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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  • 10 Marks

BMIS – April 2022 – L1 – Q1a – Business and organisational structure

Explain five benefits that a company would derive from adopting a decentralized structure.

Normu Ltd develops accounting software for small and medium-sized firms. The company, for the past five years of its operations, has operated with a simple form structure with most decisions being taken by the founder. Currently, the company’s market base, as well as its product range, has significantly increased. The company now develops and sells accounting software to large organizations and businesses, resulting in a modification of its existing simple form structure to a decentralized structure where decision-making powers are assigned to branch managers.

Required:
Explain FIVE (5) benefits the company would derive from this new structure.

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  • 5 Marks

AAA – April 2022 – L3 – Q5b(ii) – Professional responsibility and liability

Explain the auditor's responsibility in relation to a reorganization that occurred after the year-end.

Asogli recently announced its plans to reorganize its business operations. This will involve closing some units, retraining some existing staff, and disposing of some surplus assets. These plans were agreed upon at a board meeting in October and announced to their shareholders on 29 October 2020. Asogli is proposing to make a reorganization provision in the financial statements.

Required: Assume that the reorganization occurred on 15 November 2020, what will be the responsibility of the auditor in line with auditing standards? (5 marks)

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  • 5 Marks

AAA – April 2022 – L3 – Q5b(i) – Audit evidence, Professional responsibility and liability

Describe substantive procedures to address a cut-off error in the purchase ledger.

Asogli has been in existence since 2005, operating a car repair and servicing business. The car service solutions offered to its clients are diagnosis, ECU programming, key programming, body works, electrical works, and air conditioning. Its year-end was 31 October 2020. You are the senior audit manager of KK and Associates, the Auditor of Asogli. The audit is due to commence, and Asogli intends to sign the audit report on 20 November 2020.

Your attention has been drawn to the following matter by the Partner-in-charge:

  1. Cut-Off Error:
    Asogli’s Finance Director has notified you that an error occurred in closing the purchase ledger at the year-end. Rather than closing on 31 October, it accidentally closed one week earlier on 24 October. All purchase invoices received between 25 October and the year-end have been posted to the 2021 year-end purchase ledger.

Required: Describe substantive procedures you would perform to obtain sufficient and appropriate audit evidence in relation to the above. (5 marks)

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  • 10 Marks

AAA – April 2022 – L3 – Q5a – Professional responsibility and liability

Discuss non-audit services that could lead to a conflict of interest or impair the independence of an auditor.

Companies Act, 2019 (Act 992) section 143 (2) states among others that a company, person, or firm that carries out duties of an auditor should ensure that the personal judgment of the auditor is not impaired by reason of any relationship with a client that will result in a conflict of interest.

Some governance experts consider the provision of non-audit services to audit clients as an example of conflict of interest and could impair the firm’s independence.

Required: In reference to the above concern, discuss FOUR (4) non-audit services that could lead to conflict of interest or impair the independence of an Auditor. (10 marks)

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  • 10 Marks

AAA – April 2022 – L3 – Q4b – Government external audit and public accountability, Public sector audit

Discuss the merits of Supreme Audit Institution (SAI) on a state economy.

Supreme Audit Institutions (SAI) are external auditors for the state or a country. They are set up to audit the work of state institutions and usually report to parliament. They are independent in nature and their work is not subject to control of the executive.

Required: Discuss the merits of Supreme Audit Institution (SAI) on a state economy. (10 marks)

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  • 10 Marks

AAA – April 2022 – L3 – Q4a – Government external audit and public accountability, Public sector audit

Discuss the factors an auditor considers in determining the going concern assumption of a public sector entity.

Going concern assumption is important in financial audit, without which an entity being audited is viewed as not operating into a foreseeable future. In the public sector, going concern is also assumed, though the assumption may be different from financial considerations.

Required: Discuss the factors an auditor will consider in determining the going concern assumption of a public sector entity. (10 marks)

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  • 4 Marks

AAA – April 2022 – L3 – Q3b – Evaluation and review

Explain the additional audit work required for a fine imposed by the Environmental Agency after the audit report was signed.

Assume that the date is now 10 December 2020, the financial statements and the audit report have just been signed, and the Annual General Meeting is to take place on 10 January 2021. The Environmental Agency has issued a report on 28 December 2020 stating that Aseda is in breach of environmental legislation and a fine of GH¢800,000 will now be levied on the company. The amount is material to the financial statements.

Required: Explain the additional audit work the auditor should carry out in respect of this fine. (4 marks)

 

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  • 12 Marks

AAA – April 2022 – L3 – Q3a Evaluation and review

Explain the reporting implications and auditors' responsibilities for events after the reporting period for Aseda Manufacturer Ltd.

Aseda Manufacturer Ltd (Aseda) is one of the established businesses in the manufacturing sector. The company has received different awards over the past decade. Aseda’s year-end was 30 September 2020. The audit of Aseda is nearly complete, and the financial statements and the audit report are due to be signed in a few days. However, the following additional information on two material events has just been presented to the auditor on 3 December 2020.

  1. Event 1:
    This event occurred on 10 November 2020. Production at the Aluta factory was halted for one day when a truck carrying dye used in colouring the fabric on mattresses reversed into a metal pylon, crashing the vehicle and causing dye to spread across the factory premises and into a local river. The Environmental Protection Agency (EPA) of Ghana is currently considering whether the release of the dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event.
  2. Event 2:
    This event occurred on 19 October 2020. The springs in a new type of mattress have been found to be defective, making the mattress unsafe for use. There have been no sales of this mattress as it was due to be marketed in the next few weeks. The company’s insurers estimate that inventory worth GH¢600,000 has been affected. The insurers also estimate that the mattresses are now only worth GH¢100,000. No claim can be made against the supplier of springs as this company is in liquidation with no prospect of any amounts being paid to third parties. The insurers will not pay Aseda for the fall in value of the inventory as the company was underinsured. All of this inventory was in the finished goods store at the end of the year and no movements of inventory have been recorded post year-end.

Required: a) For each of the two events above: i) Explain the reporting implication of the issues in accordance with IAS 10: Events after the Reporting Period. (4 marks)
ii) Explain the auditors’ responsibility and the audit procedures that should be carried out in accordance with ISA 560: Subsequent Events. (12 marks)

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  • 20 Marks

AAA – April 2022 – L3 – Q2 – Evaluation and review, Group audits, Current issues

Comment on matters raised and state audit evidence required for Lartey Company Ltd for the year ended 30 September 2020.

Lartey Company Ltd (LCL) is a Private Limited Liability Company that was incorporated several years ago under the Companies Act, 1963 (Act 179) now Companies Act, 2019 (Act 992). The company is currently listed on the Ghana Stock Exchange. LCL is one of the world’s leading leisure travel providers, operating under several brand names to sell packaged holidays. The company catered for more than 10 million customers in the last 12 months. Draft figures for the year ended 30 September 2020 show revenue of GH¢320 million, profit before tax of GH¢15 million, and total assets of GH¢410 million. LCL’s executives earn a bonus based on the profit before tax.

You are the senior manager responsible for the audit of LCL. The final audit is nearing completion, and the following points have been noted by the audit senior for your attention:

  1. Acquisition of Esinam Co. Ltd. On 15 November 2020, LCL acquired Esinam Co. Ltd, a company offering adventure holidays for independent travelers. Esinam Co. Ltd represents a significant acquisition, but this has not been recognised in the financial statements.
  2. Aseye Cruises One part of the company’s activities, operating under the Aseye Cruises brand, provides cruise holidays. Due to the economic recession owing to the Covid-19 pandemic, the revenue of the Aseye Cruises business segment has fallen by 25% this year, and profit before tax has fallen by 35%. Aseye Cruises contributed GH¢64 million to total revenue for the year ended 30 September 2020, and has identifiable assets of GH¢23.5 million, including several large cruise liners. The Aseye Cruises brand is not recognised as an intangible asset, as it was internally generated.
  3. Compensation Claim In July 2020, thousands of holiday-makers were left stranded abroad after the company operating the main airline chartered by LCL suffered Covid-19 restrictions. The holiday-makers were forced to wait an average of two weeks before they could be returned home using an alternative airline. They have formed a group which is claiming compensation for the time they were forced to spend abroad, with the total claim amounting to GH¢2 million. The reasons for the group claiming compensation include accommodation and subsistence costs, lost income, and distress caused by the situation. The claim has not been recognised or disclosed in the draft financial statements, as management argues that the full amount payable will be covered by LCL’s insurance cover.

Required: Comment on the matters raised and in your review of the working papers, state the audit evidence required to draw reasonable conclusions for the year ended 30 September 2020.

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  • 10 Marks

AAA – April 2022 – L3 – Q1c – Audit evidence, Assurance services

Discuss the challenges and audit approaches in performing an assurance engagement on an electronic processing system.

K. O. and Associates, a firm of Chartered Accountants, has accepted a statutory audit engagement from Special Cream Ltd, a bookshop with many sales points across the country. In 2021, the company implemented a computerised system that has been networked to all sales points to the Head Office in Accra. In the middle of 2021, the company started accepting mobile money as a means of payment in addition to cash and cheque payment. Mobile money payments are confirmed with an accounts staff before books are supplied.

In planning the audit of Special Cream Ltd, the Audit Manager, Samuel Alhassan, identified risks associated with electronic processing systems which provide additional challenges for auditors.

Required: i) Discuss FOUR (4) challenges K. O. and Associates would encounter in performing an assurance engagement on the electronic processing system. (4 marks)

ii) Discuss FOUR (4) audit approaches K. O. and Associates should adopt in performing an assurance engagement on an electronic processing system. (6 marks)

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