Series: APR 2022

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  • 10 Marks

SCS – Apr 2022 – L3 – Q8 – Controlling risk

Explain five factors of internal control that HPC can implement to strengthen governance.

The Accountant advised the CEO that to strengthen governance, the Board should concern itself with the establishment of strong internal control systems. Failures or weaknesses in internal controls will have adverse consequences for HPC’s finances, financial reporting, operational efficiency and effectiveness, or regulatory compliance.

Required:
Write a paper, explaining FIVE (5) factors to the Board the nature of internal controls that could be instituted by HPC to strengthen governance. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q7 – Professional practice and codes of ethics

Discuss key governance issues based on Ghana’s Code of Best Practices considering the Board Chairman’s intentions.

In reference to Ghana’s Code of Best Practices in Corporate Governance, discuss FOUR (4) key issues that could determine how well or badly HPC is governed, taking into consideration the intention and business relationship of the Board Chairman. (10 marks)

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  • 20 Marks

SCS – Apr 2022 – L3 – Q6 – Investment decisions

Compute NPV for two investment options and evaluate potential benefits and difficulties for HPC.

a) For the two strategic development options being considered by HPC, compute:
i) the Net Present Value of Option 1.
ii) the Net Present Value of Option 2.
iii) the Net Present Value for the worst-case outcome for Option 1. (10 marks)

b) Discuss THREE (3) potential benefits and TWO (2) difficulties for HPC of undertaking each of the strategic development options. Your answer should include an evaluation of the calculations of the profitability index of each option. (10 marks)

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  • 20 Marks

SCS – Apr 2022 – L3 – Q5 – Identifying and assessing risk

Discuss eight business risks faced by HPC and recommend mitigation strategies based on the Turnbull Report.

In their Annual Business Review meeting, the Board of HPC discussed a report on Internal Controls and Risk Management, presented by the Internal Auditor. The Board Chairman in his comments mentioned that he would have been more comfortable with a Risk Management report categorized according to the Turnbull Report.

Required:
With reference to the Turnbull Report and the comments made by the Board Chairman, write a report discussing EIGHT (8) categories of business risks faced by HPC and recommendations to mitigate the identified risks. (20 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q4 – Strategy implementation

Explain why HPC’s decentralized system is preferable to a centralized system.

The Chief Executive Officer is concerned that with the expansion of the operations of HPC to other countries, she would further have to divulge authority and power to other Managers because of how the company would grow in size and complexity.

Required:
Explain to the CEO why HPC’s decentralized system of internal organizational relationship is preferable to a centralized system. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q3 – Competitive advantage

Analyse how HPC can achieve competitive advantage using Porter’s six principles when expanding to Nigeria and Togo.

Consistent with its strategic ambition to expand its business into other countries, HPC is considering expanding to Nigeria and Togo.

Required:
Using Porter’s six principles of strategic positioning, analyse how HPC can achieve sustainable competitive advantage if it decides to expand the business to Nigeria and Togo. (10 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q2 – Environment analysis

Discuss HPC’s external business environment using PESTEL and evaluate limitations of PESTEL.

favourable or unfavourable to its present survival and future success. The influences (current influences and possible future influences) of the business environment of HPC need to be analysed to ensure that none are over-looked.

Required:

a) Using PESTEL analysis, discuss HPC’s external business environment that appears to be either favourable or unfavourable to its present survival and future success. (8 marks)

b) Discuss TWO (2) limitations of PESTEL as a technique in analysing the environmental influences of HPC. (2 marks)

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  • 10 Marks

SCS – Apr 2022 – L3 – Q1 – Strategy, stakeholders and mission

Discuss stakeholder groups' influence on business decisions using Mendelow's matrix.

As part of a review of the strategic position of HPC and its move to expand the business, management identified its major stakeholder groups, their power, and their expectations that could either fast-track or delay the implementation of the decision. These major stakeholder groups are the employees, farmers, regulatory authorities, and customers.

Required:
Using two matrices of approach to stakeholder mapping, discuss and show (with diagrams) the relative significance of stakeholder groups identified and their real and potential influences over HPC and its expansion strategies. (Use the stakeholder position/importance matrix and the stakeholder power/interest matrix – Mendelow matrix.) (10 marks)

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  • 3 Marks

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

c) On 1 June 2020, Karikari Ltd received a Government of Ghana grant of GH¢8 million towards the purchase of a new plant with a gross cost of GH¢64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis. One of the terms of the grant is that the sale of the plant before 31 May 2024 would trigger a repayment on a sliding scale as follows:

The directors propose to credit the statement of profit or loss with GH¢2 million (GH¢8 million @ 25%) being the amount of the grant they believe has been earned in the year ended 31 May 2021. Karikari Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Karikari Ltd has no intention of selling the plant before the end of its useful economic life.

Required:
Explain with computations, the appropriate accounting treatment of the above transaction in accordance with IAS 20 Government Grants and Disclosure of Government Assistance in the financial statements of Karikari Ltd for the year ended 31 May 2021. (3 marks)

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  • 6 Marks

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

b) Kundugu Ltd (Kundugu) is a manufacturing company located in the Savannah Region. The reporting date of Kundugu is 31 December, and the company reports under International Financial Reporting Standards (IFRSs). Kundugu intends to expand its production to take advantage of emerging economic activities in the new region.

On 1 January 2020, the company entered into a lease agreement for production equipment with a useful economic life of 8 years. The lease term is for four years, and Kundugu agrees to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5%, and the lessee’s incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kundugu paid legal fees of GH¢1,000 to set up the lease.

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

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  • 6 Marks

AAA – April 2022 – L3 – Q1b – Professional responsibility and liability

Explain parties not allowed to own financial interest in a client and identify relevant safeguards.

Where an audit firm owns shares or is a trustee of a trust that holds shares in a client, there is said to be a financial interest in the client’s affairs. According to the IESBA, some selected parties are not allowed to own direct or indirect material financial interest in a client.

Required: i) Explain THREE (3) parties that are not allowed to own direct or indirect financial interest in a client. (3 marks)

ii) Identify THREE (3) safeguards that may be relevant in relation to direct or indirect financial interest in a client. (3 marks)

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  • 4 Marks

AAA – April 2022 – L3 – Q1a – Rules of professional conduct

Evaluate four factors that determine the significance of a breach of the IESBA Code of Ethics.

When a firm concludes that a breach has occurred, the firm shall terminate, suspend or eliminate the interest of the relationship that caused the breach and address the consequences of the breach.

Required: Evaluate FOUR (4) factors that determine the significance of a breach of the IESBA code of ethics. (4 marks)

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  • 20 Marks

PSAF – April 2022 – L2 – Q5 – Accounting policies for cash and accrual-based accounting systems

Explain constitutional provisions on budgeting, the concept and benefits of Citizen’s Budget, the role of budget guidelines, and how to address financial transactions not covered by IPSAS.

a) Budgeting is an essential element of Public Financial Management and it is a requirement of the Constitution and other Public Financial Management enactments. Budgeting is a process that requires the engagement and participation of citizens for accountability purposes. The prime objective of budgeting is to set out the financial plans of government for the ensuing year and how government plans and programs will be financed.

Required:
i) Explain TWO (2) provisions in the 1992 Constitution relating to budgeting. (4 marks)

ii) Explain Citizen’s Budget and identify THREE (3) of its benefits in Public Financial Management. (5 marks)

iii) Explain the role of budget guidelines in budgeting and identify FOUR (4) items of information to be expected in a budget guideline. (6 marks)

b) A Public Sector entity that applies IPSAS is currently faced with a particular financial transaction for which no IPSAS exists for dealing with the issue. The management is undecided on the choice of accounting policy to apply.

Required:
Discuss how the matter can be dealt with by the management of the entity. (5 marks)

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  • 20 Marks

PSAF – April 2022 – L2 – Q4 – Public Procurement

Discuss reasons for tender failure, explain procurement terms, and account for elements under IPSAS 32: Service Concession - Grantor.

a) Banky Construction Ltd has tendered for several contracts that were advertised, but in each case, they failed to win these contracts. The company is now worried about their situation, as it may lead to the liquidation of the company. They have just contacted you for advice on how to reverse this unfortunate downturn.

Required:
Explain FOUR (4) challenges that are likely to be the reason why they are failing to win contracts. (4 marks)

b) Explain the following terms and practices as used in Public Procurement:
i) Tender Security
ii) Least Cost Selection
iii) Tender Evaluation Panel
iv) Board of Survey
(6 marks)

c) Discuss how each of the elements of Financial Statements listed below are recognized and measured under IPSAS 32: Service Concession – Grantor:
i) Service concession asset
ii) Liability
iii) Revenue
(10 marks)

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  • 10 Marks

PSAF – April 2022 – L2 – Q3b – Public sector fiscal planning and budgeting

Prepare a budget performance report and analyze the budget outturn for Nkong District Assembly.

Below is the Revenue and Expenditure Extract of Nkong District Assembly for the year ended 31 December, 2020.

Description Annual Budget (GH¢’ 000) Revised Budget (GH¢’ 000) Actual Performance (GH¢’ 000)
Decentralised Transfer 32,000 35,000 42,000
Internally Generated Fund 56,000 45,000 33,000
Compensation 23,000 20,000 25,700
Goods and Services 13,000 18,000 24,000
Non-Financial Asset 18,000 15,000 12,000

Required:
i) Prepare a Budget Performance Report of Nkong District Assembly based on the extract above. (5 marks)

ii) Write a report analyzing the Budget Outturn while assessing the likely causes of the variances during the year. (5 marks)

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  • 10 Marks

PSAF – April 2022 – L2 – Q3a – The context of public financial management

Discuss challenges of PFM systems, expected outcomes, and the PEFA framework’s role in building an orderly PFM system.

The goal of the Minister for Finance is to build a robust, resilient, open, and orderly Public Financial Management (PFM) system for the country by the end of 2022. This ambitious target has huge budgetary implications for the government due to the difficult fiscal position imposed by the COVID-19 pandemic. The Minister is optimistic that investing more in PFM systems today will produce the expected outcome in the immediate future.

Required:
i) Discuss THREE (3) challenges of the current Public Financial Management systems of the country. (3 marks)

ii) Explain THREE (3) expected outcomes of an open and orderly Public Financial Management system of the country. (3 marks)

iii) Explain FOUR (4) ways by which the Public Expenditure and Financial Accountability (PEFA) framework can help the Minister build an orderly and open Public Financial Management system for the country. (4 marks)

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  • 20 Marks

PSAF – Apr 2022 – L2 – Q2a – Preparation and presentation of financial statements for central government

Prepare the financial statements for a public transport corporation in compliance with IPSAS and relevant legislations.

Citizen Transport Corporation (CTC) is a Public Transportation company in Ghana, which seeks to provide reliable and affordable means of transport for commuters within villages, towns, and cities as well as provide intercity movement and transport consultancy services.

The following financial information relates to CTC, as at 31 December, 2020:

Additional information:

  1. CTC uses an accrual accounting basis in the preparation of its Financial Statements in line with the Public Financial Management Act, 2016 (Act 921), Public Financial Management Regulation 2019 L.I 2378, and the International Public Sector Accounting Standards (IPSAS).
  2. The loan in the trial balance represents funds advanced by the Government from the Consolidated Fund to CTC to procure a fleet of buses in 2010. The repayment of the Loan was scheduled to end in 2015. However, due to liquidity challenges facing the corporation, the Loan is still outstanding. On the basis of this, the Minister of Finance after assessing the liquidity profile of CTC, made a specific provision for Bad Debt on Loans Receivable by waiving 50% of the loan outstanding. This was made in line with Section 53 of the Public Financial Management Act 2016, (Act 921).
  3. Provision is to be made for Interest on the remaining Loan.
  4. Salaries and other emoluments outstanding during the year amounted to GH¢12,500,000 while that of use of goods and services other than workshop and seminars amounted to GH¢15,750,000.
  5. Inventories included in use of goods and services available at the end of the year were as follows:
Spare Parts GH¢’ 000
Historical Cost 900,000
Replacement Cost 802,000
Net Realisable Value 995,000
  1. In 2019, CTC bought a Machinery amounting to GH¢30,000,000. This amount was wrongly recognized in the 2019 Financial Statement as an expense instead of an Asset. However, this Machine is still in use.
  2. CTC uses a straight-line basis in depreciating their Capital Assets. Assets and their useful life details are provided below:
Assets Useful Life
Plant and Machinery 15 years
Motor Vehicle 20 years
Building 30 years
Software 10 years
  1. CTC plans to change its accounting policy in the recognition, measurement, presentation, or disclosure of inventory in the financial statements. This will be done in line with IPSAS 3: Accounting policies, Changes in Estimate, and Errors.

Required:
In compliance with IPSAS and relevant legislations, prepare for CTC:

a) Statement of Financial Performance for the year ended 31 December 2020. (9 marks)

b) Statement of Financial Position as at 31 December 2020. (7 marks)

c) Explain TWO (2) Guiding Principles for formulating accounting policy. (2 marks)

d) Explain TWO (2) Conditions that mandate a change in accounting policy. (2 marks)

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  • 10 Marks

PSAF – Apr 2022 – L2 – Q1a – General purpose financial reporting framework

Assess the merit of including budget amounts in public financial statements and evaluate the quality of financial statements using a conceptual framework.

The Financial Statements below were submitted on 15 February 2021, to the Finance and Administration Committee of Makambi District Assembly for consideration. Some members of the committee condemned the quality of the financial statements on two grounds:

  • That, it is unacceptable to disclose the budget amounts in the financial statement for external publication.
  • That, the financial statements lack quality and therefore should be rejected outright by the Committee.

Makambi District Assembly Statement of Financial Performance for the year ended 31 December 2020

Revenues Actual (GH¢’000) Budget (GH¢’000)
Decentralised transfers 341,000 304,100
Internally Generated Fund 117,000 187,300
Donations and grants 34,000 25,000
Total Revenues 492,000 516,400
Expenses Actual (GH¢’000) Budget (GH¢’000)
Compensation for employees 318,900 300,000
Use of goods and services 114,000 145,000
Consumption of fixed assets 12,000 –
Interest 9,000 9,400
Subsidies 500 800
Other expenses 8,600 6,600
Total Expenses 463,000 461,800

Net operating result: 29,000 (Actual) vs 54,600 (Budget)

Statement of Financial Position as at 31 December 2020

Assets GH¢’000
Non-Current Assets
Property, plant and equipment 1,200,000
Investment 300,000
Total Non-Current Assets 1,500,000
Current Assets
Receivables 23,000
Loans 50,000
Cash and Bank 160,000
Total Current Assets 233,000
Total Assets 1,733,000

Liabilities and Funds

Liabilities and Funds GH¢’000
Liabilities
Loans 900,000
Payables 106,000
Total Liabilities 1,006,000
Funds
Accumulated fund 727,000
Total Liabilities and Funds 1,733,000

Required:

i) Discuss the merit or otherwise on the first ground of condemnation of the financial statements presented to the Finance and Administration Committee. (2 marks)

ii) Using an appropriate framework of assessing the quality of a general-purpose financial statement under the Conceptual Framework, assess the quality of the financial statements presented to the Finance and Administration Committee to the extent that the information available allows. (8 marks)

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  • 10 Marks

PSAF – Apr 2022 – L2 – Q1a – The context of public financial management

Discuss reasons for the non-implementation of a full accrual public sector accounting system by many countries.

Accrual basis of Accounting has been recommended as the best approach to ensure accountability and transparency in the management of public funds. Despite its favorable advantages, many countries are yet to implement a full accrual public sector accounting system.

Required:
Discuss FOUR (4) reasons why many countries have not been able to implement a full accrual public sector accounting system. (10 marks)

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  • 5 Marks

FM – April 2022 – L2 – Q5b – Foreign exchange risk and currency risk management

Evaluate how JBL Plc can use a currency swap to manage its underlying currency risk exposure.

Exactly two years ago, JBL Plc took a 5-year US$ 20 million loan at a fixed interest of 12% from an investment bank to finance a plant expansion project. At the time the loan was taken, JBL was exporting a significant proportion of its output to a foreign market. Thus, it was sure that it would be able to earn U.S. dollars to make dollar payments on the loan. For about a year now, JBL has not been able to export its output to its foreign market due to trade restrictions. It sells only to buyers in Ghana for the Ghana cedi. The company now prefers to have its interest obligation in Ghana cedi rather than U.S. dollar.

On the advice of the Treasury Manager, JBL has entered a currency swap arrangement with a bank to manage the underlying risk exposure. Per the terms of the swap, JBL will continue to honour its obligations under the actual loan. Under the swap, JBL and the bank will exchange interests and principals in the appropriate currencies. With a pre-arranged exchange rate of GH¢6.5000/USD1, the notional principals under the swap arrangement are agreed at US$20 million and GH¢130 million. The 12% interest rate on the existing dollar loan will continue to apply to both the original dollar loan and the dollar interest payments under the swap arrangement. The interest rate that will apply to the cedi notional principal is set to 15%.

Required:
Evaluate how JBL Plc can use the currency swap to manage the underlying risk exposure. (5 marks)

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