Series: NOV 2013

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CR – Nov 2014 – L3 – SB – Q2c – Revenue Recognition (IFRS 15)

Assess revenue recognition change for NIXAQ sales under IFRS 15 and calculate total revenue for the year.

Question

Maidogo Limited sells NIXAQ, a product manufactured by it, from several retail outlets. In previous years, the company has undertaken responsibility for fitting the product in customers’ premises. Customers pay for the product at the time they are ordered. The average length of time it takes from ordering to its fitting is 14 days. In previous years, Maidogo Limited had not recognised a sale in its books until the product had been successfully fitted because the rectification costs of any fitting error would be expensive.
With effect from 1 April, 2013, Maidogo Limited changed its method of trading by sub-contracting the fitting to approved contractors. Under this policy, the sub-contractors are paid by Maidogo Limited, and they (the sub-contractors) are liable for any errors made in the fitting. Consequently, Maidogo Limited is proposing to recognise sales when customers order and pay for the goods rather than when they have been fitted. Details of the relevant sales figures are:

Sales Figures	Amount (N’000)
Sales made in retail outlets for the year to 31 March 2014	69,000
Sales value of NIXAQ fitted in the 14 days to 14 April 2013	3,600
Sales value of NIXAQ fitted in the 14 days to 14 April 2014	4,800

Note: The sales value of NIXAQ in the 14 days to 14 April 2013 are not included in the annual sales figure of N69million, but those for 14 April 2014 are included.

Required:
Discuss whether or not the above represents a change of accounting policy, and calculate the amount that you would include in the revenue for NIXAQ in the year to 31 March 2014. (6 Marks)

Answer

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Tags: Accounting Policies, Financial Reporting, Revenue Recognition, Risks and Rewards, Sales Transactions, Sub-Contracting
Level: Level 3

Topic: Revenue Recognition (IFRS 15)
Series: NOV 2013

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Question

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

Answer

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Tags: Cash Flow Variances, Deferred Tax, Effective Tax Rate, Financial Statements, Income Tax, Tax adjustments, Tax provisions
Level: Level 3

Topic: Income Taxes (IAS 12)
Series: NOV 2013

AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

Question

You have just concluded the audit of Roico Limited for the year ended 31 December, 2012. During the review of the working paper file, the partner in charge discovered that no information is available on activities after year-end. The partner instructed the team leader to carry out a review of the company’s activities after year-end. The team leader was not comfortable with the instruction and wants to know why it is necessary to examine accounting information relating to the next accounting period.

You are required to:

(a) Enumerate the audit procedures which would be carried out in order to identify any material subsequent events. (10 Marks)

(b) Discuss the purpose and importance of subsequent events review. (5 Marks)

(Total: 15 Marks)

Answer

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Tags: Audit Planning, Audit Procedures, Financial Reporting, Going Concern, Materiality, post-balance sheet review, Subsequent Events
Level: Level 3

Topic: Review of Subsequent Events and Going Concern Assumptions
Series: NOV 2013

AAA – Nov 2013 – L3 – SB – Q4 – Audit of IT Systems and Data Analytics

Discuss factors influencing the choice of audit testing methods in a computer environment and propose solutions to address the loss of audit trail.

Question

The availability of computer-assisted audit techniques should be considered by the auditor when planning the nature, extent, and timing of tests in an audit. The auditor must determine his testing strategies which will depend on his choice of either using a manual testing method or computer-assisted method.

You are required to:

(a) Explain FIVE factors that will determine the auditor’s choice of method of testing in the planning of an audit in a computer environment. (10 Marks)

(b) Identify FIVE solutions to loss of audit trail. (5 Marks)

(Total: 15 Marks)

Answer

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Tags: Audit Planning, Audit testing methods, Audit trail, Computer-Assisted Audit Techniques, Data Analytics, IT Systems, manual testing, Risk Assessment
Level: Level 3

Topic: Audit of IT Systems and Data Analytics
Series: NOV 2013

AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

Question

XYL Limited has been granted a license to operate in the extractive industry in the middle belt of the country, where there is an abundant mineral resource called Topaz. This mineral is in great demand in the manufacturing industries of Western Europe.

Due to the need for heavy equipment requiring intensive capital outlay, indigenous companies could not invest in the sector. Moreover, the technical expertise required in mining this product is not locally available.

The company was not only granted the license but also granted a pioneer status. The local community where operations take place supply the necessary labor, both skilled and unskilled. After a year, the workers’ union found out that they were paid far less than what the company is paying in similar operations in nearby countries. As a result of labor union activities, many workers were retrenched, and the company started making use of locals who had just completed secondary school education. Union activities were proscribed.

Being an extractive industry, the local people were affected as they could no longer carry out their economic activities as before.

Your firm has just been appointed as auditors of XYL Limited after three years of operation.

You are required to:

Explain SEVEN areas of concern that would be of interest to you as auditor and provide reasons for their importance. (15 Marks)

Answer

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Tags: Audit Planning, Community Relations, Compliance, Environmental impact, Extractive Industry, Financial Reporting, labor issues, Pioneer Status
Level: Level 3

Topic: Audit of Specialized Industries
Series: NOV 2013

AAA – Nov 2013 – L3 – SB – Q2 – Audit Planning and Strategy

Outline reasons for audit planning and describe procedures for planning the audit of an existing client.

Question

Planning an audit involves establishing the overall audit strategy for the engagement and development of an audit plan.

You are required to:

(a) Enumerate SEVEN reasons for audit planning. (7 Marks)

(b) Explain EIGHT audit procedures you would consider in planning the audit of an existing client. (8 Marks)

(Total: 15 Marks)

Answer

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Tags: Audit Objectives, Audit Planning, Audit Procedures, Audit strategy, client understanding, Risk Assessment
Level: Level 3

Topic: Audit Planning and Strategy
Series: NOV 2013

AAA – Nov 2013 – L3 – SB – Q1 – Ethical Issues in Auditing

Evaluate whether to comply with a former executive’s request for audit services while addressing confidentiality in auditor-client relationships.

Question

Your firm acts as the auditors and advisers to Naija Seven Limited, and to its four directors. The company is owned 50% by Praise Caro, 25% by his wife Madame, and 10% by James Patrick. Braima is the Chief Executive, and Julius is the Finance Director. Julius’ sister, Mabel Mama, recently resigned from the executive board following a disagreement with Praise. Mabel Mama formed her own company, Nigeri Heaven, in competition with Naija Seven.

Currently, Mabel is negotiating with her former co-executives on the profit-related remuneration due to her and the sale of her 15% holding of shares in Naija Seven to one or all of them.

Mabel Mama has contacted you to find out Praise Caro’s current remuneration package since he refused to disclose it to her. She has also requested that your firm should continue to act as her personal adviser, financial adviser, and auditor to Nigeri Heaven.

Answer

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Tags: auditor-client relationship, Confidentiality, Conflict of Interest, Ethical considerations, Independence, Professional Behavior
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2013

AAA – Nov 2013 – L3 – AII – Q19 – Ethical Issues in Auditing

Identify the term for codified moral rules and regulations guiding professional behavior.

Question

The codified rules and regulations which are mainly based on moral duties and obligations on how professionals should carry out their duties and how to behave in the society are known as……………….

Answer

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Tags: Code of Conduct, Morals, Professional Ethics
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2013

AAA – Nov 2013 – L3 – AII – Q18 – Public Sector Audits

Identify the body responsible for reviewing the Auditor General's report for the Federation.

Question

The report of the Auditor General for the Federation is reviewed by…………which has the power to invite any person indicted for public hearing.

Answer

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Tags: Audit Review, Auditor General, Public Sector
Level: Level 3

Topic: Public sector audit
Series: NOV 2013

AAA – Nov 2013 – L3 – AII – Q17 – Environmental and Sustainability Audits

Define the audit conducted on a company's societal relationships.

Question

An audit which is carried out on a company in respect of its relationship with shareholders, employees, customers, the community in which it operates, and the public at large is known as……………………..

Answer

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Tags: Public Relations, Social responsibility, Stakeholders
Level: Level 3

Topic: Environmental and Sustainability Audits
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q6b – Agency Law

Stating three acts of bankruptcy for which proceedings may be instituted.

Question

A debtor who could not pay his debts or meet his legal financial obligations may be insolvent.

You are required to:
State THREE acts of bankruptcy for which bankruptcy proceedings may be instituted against a debtor.

Answer

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Tags: Bankruptcy, Insolvency, Legal Financial Obligations
Level: Level 1

Topic: Agency Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q6a – Negotiable Instruments

Explaining three types of bills of exchange.

Question

State and explain THREE types of Bills of Exchange.

Answer

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Tags: Bills of Exchange, Legal Documentation, Negotiable Instruments
Level: Level 1

Topic: Negotiable Instruments
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q5c – Partnership Law

Advising partners on the liability for partnership debts.

Question

Yaya and Omegie contributed money to do business together and they both invited Obi to join them in the business. The firm traded for four years without making a profit but incurred a huge debt of N45,000,000. Yaya wants to leave the business and the debts to Omegie and Obi to pay.

You are required to:
Advise Omegie, Yaya, and Obi. (5 Marks)

Answer

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Tags: Debt Obligation, Joint Liability, Partnership Law
Level: Level 1

Topic: Partnership Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q5b – Partnership Law

Stating five implied authorities of partners under the law of partnership.

Question

State FIVE implied authorities of partners under the Law of Partnership.

Answer

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Tags: Business Authority, Implied Authority, Partnership Law
Level: Level 1

Topic: Partnership Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q5a – Company Law

Stating reasons for which a court may order a company to be wound up.

Question

When a company is not well managed, it may need to be wound up either voluntarily or by court order.

You are required to:
State FIVE reasons for which a court may order that a company be wound up.

Answer

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Tags: Company Law, Corporate Affairs, Insolvency, Winding-up
Level: Level 1

Topic: Company Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q4 – Company Law

Explaining the disqualification and circumstances for vacating office as a director.

Question

Directors of a company are the executives that direct the “mind and will” of the company. Persons who occupy such important positions must have certain attributes.

You are required to:
(a) Explain briefly TWO types of persons that are disqualified from being Directors of a company. (5 Marks)
(b) Explain briefly FIVE circumstances under which a person must vacate office as a Director.

Answer

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Tags: Company Law, Corporate Governance, Directors' Removal, Disqualification
Level: Level 1

Topic: Company Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q3c – Hire Purchase, Consumer Credit Transactions

Explaining two key characteristics of hire purchase transactions.

Question

Explain briefly TWO characteristics of a hire purchase transaction. (5 Marks)

Answer

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Tags: Bailor and Bailee Relationship, Contract Law, Hire Purchase
Level: Level 1

Topic: Hire Purchase and Consumer Credit Transactions
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q3b – Agency Law

Stating five different types of agents recognized under the law of agency.

Question

In modern society, no one person can do all things. Therefore, power or authority to act has to be given to other persons to act or do certain things on behalf of another. As such, agents must be appointed one way or the other.

You are required to:
State FIVE types of agents under the law of agency.

Answer

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Tags: Law of Agency, Legal Authority, Types of Agents
Level: Level 1

Topic: Agency Law
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q3a – Sale of Goods

Stating five essential elements of a sale of goods contract.

Question

In a contract of sale of goods, the seller must transfer to the buyer goods bought, and the goods must have certain qualities.

You are required to:
State FIVE essential elements of a contract of sale of goods.

Answer

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Tags: Contractual Agreements, Essential Elements, Sale of Goods
Level: Level 1

Topic: Sale of Goods
Series: NOV 2013

BL – Nov 2013 – L1 – SB – Q2b – Law of Contract

Advising on the legal enforceability of a promise made between a married couple.

Question

Meke is a medical doctor who got married to Neki five years ago. Neki is a smoker, a fact unknown to Meke before the marriage. Because of Meke’s love for his wife, he promised to buy her a gold wristwatch if she stopped smoking. Neki has stopped smoking for more than one year now, but Meke has reneged on his promise. Neki has been reminding her husband that if he refused to fulfill his promise, she would enforce her right by suing him for breach of contract.

You are required to:
State the law applicable to this case and advise Neki accordingly. (6 Marks)

Answer

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Tags: Contractual Agreements, Family Agreements, Intention to Create Legal Relations
Level: Level 1

Topic: Law of Contract
Series: NOV 2013

Series: NOV 2013

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CR – Nov 2014 – L3 – SB – Q2c – Revenue Recognition (IFRS 15)

Assess revenue recognition change for NIXAQ sales under IFRS 15 and calculate total revenue for the year.

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CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

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AAA – Nov 2013 – L3 – SB – Q5 – Review of Subsequent Events and Going Concern Assumptions

Outline audit procedures to identify material subsequent events and explain the purpose and importance of subsequent events review.

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AAA – Nov 2013 – L3 – SB – Q4 – Audit of IT Systems and Data Analytics

Discuss factors influencing the choice of audit testing methods in a computer environment and propose solutions to address the loss of audit trail.

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AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

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AAA – Nov 2013 – L3 – SB – Q2 – Audit Planning and Strategy

Outline reasons for audit planning and describe procedures for planning the audit of an existing client.

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AAA – Nov 2013 – L3 – SB – Q1 – Ethical Issues in Auditing

Evaluate whether to comply with a former executive’s request for audit services while addressing confidentiality in auditor-client relationships.

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AAA – Nov 2013 – L3 – AII – Q19 – Ethical Issues in Auditing

Identify the term for codified moral rules and regulations guiding professional behavior.

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AAA – Nov 2013 – L3 – AII – Q18 – Public Sector Audits

Identify the body responsible for reviewing the Auditor General's report for the Federation.

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AAA – Nov 2013 – L3 – AII – Q17 – Environmental and Sustainability Audits

Define the audit conducted on a company's societal relationships.

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BL – Nov 2013 – L1 – SB – Q6b – Agency Law

Stating three acts of bankruptcy for which proceedings may be instituted.

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BL – Nov 2013 – L1 – SB – Q6a – Negotiable Instruments

Explaining three types of bills of exchange.

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BL – Nov 2013 – L1 – SB – Q5c – Partnership Law

Advising partners on the liability for partnership debts.

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BL – Nov 2013 – L1 – SB – Q5b – Partnership Law

Stating five implied authorities of partners under the law of partnership.

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BL – Nov 2013 – L1 – SB – Q5a – Company Law

Stating reasons for which a court may order a company to be wound up.

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BL – Nov 2013 – L1 – SB – Q4 – Company Law

Explaining the disqualification and circumstances for vacating office as a director.

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BL – Nov 2013 – L1 – SB – Q3c – Hire Purchase, Consumer Credit Transactions

Explaining two key characteristics of hire purchase transactions.

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BL – Nov 2013 – L1 – SB – Q3b – Agency Law

Stating five different types of agents recognized under the law of agency.

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BL – Nov 2013 – L1 – SB – Q3a – Sale of Goods

Stating five essential elements of a sale of goods contract.

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BL – Nov 2013 – L1 – SB – Q2b – Law of Contract

Advising on the legal enforceability of a promise made between a married couple.

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