Governance Reporting

AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

Question

Question:

During the audit year, on the review of the audit work done on Community Microfinance Bank (a new significant audit client), you noted the following issues:

At the audit strategy stage, it was agreed that the audit of loans and advances would involve reliance on the effectiveness of internal controls. However, during the test of controls, it was noted that five loans were not approved by the appropriate approving officers. Further review indicated that the loans were genuinely issued to customers but were only approved by officers whose approval limit had been exceeded.
During the period under review, the tax authority carried out a tax investigation and noted a significant variance between the company’s estimated tax liabilities and the tax authority’s position. From further discussion, it was noted that the previous tax computation was done by a junior staff who does not have the requisite experience and the computations were not duly reviewed by experienced senior officers of the company.
The company deployed a new loan disbursement software which is linked to the financial reporting software. From your review of the new software, the initiator of a transaction could approve the same transaction as long as he/she changes the designation to approving authorities after initiation. You have flagged this as a possible control risk.
During your review of the receivables account, a variation was noted between the amount in a customer’s receivables balance in the ledger and the client confirmation. However, the variance was considered not material and not adjusted for. During discussion with the Receivables Manager, it came to your attention that the client in focus is a family member of the Managing Director.

The team is considering the impact of the above observations on the audit.

Required:

(i) Draft a report to management evaluating the implications of the above observations on the control environment and the audit strategy/procedures. (15 Marks)
(ii) Comment on whether the issues are to be reported to those charged with governance of the entity. (10 Marks)

Answer

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Tags: Audit strategy, Control Risks, Governance Reporting, Internal Controls
Level: Level 3

Topic: Communication with Those Charged with Governance

CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

Question

The Securities and Exchange Commission, Nigeria (SEC) requires that the annual report of all quoted companies should include a corporate governance statement. To this effect, general requirements for the content of the Governance Report are clearly spelt out.

Required:

Discuss the content of the Governance Report of corporate entities. (5 Marks)

Answer

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Tags: Annual Reports, Corporate Governance, Governance Reporting, SEC Nigeria
Level: Level 3

Topic: Regulatory Environment for Corporate Reporting

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

Question

You are the audit manager in charge of the audit of Sandy Snacks, a company which runs a chain of snack bars operating in a number of beach holiday resorts. Your firm has been the auditor for a number of years and has always had to substantively test cash sales because of a lack of control over the recording of takings. The auditor’s reports to date have been unmodified.

You have recently been informed that the company has taken on a newly qualified chartered accountant as chief internal auditor and an unqualified assistant internal auditor. Since their appointment halfway through the year ended 31 December 2022 the two have spent most of their time carrying out substantive procedures on cash sales.

The directors are hopeful that your audit fee this year will decrease because you will be able to use the work carried out by the internal auditors.

Required:
Explain the issues that will be relevant to your firm in deciding whether you can use the work performed by the internal auditors. (6 marks)

Answer

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Tags: Audit evidence, Governance Reporting, ICAG, Internal Audit
Level: Level 3

Topic: Audit-related services, Internal audit and outsourcing
Series: MAR 2023

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

Question

Your firm, Lardi & Associates, has asked you to perform an independent review of the working papers of Adorko Plc which is a listed entity and has been an audit client of your firm for the last ten years. The audit fieldwork is almost complete and as part of your review, you have been asked to advise the audit team on the drafting of their report to those charged with governance. Adorko Plc is a discount food retailer which operates 85 stores nationwide.

Below is an extract of the financial statements for the period:

	2022	2021
Revenue	GH¢247m	GH¢242m
Profit before tax	GH¢14.6m	GH¢14.1m
Total Assets	GH¢535m	GH¢321m

After a period of rapid expansion, 2022 has been a year in which Adorko Plc has strengthened its existing position within the market and has not acquired any additional stores or businesses. The company’s draft statement of financial position for 2022 includes a property portfolio of GH¢315 million all of which are legally owned by the entity. In the current year, the company has chosen to adopt a policy of revaluing its property portfolio for the first time and this is reflected in the draft figures for 2022. The audit work on property, plant and equipment included testing a sample of the revaluations. Lardi & Associates requested at the planning stage that independent, external valuation reports should be made available to the audit team at the start of the final audit visit. A number of these documents were not available when requested and it took three weeks for them to be received by the audit team. The audit working papers also identified that on review of the non-current asset register, there were four properties with a total carrying amount of GH¢11.1 million which had not yet been revalued and were still recorded at depreciated historic cost.

The audit supervisor’s review of Adorko Plc’s board minutes identified that the company has renovated seventeen car parking facilities at of its stores which has resulted in a significant increase in customer numbers and revenue at each of these locations. The total cost of the renovation work was GH¢13.2 million and has been included in operating expenses for the current year. The audit file includes a working paper recording discussions with management which confirms that capital expenditure authorization forms had not been completed for this expenditure.

You are aware that your firm had intended to replace the current engagement partner, Mr. Kunta, with Mr. Barima who is Lardi & Associates’s other specialist in food retail. Unfortunately, Mr. Barima was taken ill earlier in the year and will not now be available until next year’s audit engagement. As a result, 2022 is the eighth consecutive year in which Mr. Kunta has acted as engagement partner.

Required:
From the information provided above, recommend the matters which should be included in Lardi & Associates’s report to those charged with governance, and explain the reason for their inclusion. (10 marks)

Answer

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Tags: Audit Issues, Governance Reporting, ICAG, Property Revaluation
Level: Level 3

Topic: Audit-related services, Reporting
Series: MAR 2023

AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

Question

Question:

During the audit year, on the review of the audit work done on Community Microfinance Bank (a new significant audit client), you noted the following issues:

At the audit strategy stage, it was agreed that the audit of loans and advances would involve reliance on the effectiveness of internal controls. However, during the test of controls, it was noted that five loans were not approved by the appropriate approving officers. Further review indicated that the loans were genuinely issued to customers but were only approved by officers whose approval limit had been exceeded.
During the period under review, the tax authority carried out a tax investigation and noted a significant variance between the company’s estimated tax liabilities and the tax authority’s position. From further discussion, it was noted that the previous tax computation was done by a junior staff who does not have the requisite experience and the computations were not duly reviewed by experienced senior officers of the company.
The company deployed a new loan disbursement software which is linked to the financial reporting software. From your review of the new software, the initiator of a transaction could approve the same transaction as long as he/she changes the designation to approving authorities after initiation. You have flagged this as a possible control risk.
During your review of the receivables account, a variation was noted between the amount in a customer’s receivables balance in the ledger and the client confirmation. However, the variance was considered not material and not adjusted for. During discussion with the Receivables Manager, it came to your attention that the client in focus is a family member of the Managing Director.

The team is considering the impact of the above observations on the audit.

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit strategy, Control Risks, Governance Reporting, Internal Controls
Level: Level 3

Topic: Communication with Those Charged with Governance

CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

Question

Required:

Discuss the content of the Governance Report of corporate entities. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Annual Reports, Corporate Governance, Governance Reporting, SEC Nigeria
Level: Level 3

Topic: Regulatory Environment for Corporate Reporting

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

Question

The directors are hopeful that your audit fee this year will decrease because you will be able to use the work carried out by the internal auditors.

Required:
Explain the issues that will be relevant to your firm in deciding whether you can use the work performed by the internal auditors. (6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit evidence, Governance Reporting, ICAG, Internal Audit
Level: Level 3

Topic: Audit-related services, Internal audit and outsourcing
Series: MAR 2023

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

Question

Below is an extract of the financial statements for the period:

	2022	2021
Revenue	GH¢247m	GH¢242m
Profit before tax	GH¢14.6m	GH¢14.1m
Total Assets	GH¢535m	GH¢321m

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Issues, Governance Reporting, ICAG, Property Revaluation
Level: Level 3

Topic: Audit-related services, Reporting
Series: MAR 2023

Question Tag: Governance Reporting

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AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

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AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

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CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

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AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

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AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

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AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance

Evaluation of internal control weaknesses, implications for audit strategy, and governance reporting for Community Microfinance Bank.

You're reporting an error for "AAA – May 2021 – L3 – Q1b – Communication with Those Charged with Governance"

CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Discuss the content required in the Governance Report of corporate entities as mandated by SEC Nigeria.

You're reporting an error for "CR – May 2021 – L3 – Q7b – Regulatory Environment for Corporate Reporting"

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

You're reporting an error for "AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing"

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

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