• 10 Marks

AAA – May 2017 – L3 – Q4a – Assurance services | Professional responsibility and liability

Discuss the considerations before accepting an engagement to certify benchmark petroleum revenue and the issues related to relying on an independent expert’s certification.

Your firm has been contracted by the Office of the Auditor General (AG) of Ghana to provide the Ministry of Finance (MoF) with the certification of the Projection of Benchmark Petroleum Revenue for 2016.

The Petroleum Revenue Management Act (PRMA), 2011 (Act 815) became law in Ghana on 11 April 2011, and Section 17 of the PRMA requires the Minister responsible for Finance to make a projection of the amount of petroleum revenue that would accrue to the Government of Ghana in the coming year, not later than 1 September of each year.

The first schedule of the Act mandates an independent expert to certify the projection of the Benchmark Petroleum Revenue by the Minister before it would be used in the National Budget for the coming year.

The two major issues in the projection are the quantity of Oil and Gas expected and the world market price at which the oil and gas will be valued.

As part of the documents to be used in performing this assignment, MoF has given you:

  • Projection of the Benchmark Petroleum Revenue from oil and gas for 2016, and
  • Certification of the Estimate of the Oil and Gas production for 2016 from the existing and expected oil and gas producing fields in Ghana.

The first schedule of the Act prescribes a formula for the calculation of the Average Unit Price for Crude Oil and Natural Gas on the International Market to be used for the year. The certification in the Estimate of the Oil and Gas production was issued by an independent expert in the Oil and Gas industry.

Required:

i) State FOUR issues your firm will consider in order to decide whether or not to accept this engagement from the Office of the Auditor General. (4 marks)

ii) If your firm decides to accept the engagement, state FOUR issues your firm will consider in order to place reliance on the certification issued by the independent expert in the Oil and Gas industry in performing the engagement. (4 marks)

iii) State TWO audit procedures your firm would perform to determine that the Average Unit Price for Crude Oil and Natural Gas on the International Market for 2016 used by MoF in the Projection of the Benchmark Petroleum Revenue for 2016 is fairly stated. (2 marks)

i) Issues to Consider Before Accepting the Engagement:

  1. Ethical Considerations: Determine whether there are any ethical issues, such as conflicts of interest, that might serve as a barrier to accepting the engagement.
  2. Professional Competence: Assess whether your firm has the necessary expertise, resources, and experience in the oil and gas industry to undertake this specialized engagement.
  3. Resource Availability: Ensure that your firm has adequate staff, expertise, and time to complete the engagement professionally and within the required timeframe.
  4. Engagement Letter: Prepare and submit an engagement letter to the Office of the Auditor General and the Ministry of Finance, outlining the scope, deliverables, timing, fees, and other issues associated with the assignment. The engagement should only proceed once the letter is signed by the relevant authority.

ii) Issues to Consider When Relying on the Independent Expert’s Certification:

  1. Professional Certification: Verify that the independent expert has the relevant professional certification and membership in an appropriate professional body, such as an engineering body in the oil and gas industry.
  2. Experience and Reputation: Assess the experience, reputation, and track record of the independent expert in the oil and gas sector to ensure their work can be relied upon.
  3. Independence: Evaluate the independence of the expert in relation to the Ministry of Finance and the owners of the oil and gas fields to avoid any potential bias.
  4. Scope and Methodology: Review the objectives, scope, and methodology used by the expert in their certification to ensure that they are appropriate for achieving the intended outcomes.

iii) Audit Procedures for Verifying the Average Unit Price:

  1. Formula Verification: Confirm that the formula used by the Ministry of Finance for calculating the Average Unit Price for Crude Oil and Natural Gas is in accordance with the formula prescribed by the Act.
  2. Recalculation and Comparison: Recalculate the Average Unit Price using the prescribed formula and compare it with historical data or market prices to ensure its reasonableness and fairness.
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