Question Tag: Fraud

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  • 15 Marks

AAA – May 2016 – L3 – Q5 – Ethical Issues in Auditing

Identify and discuss fraud and error in the audit of Badagry Yachting and Marina.

Badagry Yachting and Marina (BYM) have a marina on the West Coast of Nigeria and a large sales operation dealing in yachts and speedboats. You are responsible for the audit of BYM and have found some potential causes of concern that could indicate fraudulent activity or financial misconduct within the company. In particular:

(i) 30% of the yachts on sale by BYM are supplied through one of the major international boating companies with a special finance arrangement deal. However, BYM have also obtained separate finance on these yachts, which are therefore in effect being ‘double financed’.
(ii) Ten yachts shown as assets by BYM cannot be located, with no explanation other than that they have not been sold. These yachts are worth approximately N50 million.
(iii) Long delays have occurred in performing reconciliations, with the last four months of reconciliations still not completed. At the time of the last reconciliation, material differences had been identified upon which no action appears to have been undertaken.
(iv) Sales have been overstated by N100 million in the current financial statements.
The finance director has been off sick with stress for the last five months and therefore has not been available to discuss any of the issues identified.

Required:

a. Explain the difference between fraud and error and how the issues shown here could be categorised as fraud or error. (6 Marks)
b. Discuss the role of management and the role of the auditor in the prevention and detection of fraud and error. (3 Marks)
c. Describe what steps you would take to further investigate and then report on the matters referred to above. (6 Marks)

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  • 1 Marks

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

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

A reported difference in a confirmation of balances by a debtor to a client due to different reporting date but not due to misstatement or fraud is known as………………….

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  • 15 Marks

AAA – Nov 2012 – L3 – SB – Q1 – Ethical Issues in Auditing

This case examines ethical issues in auditing related to fraudulent practices in a company involved in human trafficking.

You have just been appointed the Auditor of Sheerahmog Manufacturing Company Limited, which manufactures 2.0 ml syringes specifically used by veterinary doctors. Recently, it was discovered that the 2.0 ml syringes are used on human beings due to the shortage of syringes for human use.

The Federal Government has decided to phase out the 2.0ml syringe in the next three years. In order to diversify into production of carbonated water, the Finance Director suggested that the company approach a bank for a complementary N1.26 billion required to finance the diversification program.

In spite of their proposal and cashflow to Bank of Akowonjo Plc, which was described as being fantastic, their loan application was not granted. As a result, the company is likely to go into liquidation with its numerous staff disengaged, if viable alternative is not provided to raise the required fund.

In carrying out the analysis of the sources of funds at the end of the year under review, you found that the company made much money from human trafficking to enable it accomplish the proposed plan of diversification.

At the next meeting with management of the company, you brought your findings to their knowledge and threatened to disclose it as an extraordinary item in the income schedule. Management frowned at it and were considering reviewing your appointment including fee which is currently 52% of your annual income.

Required:
a. Identify the ethical issues involved as they relate to the auditor. (2 Marks)
b. What are the THREE elements of fraudulent practices presented in this case? (6 Marks)
c. What are the safeguards for the ethical issues identified? (4 Marks)
d. List the issues that should be brought to the attention of the company by the auditors as regards the disclosure of the illegal act. (3 Marks)
(Total 15 Marks)

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  • 5 Marks

BL – Nov 2020 – L1 – SB – Q6a – The Nigerian Legal System

List tests to determine intent to steal during taking or conversion.

Taking or conversion with intent to defraud is an element of stealing.

Required:
State FIVE tests of determining whether or not an accused has an intention to steal at the time of taking or converting a thing.

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  • 1 Marks

BL – Nov 2020 – L1 – SA – Q7 – Law of Tort

Objective question testing understanding of legal terms related to fraudulent taking.

7. A person who fraudulently takes anything for his own use is guilty of
A. Trespass
B. Stealing
C. Conversion
D. Hijacking
E. Trickery

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  • 9 Marks

PSAF – Nov 2016 – L2 – Q4a – Government Expenditure

This question identifies various sources of loss of public funds in the public sector, focusing on misappropriation and fraud.

Loss or shortage of public funds is depletion in government funds at a given time.

Enumerate SIX sources through which loss of funds may arise in the public sector.

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  • 4 Marks

AA – Nov 2020 – L2 – Q1c – Internal Control Systems

Discuss the limitations of internal controls and how they affect an organization’s ability to prevent errors and fraud.

Explain the limitations of internal controls.

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  • 6 Marks

BL – Nov 2015 – L2 – SB – Q4c – Business Ethics and Corporate Governance

List three items that may constitute fraudulent false accounting under Nigerian laws.

statement prepared by him and should not engage in any fraudulent false accounting.

Required:

Enumerate THREE items that may constitute fraudulent false accounting under Nigerian laws.
(6 Marks)

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  • 15 Marks

BL – Nov 2015 – L2 – SB – Q3a – Law of Contract

Explain three types of fraud-related offences under the Criminal Code.

The Criminal Code does not create a single general offence of fraud, instead, there are a number of offences that are fraud related.

Required:

Explain briefly THREE offences of fraud.
(15 Marks)

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  • 8 Marks

MI – Nov 2015 – L1 – SB – Q6a – Information Systems

Identifies areas where computers serve as instruments and targets of crime.

a. In a computer environment, it is a common occurrence that data is lost, manipulated, or tampered with by unauthorized individuals for selfish reasons.

Required:
Enumerate FOUR areas where computers are used as instruments of crime and FOUR areas as targets of crime. (8 Marks)

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  • 20 Marks

FR – Nov 2015 – L2 – Q1 – Preparation of Financial Statements

This question requires recalculating DX Ltd’s profit for the year ended March 31, 2015, considering adjustments for sales, depreciation, fraud, and tax.

Below is the summarised draft statement of financial position of DX Ltd, a company listed on the Ghana Stock Exchange, as at 31 March, 2015:

The following information is relevant:

  1. DX Ltd’s statement of profit or loss includes GHS8 million of revenue for credit sales made on a ‘sale or return’ basis. At 31 March 2015, customers who had not paid for the goods had the right to return GHS2.6 million of them. DX Ltd applied a mark-up on cost of 30% on all these sales. In the past, DX Ltd’s customers have sometimes returned goods under this type of agreement.
  2. The non-current assets have not been depreciated for the year ended 31 March 2015.
    DX Ltd has a policy of revaluing its land and buildings at the end of each accounting year. The values in the above statement of financial position as at 1 April 2014 when the building had a remaining life of 15 years. A qualified surveyor has valued the land and buildings at 31 March 2015 at GHS180 million.
    Plant is depreciated at 20% on the reducing balance basis.
  3. The financial assets at fair value through profit or loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 2014 the relevant index was 1,200, and at 31 March 2015, it was 1,296.
  4. In late March 2015, the directors of DX Ltd discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of GHS4 million of the trade receivables as shown in the statement of financial position at 31 March 2015 had in fact been paid, and the money had been stolen by the credit controller. An analysis revealed that GHS1.5 million had been stolen in the year to 31 March 2014, with the rest being stolen in the current year. DX Ltd is not insured for this loss, and it cannot be recovered from the credit controller, nor is it deductible for tax purposes.
  5. During the year, the company’s taxable temporary differences increased by GHS10 million, of which GHS6 million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the temporary differences should be taken to profit and loss. The applicable income tax rate is 20%.
  6. The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 2015. After allowing for any adjustments required in terms (i) to (iv), the directors have estimated the provision of GHS11.4 million (this is in addition to the deferred tax effects of item (v)).
  7. During the year, dividends of GHS15.5 million were paid. These have been correctly accounted for in the above statement of financial position.

Required:
Taking into account any adjustments required by items (i) to (vii) above:

a) Prepare a statement showing the recalculation of DX Ltd’s profit for the year ended 31 March 2015. (7 marks)

b) Redraft the statement of financial position of DX Ltd as at 31 March 2015. (13 marks)
(Notes to the financial statements are not required).
(Total: 20 marks)

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  • 20 Marks

CSEG – Nov 2018 – L2 – Q3 – Corporate governance framework | Internal control and audit

Discuss the role and responsibilities of the audit committee in relation to external audit and internal controls, and suggest changes to address internal control failures.

ABB Bank Ltd (ABB Ltd) is a listed company. It has been given a substantial fine by the Central Bank for serious breaches of the banking regulations and, in the same month, the bank reported that it had suffered large losses because of unauthorized dealings in financial derivatives by a manager in its treasury department. The company’s reported profits for the previous financial year were overstated because of these losses.

The chairman of the audit committee of ABB Ltd has resigned, accepting responsibility for failures by the committee. A newly-appointed director has been made chairman of the audit committee. He has called a meeting with you, the Finance Director. The purpose of the meeting is to review financial reporting and internal control, with a view to making recommendations to the board. ABB Ltd does not have a strong internal audit function, and the company has been using the same firm of external auditors since it acquired its listing 8 years ago.

Required:

a) Explain the role and responsibilities of the audit committee of ABB Ltd with regards to:

i) The external audit of the company’s financial statements; and (6 marks)

ii) The internal control system and internal audit function. (6 marks)

b) In relation to the possible failures in internal controls that have occurred, suggest FOUR (4) changes that might be recommended to the board at the next board meeting. (8 marks)

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  • 3 Marks

BCL – Mar 2024 – L1 – Q2c – Contract Law

Assess the accuracy of the statement regarding third-party rights in the context of contract law.

“A third party who, without notice of any fraud or deficiency, obtains a contractual benefit is entitled to keep it.”

Required:

Briefly explain the accuracy or otherwise of the statement above. (3 marks)

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  • 18 Marks

BCL – Nov 2018 – L1 – Q5a – Company Directors and Other Officers Governance and Ethical Issues Relating to Business

Explain the governance issues and director duties related to fraud and financial mismanagement in a company.

In 2015, BIGO Ltd, which carries on the business of exporting yam and pineapple from Ghana to Europe, opened an account with Cal Bank at the Osu Branch. In 2016, the Finance Manager, who is the sole accounts officer of the company, forged the signature of the Managing Director (who was also the sole signatory to the bank account of the company) and made several withdrawals from the company to the tune of GH¢550,000. The bank, in that same year, requested that the Managing Director should, within two weeks of the letter, confirm the credit balance on the account which at the time stood at GH¢2,200,000. The Managing Director, without any further checks, signed the document, thus confirming the credit balance presented by the bank. In 2017, the auditors raised queries on some of the fictitious withdrawals. The Chairman of the Board ordered the Human Resource Manager to dismiss both the Managing Director and the Finance Manager with immediate effect.

Required:
i) Explain FOUR (4) issues in the case relating to governance and duties of directors.

(12 marks)

ii) Explain THREE (3) factors that disqualify a person from being appointed as a director.

(6 marks)

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  • 6 Marks

BCL – Mar 2023 – L1 – Q2c – Contract Law

Comment on the effect of fraud on contracts and the legal treatment of contracts freely entered into by parties with capacity.

Comment on the following statements:
i) Fraud vitiates contracts.
(3 marks)
ii) Contract freely entered into by parties with capacity are treated in law as sacred.
(3 marks)

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  • 20 Marks

AAA – Aug 2022 – L3 – Q3 – Audit evidence

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

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

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

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

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

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

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

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

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

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