Series: NOV 2015

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  • 15 Marks

CSME – Nov 2015 – L2 – Q7 – Corporate Strategy Formulation

Analyzes reasons for slow growth in DAB phone sales, uses the S-shaped growth curve to evaluate market stages, and suggests sales improvement strategies.

Ade John is a graduate of XYZ University. For his final project work in the Department of
Electronics and Electrical Engineering, he designed a cell-phone that is rugged, cheap,
handy and not sophisticated.
During his national service year, he kept toying with the idea of manufacturing the cellphone. To ascertain that there is a market for the phone, he carried out a series of market surveys among rural farmers, artisans, market women, etc. Each time, he was convinced that a market actually exists for his design. He also made contact with some manufacturers of cell-phone components. He entered
into an agreement with CKT Japan to import cell-phone accessories to enable him
assemble them in Nigeria. DAB phone is the first of its kind in the Nigerian market and
production and assembly commenced in a small room in his uncle‟s house at Ikare.
The first batch of phones manufactured by DAB Company was supplied to cell-phone
vendors in cities on „sale or return‟ basis. To encourage distributors to accept the
phones, a 15% margin was allowed. In addition, independent sales persons (hawkers)
were given between 10 -12% margin to sell the product. In spite of the low price of DAB
phones, demand was disappointing at the end of the first year. Nevertheless, Ade John is
still optimistic about the commercial viability of the phone if only he could develop an
effective strategy to market the DAB phones

Required:
a. Identify and explain TWO reasons for the slow growth of sales of DAB phones. (4 Marks)
b. With the aid of an S-shaped growth curve, evaluate market development of DAB phones. (6 Marks)
c. Recommend the strategies that Ade John can use to improve sales. (5 Marks)

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  • 15 Marks

CSME – Nov 2015 – L2 – Q6 – Corporate Governance

Evaluates how specific corporate governance issues impact the effectiveness of a company's governance.

Explain briefly how the following key issues in corporate governance establish how well or badly a company is governed:

a. The role and responsibilities of the board of directors
b. The composition and balance of the board of directors
c. Financial reporting, narrative reporting, and auditing
d. Directors’ remuneration
e. Risk management and internal control

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  • 15 Marks

CSME – Nov 2015 – L2 – Q5 – Corporate Governance

Outlines key responsibilities and duties of the board in corporate governance, relevant for improving corporate structure and performance.

The owner of ABC Company learned from a conference and a professional magazine that weak corporate governance accounted for recent corporate failures in Nigeria. Many board members were found lacking a clear understanding of board responsibilities and duties.

Required:
The Managing Director will soon address the board and has requested a paper detailing the board’s responsibilities and duties.

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  • 20 Marks

CSME – Nov 2015 – L2 – Q4 – Risk Management and Corporate Strategy

Analyzes strengths and weaknesses of Toyin Trust Insurance Plc pre- and post-2000 ownership changes, and suggests strategies for sustaining the company.

Toyin Trust Insurance Company is one of the duly registered insurance companies in Nigeria. Ten years after it started operations in 1990, the company had become a household name in the market. Its strengths included timely payment of claims and introduction of quality products that captured changing customers’ needs.

At inception, the company was 100% foreign-owned, with five of the seven directors being experienced expatriate insurance practitioners. However, by 2000, over 90% of the equity had been transferred to Nigerian investors. In 2009, following reorganization, many experienced senior managers resigned, and inexperienced staff took over key positions, leading to a decline in service quality and a 40% drop in premium collection.

Required:

a. Analyze the strengths of Toyin Trust Insurance Plc before 2000. (5 Marks)
b. Analyze the strengths and weaknesses of Toyin Trust Insurance Plc after 2000. (5 Marks)
c. Suggest essential strategies to sustain Toyin Trust Insurance Plc. (10 Marks)

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  • 20 Marks

CSME – Nov 2015 – L2 – Q3 – Ethics in Business

Describes the nature of business and professional ethics, Kohlberg’s theory of moral development, and criticisms of the theory.

Kalu, a competent consultant and accountant, works in Bosun and Company Limited. The company realized that almost all of its newly employed entry-level staff are deficient in business and professional ethics. Consequently, the Human Resources Manager recommended to the CEO that a training program on business and professional ethics should be organized. Kalu is nominated as a resource person to speak at the training program.

Required:
a. How should Kalu explain the nature and importance of business ethics and professional ethics? (6 Marks)
b. Advise Kalu on how he should analyze Kohlberg’s theory of moral development in an attempt to explain to the trainee participants how people generally develop a sense of morality both in personal and professional life. (10 Marks)
c. Discuss any TWO of the criticisms of Kohlberg’s theory. (4 Marks)

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  • 20 Marks

CSME – Nov 2015 – L2 – Q2 – Risk Management and Corporate Strategy

Develops a risk management program for theft, diversion, and safety issues; includes risk reduction and financing techniques.

Dolly Homes Plc is a real estate firm based in Abuja. The firm builds residential apartments and office blocks in five states of the federation. The objective of Dolly Homes Plc is to deliver high-quality, aesthetically designed, and professionally built homes/offices to its customers at competitive prices. It employs several skilled and casual workers, construction supervisors, construction engineers, architects, and quantity surveyors.

The company maintains a store at each of its building sites, each manned by a storekeeper and an assistant. Building materials are purchased centrally and delivered to sites per material schedules prepared by the quantity surveyor.

Patronage from middle and high-income brackets has been impressive; however, recently, the company has been receiving complaints about poor quality. The most alarming complaint involved a legal threat for injuries sustained when a kitchen cabinet collapsed in a client’s home.

Management’s investigation revealed theft of materials, diversion, and re-work waste due to poor finishing. There were also job site accidents, leading to employee injuries, lost hours, and increased medical claims.

Management decided to establish a risk management program to address theft, diversion, and health/safety issues.

Required:
a. As an Accountant, develop a risk management program to address Dolly Homes Plc’s problems. (8 Marks)
b. Advise management on techniques to reduce the frequency of risk exposures in the future. (6 Marks)
c. Suggest risk financing techniques to protect the company’s staff from injuries and accidents. (6 Marks)

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  • 5 Marks

CSME – Nov 2015 – L2 – Q1c – Corporate Governance

Discusses the difference between rules-based and principles-based professional ethics in accountancy.

What is the main difference between a rules-based and a principles-based code of professional ethics for accountants?

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  • 15 Marks

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

There are different methods of managing and controlling risks. Explain and illustrate any THREE of the following approaches to risk management:
i. Risk Diversification
ii. Risk Transfer
iii. Risk Sharing
iv. Risk Hedging (15 Marks)

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  • 10 Marks

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

The finance director of Basket Company is preparing a proposal to present to the board of directors. He believes that the company is much too cautious in its policy of giving credit to customers. At the moment all customers are given 30 days’ credit. He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to 1.8% of sales. He proposes that in order to increase annual sales and profits, the company should be willing to increase its risk appetite and accept the risk of higher bad debts.

Required:

  1. Using this example of managing credit risk, explain and illustrate the meaning of:
    i. Exposure to risk
    ii. Risk of losses
    iii. Residual risk
    iv. Risk appetite

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  • 15 Marks

PSAF – Nov 2015 – L2 – Q7 – Public Sector Reforms

Distinguish between basic infrastructure and development projects with examples and identify funding sources and characteristics.

In order to achieve some development objectives, nations place emphasis on priority programmes like the provision of basic infrastructure and development projects, all of which require appropriate funding.

Required:

a. By means of specific relevant examples, distinguish between “basic infrastructure” and “development projects”. (3 Marks)

b. Discuss TWO development objectives which the priority programmes you refer to in (a) above are planned to achieve. (4 Marks)

c. Identify TWO sources of funding for these priority projects stating TWO distinct characteristics of each source identified and TWO factors that facilitate the commercial viability of the projects. (8 Marks)

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  • 9 Marks

AA – Nov 2015 – L2 – Q5b – Professional Ethics and Code of Conduct for Auditors

Explaining factors a chartered accountant must consider in resolving ethical conflicts in auditing.

In evaluating compliance with the fundamental principles, a chartered accountant may be required to resolve a conflict in the application of fundamental principles. You are required to state and explain what factors he must take into consideration in his evaluation.

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  • 15 Marks

AA – Nov 2015 – L2 – Q6 – Audit Documentation

Discussing the retention of working papers, justification for retaining them, and types of information found in audit files.

Delta, Gamma, and Co. are the auditors to Hope Limited. The firm proposes to move their office to new premises and wishes to destroy old audit working papers beyond six years while others are to be converted into electronic copies by using scanners. Hope Limited, having decided to discontinue with Delta, Gamma & Co. as its auditors, has requested that the firm should hand over to their new auditors all the audit working papers of the previous years and the permanent audit file.

Required:
a. Advise Delta, Gamma & Co. on the above scenarios. (5 Marks)
b. Justify why it is important to maintain and keep audit working papers. (5 Marks)
c. State FIVE types of information you would expect to see in each of the following:
i. Permanent audit file
ii. Current working paper file (5 Marks)

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  • 6 Marks

AA – Nov 2015 – L2 – Q5a – Professional Ethics and Code of Conduct for Auditors (IESBA Code)

Discussing the fundamental principle of duty of confidentiality in audit and assurance engagements.

Briefly discuss the fundamental principle of Duty of Confidentiality.

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  • 20 Marks

AA – Nov 2015 – L2 – Q4 – Audit Reports

Discussing the scope of statutory audits, limitations of an audit, and overall audit strategy.

Briefly discuss the following:
a. The scope of the statutory audit as described in the independent auditors’ report. (5 Marks)
b. The main limitations of an audit. (5 Marks)
c. The overall audit strategy. (5 Marks)
d. Understanding the entity and its environment. (5 Marks)

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  • 6 Marks

AA – Nov 2015 – L2 – Q3c – Internal Control Systems

Describing the audit procedures necessary to ensure accurate recording and issuance of inventory at sales outlets.

In respect of inventories held in the sales outlets, describe the audit procedures an auditor should perform to ensure that the inventories have been properly received, issued, and documented.

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  • 5 Marks

AA – Nov 2015 – L2 – Q3b – Internal Control Systems

Describing internal control procedures an auditor would expect for inventory management.

Describe TWO internal control procedures an auditor would expect the company to put in place in respect of inventories.

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  • 9 Marks

AA – Nov 2015 – L2 – Q3a – Internal Control Systems

Discussing the auditor's duties before, during, and after an inventory count.

You are the auditor of a Fast Food Company with many sales outlets. The company operates a central system of purchase and supply. The Goods Received Notes and Delivery Notes were not given utmost importance in the issuing and receiving of inventories. The suppliers’ ledger, stores’ ledger, and bin cards were not updated regularly. The outlet managers often complained of short supplies and shortages recorded against them regularly. Two of the outlet managers even complained directly to the Managing Director of the company concerning the shortages recently recorded against them. As a first step to solving the inherent weakness in the company’s inventory control process, management decided to undertake a physical inventory count.

Required:
a. Itemize the duties of the auditor in relation to inventories count under the following headings:
i. Before the count.
ii. During the count.
iii. After the count. (9 Marks)

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  • 20 Marks

AA – Nov 2015 – L2 – Q2 – Audit Evidence

Explaining the concept of audit evidence, its importance, and describing its sources and attributes.

a. The objective of an audit is for the auditor to express an opinion on the truth and fairness of the financial statements. In the performance of his duty, the auditor seeks to obtain acceptable evidence necessary for him to draw conclusions in order to express a valid opinion on the financial statements.
Required:
i. Describe audit evidence and justify why the auditor would require such evidence. (4 Marks)

b. Identify FOUR sources of audit evidence and illustrate how these sources would affect the auditor’s reliance on the evidence. (10 Marks)

c. Describe THREE attributes of audit evidence. (6 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

Success Nigeria Limited is a company engaged in haulage business. The services provided by the company, which has over 100 trucks in its fleet, include lifting of petroleum products from the depots to the filling stations of its clients spread over many locations.

The Central Store for spare parts for repairs of the trucks is located at the Head Office. The inventory operation is handled by the Personal Assistant to the Managing Director in addition to his normal schedule of duties in the Managing Director’s office. Spare parts supplied are received by the Personal Assistant who keeps them in the Central Store without raising any Goods Received Notes for the items. The invoices and delivery notes brought by vendors are submitted to the accounts department directly for payment. Because of the pressure of work in the Managing Director’s office, the Personal Assistant to the Managing Director does not maintain any inventory records. Whenever there is a need for spare parts required for truck repairs, a pre-printed requisition form is completed by the mechanic in charge of the repair. The form is submitted to the Personal Assistant who supplies the spare parts from the Central Store. The mechanic collects the parts without any acknowledgment of receipt. The requisition forms collected for all the spare parts supplied are kept in one of the cabinets in the Personal Assistant’s office, and they are collated by the Accountant on a monthly basis whenever he is to prepare the management accounts.

At the end of the financial year, December 31, 2014, the Accountant conducted an inventory count of the items in the Central Store for the purpose of using the value for the preparation of the financial statements for the year ended December 31, 2014. The Managing Director observed later while reviewing the financial statements that the repairs and maintenance account did not reflect the true position of the repair works carried out on the trucks during the year.

Required:
i. Describe FIVE Internal Control weaknesses from the above scenario. (5 Marks)
ii. Recommend controls required to address the identified weaknesses in (i). (5 Marks)
iii. Describe the audit tests to be carried out to assess if each of the controls is operating effectively. (5 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q1a – Internal Control Systems

Explanation of internal control, its objectives, and the components that support it.

Knowledge of internal control is a very basic audit skill. While auditors are not responsible for the institution of internal controls, they are responsible for providing management with information about how internal control is operating.

Required:
i. Illustrate what internal control is. (4 Marks)
ii. Describe THREE categories of internal control objectives. (6 Marks)
iii. Describe FIVE components of Internal control. (5 Marks)

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