ADVANCED AUDIT AND ASSURANCE

AA – L2 – Q4 – Evaluation and review

Review auditor going concern responsibilities, identify five indicators from Afrimax Ltd financials, and state three audit procedures.

Question

a) Below is a summary of the financial information of Afrimax Ltd, an audit client.

Financial performance

Item	30 June 2025 GH¢ ‘million	30 June 2024 GH¢’ million
Revenue	231	506
Cost of sales	(235)	(352)
Selling, general and admin expenses	(48)	(52)
Income tax expense	(3)	(12)

Financial position

Item	30 June 2025 GH¢ ‘million	30 June 2024 GH¢’ million
Property, plant and equipment (PPE)	950	958
Inventory	39	42
Accounts receivable	94	111
Cash and cash equivalents	5	30
Borrowings	(830)	(830)
Accounts payable	(244)	(238)
Income tax payable	(17)	(21)
Share capital	(50)	(50)
Retained earnings	53	(2)

Additional information:

60% of PPE relates to the assets used in the provision of works under a contract with Jinex Industries Ltd while the remaining 40% relates to assets required for the provision of works under a contract with Sampax Ltd.
The Borrowings relate to a 3-year loan facility from Drobax Area Rural Bank Ltd. The loan balance is due on 31 December 2025.
In arriving at the carrying amount of inventory, a provision of GH¢12 million was posted.
An expected credit loss of GH¢18 million is also included in accounts receivable.
The decline in the revenue for the year is mainly due to a retarding level of activity for Sampax Ltd. In the previous year, this contract brought in revenue of approximately GH¢250 million.

Required: i) Explain the auditor’s responsibility with regards to going concern. ii) Identify FIVE indicators of going concern challenges at Afrimax Ltd. iii) State THREE audit procedures you would perform in determining the going concern status of Afrimax Ltd.

b) Patakex Telecommunications Ltd is an international telecom provider with operations in several African countries. You are the audit associate on the year-end audit for the financial year ended 31 March 2025.

One of the material revenue streams, international roaming charges (50% of total revenue), relies on a complex billing system. During the audit, inconsistencies were found in how revenue was recognized. The audit team planned additional substantive testing, including review of billing data, inter-operator agreements and cut-off testing. Materiality was determined using 5% of profit before tax.

Due to IT department delays and access restrictions, the team was unable to complete the planned audit procedures. Attempts to gather alternative evidence (bank receipts, usage data) were unsuccessful, as the data was incomplete. Management believes the revenue is fairly stated and insists that the audit should proceed.

Required: i) Identify and explain the type of audit issue that has arisen. ii) Evaluate whether the issue is material and/or pervasive. iii) Recommend TWO additional actions or communications the auditor should undertake before finalising the audit report. iv) Justify the appropriate type of audit opinion to be issued.

Answer

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Tags: Audit Procedures, Auditor Responsibility, Cash flow problems, Contract decline, Going Concern, High gearing, Indicators of going concern, Liquidity challenges, Loan repayment, Profitability issues
Level: Level 2

Topic: Evaluation and review

AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

Question

a) ISA 530: Audit Sampling indicates that the decision to use statistical sampling or non-statistical sampling is a matter of professional judgment and does not indicate which should be used in any given situation. However, the standard is clear that sample size is not a valid criterion to distinguish between the selection of sampling methods. Therefore, the auditor should not base their decision on whether to use statistical or non-statistical sampling on the outcome of the calculation of sample sizes.

Required: Differentiate between statistical sampling and non-statistical sampling.

A core objective of an audit is to enhance the degree of confidence intended users can place in the financial statements. This is achieved through the expression of an opinion and is governed by key conceptual pillars. Central to this process are the concepts of materiality and the level of assurance provided.

Required: i) Explain the concept of materiality and performance materiality.

ii) Compare and contrast limited assurance and reasonable assurance.

Your client has outsourced their payroll processes to Azara Technologies (Azara), a payroll management company. You have asked the client how they are confident that the payroll that is processed is accurate and appropriate. They have indicated that Azara sends them the final payroll run for review before payment is done. They also mentioned they performed due diligence on Azara before contracting them and noted that they have other high-profile companies as clients and has a reputable audit firm as its Service Auditor who audits the payroll management service. Your client has shared with you the final approved payroll run for each month under review.

Required: State FIVE audit procedures to be performed on the payroll.

Answer

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Tags: Audit Sampling, ISA 530, judgemental sampling, non-statistical sampling, probability theory, Professional Judgment, sampling risk, Statistical Sampling
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AAA – L3 – Q4 – Public Sector Audit and KPIs

Evaluating school KPIs, debating Auditor General report timing, and discussing transparency principles for Supreme Audit Institutions.

Question

a) Ghana Education Service (GES), as part of its mandate, monitors the performance of schools through supervision, collection of data and evaluation of key indicators like learning outcomes, extracurricular activities and absenteeism. The performance of all schools is subject to annual audits, conducted by auditors, which examine schools in terms of a range of metrics determined by GES.

Okoro Primary School is located in Tema Junction, a suburb of Obuasi, which is the capital of Weija-Amanfro District. It is a former industrial zone, which now suffers from high levels of unemployment and crime. Many of its residents are among the poorest 20% of Weija-Amanfro’s population, whose children qualify to receive free school meals from the government.

Attendance levels at Okoro Primary School are poor, and the school has received reports from concerned citizens of school children wearing unkempt uniforms and being in the city centre at times when they should have been at school.

Okoro Primary School is required to report on key performance indicators (KPIs) in areas spanning the breadth of its activities. On the basis of these indicators, GES has recently assessed Okoro Primary School’s performance to be poor.

Okoro Primary School’s KPIs included the following:

Area measured	KPI
Academic performance	% of pupils in Primary 6 achieving grade “A” in June exams
School attendance	Average % of pupils absent from registration at 8:30 am
Participation in sport	Number of trophies won by school’s sports teams
Uniform	% of pupils whose school uniforms are in line with regulations

Required:
Using the information available:
i) Critically assess each KPI on Okoro Primary School, suggesting possible ways of improving upon any inadequacies you may find.
ii) Recommend alternative KPIs to measure performance in each area.

iii) State audit procedures to provide assurance on the accuracy of each alternative KPIs which you have recommended. (2 marks)

b) Publication of Auditor General’s reports in the media after lodgement with parliament before consideration by the Public Accounts Committee has always generated controversy. Some critics are of the view that the Public Accounts Committee should finish it probes before publication of the report by the Auditor General, as that will allow for mistakes in the report to be corrected.

Required:
Critically examine the above statement.

c) Supreme Audit Institutions (SAIs) are supposed to play a vital role in oversight by promoting transparency, verifying government accounts accuracy and reliability, evaluating spending compliance, assessing such spending’s efficiency and effectiveness, and supporting the fight against corruption.

Required:
According to **_INTOSAI-P 20: Principles of Transparency and Accountability, discuss FOUR principles of transparency and accountability expected of SAIs.

Answer

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Tags: Accountability, Audit Procedures, Auditor-General, INTOSAI, Key Performance Indicators, KPI Audit, Performance Measurement, Public Sector Audit, supreme audit institutions, Transparency
Level: Level 3

Topic: Assurance Services, Government external audit and public accountability, Public sector audit

AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

Question

As the Audit Manager of Zelton & Associates, you are responsible for conducting reviews on audit files where there is potential disagreement between your firm and clients.

You are looking at DuaKonta LTD’s audit file’s going concern section. DuaKonta LTD is a client with severe cash flow issues as well as other, less significant operational signs of going concern issues.

According to the working papers, DuaKonta LTD is now attempting to raise funds to support its operating cash flows, and if the funds are not obtained, there will be serious uncertainty over the company’s ability to continue as a going concern. After reviewing the working papers, it came to light that the going concern assumption is appropriate. However, it is advised that the financial statements include a note outlining the company’s cash flow issues, a description of the financing being sought and an assessment of the company’s going concern status. The Directors of DuaKonta LTD do not wish to include the note in the financial statements.

Required:
a) Compare and contrast the responsibilities of Management and of Auditors, in relation to the assessment of going concern. You should include a description of the procedures used in this assessment where relevant.

b) Consider and comment on FOUR possible reasons the Directors of DuaKonta LTD are reluctant to provide the note to the financial statements.

c) Identify and discuss the implications for the auditor’s report if:
i) The directors refuse to include the disclosure note.
ii) The directors agree to include the disclosure note

Answer

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Tags: Auditor Responsibility, Disclosure, Financial Statement Notes, Going Concern, ISA 570, Management Responsibility, Material Uncertainty, Modified Audit Report
Level: Level 3

Topic: Evaluation and review, Reporting

AAA – L3 – Q2 – Audit Evidence and Evaluation

Audit manager must address three issues: chemical cleanup costs, inventory held by third party, and related party transaction involving a residential apartment.

Question

You are the manager responsible for the audit of Gyamfin LTD (Gyamfin). The company’s principal activity is wholesaling frozen fish.
The draft consolidated financial statements for the year ended 31 March is as follows:

	2025	2024
	GH¢’million	GH¢’million
Revenue	100.5	93.45
Profit Before Tax	17.85	21.3
Total Assets	72.00	54.6

Issues arising during the audit have been noted below for your attention:

Chemical Leakage
Early in 2025, some of Gyamfin’s property became contaminated due to a chemical leak from refrigeration units. Gyamfin has paid a fine of GH¢45,000 to a regulatory body, GH¢0.45 million for cleanup expenses and GH¢0.9 million for unit modernisation to stop future leaks. These expenses have been capitalised as improvements, with the exception of the fine, which has been expensed.

Inventory
Gyamfin contracted with Nubari Warehousing (Nubari) to handle all of its cold storage needs while the refrigeration systems were being modernised. As of March 31, 2025, health and safety regulations prohibiting unauthorised access to cold storage spaces made it impossible to physically inspect Gyamfin’s inventory with Nubari. Management of Gyamfin has stated in writing that the inventory as of March 31, 2025, was GH¢15.15 million (2024 – GH¢10.05 million). This amount has been agreed to a costing of Nubari’s monthly return of quantities held at 31 March 2025.

Residential Apartment
Gyamfin owns a residential apartment above its head office. Until 31 December 2024 it was let for GH¢4,500 a month. Since 1 January 2025 it has been occupied rent-free by the senior sales executive.

Required:
For each of the above issues:
i) Comment on THREE matters that you should consider; and
ii) State FOUR audit evidence that should be appropriate for the audit.

Answer

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Topic: Audit Evidence, Evaluation and review

AAA – L3 – SA – Q5.9 – Audit-related services

Which term is not associated with prospective financial information?

Question

Which of the following terms is NOT normally associated with prospective financial information?

A Hypothetical assumptions

B Sensitivity analysis

C Projections

D Assertions

Answer

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Tags: assumptions, Projections, Prospective financial information, Sensitivity Analysis
Level: Level 3

Topic: Audit-Related Services

AAA – L3 – SA – Q5.8 – Audit-related services

What type of engagement is due diligence work for a client?

Question

Due diligence’ work for a client is:

A An attestation engagement

B a direct reporting engagement

C a compilation engagement

D an agreed-upon procedures engagement.

Answer

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Tags: Direct reporting, Due diligence, Engagement types, Professional services
Level: Level 3

Topic: Audit-Related Services

AAA – L3 – SA – Q5.7 – Audit evidence

Which statements about related party transactions are correct?

Question

Which of the following statements are correct?

1 With related party transactions, there is some risk of collusion and fraud.

2 A focus of audit attention with regard to related party transactions shall be on significant non-routine transactions.

A Statement 1 only is correct.

B Statement 2 only is correct.

C Both statements are correct.

D Neither statement is correct.

Answer

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Tags: Disclosures, Fraud Risk, Non-routine transactions, Related Party Transactions
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q5.6 – Audit evidence

What factors influence an auditor’s materiality decision?

Question

Which of the following will influence an auditor’s decision as to whether a matter is material?

1 Degree of approximation

2 Losses or low profits

3 Time of occurrence during the year

4 Offset and aggregation

A 1,2 and 3 only

B 1,3 and 4 only

C 2,3 and 4 only

D 1,2 and 4 only

Answer

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Tags: Aggregation, Approximation, Audit judgment, Materiality, Profitability
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

Question

What is the main justification for the use of a business risk approach to an audit of large companies?

A A systems-based approach and a substantive testing approach are unlikely to detect material misstatements in the financial statements of large companies.

B This approach forces the auditors to understand the client’s business in depth.

C It is more effective than other approaches to audit in detecting deficiencies in internal control.

D Major audit problems in large companies are more likely to result from business-related problems than from deficiencies in internal control.

Answer

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Tags: Business Risk Approach, Financial Statements, Internal controls, Large Companies
Level: Level 3

Topic: The audit approach

Subject (SQ): ADVANCED AUDIT AND ASSURANCE

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AA – L2 – Q4 – Evaluation and review

Review auditor going concern responsibilities, identify five indicators from Afrimax Ltd financials, and state three audit procedures.

AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

AAA – L3 – Q4 – Public Sector Audit and KPIs

Evaluating school KPIs, debating Auditor General report timing, and discussing transparency principles for Supreme Audit Institutions.

AAA – L3 – Q3 – Going Concern

Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

AAA – L3 – Q2 – Audit Evidence and Evaluation

Audit manager must address three issues: chemical cleanup costs, inventory held by third party, and related party transaction involving a residential apartment.

AAA – L3 – SA – Q5.9 – Audit-related services

Which term is not associated with prospective financial information?

AAA – L3 – SA – Q5.8 – Audit-related services

What type of engagement is due diligence work for a client?

AAA – L3 – SA – Q5.7 – Audit evidence

Which statements about related party transactions are correct?

AAA – L3 – SA – Q5.6 – Audit evidence

What factors influence an auditor’s materiality decision?

AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

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Subject (SQ): ADVANCED AUDIT AND ASSURANCE

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Review auditor going concern responsibilities, identify five indicators from Afrimax Ltd financials, and state three audit procedures.

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Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

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Evaluating school KPIs, debating Auditor General report timing, and discussing transparency principles for Supreme Audit Institutions.

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Audit manager reviews a client with going concern issues where directors refuse to disclose a required note in financial statements.

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