Series: NOV 2018

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  • 15 Marks

CSME – Nov 2018 – L2 – Q7 – Corporate Governance

Provide a defence for the unitary board structure, outline core roles, and discuss the composition and size of the board.

It is important that, as a member of the board of directors of a company, you have a good understanding of the nature, types, and structures of a board.

You are required to:
a. Provide a defence for the unitary board structure. (5 Marks)
b. Outline the core roles of a board of directors. (5 Marks)
c. Provide a broad overview of the composition and size of a unitary board of directors. (5 Marks)

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  • 15 Marks

CSME – Nov 2018 – L2 – Q6 – Corporate Strategy Formulation

Explain the BCG Model with a diagram to analyze a firm's business portfolio, detailing the four product categories.

As part of a training session in strategic management, deploy a diagram to explain how a firm would use the Boston Consulting Group (BCG) model to analyze its business portfolio. Explain each category of products identified in the BCG model.

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  • 15 Marks

CSME – Nov 2018 – L2 – Q5 – Ethics in Business

Discuss the six stages in handling ethical conflicts based on ICAN's professional code of conduct.

You have been invited to facilitate a session on how to deal with ethical conflicts based on the Institute of Chartered Accountants of Nigeria code of professional conduct. Discuss the six stages in handling ethical conflicts.

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  • 20 Marks

CSME – Nov 2018 – L2 – Q4 – Ethics in Business

Discuss ethical considerations for accountants, actions to serve the public interest, and the nature and purpose of a corporate code of ethics.

There is an increasing demand on professional accountants to pay close attention to ethical standards as they carry out their professional duties. This requires, among other considerations, that accountants act professionally and in the public interest. They are also expected to abide by the code of ethics of their profession and the corporate code of ethics of the organization in which they work.

Required:

a. Discuss the ethical considerations a professional accountant should attend to in the discharge of professional duties. (6 Marks)

b. What specific actions are you expected to take in order to serve the public interest? (5 Marks)

c. Discuss the nature and purpose of corporate code of ethics. (9 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q3 – Risk Management and Corporate Strategy

Explain the processes of identifying, assessing, measuring, and prioritizing risks, and discuss the impact on stakeholders.

Success and profit maximization in business are premised on factors that include the ability to identify, assess, and measure risks. As a risk manager, how would you explain the following to a group of prospective entrepreneurs in ways that would adequately equip them to deal with operational, business, and strategic risks?

a. Risk identification (4 Marks)
b. The impact of risk on any four stakeholders (4 Marks)
c. Assessing risks: impact and probability (4 Marks)
d. Measuring risks (4 Marks)
e. Prioritizing risks (4 Marks)

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  • 20 Marks

CSME – Nov 2018 – L2 – Q2 – Corporate Governance

Identify five key corporate governance issues for expansion and principles of good corporate governance for PKL Restaurants Limited.

PKL Restaurants Limited was established in 1995 and now has 12 branches in different parts of Lagos. The company wants to expand its operations to Abuja and Port Harcourt. Consequently, it seeks to restructure the business and build structures for good corporate governance.

Required:

a. Develop a proposal highlighting five key issues of corporate governance. (10 Marks)

b. Evaluate five principles of good corporate governance that the company should adhere to. (10 Marks)

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  • 5 Marks

CSME – Nov 2018 – L2 – Q1b – Business-Level Strategies

Describe two key risks associated with adopting a cost leadership strategy in business.

Provide a detailed account of two of the risks business entities might face by adopting a strategy of cost leadership.

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  • 25 Marks

CSME – Nov 2018 – L2 – Q1a – Environmental Analysis

Perform a SWOT analysis using a Mini Resource Audit and Porter's Five Forces for Igbadun Nigeria Limited in the online streaming business.

Igbadun Nigeria Limited is a private limited liability company engaged in the business of online content streaming to registered subscribers through a dedicated website “igbadun.com”. The company’s content offerings include movies, TV episodes, cartoon series, educational series, documentaries, and reality shows.

The subscriber base growth rate of Igbadun has been phenomenal, jumping from about 3,000 in 2013 to 30,000 at the end of 2017. This is despite the fact that the industry is relatively new in Nigeria. The growth has led to an increase in revenue from N72 million in 2013 to N450 million by the year ended 31 December 2017. However, the only source of revenue to the company is customer subscriptions.

The impressive performance of Igbadun Nigeria Limited has been attributed to several factors, including:

  • Increasing internet usage;
  • Increased patronage of streamed online programs;
  • Improved access to the internet at a reduced cost;
  • Affordability of internet-enabled devices suitable for viewing online video content;
  • Cost reduction strategies and a very affordable subscription rate, which has been reduced from N2,000 in 2013 to N1,500 in 2017. This is the second-lowest rate in the industry;
  • Aggressive marketing strategy and investment in advertising;
  • Reduction in marketing costs as a percentage of revenue from 16% in 2013 to 12.8% in 2017;
  • Growth of gross subscribers by more than 100% per annum;
  • Investment of over 60% of its earnings for growth and development, especially in purchasing the best hardware and software available;
  • Aggressive R & D policy that has led to in-house development of most of its software, with all of them duly patented;
  • Effective Human Resource Management strategy that has helped to attract, motivate, train, and retain highly qualified and experienced manpower;
  • Management team of highly experienced personnel.

A report recently released by Arthur Baker and Company, a reputable consulting firm in Nigeria, predicted that the demand for online program streaming in Nigeria will grow significantly to 5 million by 2020. Consequently, existing rivals, such as Netcom and other smaller competitors, are jostling to gain competitive advantage. The relatively liberal legal requirements for entry have also facilitated an influx of new entrants into the industry. Netflox, the world’s biggest provider of online program streaming service, recently commenced operations in Nigeria.

Copyright activists recently proposed a bill to the National Assembly, allowing online program streaming providers to stream new releases only after two months of release. This bill will adversely affect the subscription revenue of igbadun.com if passed into law.

A major part of Igbadun’s subscription revenue is received through online payments using debit cards. However, a recent report by an independent consultant shows a decline in the use of online payment platforms due to increased security concerns. This has the potential to hurt Igbadun’s revenue stream.

Igbadun is also struggling to compete with other movie entertainment media such as cable TV, DVDs, and cinemas. The most worrisome for the company has been DVDs. The activities of pirates have made the price of DVDs for new releases as low as N500 each. If this continues unabated, the company risks losing its subscriber base.

Despite these challenges, Igbadun plans to grow its subscriber base to 200,000 by the end of 2020.

Required:

a. With the aid of a Mini Resource Audit and Porter’s Five Forces Model, prepare a SWOT analysis for the management of Igbadun Nigeria Limited.

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q7 – Fiscal Policy and Public Finance

Discuss the objectives of an ideal intergovernmental fiscal system and the problems facing intergovernmental fiscal relations in Nigeria.

“There are critical issues and problems with decentralisation of government and intergovernmental fiscal relations in Nigeria.”

Required:
a. The main objectives of an ideal system of fiscal relations among sub-national units in a federation.
(6 Marks)
b. Three problems of intergovernmental fiscal relations in Nigeria.
(9 Marks)

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  • 15 Marks

PSAF – Nov 2018 – L2 – Q6 – Fiscal Policy and Public Finance

Discuss the concept of market failure and provide cases justifying government intervention in the economy.

he need for government intervention in the economy is justified on the basis of market failure. In particular, the intervention has become inevitable in view of some practical situations for which the market is rather unhelpful.

Required:
a. Discuss the notion of “market failure” as a basis for government intervention.
(5 Marks)
b. Provide four illustrative cases to justify government intervention in the Nigerian economy.
(10 Marks)

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  • 2 Marks

QT – Nov 2018 – L1 – Q6a – Forecasting

State the two main models of time series analysis.

State the TWO (2) main models of time series analysis. (2 marks)

 

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  • 14 Marks

QT – Nov 2018 – L1 – Q5b – Probability

Solve normal distribution problems related to spending habits of residents in Kojokrom.

In a study commissioned by Ofo Stores, the researcher examined the spending habits of the residents of Kojokrom. He found the spending habits to be normally distributed with a mean of GH¢700 and a standard deviation of GH¢70.

Required:
i) Determine the probability that a resident selected at random spends:

  • Less than GH¢620 (3 marks)
  • More than GH¢1,000 (3 marks)
  • Between GH¢800 and GH¢900 (4 marks)

ii) Calculate the amount:

  • Above which 80% of the residents will spend in a week (2 marks)
  • Below which 30% of the residents will spend in a week (2 marks)

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  • 6 Marks

QT – Nov 2018 – L1 – Q5a – Probability

Define properties of normal distribution and examples of phenomena that follow it.

The normal distribution is a probability distribution which usually applies to continuous variables.

Required:

i) State FOUR (4) properties of the Normal Distribution. (4 marks)

ii) State TWO (2) examples of phenomena which closely follow a Normal Distribution. (2 marks)

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  • 15 Marks

AA – Nov 2018 – L2 – Q5 – Completion Procedures and Reporting

Evaluates the use of an adverse opinion and the inclusion of an emphasis of matter paragraph in audit reports.

The auditors of ABC Ltd issued an adverse opinion on the financial statements of the company for the year ended 31 December 2017. This was due to the fact that management could not make available the cash book, general ledger, and debtors ledger to the auditors for examination.

Some of the engagement team members may not agree to the issue of an adverse opinion and are suggesting an unmodified report with an emphasis of matter paragraph.

Required:
a. Comment on the action of the auditors to issue an adverse opinion. (10 marks)
b. Explain to your team members the circumstances that will make auditors include an emphasis of matter paragraph in the Independent Auditor’s report. (5 marks)

(Total: 15 marks)

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  • 7 Marks

AA – Nov 2018 – L2 – Q4b – Audit and Assurance Evidence

Explains audit procedures for verifying the valuation of land and buildings in the financial statements.

b. At a meeting to deliberate with management on the draft financial statement of E.T Company Ltd, the external auditors, Sampson Amarty and Co., a firm of Chartered Accountants, demanded that management should explain how an amount of GH¢200,000 for land and building in the financial statements had been arrived at. The Managing Director asked the Director of Finance to explain how the amount of GH¢200,000 was arrived at. The Director of Finance explained that the amount of GH¢200,000 was given to them by an external valuer, S.K. Valuation Experts.

Required:
Explain the audit procedures that would be adopted in verifying the land and building value in the financial statements. (7 marks)

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  • 8 Marks

AA – Nov 2018 – L2 – Q4a – Audit and Assurance Risk Environment

Identifies audit problems likely to be encountered when a client shifts from manual to computer-based accounting systems.

a. All Souls Ltd is the audit client of Objectivity Auditors, a firm of Chartered Accountants. All Souls Ltd has been operating a manual system of accounting for the past 10 years. All Souls Ltd is contemplating the acquisition of a new accounting software to facilitate the preparation of its accounting records.

Required:
As an audit senior of Objectivity Auditors, advise your audit team on the problems which are likely to be encountered by auditors while a client is moving from manual-based accounting records to computer-based accounting records. (8 marks)

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  • 5 Marks

AA – Nov 2018 – L2 – Q3d – Professional and Ethical Considerations

Explains safeguards to manage conflicts of interest when auditing competitors.

The Finance Director of the Company informed the audit partner that the reason for appointing Add Consult as auditors was because they audit other similar companies, including the Company’s main competitor. The Finance Director doubts how Add Consult keeps information (obtained during the audit) confidential.

Required:
Explain the safeguards which your firm should implement to ensure that this conflict of interest is properly managed. (5 marks)

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  • 20 Marks

AA – Nov 2018 – L2 – Q3a, b & c – Audit and Assurance Risk Environment

Identifies audit risks at International Training Center and outlines appropriate auditor responses.

International Training Center (ITC) is a large company limited by shares that operates a network of teaching centers in countries across West Africa. The Company was incorporated under the requirements of the Companies Act, 1963 (Act 179), on 19 January 1990 and domiciled in Ghana. Students who register with the Center pay 30% during initial registration and the remaining 70% over the course period. You are the senior Associate of Add Consult. ITC is a new client, and you are currently planning the audit with the audit manager to audit the company for the year ended 31 December 2017.

You have been provided with the following planning notes from the audit partner following his meeting with the Finance Director.

  • ITC purchases stationery from a supplier in China, and these goods are shipped to the company’s central warehouse. The goods are usually in transit for a fortnight, and the company correctly records the goods when received. ITC does not undertake a year-end inventory count but carries out monthly continuous (perpetual) inventory counts, and any errors identified are adjusted in the inventory system for that month.
  • During the year, the directors of the Company have each been paid a significant bonus, and they have included this in wages and salaries expenses. Separate disclosure of the bonus is required by the Companies Act.
  • ITC has a policy of revaluing its land and buildings, and this year has updated the valuations of all land and buildings.
  • During the year, the company introduced a bonus-based scheme on sales for its salespersons. The bonus target was based on increasing the number of students signing up for 6-month courses by the school for individuals running accountancy examinations. This has been successful, and revenue has increased by 25%, especially in the last few months of the year. The level of receivables is considerably higher than last year, and there are concerns about the creditworthiness of some students.

Required:
a. Describe FIVE (5) audit risks, and explain the auditor’s response to each risk, in planning the audit of International Training Center. (10 marks)

b. Identify FIVE (5) audit procedures Add Consult should perform in order to place reliance on the continuous (perpetual) counts for year-end inventory. (5 marks)

c. Describe substantive procedures Add Consult should perform to confirm the directors’ bonus payments included in the financial statements. (5 marks)

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  • 15 Marks

AA – Nov 2018 – L2 – Q2b – Regulatory Framework and Audit Responsibilities

Identifies corporate governance weaknesses in Proper Banking Ltd and provides recommendations to address them.

b) Proper Banking Limited (PBL) is required to comply with corporate governance principles to maintain its listed status and banking license due to the current banking crises in Ghana.

The Finance Director decides on the amount of remuneration each director is paid. Currently, all remuneration is in the form of an annual bonus based on profits. Yaw is considering setting up an audit committee but has not undertaken this task yet as he is very busy. A new sales director was appointed a year ago. She is yet to undertake her board training as this is normally provided by the chief executive officer, and this role is currently vacant.

Koffie Quartey is the chairman of PBL. Until last year, he was the Chief Executive Officer. Koffie is unsure if PBL needs more non-executive directors as there are currently four non-executive directors out of the eleven board members. He is considering appointing one of his close friends, who is a retired executive council member of a Non-Governmental Organization (NGO), as a non-executive director.

The shareholders are many and, due to their large numbers, the directors believe that it is impractical and too costly to hold an annual general meeting of shareholders. Instead, the board has suggested sending out the financial statements and any voting resolutions by email for shareholders to vote on the resolutions via email.

Required:
In respect of the corporate governance of Proper Banking Limited:
i. Identify and explain FIVE (5) corporate governance weaknesses; and (10 marks)
ii. Provide a recommendation to address each weakness. (5 marks)

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  • 10 Marks

AA – Nov 2018 – L2 – Q2a – Internal Audit and Its Relationship with External Audit

Discusses the advantages and disadvantages of outsourcing the internal audit function compared to maintaining an in-house team.

a) Proper Banking Limited (PBL) has been trading for 20 years selling banking products and has recently become a listed company. In accordance with corporate governance principles of Bank of Ghana, PBL maintains a small internal audit department. The board of directors feels that the authorized business of the Company is banking which is core to the success of PBL. On 20 November 2017, the Operational and Governance Committee of the Board met to discuss whether to maintain the internal audit department and increase its size and build its expertise or to outsource the whole function to their external auditors, International & Co with headquarters in Accra, Ghana, with a global presence in over ninety-nine (99) countries.

Required:
Advise the Board of PBL on the advantages and disadvantages of whether to outsource or maintain their internal audit function. (10 marks)

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