a. Challenges that May Be Encountered in This Engagement (5 Marks)

1. Geographical and Jurisdictional Differences:
   • The subsidiaries and associates are located in different countries (Nigeria, Ghana, and The Gambia). This could lead to challenges in compliance with local regulations, tax laws, and financial reporting standards.
   • Variations in legal and tax environments, cultural differences, and accounting practices across these countries may create difficulties in consolidating financial statements.
2. Currency and Foreign Exchange Risks:
   • The subsidiaries in Ghana and The Gambia will report in different currencies (Cedi, Dalasi) compared to the Nigerian Naira. This requires dealing with exchange rate fluctuations and translating financial statements to a common reporting currency (Naira) for consolidation.
3. Coordination of Audit Teams:
   • Managing the audit across multiple jurisdictions and subsidiaries requires effective coordination between audit teams in different locations. This includes ensuring that local teams follow the same audit approach and report consistently.
4. Differences in Accounting and Auditing Standards:
   • While Nigeria, Ghana, and The Gambia may follow similar frameworks like IFRS, local adaptations or interpretations may exist. Ensuring that the audit complies with both local and international standards could pose a challenge.
5. Complexity of Group Structures:
   • The group operates in multiple industries (automobiles, agriculture, manufacturing), requiring specialized knowledge and an understanding of sector-specific risks. Also, dealing with five subsidiaries and two associates complicates the consolidation process and necessitates a clear understanding of the financial interrelationships.

b. General Procedures That May Be Performed on Significant and Non-Significant Components (3 Marks)

1. Significant Components:
   • Perform full audits on significant components, especially those with substantial financial impact on the group. This includes understanding and assessing internal controls, financial reporting, and any unique risks specific to the subsidiaries.
   • Focus on performing detailed testing of account balances, transactions, and disclosures in these components.
2. Non-Significant Components:
   • For non-significant components, the procedures could include performing analytical procedures, reviewing key financial information, and obtaining summary financial statements.
   • Consider using sampling techniques or obtaining reports from local auditors to rely on their work for assurance.

c. Salient Items to Be Included in the Group Audit Instructions (3 Marks)

1. Coordination and Reporting Requirements:
   • Establish clear instructions on the coordination between group and component auditors, ensuring that all are following the same audit strategy and timelines. This ensures uniformity and consistency across audits.
2. Audit Approach for Subsidiaries and Associates:
   • Specify the nature of procedures to be performed on each subsidiary and associate, particularly with respect to their significance to the group’s financial statements.
3. Group and Component Materiality Levels:
   • Outline materiality thresholds for the group and its components, which will guide the scope of audit procedures and reporting on misstatements.

d. Procedures to Be Performed Relating to Consolidation of the Group (4 Marks)

1. Review and Confirm Group Accounting Policies:
   • Ensure that the group’s accounting policies are applied consistently across all subsidiaries and associates. Review the adequacy of consolidation adjustments, such as eliminating intra-group transactions and balances.
2. Evaluate the Method of Consolidation:
   • Verify that the correct consolidation method (e.g., full consolidation for subsidiaries and equity method for associates) is applied in line with IFRS or the relevant financial reporting framework.
3. Assess the Fairness of Consolidation Adjustments:
   • Ensure that any fair value adjustments made during the consolidation process, such as goodwill, are properly accounted for and disclosed. Confirm the elimination of any intra-group profits or losses.
4. Currency Translation for Foreign Subsidiaries and Associates:
   • Ensure proper application of the currency translation requirements under IAS 21 (The Effects of Changes in Foreign Exchange Rates), particularly for subsidiaries in Ghana and The Gambia. This includes correctly translating financial statements into the reporting currency.

Conclusion:

This group audit presents a variety of challenges, particularly due to geographical, legal, and financial differences across the subsidiaries and associates. However, with proper planning, coordination, and the implementation of appropriate audit procedures, the audit can be effectively carried out. Ensuring consistency in the audit approach, accurate consolidation, and proper handling of foreign currency risks will be key to successfully completing the engagement.