the period after the reporting date to determine whether Woes Ltd can continue as a going concern for the foreseeable future. (10 Marks)

(Total: 20 Marks)

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  • 15 Marks

AAA – May 2022 – L3 – Q7 – Risk Management in Audits

Evaluate key risk areas for auditors in consolidating Nigerian and UK company accounts, considering transfer pricing and related party transactions.

BARCHI International Limited is a company with corporate registrations in both the United Kingdom (U.K.) and Nigeria. The Chairman of the company is based in Nigeria and from time to time travels to the U.K. to oversee the office there and order for the purchase of some of the articles for sale. To ensure steady supply of the products, some of the products are also ordered from China. The purchases from the U.K. are charged to the Nigerian entity in pound sterling, while the purchases from China are charged to the Nigerian company in American dollars.

In September 2020, the Chairman embarked on a trip to Dubai for two weeks where he spent part of his annual holiday. During this period, he hosted a couple of friends with the costs that were paid for by the company as the costs were above his approved annual holiday expenses. He subsequently traveled to the U.K. and was quarantined for two weeks due to COVID-19 before moving to the usual business lodge that he uses. Despite using that period to oversee the U.K. company, all the costs incurred were borne by the Nigerian company.

The products bought in the U.K. and sent to Nigeria were charged at cost plus 25%, while the Nigerian company was responsible for insurance and freight. The goods purchased from China were forwarded to Nigeria at the cost of landing in Nigeria plus 30%. The China-made products are less expensive and therefore give better profits despite the cost of the long-distance freight.

Money was transferred to the Chairman’s account for the company’s purchases in the U.K., the purchases made in China, and the Chairman’s personal expenses. An agent in China bought the goods which were paid for by the Chairman.

The U.K. company staff handled the documentation of all the transactions of the Chairman while there and transferred them to Nigeria subject to the approval of the Chairman.

Separate records were not maintained for the Chairman’s expenses in the U.K. However, his comparison of the results of the two units showed that for the immediate past financial year, the Nigerian company had performed sub-optimally and way below the targeted profit in relation to the U.K. company. The Chairman is very unhappy about this as he expects that his personal visit to the U.K. would reduce the purchasing and associated costs.

It is usual for the Chairman to account for the cost of purchases based on his personal expenses attributable to each purchase together with the actual cost of purchases. The U.K. component is elated about this costing method which favors it and would wish that this arrangement continues.

The two units prepare separate financial statements which are audited by separate accounting firms before the two financial statements are consolidated in Nigeria for the Chairman’s evaluation.

Required:

Evaluate, with appropriate justifications, from the scenario above, the areas of risk which the auditor needs to consider. (15 Marks)

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  • 20 Marks

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

Messrs PK Industries Limited was incorporated and operates its business in Nigeria. The company has existed over the years. During most of this period, it imported some major components from China. Imports usually take some time to arrive after necessary forms have been completed and submitted to the bank.

Two of the directors have two other companies that supply fuel and other local resources needed by the company. The company’s directors are aware of this but prefer to do their business rather than patronize other suppliers.

In the last few years, the turnover of the company fluctuated between ₦500 million and ₦1 billion. The two other companies owned by the two directors are currently trading on loans granted by the company.

Following what was considered to be an increasingly harsh economic environment and high cost of power supply, the company registered a subsidiary company with a production outfit in Ghana while still maintaining its head office operations in Nigeria. Part of the raw materials needed in Ghana are procured in Nigeria and transported to Ghana through hired trailers. This process is being used until a suitable supplier is found in Ghana.

The company decided to hold the next Annual General Meeting (AGM) in the company’s premises in Ghana, with all the directors/shareholders traveling to Ghana on a direct flight from Abuja to Accra at the company’s expense. It was decided that this was an opportunity to evaluate the Ghanaian environment for further business decisions.

The audit of the Nigerian company and its Ghanaian company were done by different firms.

Required:

(a) Evaluate the risks involved in the scenario above. (5 Marks)

(b) Discuss the risk assessment procedures that the auditor of Messrs PK Industries Limited needs to adopt as required by ISA 550. (11 Marks)

(c) Prepare the key guidelines to the audit in accordance with ISA 600. (4 Marks)

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  • 20 Marks

AAA – Nov 2018 – L3 – Q2 – Regulatory Investigations and Disciplinary Actions

Assessment of joint audit advantages, agenda setup, and addressing regulatory issues in audit planning

Yusuf Olatunji & Co., (Chartered Accountants) have been auditors to XBC Bank Limited. There has been some regulatory and compliance issues for which the bank was sanctioned and paid penalties to both the Central Bank of Nigeria and the Financial Reporting Council of Nigeria. At the board of directors meeting to consider the last annual report audited by the firm, some of the problems caused by the auditors were raised. Following the reoccurrence of such issues, it was proposed that another audit firm be engaged in addition to the present firm. To achieve their objective, a bigger firm that has international affiliation was considered to take a leading position in a joint audit arrangement and to ensure appropriate compliance.

Your firm has been approached for the appointment. A meeting was scheduled between your firm, Yusuf Olatunji & Co., and the executive management of the bank. In preparation for the meeting, you are informed that you will address the meeting on the advantages and disadvantages of joint audit, being an area some members of the management team have expressed concerns.

After the meeting, your firm was subsequently appointed, and the necessary formalities were properly followed. Your partner has directed that you liaise with Yusuf Olatunji & Co. to obtain the necessary materials for the preparation of the audit and that you review your firm’s audit manual with respect to the concerns of management on joint audit.

Your assessment of the documents obtained from the other auditor revealed the following, amongst others:

  1. Part of the penalty was on improper disclosure relating to a material property, plant, and equipment (PPE) acquired during the previous year and a substantial loan above the limit authorised for a sector of the economy;
  2. The classification of unresolved transactions as debit balances in the statement of financial position, resulting in an increase in operating profit and the payment of higher taxes than projected;
  3. The IT operations of the bank had weak controls such that it was possible for some staff to over-ride some of them;
  4. The net current assets have continued to fall and, in the preceding year, have fallen below industry average despite an increase in gross earnings.

Required:

a. Evaluate the advantages and disadvantages of joint audit. (8 Marks)

b. Prepare an agenda for the scheduled meeting between the two audit firms. (4 Marks)

c. Develop the appropriate audit approach to address each of the issues identified from the review of the documents obtained from Yusuf Olatunji & Co. (8 Marks)

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  • 20 Marks

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Chuks Roberts Plc (CRP) operates as an auto-parts manufacturing company in Nigeria with headquarters in Lagos. CRP plans to manufacture drones for parcel distribution across Africa and has acquired Zaka Roberts Limited (ZRL), a South African company based in Johannesburg, to bring this plan to fruition.

Zaka previously specialized in manufacturing computer-controlled equipment for laboratories and other industries in Africa and the Middle East. The company was owned by five directors/shareholders who accepted CRP’s offer on February 1, 2016, to purchase Zaka’s manufacturing equipment, technology (patent-protected), Cape Town factory, and Johannesburg head office for US$450 million, representing 75% of Zaka’s value.

Effective March 31, 2016, Zaka ceased manufacturing, making most employees redundant except for a select few in marketing, accounts, and administration, with one month’s notice. The restructured entity, now named Chuks Zaka Limited (CZL), will operate as a marketing arm selling CRP’s drones in the South African region, with CRP holding a 55% stake.

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

Required:
a. Analyse and evaluate the business risks that would be assessed by the management of CZL. (6 Marks)
b. Analyse and evaluate the business risks that would be assessed by the directors of CRP.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

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  • 40 Marks

AA – May 2021 – L2 – Q1 – Regulatory Framework for Auditing

Analysis of audit risks and control objectives in a joint audit and compliance scenario.

Chukwuemeka & Co. (Chartered Accountants) has been auditors to GED Manufacturing Nigeria Plc. There have been some regulatory and compliance issues for which the company was sanctioned and paid penalties to the Financial Reporting Council of Nigeria.

At the board of directors meeting to consider the last annual report audited by the firm, some of the previous problems caused by the auditors were raised and discussed. Following the reoccurrence of such issues, it was proposed that another audit firm be engaged in addition to the present firm.

To achieve their objective, a bigger firm that has international affiliation was considered to take a leading role in a joint audit arrangement and to ensure appropriate compliance. Your firm has been approached for the appointment. A meeting was scheduled between your firm, Chukwuemeka & Co., and the executive management of GED Manufacturing Nigeria Plc.

After the meeting, your firm was subsequently appointed, and the necessary formalities were properly followed. Your partner has directed that you liaise with Chukwuemeka & Co. to obtain the necessary materials for the preparation of the audit and that you review the prior year working papers to understand the issues. Your assessment of the documents obtained from the other auditor revealed the following, amongst others:

(i) The work done on the process of dispatch of goods and invoicing was not considered sufficient and appropriate.

(ii) The IT operations of the company had weak controls such that it was possible for some staff to override some of the existing controls.

Required:

a. Explain the risks inherent in the dispatch of goods and invoicing. (10 Marks)

b. Discuss the control objectives and principal controls that are relevant to the process of dispatch of goods and invoicing. (10 Marks)

c. Explain the limitations of a joint audit. (5 Marks)

d. Discuss the benefits of audit carried out by an internationally affiliated audit firm. (10 Marks)

e. Explain briefly the importance of audit working papers. (5 Marks)

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  • 30 Marks

AA – May 2024 – L2 – SA – Q1 – Auditing in a Computerized Environment

This question examines audit risks, controls, and auditor considerations when auditing an online banking system like FinPay Financial Solutions Limited.

FINPAY FINANCIAL SOLUTIONS LIMITED

FinPay, an innovative payment service bank, operates from its office on Lagos Island, overseeing all financial transactions, customer interactions, and relationships nationwide. The bank streamlines its processes for customer convenience, embracing the digital age.

Customers’ bank accounts are linked to their GSM phone numbers, with the initial zero removed. All banking operations, from account creation and deposits to withdrawals and account closure, are conducted seamlessly through the bank’s mobile App, which can be easily downloaded from popular App stores.

Access to the bank’s mobile App is allowed using an account number and a private six-digit PIN. A prospective customer completes the onboarding process by uploading scanned passport photos, ID card, utility bill, alongside providing other essential personal information, like name, NIN, telephone number, email address, and residential address.

To facilitate transactions, a four-digit PIN linked to the customer’s debit card is activated at Automated Teller Machines (ATMs). Additionally, customers can leverage USSD codes for payments. Customers are required to use their registered phone numbers on their smartphones when transacting businesses with the bank.

In the event of a declined transaction, swift resolution is a priority. Debits are promptly reversed, ensuring customer satisfaction. Customers can report issues directly through the mobile App or via email, and FinPay’s responsive support team resolves matters without necessitating a visit to the bank’s physical office. This efficiency cements FinPay’s reputation as a leading online bank in Nigeria.

FinPay expedites the delivery of debit cards to customers, ensuring they reach their designated addresses within 48 hours of account creation. Furthermore, a proactive follow-up call is made just 24 hours after opening an account, enhancing the overall customer experience.

With a focus on catering for tech-savvy Nigerian youths, FinPay is steadily expanding its customer base. The bank even offers small, easily accessible loans over a six-month period, further attracting and retaining a young clientele. Some customers instruct FinPay to pay monthly DStv subscriptions or send amounts to third parties on a regular basis by activating a prompt on the mobile App.

For added convenience, FinPay features a responsive chatbot, named Bobo. Customers can engage with Bobo through the bank’s mobile App, website, and social media channels, providing another layer of support and accessibility. This comprehensive approach positions FinPay as a forward-thinking financial institution at the forefront of digital banking in Nigeria.

Required:

a. Highlight four benefits an online system offers to FinPay and its customers. (8 Marks)

b. Identify and explain five General controls and five Application controls embedded in FinPay’s system. (10 Marks)

c. Explain three areas the auditors will give special considerations because of the audit risks associated with the online real-time system that dominates FinPay’s operations. (12 Marks)

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  • 15 Marks

AA – May 2018 – L2 – Q5 – Auditing in a Computerized Environment

Discusses controls and potential problems in Electronic Data Interchange (EDI) systems.

Electronic Data Interchange (EDI) systems allow electronic transmission of business documents, such as purchase orders, invoices, payroll information, etc.

Required: a. Explain FOUR major controls to be put in place to minimize the risks inherent in EDI systems. (8 Marks) b. Discuss THREE features of EDI Systems that may create additional problems for the auditor. (7 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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  • 15 Marks

AAA – May 2019 – L3 – Q5 – Risk Management in Audits

Assess inherent risks and identify specific audit risks related to auditing the financial statements of Insurgency Relief Providers (IRP).

Insurgency Relief Providers (IRP) is a non-governmental organization set up by a popular philanthropist from the southwest part of the country. The philanthropist sits as the chairman of the board of trustees and has a manager who is a close relative of the chief executive officer. All the management activities are in the hands of the manager, and the board of trustees sits occasionally to formalize major decisions. Initially, the sum of ₦50,000,000 was provided by the philanthropist, and fundraising was organized to raise an additional ₦200,000,000 in cash and pledges by political associates. The activity of IRP has been carried out with these and other donations from friends and well-wishers.

Activities of IRP are essentially performed in the northeastern region of the country. These activities include food and material supply using chartered vehicles and police/military escorts. The distribution is carried out with the involvement of some staff of the NGO who travel by air and within the safe zones of the region.

Due to the successes recorded and the need to increase these activities, the chairman of the board of trustees has made appeals to some foreign-friendly associates to be involved in his organization’s activities by providing financial support. A number of these organizations have shown interest and would want to review the operational activities and financial statements of IRP over the past three years.

For the purpose of the current request from foreign associates and other agencies, a statutory audit of the financial statements is required.

Your firm was appointed and has accepted the engagement.

Required:
a. Assess the inherent risks associated with the audit of the financial statements of IRP. (10 Marks)
b. Identify FIVE audit risks to be addressed by the auditor. (5 Marks)

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  • 20 Marks

AAA – Nov 2014 – L3 – SB – Q3 – Review of Subsequent Events and Going Concern Assumptions

Identify going concern risks for Woes Limited and outline post-reporting date audit matters to assess its ability to continue as a going concern.

You are responsible for the audit of Woes Limited for the year-ended 31 December 2013. The principal activity of Woes Ltd is the provision of high-quality packaging services for manufacturing companies. The company was established three years ago and has significantly exceeded its growth targets in each of those years.

Historically, the packaging process was labour-intensive, but in September 2013, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a term specifying that the company’s debt: equity ratio should not exceed 1:1.

A comparison of the draft accounts for the year ended 31 December 2013 with the previous year indicates a significant increase in revenue with a small increase in profit. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency, including a reduction in labour costs, will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind in its payments to the tax authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last three months’ instalments.

Required:

a. Identify and explain, from the information provided above, factors which indicate that Woes Ltd may not be a going concern. (10 Marks)
b. Outline the matters to which you would direct your attention in the period after the reporting date to determine whether Woes Ltd can continue as a going concern for the foreseeable future. (10 Marks)

(Total: 20 Marks)

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  • 15 Marks

AAA – May 2022 – L3 – Q7 – Risk Management in Audits

Evaluate key risk areas for auditors in consolidating Nigerian and UK company accounts, considering transfer pricing and related party transactions.

BARCHI International Limited is a company with corporate registrations in both the United Kingdom (U.K.) and Nigeria. The Chairman of the company is based in Nigeria and from time to time travels to the U.K. to oversee the office there and order for the purchase of some of the articles for sale. To ensure steady supply of the products, some of the products are also ordered from China. The purchases from the U.K. are charged to the Nigerian entity in pound sterling, while the purchases from China are charged to the Nigerian company in American dollars.

In September 2020, the Chairman embarked on a trip to Dubai for two weeks where he spent part of his annual holiday. During this period, he hosted a couple of friends with the costs that were paid for by the company as the costs were above his approved annual holiday expenses. He subsequently traveled to the U.K. and was quarantined for two weeks due to COVID-19 before moving to the usual business lodge that he uses. Despite using that period to oversee the U.K. company, all the costs incurred were borne by the Nigerian company.

The products bought in the U.K. and sent to Nigeria were charged at cost plus 25%, while the Nigerian company was responsible for insurance and freight. The goods purchased from China were forwarded to Nigeria at the cost of landing in Nigeria plus 30%. The China-made products are less expensive and therefore give better profits despite the cost of the long-distance freight.

Money was transferred to the Chairman’s account for the company’s purchases in the U.K., the purchases made in China, and the Chairman’s personal expenses. An agent in China bought the goods which were paid for by the Chairman.

The U.K. company staff handled the documentation of all the transactions of the Chairman while there and transferred them to Nigeria subject to the approval of the Chairman.

Separate records were not maintained for the Chairman’s expenses in the U.K. However, his comparison of the results of the two units showed that for the immediate past financial year, the Nigerian company had performed sub-optimally and way below the targeted profit in relation to the U.K. company. The Chairman is very unhappy about this as he expects that his personal visit to the U.K. would reduce the purchasing and associated costs.

It is usual for the Chairman to account for the cost of purchases based on his personal expenses attributable to each purchase together with the actual cost of purchases. The U.K. component is elated about this costing method which favors it and would wish that this arrangement continues.

The two units prepare separate financial statements which are audited by separate accounting firms before the two financial statements are consolidated in Nigeria for the Chairman’s evaluation.

Required:

Evaluate, with appropriate justifications, from the scenario above, the areas of risk which the auditor needs to consider. (15 Marks)

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  • 20 Marks

AAA – May 2023 – L3 – Q3 – Risk Management in Audits

Evaluate risks in PK Industries' scenario, discuss related party risk assessment per ISA 550, and provide audit guidelines based on ISA 600.

Messrs PK Industries Limited was incorporated and operates its business in Nigeria. The company has existed over the years. During most of this period, it imported some major components from China. Imports usually take some time to arrive after necessary forms have been completed and submitted to the bank.

Two of the directors have two other companies that supply fuel and other local resources needed by the company. The company’s directors are aware of this but prefer to do their business rather than patronize other suppliers.

In the last few years, the turnover of the company fluctuated between ₦500 million and ₦1 billion. The two other companies owned by the two directors are currently trading on loans granted by the company.

Following what was considered to be an increasingly harsh economic environment and high cost of power supply, the company registered a subsidiary company with a production outfit in Ghana while still maintaining its head office operations in Nigeria. Part of the raw materials needed in Ghana are procured in Nigeria and transported to Ghana through hired trailers. This process is being used until a suitable supplier is found in Ghana.

The company decided to hold the next Annual General Meeting (AGM) in the company’s premises in Ghana, with all the directors/shareholders traveling to Ghana on a direct flight from Abuja to Accra at the company’s expense. It was decided that this was an opportunity to evaluate the Ghanaian environment for further business decisions.

The audit of the Nigerian company and its Ghanaian company were done by different firms.

Required:

(a) Evaluate the risks involved in the scenario above. (5 Marks)

(b) Discuss the risk assessment procedures that the auditor of Messrs PK Industries Limited needs to adopt as required by ISA 550. (11 Marks)

(c) Prepare the key guidelines to the audit in accordance with ISA 600. (4 Marks)

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  • 20 Marks

AAA – Nov 2018 – L3 – Q2 – Regulatory Investigations and Disciplinary Actions

Assessment of joint audit advantages, agenda setup, and addressing regulatory issues in audit planning

Yusuf Olatunji & Co., (Chartered Accountants) have been auditors to XBC Bank Limited. There has been some regulatory and compliance issues for which the bank was sanctioned and paid penalties to both the Central Bank of Nigeria and the Financial Reporting Council of Nigeria. At the board of directors meeting to consider the last annual report audited by the firm, some of the problems caused by the auditors were raised. Following the reoccurrence of such issues, it was proposed that another audit firm be engaged in addition to the present firm. To achieve their objective, a bigger firm that has international affiliation was considered to take a leading position in a joint audit arrangement and to ensure appropriate compliance.

Your firm has been approached for the appointment. A meeting was scheduled between your firm, Yusuf Olatunji & Co., and the executive management of the bank. In preparation for the meeting, you are informed that you will address the meeting on the advantages and disadvantages of joint audit, being an area some members of the management team have expressed concerns.

After the meeting, your firm was subsequently appointed, and the necessary formalities were properly followed. Your partner has directed that you liaise with Yusuf Olatunji & Co. to obtain the necessary materials for the preparation of the audit and that you review your firm’s audit manual with respect to the concerns of management on joint audit.

Your assessment of the documents obtained from the other auditor revealed the following, amongst others:

  1. Part of the penalty was on improper disclosure relating to a material property, plant, and equipment (PPE) acquired during the previous year and a substantial loan above the limit authorised for a sector of the economy;
  2. The classification of unresolved transactions as debit balances in the statement of financial position, resulting in an increase in operating profit and the payment of higher taxes than projected;
  3. The IT operations of the bank had weak controls such that it was possible for some staff to over-ride some of them;
  4. The net current assets have continued to fall and, in the preceding year, have fallen below industry average despite an increase in gross earnings.

Required:

a. Evaluate the advantages and disadvantages of joint audit. (8 Marks)

b. Prepare an agenda for the scheduled meeting between the two audit firms. (4 Marks)

c. Develop the appropriate audit approach to address each of the issues identified from the review of the documents obtained from Yusuf Olatunji & Co. (8 Marks)

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  • 20 Marks

AAA – Nov 2017 – L3 – Q2 – Group Audits

Assess business risks for Chuks Zaka Limited post-acquisition, evaluate financial statement risks, and outline audit considerations.

Chuks Roberts Plc (CRP) operates as an auto-parts manufacturing company in Nigeria with headquarters in Lagos. CRP plans to manufacture drones for parcel distribution across Africa and has acquired Zaka Roberts Limited (ZRL), a South African company based in Johannesburg, to bring this plan to fruition.

Zaka previously specialized in manufacturing computer-controlled equipment for laboratories and other industries in Africa and the Middle East. The company was owned by five directors/shareholders who accepted CRP’s offer on February 1, 2016, to purchase Zaka’s manufacturing equipment, technology (patent-protected), Cape Town factory, and Johannesburg head office for US$450 million, representing 75% of Zaka’s value.

Effective March 31, 2016, Zaka ceased manufacturing, making most employees redundant except for a select few in marketing, accounts, and administration, with one month’s notice. The restructured entity, now named Chuks Zaka Limited (CZL), will operate as a marketing arm selling CRP’s drones in the South African region, with CRP holding a 55% stake.

Your firm has been CRP’s external auditor and is now engaged to audit CZL.

Required:
a. Analyse and evaluate the business risks that would be assessed by the management of CZL. (6 Marks)
b. Analyse and evaluate the business risks that would be assessed by the directors of CRP.

(6 Marks)
c. Assess and advise on the financial statements’ risks to be considered in planning the audit of CZL for the year ended December 31, 2016.

(8 Marks)

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  • 40 Marks

AA – May 2021 – L2 – Q1 – Regulatory Framework for Auditing

Analysis of audit risks and control objectives in a joint audit and compliance scenario.

Chukwuemeka & Co. (Chartered Accountants) has been auditors to GED Manufacturing Nigeria Plc. There have been some regulatory and compliance issues for which the company was sanctioned and paid penalties to the Financial Reporting Council of Nigeria.

At the board of directors meeting to consider the last annual report audited by the firm, some of the previous problems caused by the auditors were raised and discussed. Following the reoccurrence of such issues, it was proposed that another audit firm be engaged in addition to the present firm.

To achieve their objective, a bigger firm that has international affiliation was considered to take a leading role in a joint audit arrangement and to ensure appropriate compliance. Your firm has been approached for the appointment. A meeting was scheduled between your firm, Chukwuemeka & Co., and the executive management of GED Manufacturing Nigeria Plc.

After the meeting, your firm was subsequently appointed, and the necessary formalities were properly followed. Your partner has directed that you liaise with Chukwuemeka & Co. to obtain the necessary materials for the preparation of the audit and that you review the prior year working papers to understand the issues. Your assessment of the documents obtained from the other auditor revealed the following, amongst others:

(i) The work done on the process of dispatch of goods and invoicing was not considered sufficient and appropriate.

(ii) The IT operations of the company had weak controls such that it was possible for some staff to override some of the existing controls.

Required:

a. Explain the risks inherent in the dispatch of goods and invoicing. (10 Marks)

b. Discuss the control objectives and principal controls that are relevant to the process of dispatch of goods and invoicing. (10 Marks)

c. Explain the limitations of a joint audit. (5 Marks)

d. Discuss the benefits of audit carried out by an internationally affiliated audit firm. (10 Marks)

e. Explain briefly the importance of audit working papers. (5 Marks)

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  • 30 Marks

AA – May 2024 – L2 – SA – Q1 – Auditing in a Computerized Environment

This question examines audit risks, controls, and auditor considerations when auditing an online banking system like FinPay Financial Solutions Limited.

FINPAY FINANCIAL SOLUTIONS LIMITED

FinPay, an innovative payment service bank, operates from its office on Lagos Island, overseeing all financial transactions, customer interactions, and relationships nationwide. The bank streamlines its processes for customer convenience, embracing the digital age.

Customers’ bank accounts are linked to their GSM phone numbers, with the initial zero removed. All banking operations, from account creation and deposits to withdrawals and account closure, are conducted seamlessly through the bank’s mobile App, which can be easily downloaded from popular App stores.

Access to the bank’s mobile App is allowed using an account number and a private six-digit PIN. A prospective customer completes the onboarding process by uploading scanned passport photos, ID card, utility bill, alongside providing other essential personal information, like name, NIN, telephone number, email address, and residential address.

To facilitate transactions, a four-digit PIN linked to the customer’s debit card is activated at Automated Teller Machines (ATMs). Additionally, customers can leverage USSD codes for payments. Customers are required to use their registered phone numbers on their smartphones when transacting businesses with the bank.

In the event of a declined transaction, swift resolution is a priority. Debits are promptly reversed, ensuring customer satisfaction. Customers can report issues directly through the mobile App or via email, and FinPay’s responsive support team resolves matters without necessitating a visit to the bank’s physical office. This efficiency cements FinPay’s reputation as a leading online bank in Nigeria.

FinPay expedites the delivery of debit cards to customers, ensuring they reach their designated addresses within 48 hours of account creation. Furthermore, a proactive follow-up call is made just 24 hours after opening an account, enhancing the overall customer experience.

With a focus on catering for tech-savvy Nigerian youths, FinPay is steadily expanding its customer base. The bank even offers small, easily accessible loans over a six-month period, further attracting and retaining a young clientele. Some customers instruct FinPay to pay monthly DStv subscriptions or send amounts to third parties on a regular basis by activating a prompt on the mobile App.

For added convenience, FinPay features a responsive chatbot, named Bobo. Customers can engage with Bobo through the bank’s mobile App, website, and social media channels, providing another layer of support and accessibility. This comprehensive approach positions FinPay as a forward-thinking financial institution at the forefront of digital banking in Nigeria.

Required:

a. Highlight four benefits an online system offers to FinPay and its customers. (8 Marks)

b. Identify and explain five General controls and five Application controls embedded in FinPay’s system. (10 Marks)

c. Explain three areas the auditors will give special considerations because of the audit risks associated with the online real-time system that dominates FinPay’s operations. (12 Marks)

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  • 15 Marks

AA – May 2018 – L2 – Q5 – Auditing in a Computerized Environment

Discusses controls and potential problems in Electronic Data Interchange (EDI) systems.

Electronic Data Interchange (EDI) systems allow electronic transmission of business documents, such as purchase orders, invoices, payroll information, etc.

Required: a. Explain FOUR major controls to be put in place to minimize the risks inherent in EDI systems. (8 Marks) b. Discuss THREE features of EDI Systems that may create additional problems for the auditor. (7 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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