Question Tag: Internal Controls

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LPB – APR 2016 – L3 – Q4 – Bank’s Position on Partial Cash Deposit During Robbery

Scenario involving a cash deposit partially counted before a robbery; determine bank's liability for crediting only the checked amount and if unchanged if no check occurred.

Question

Yesterday, as the Director of the Retail Banking Division of your bank, your secretary informed you that, two gentlemen from the KYC Restaurant called to have an appointment and you agreed a meeting at 1000hours today.

At 09:45 hours Mr Eric Tagoe and Mr Bright Quarter introduced themselves as KFC’s Legal Advisor and Director of Compliance & Anti-Money Laundering Reporting Officer respectively. Discussions indicated that, the KFC Restaurant presented a Cash Deposit transaction for GHS150 00000 to the East Legion Branch yesterday, but their account has been credited with GHS100,00000 only. You excused these gentlemen and called the East Legion Branch Manager who notified you of the following

That a KFC Teller presented Cash of GHS150,00000 and a Cash Deposit slip for same to the bank’s Teller and that this transaction was one of the lots which were affected to the armed robber attack on the Branch.
That Genevieve, your bank’s Teller received the lot and the Cash Deposit subject to check and subsequent credit to the KFC Restaurant account.
That just after checking the GHS150,00 and GHS20000 denominations making a total of GHS100,00000 and indicating same on the cash deposit slip, 3 armed men attacked the Branch and made away with nearly all the cash at the BOC.
The Teller referred the matter to the Branch Manager, who directed that because the Teller had checked only GHS100,00000 will square a credit of GHS100,00000 only to the account. a) What is the bank’s position in this matter? b) Will this position change if the Teller had not checked the cash at all

Answer

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Tags: Banker-Customer Relationship, Cash Acceptance, Debtor-creditor relationship, Deposits, Internal Controls, Ownership of Money, Robbery
Level: Level 3

Topic: Banker and Customer Relationship, Deposits, Ownership of Money
Series: APRIL 2016

AAA – Nov 2024 – L3 – Q2a – Audit Risks and Responses for Ecowud Co. LTD

Identifying audit risks in Ecowud Co. LTD and how auditors should respond.

Question

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company has a wide customer base, including construction companies and furniture manufacturers across Ghana and West Africa.

You are the Audit Manager of Adomako & Associates and are planning the audit of Ecowud for the year ended 31 December 2023. You and the Audit Engagement Partner attended a planning meeting with Ecowud’s Finance Manager.

You are reviewing the initial meeting notes to develop the audit strategy and plan. The following key matters were captured:

Development Expenditure: Revenue for the year was forecast at GH¢32 million. During the year, Ecowud spent GH¢3.5 million on developing new types of plywood. Some of these are in the early stages of development, while others are nearing completion. The Finance Manager intends to capitalize the entire GH¢3.5 million spent on development since all projects are likely to succeed.
Inventory Valuation: Ecowud uses a standard costing method to value inventory. However, the company has never updated its standard costs since adopting this policy. The company operates multiple warehouses in Ghana and across West Africa, most of which are third-party rented premises.
Accounting Software: A new accounting software was developed internally and implemented in August. The old and new software did not run parallel, as management deemed it burdensome. Two months after implementation, the IT Manager resigned, and a new IT Manager will take over in January 2024.
Long-term Loan and Share Capital: Ecowud restructured its finances, raising GH¢2 million through share issuance and GH¢3.5 million through a long-term loan. The loan has bank-imposed financial conditions, including a minimum total asset level. If breached, the loan becomes immediately repayable.
Revaluation of Land & Buildings: Ecowud follows a revaluation model for land and buildings. The Finance Manager has announced that all land and buildings will be revalued at the year-end.

Required:
Identify FIVE audit risks in relation to Ecowud Co. LTD and for each risk, explain how the auditor should respond.

Answer

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Tags: Audit Risk, Development Expenditure, Financial Reporting, IFRS Compliance, Internal Controls, Inventory Valuation
Level: Level 3

Topic: Audit Approach
Series: Nov 2024

AA – Nov 2024 – L2 – Q5a – Tests of Control and Methods for Testing Controls

Explain two tests of control and their corresponding methods of testing.

Question

Oboshie Audit Firm has been engaged to audit the financial statements of Abakah Manufacturing LTD for the year ended December 31, 2023. During the planning phase of the audit, the audit team identified that Abakah Manufacturing LTD relies heavily on its internal control system to ensure the accuracy and completeness of its financial reporting.

Required:
i) Explain TWO tests of control to be performed by Oboshie Audit Firm to evaluate the effectiveness of Abakah Manufacturing LTD’s internal controls over its financial reporting.

ii) Identify a method that should be used under each test of control in (i) above.

Answer

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Tags: Approval of Transactions, Audit Procedures, Control Testing, Internal Controls, Risk Assessment, Segregation of Duties
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements
Series: Nov 2024

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Question

The Kuramo Art Gallery and Museum (KAGM) is in the centre of a city that is popular with tourists. About 65% of its income comes from admission fees and annual memberships, and about 30% of its income comes from sponsorship of special exhibitions by companies. Most of the remaining income comes from a small cafe and gift shop in the art gallery and museum.
Admission fees come from sales of tickets to daily visitors and from annual membership subscriptions from ‘Friends of KAGM’ who are entitled to free entry to the art gallery and museum at any time.
Day tickets can be purchased by credit card in advance, by a telephone ‘hotline’ or at KAGM’s website on the Internet. Alternatively, day tickets can be bought with cash or credit card at the ‘door’ on the day of the visit. Reduced prices are available for children, students, and individuals aged over 65, and there are also special reduced-price ‘family tickets’ for two adults and two children.
Sponsorship arrangements are agreed up to 18 months in advance. Some corporate sponsors, particularly transport companies (bus companies and railway companies) sell advertising to KAGM.
The management of KAGM have identified the following applicable risks that need careful attention. They believe that these risks should be managed actively.

(i) There is a failure to attract more visitors because of the poor condition of many of the paintings in the art gallery and of the items in the museum. Paintings must be restored regularly because their condition deteriorates. KAGM has just one specialist restorer, who is unable to keep up with the required volume of work. The management of KAGM recognise that investment in new items and the restoration of existing items is inadequate, but blame the lack of income for the problem.
(ii) Some corporate sponsorship agreements may not be invoiced due to poor communication between the sponsors, KAGM’s sponsorship managers, and the accounts department of KAGM.
(iii) Some sponsorship agreements are not invoiced at their correct amount. This happens often when a sponsor is also a company that provides advertising for KAGM. Normal practice is for these sponsors to deduct their advertising charges from the amount they pay to KAGM in sponsorship. However, the accounts department in KAGM is not given the details of these set-off arrangements.
(iv) Some of the cash received from day visitors at the door may be stolen (or lost, or used by management for business expenses) and does not reach KAGM’s cashier.
(v) The on-line booking system for buying tickets in advance on the KAGM website is not always available because the website is ‘down’.

Required:

(a) Describe appropriate internal controls to manage each of the applicable risks described above. (15 Marks)
(b) Explain the financial statement risks that arise from each of these applicable risks. (5 Marks)

Answer

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Tags: Cash Handling, financial statement risks, Internal Controls, Risk Management, Sponsorship
Level: Level 3

Topic: Internal Audit and Corporate Governance

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

AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

Question

Which of the following is NOT an example of Revenue Related Fraud?

A. Accounting and documentary
B. Lifestyle of employees
C. Related party transactions
D. Management override of significant internal control activities
E. Sale of assets that is very similar to subsequent purchases at similar amounts

Answer

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Tags: Fraud Detection, Internal Controls, Related Party Transactions, Revenue Fraud
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

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

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

Question

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

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

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

Required:

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

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

Answer

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Tags: Audit Planning, Control Activities, Control Environment, Internal Controls, ISA 315, Risk of Misstatement
Level: Level 3

Topic: Audit of IT Systems and Data Analytics

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

Question

Question:
You are the Audit Manager at HWO, an audit firm. HWO has secured the audit of SIGMA For Africa, a not-for-profit organization. You have been assigned the audit of SIGMA For Africa. An extract of the unaudited financial statements is as follows:

SIGMA For Africa Statement of Financial Position
As at 31 December

Furthermore, you were assigned an audit senior. Based on preliminary discussions with your audit senior, you noted that the senior had no prior experience with audits of not-for-profit entities.

Required:
To help your audit senior understand how to audit a not-for-profit organization, prepare a presentation note summarizing the key considerations in the audit for the following areas:

a. Planning (4 Marks)
b. Risk analysis (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

Answer

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Tags: Audit evidence, Financial Reporting, Internal Controls, Not-for-Profit Audit, Risk analysis
Level: Level 3

Topic: Audit of Specialized Industries

AAA – Nov 2023 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discusses control activities for Reliable Ltd and external auditor responsibilities in light of control gaps and bank requirements.

Question

Reliable Limited is into wholesale and retail supply and distribution of stationeries to companies and educational institutions. The company maintains business relationships with other enterprises that are owned by close friends and relatives. The books of account of the company were kept manually and in simple Excel. The company had only a staff member in the accounts department since it is a small business operation.

A review of the company’s operations shows that inventory of stationeries purchased was not properly valued due to incomplete recording of purchases made. Although bank statements are obtained, the balances on the bank statements were not reconciled with the cash book.

Cash from sales made was not banked intact, and expenses relating to cash takings from the till were not all recorded or properly monitored. Added to this, goods bought from related parties were sometimes overvalued as suppliers made frivolous claims which could not be disputed due to poor record keeping. The Managing Director and owner of the company has been sick for some time, and the wife concentrated more on her own business, leaving the operations of the company to a relation who is not well educated. Available evidence revealed that invoices and vouchers of the company were approved without management review, and the procedure or selection of suppliers was not transparent.

The company has just won a contract for the supply of stationeries in one of the states in the Federation, and it was found that there was inadequate cash flow to execute the contract. The manager of the company informed the Managing Director’s wife of the development, and it was agreed that a bank loan would be needed. On approaching the bank, updated financial statements of the company were requested to determine the financial health of the business and ability to repay the loan when due.

Your firm has been appointed as auditors of the company with a stipulated deadline to complete the audit so that the company could meet the bank’s conditions. The firm has conducted a preliminary review of the operations of the company, and some control gaps have been noted.

Required:

a. Discuss suitable control activities that will be required in the above scenario and how you will assess the degree of effectiveness of the internal control systems.
(10 Marks)

b. Identify and explain what the external auditors are expected to do during the course of the above audit.
(5 Marks)

Total: 15 Marks

Answer

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Tags: Bank Reconciliation, Cash Management, Control Gaps, Corporate Governance, External audit, Financial Statements, Internal Controls, Inventory Valuation, Loan Assessment, Related parties
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2023

AAA – Nov 2023 – L3 – SB – Q4 – Internal Audit and Corporate Governance

Evaluate auditor’s rights, management's responsibilities, and reasons for possible auditor resignation at Phil Plc.

Question

Phil Plc has been in business of manufacturing textile materials for about twenty years and has been rendering good returns to shareholders on their investments until about a few years ago, precisely in 2019. The business of the company went down drastically in 2020 due to measures taken to contain the spread of the COVID-19 virus, which included travel bans, quarantines, social distancing, and closures of non-essential services. The COVID-19 pandemic significantly caused disruptions to businesses worldwide, resulting in economic slowdown. The problem was aggravated with the Federal Government of Nigeria enforcing restrictions on movement. All businesses and offices were affected with exceptions of power distribution, oil and gas (petroleum), and retail companies.

COVID-19 pandemic impacted the economy generally, and the following were the impacts on the company:

Increase in cost of raw materials as a result of devaluation of the currency due to the drop in the price of crude oil;
Shortage in supply of key raw materials sourced from other countries, for example, China; and
Increase in ocean freight costs and inland transportation.

The impact of the outbreak of COVID-19 directly caused economic losses through disruptions in supply chains, demand, and financial markets, affecting business investment, household consumption, and international trade. The crisis led to a decline in revenue.

However, despite the challenges, management continued to strive for impressive performance for the shareholders. A board member believed there is an unhealthy relationship between management and the board of directors as she accused management of lack of transparency and threatened to resign. The problem was compounded after the year-end audit when the auditors reported that the company’s internal controls were ineffective and accused management of fraudulent financial reporting. The external auditors also threatened to restate the prior year’s financial statements, believing there were misstatements of certain account balances.

The Managing Director and some directors argued that it is their responsibility to prepare financial statements and that auditors do not have the right to make restatements. However, the Chairman of the audit committee and a few directors supported the auditors and appealed to management to allow the auditors to perform their regulated duties, warning that they may report to the Financial Reporting Council on management’s activities.

The external auditors, surprised by management’s actions, threatened to resign. They were also uncomfortable with the following issues during the audit:

The supporting documents from which financial statements were prepared;
Review of opening balances revealing omission of some transactions and significant information in disclosures;
Misapplication of accounting principles regarding amounts, classifications, presentation, and disclosures.

Added to the above, the external auditors identified risks likely affecting asset valuation and other significant accrued liabilities. Your firm is preparing for a discussion with the audit committee and has instructed your team to review specific sections.

Required:

a. Evaluate the rights and duties of the auditors in a professional engagement. (10 Marks)

b. Enumerate what you consider as the responsibilities of management and those charged with governance in Phil Plc. (5 Marks)

c. Discuss the reason why your firm may resign the appointment as the auditors of the company. (5 Marks)
(Total 20 Marks)

Answer

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Tags: Auditor's Rights, COVID-19 Impact, Governance responsibilities, Internal Controls, Resignation of Auditors
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2023

LPB – APR 2016 – L3 – Q4 – Bank’s Position on Partial Cash Deposit During Robbery

Scenario involving a cash deposit partially counted before a robbery; determine bank's liability for crediting only the checked amount and if unchanged if no check occurred.

Question

That a KFC Teller presented Cash of GHS150,00000 and a Cash Deposit slip for same to the bank’s Teller and that this transaction was one of the lots which were affected to the armed robber attack on the Branch.
That Genevieve, your bank’s Teller received the lot and the Cash Deposit subject to check and subsequent credit to the KFC Restaurant account.
That just after checking the GHS150,00 and GHS20000 denominations making a total of GHS100,00000 and indicating same on the cash deposit slip, 3 armed men attacked the Branch and made away with nearly all the cash at the BOC.
The Teller referred the matter to the Branch Manager, who directed that because the Teller had checked only GHS100,00000 will square a credit of GHS100,00000 only to the account. a) What is the bank’s position in this matter? b) Will this position change if the Teller had not checked the cash at all

Answer

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Tags: Banker-Customer Relationship, Cash Acceptance, Debtor-creditor relationship, Deposits, Internal Controls, Ownership of Money, Robbery
Level: Level 3

Topic: Banker and Customer Relationship, Deposits, Ownership of Money
Series: APRIL 2016

AAA – Nov 2024 – L3 – Q2a – Audit Risks and Responses for Ecowud Co. LTD

Identifying audit risks in Ecowud Co. LTD and how auditors should respond.

Question

You are reviewing the initial meeting notes to develop the audit strategy and plan. The following key matters were captured:

Development Expenditure: Revenue for the year was forecast at GH¢32 million. During the year, Ecowud spent GH¢3.5 million on developing new types of plywood. Some of these are in the early stages of development, while others are nearing completion. The Finance Manager intends to capitalize the entire GH¢3.5 million spent on development since all projects are likely to succeed.
Inventory Valuation: Ecowud uses a standard costing method to value inventory. However, the company has never updated its standard costs since adopting this policy. The company operates multiple warehouses in Ghana and across West Africa, most of which are third-party rented premises.
Accounting Software: A new accounting software was developed internally and implemented in August. The old and new software did not run parallel, as management deemed it burdensome. Two months after implementation, the IT Manager resigned, and a new IT Manager will take over in January 2024.
Long-term Loan and Share Capital: Ecowud restructured its finances, raising GH¢2 million through share issuance and GH¢3.5 million through a long-term loan. The loan has bank-imposed financial conditions, including a minimum total asset level. If breached, the loan becomes immediately repayable.
Revaluation of Land & Buildings: Ecowud follows a revaluation model for land and buildings. The Finance Manager has announced that all land and buildings will be revalued at the year-end.

Required:
Identify FIVE audit risks in relation to Ecowud Co. LTD and for each risk, explain how the auditor should respond.

Answer

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Tags: Audit Risk, Development Expenditure, Financial Reporting, IFRS Compliance, Internal Controls, Inventory Valuation
Level: Level 3

Topic: Audit Approach
Series: Nov 2024

AA – Nov 2024 – L2 – Q5a – Tests of Control and Methods for Testing Controls

Explain two tests of control and their corresponding methods of testing.

Question

Required:
i) Explain TWO tests of control to be performed by Oboshie Audit Firm to evaluate the effectiveness of Abakah Manufacturing LTD’s internal controls over its financial reporting.

ii) Identify a method that should be used under each test of control in (i) above.

Answer

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Tags: Approval of Transactions, Audit Procedures, Control Testing, Internal Controls, Risk Assessment, Segregation of Duties
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements
Series: Nov 2024

AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Question

Required:

Answer

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Tags: Cash Handling, financial statement risks, Internal Controls, Risk Management, Sponsorship
Level: Level 3

Topic: Internal Audit and Corporate Governance

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

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

Topic: Communication with Those Charged with Governance

AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

Question

Which of the following is NOT an example of Revenue Related Fraud?

Answer

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Tags: Fraud Detection, Internal Controls, Related Party Transactions, Revenue Fraud
Level: Level 3

Topic: Forensic Auditing
Series: NOV 2012

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

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

Question

Required:

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

Answer

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Tags: Audit Planning, Control Activities, Control Environment, Internal Controls, ISA 315, Risk of Misstatement
Level: Level 3

Topic: Audit of IT Systems and Data Analytics

AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

Question

SIGMA For Africa Statement of Financial Position
As at 31 December

Furthermore, you were assigned an audit senior. Based on preliminary discussions with your audit senior, you noted that the senior had no prior experience with audits of not-for-profit entities.

Required:
To help your audit senior understand how to audit a not-for-profit organization, prepare a presentation note summarizing the key considerations in the audit for the following areas:

a. Planning (4 Marks)
b. Risk analysis (4 Marks)
c. Internal control (4 Marks)
d. Audit evidence (4 Marks)
e. Reporting (4 Marks)

Answer

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Tags: Audit evidence, Financial Reporting, Internal Controls, Not-for-Profit Audit, Risk analysis
Level: Level 3

Topic: Audit of Specialized Industries

AAA – Nov 2023 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discusses control activities for Reliable Ltd and external auditor responsibilities in light of control gaps and bank requirements.

Question

Required:

a. Discuss suitable control activities that will be required in the above scenario and how you will assess the degree of effectiveness of the internal control systems.
(10 Marks)

b. Identify and explain what the external auditors are expected to do during the course of the above audit.
(5 Marks)

Total: 15 Marks

Answer

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Tags: Bank Reconciliation, Cash Management, Control Gaps, Corporate Governance, External audit, Financial Statements, Internal Controls, Inventory Valuation, Loan Assessment, Related parties
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2023

AAA – Nov 2023 – L3 – SB – Q4 – Internal Audit and Corporate Governance

Evaluate auditor’s rights, management's responsibilities, and reasons for possible auditor resignation at Phil Plc.

Question

COVID-19 pandemic impacted the economy generally, and the following were the impacts on the company:

Increase in cost of raw materials as a result of devaluation of the currency due to the drop in the price of crude oil;
Shortage in supply of key raw materials sourced from other countries, for example, China; and
Increase in ocean freight costs and inland transportation.

The external auditors, surprised by management’s actions, threatened to resign. They were also uncomfortable with the following issues during the audit:

The supporting documents from which financial statements were prepared;
Review of opening balances revealing omission of some transactions and significant information in disclosures;
Misapplication of accounting principles regarding amounts, classifications, presentation, and disclosures.

Required:

a. Evaluate the rights and duties of the auditors in a professional engagement. (10 Marks)

b. Enumerate what you consider as the responsibilities of management and those charged with governance in Phil Plc. (5 Marks)

c. Discuss the reason why your firm may resign the appointment as the auditors of the company. (5 Marks)
(Total 20 Marks)

Answer

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Tags: Auditor's Rights, COVID-19 Impact, Governance responsibilities, Internal Controls, Resignation of Auditors
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2023

Question Tag: Internal Controls

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LPB – APR 2016 – L3 – Q4 – Bank’s Position on Partial Cash Deposit During Robbery

Scenario involving a cash deposit partially counted before a robbery; determine bank's liability for crediting only the checked amount and if unchanged if no check occurred.

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AAA – Nov 2024 – L3 – Q2a – Audit Risks and Responses for Ecowud Co. LTD

Identifying audit risks in Ecowud Co. LTD and how auditors should respond.

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AA – Nov 2024 – L2 – Q5a – Tests of Control and Methods for Testing Controls

Explain two tests of control and their corresponding methods of testing.

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AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

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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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AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

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

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

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AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

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AAA – Nov 2023 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discusses control activities for Reliable Ltd and external auditor responsibilities in light of control gaps and bank requirements.

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AAA – Nov 2023 – L3 – SB – Q4 – Internal Audit and Corporate Governance

Evaluate auditor’s rights, management's responsibilities, and reasons for possible auditor resignation at Phil Plc.

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LPB – APR 2016 – L3 – Q4 – Bank’s Position on Partial Cash Deposit During Robbery

Scenario involving a cash deposit partially counted before a robbery; determine bank's liability for crediting only the checked amount and if unchanged if no check occurred.

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AAA – Nov 2024 – L3 – Q2a – Audit Risks and Responses for Ecowud Co. LTD

Identifying audit risks in Ecowud Co. LTD and how auditors should respond.

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AA – Nov 2024 – L2 – Q5a – Tests of Control and Methods for Testing Controls

Explain two tests of control and their corresponding methods of testing.

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AAA – May 2016 – L3 – Q3 – Internal Audit and Corporate Governance

Identify internal controls for managing risks at KAGM and explain related financial statement risks.

Required:

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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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AAA – Nov 2012 – L3 – SA – Q12 – Forensic Auditing

Identifying examples unrelated to revenue-related fraud.

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

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

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AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries

Audit planning, risk assessment, internal control, audit evidence, and reporting in a not-for-profit organization.

You're reporting an error for "AAA – Nov 2020 – L3 – Q3 – Audit of Specialized Industries"

AAA – Nov 2023 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discusses control activities for Reliable Ltd and external auditor responsibilities in light of control gaps and bank requirements.

You're reporting an error for "AAA – Nov 2023 – L3 – SC – Q6 – Internal Audit and Corporate Governance"

AAA – Nov 2023 – L3 – SB – Q4 – Internal Audit and Corporate Governance

Evaluate auditor’s rights, management's responsibilities, and reasons for possible auditor resignation at Phil Plc.

You're reporting an error for "AAA – Nov 2023 – L3 – SB – Q4 – Internal Audit and Corporate Governance"

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