Subject: ADVANCED AUDIT AND ASSURANCE

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  • 10 Marks

AAA – Nov 2024 – L3 – Q5b – Anti-Money Laundering Regulations and Auditor Responsibilities

Discuss anti-money laundering regulations in Ghana and auditors' responsibilities in compliance.

Lamsey Jewelers is a family-owned business specializing in high-end jewellery, located in Dunkwa-On-Offin in the Central Region of Ghana. The company sources gold from various suppliers in the small-scale mining sector. Recently, the Minerals Commission received anonymous tips suggesting that Lamsey Jewelers may be involved in laundering money through its operations. Authorities suspect that the business could be used to conceal the origins of illicit funds through gold purchases and sales.

To investigate these suspicions, regulatory authorities have appointed Baba Yara and Associates, an independent auditing firm, to conduct a thorough review of Lamsey Jewelers’ operations and financial transactions. During the audit, Baba Yara and Associates discovered that Lamsey Jewelers has been accepting large cash payments for custom jewellery orders without conducting proper due diligence on the customers. Several transactions involving cash payments exceed typical retail amounts, raising suspicions of potential money laundering.

Required:

i) Discuss the key legal and regulatory requirements in Ghana related to anti-money laundering relevant to Lamsey Jewelers.

ii) Discuss the obligations placed on professional firms such as Baba Yara and Associates in relation to money laundering.

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  • 10 Marks

AAA – Nov 2024 – L3 – Q5a – Roles of an Audit Committee in Corporate Governance

Explain four roles of an audit committee in compliance with good corporate governance practices.

An Audit Committee is a sub-group of a company’s Board of Directors responsible for the oversight of the financial reporting and disclosure process. The duties and responsibilities of the Audit Committee greatly contribute to good corporate governance practices of a company.

Required:
Explain FOUR roles of an Audit Committee in compliance with good corporate governance practices.

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  • 10 Marks

AAA – Nov 2024 – L3 – Q4b – Compliance Audit in State Audits

Evaluate compliance audit engagements in state audits and discuss common areas covered in reports.

Compliance audit is crucial in state audits to ensure multiple objectives. It determines whether the subject matter being considered follows specific criteria. These criteria may include:

  1. Parliament decisions
  2. The Law
  3. Government Policy
  4. Established agreed terms, etc.

Compliance audit can be conducted as either an Attestation Engagement or a Direct Reporting Engagement.

Required:
i) Evaluate these TWO engagements. 
ii) Discuss common areas that will be covered by the reports of the two engagements.

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  • 10 Marks

AAA – Nov 2024 – L3 – Q4a – Audit of Ghana’s Domestic Debt Exchange Programme

Describe how to plan and execute an audit of Ghana’s domestic debt exchange program.

a) The Minister for Finance on December 5, 2022, invited holders of domestic bonds to voluntarily exchange GH¢137.3 (US$14.3) billion of the bonds and notes including E.S.L.A and Daakye Bonds for a package of 12 new eligible domestic bonds.

As Director of Audit at the Ghana Audit Service, describe how you would plan and execute an audit of the implementation of Ghana’s domestic debt exchange program as a form of CPD for a section of staff of the Ghana Audit Service.

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  • 8 Marks

AAA – Nov 2024 – L3 – Q3b – Implications of Inaccurate Other Information on the Audit

Describe the implications if the Chairman’s statement remains inaccurate and its impact on the audit report.

b) Assuming that no changes are made to the Chairman’s statement, describe the implications for the completion of the audit and the auditor’s report.

(Note: detailed knowledge in IFRS S1 is not a requirement to answer this question).

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  • 12 Marks

AAA – Nov 2024 – L3 – Q3a – Auditor’s Responsibilities Relating to Other Information

Explain the auditor’s responsibilities regarding other information in an entity’s annual report and identify issues in the Chairman’s statement.

a) In line with ISA 720: (Revised) The Auditor’s Responsibilities Relating to Other Information, explain the auditor’s responsibilities in relation to the other information presented with the audited financial statements and comment on the matters arising from the extract from the Chairman’s statement.

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  • 5 Marks

AAA – Nov 2024 – L3 – Q2b – Audit Procedures for Long-term Loan in Ecowud Co. LTD

Audit procedures to obtain sufficient appropriate evidence for a long-term loan.

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company operates across Ghana and West Africa and has secured a GH¢3.5 million long-term loan as part of its financial restructuring. The loan agreement has bank-imposed financial conditions, including maintaining a minimum total asset level. If these conditions are breached, the loan becomes immediately repayable.

As part of the audit procedures, you are required to obtain sufficient and appropriate audit evidence regarding the GH¢3.5 million long-term loan.

Required:
Describe FIVE audit procedures you would perform to obtain sufficient appropriate evidence in relation to the long-term loan of GH¢3.5 million.

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  • 15 Marks

AAA – Nov 2024 – L3 – Q2a – Audit Risks and Responses for Ecowud Co. LTD

Identifying audit risks in Ecowud Co. LTD and how auditors should respond.

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company has a wide customer base, including construction companies and furniture manufacturers across Ghana and West Africa.

You are the Audit Manager of Adomako & Associates and are planning the audit of Ecowud for the year ended 31 December 2023. You and the Audit Engagement Partner attended a planning meeting with Ecowud’s Finance Manager.

You are reviewing the initial meeting notes to develop the audit strategy and plan. The following key matters were captured:

  1. Development Expenditure: Revenue for the year was forecast at GH¢32 million. During the year, Ecowud spent GH¢3.5 million on developing new types of plywood. Some of these are in the early stages of development, while others are nearing completion. The Finance Manager intends to capitalize the entire GH¢3.5 million spent on development since all projects are likely to succeed.

  2. Inventory Valuation: Ecowud uses a standard costing method to value inventory. However, the company has never updated its standard costs since adopting this policy. The company operates multiple warehouses in Ghana and across West Africa, most of which are third-party rented premises.

  3. Accounting Software: A new accounting software was developed internally and implemented in August. The old and new software did not run parallel, as management deemed it burdensome. Two months after implementation, the IT Manager resigned, and a new IT Manager will take over in January 2024.

  4. Long-term Loan and Share Capital: Ecowud restructured its finances, raising GH¢2 million through share issuance and GH¢3.5 million through a long-term loan. The loan has bank-imposed financial conditions, including a minimum total asset level. If breached, the loan becomes immediately repayable.

  5. Revaluation of Land & Buildings: Ecowud follows a revaluation model for land and buildings. The Finance Manager has announced that all land and buildings will be revalued at the year-end.

Required:
Identify FIVE audit risks in relation to Ecowud Co. LTD and for each risk, explain how the auditor should respond.

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  • 10 Marks

AAA – Nov 2024 – L3 – Q1b – Group Audit Risks and Consolidation Issues

Audit risks and procedures for a multinational group audit engagement.

You are a Senior Auditor at Dromo Audit Firm, assigned to audit a new client, Afroherb Pharma LTD, a multinational pharmaceutical company. During the initial stages of engagement planning, you discovered that Afroherb Pharma LTD operates in multiple jurisdictions, including Ghana, Liberia, Sierra Leone, and The Gambia. The parent company is in Ghana, and the companies in the other jurisdictions are all subsidiaries. All these jurisdictions have significant regulatory requirements and operational difficulties. The company has recently expanded its product line to include vaccine production following the introduction of The Vaccine Centre in Ghana. The production of vaccines is also subject to stringent regulatory reviews.

Required:
i) State FOUR audit procedures you could perform in relation to the consolidation of the financial statements of Afroherb Group. 
ii) Identify TWO specific risks associated with auditing Afroherb Pharma LTD, particularly in relation to its expansion into vaccine products. How should these risks be managed?
iii) State TWO problems associated with the planning of group audits

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  • 10 Marks

AAA – Nov 2024 – L3 – Q1a – Ethical Issues in Audit Engagements

Ethical issues and professional conduct in an audit engagement involving conflict of interest.

You are the Audit Partner of a mid-sized audit firm, Amoah Sonko and Associates. One of your major clients, Kudi LTD (Kudi), has approached you for a significant audit engagement. Kudi has been experiencing rapid growth and plans to get listed on the Ghana Alternative Market within the next year. During preliminary discussions, the Managing Director of Kudi, a friend, promised you a bonus if the audit report is completed quickly and is favourable, highlighting the company’s strengths.

In the course of the audit of Kudi, you came across a series of unusual financial transactions. These included large intercompany loans with its sister companies, other significant related-party transactions with the directors, and an unusually high volume of sales recorded a few days before the end of the financial year. Upon further investigation, your team found discrepancies in inventory records and evidence of potential non-compliance with revenue recognition standards. The Finance Manager insists these transactions are legitimate and necessary for the company’s rapid growth.

Additionally, you noticed that Kudi was involved in a high-profile legal battle with a major competitor, which was not fully disclosed in the financial statements. The lawyer for Kudi insists that you omit this information from the audit report, arguing it would damage the company’s reputation and its plans to get listed on the Ghana Alternative Market.

Required:
i) Identify TWO potential ethical issues in the scenario and explain the potential impact on your professional conduct.                      ii) Identify the steps you should take to address the conflict of interest presented by the Managing Director’s offer. 
iii) Discuss the potential sanctions for accepting the Managing Director’s offer and providing a favourable audit report without proper verification. 
iv) Evaluate the impact of the undisclosed legal battle on Kudi LTD’s financial statements and the upcoming initial public offer.

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  • 30 Marks

AAA – May 2017 – L3 – Q1 – Audit Reporting

Prepare briefing notes covering benefits of IAASB auditor reporting project, sections of ISA 700 report, and explanation of Key Audit Matters.

You are Aremu Ana, an Audit Partner at Danda Audit firm who has kept pace with the International Auditing and Assurance Standards Board’s (IAASB) new and revised reporting standards which lay the foundation for the future of global auditor’s reporting and improved auditor communication.

You have concluded arrangements with the Human Capital Department of the firm to train the firm’s audit team, which includes trainees, supervisors, and managers. The training programme has been fixed to hold in two months’ time. You are now preparing notes that will assist in educating the audit team and make them appreciate the new standards.

Required:

Prepare a training briefing note which:
a. Clarifies the intended benefits of the IAASB’s new auditor reporting project. (5 Marks)
b. Identifies and describes the different sections of the new auditor’s report as required by ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements. (20 Marks)
c. Explains the term ‘Key Audit Matters’ (KAM), stating any TWO matters an auditor is required to take into account in the determination of KAM in accordance with ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. (5 Marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q7 – Group Audits

Explain joint audit, its benefits, and challenges in the context of an automotive company’s acquisition.

You are an audit manager in a firm of Chartered Accountants. Your firm has been appointed as joint auditors with another firm to carry out the audit of Opeloyeru Automotive Company Limited, which has acquired another company in the same industry to expand its business across six states in the southwest zone of Nigeria.

Required:
a. Explain the concept of joint audit. (5 Marks)
b. Discuss the reasons why joint audit is considered desirable. (5 Marks)
c. Explain possible setbacks for engagement in joint audits. (5 Marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q6 – Audit Reporting

Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.

During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.

Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.

The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.

Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q5 – Risk Management in Audits

Assess inherent risks and identify specific audit risks related to auditing the financial statements of Insurgency Relief Providers (IRP).

Insurgency Relief Providers (IRP) is a non-governmental organization set up by a popular philanthropist from the southwest part of the country. The philanthropist sits as the chairman of the board of trustees and has a manager who is a close relative of the chief executive officer. All the management activities are in the hands of the manager, and the board of trustees sits occasionally to formalize major decisions. Initially, the sum of ₦50,000,000 was provided by the philanthropist, and fundraising was organized to raise an additional ₦200,000,000 in cash and pledges by political associates. The activity of IRP has been carried out with these and other donations from friends and well-wishers.

Activities of IRP are essentially performed in the northeastern region of the country. These activities include food and material supply using chartered vehicles and police/military escorts. The distribution is carried out with the involvement of some staff of the NGO who travel by air and within the safe zones of the region.

Due to the successes recorded and the need to increase these activities, the chairman of the board of trustees has made appeals to some foreign-friendly associates to be involved in his organization’s activities by providing financial support. A number of these organizations have shown interest and would want to review the operational activities and financial statements of IRP over the past three years.

For the purpose of the current request from foreign associates and other agencies, a statutory audit of the financial statements is required.

Your firm was appointed and has accepted the engagement.

Required:
a. Assess the inherent risks associated with the audit of the financial statements of IRP. (10 Marks)
b. Identify FIVE audit risks to be addressed by the auditor. (5 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q3 – Audit of IT Systems and Data Analytics

Explain COBIT as an IT governance tool, its purpose, and six specific components of the framework.

Jemigboran Commercial Industries has been operating for some years. Its management has sought your input as the auditor of the company on a proposal by the information technology (IT) team of the company to introduce a framework as “Control Objectives for Information and Related Technologies (COBIT)” for its operations.

Required:
a. Explain COBIT as an IT governance tool, and the purpose it serves in an organisation. (8 Marks)
b. Identify and explain SIX specific components of COBIT. (12 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q2 – Assurance Engagements

Explain due diligence, discuss its components, benefits of using auditors, and ISRE 2400 principles and objectives.

Bolokupalemo Pharmaceuticals Limited is a fast-growing company operating with its head office in Onitsha. The management of the company is targeting the takeover of another company located in the South-South zone of Nigeria with the intention of expanding its business frontier. Preliminary discussions reveal that the management of the other company has not shown any effective resistance to the proposed takeover. However, the management of Bolokupalemo wants a clear due diligence work to be performed to determine the viability of the acquisition.

As the auditor of the acquiring company, its management has approached you to carry out a due diligence work on the company that it has proposed to acquire. The management also requires your firm to carry out the engagement in accordance with the provisions of International Standard on Review Engagements (ISRE 2400).

You are required to:
a. Explain the concept of “due diligence engagement.” (2 Marks)
b. Discuss the items to be investigated in a due diligence exercise. (5 Marks)
c. Explain the benefits of using an audit firm for due diligence engagement. (5 Marks)
d. Discuss the objectives of “International Standard on Review Engagement” (ISRE 2400). (5 Marks)
e. Explain the principles to be applied in review engagements as set out by ISRE 2400. (3 Marks)

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  • 30 Marks

AAA – May 2019 – L3 – Q1 – Forensic Auditing

Analyze forensic accounting, discuss ethical principles, and outline procedures for Ayeniromo Microfinance Bank forensic investigation.

Ayeniromo Microfinance Bank Limited has been operating for more than five years in Ekemode Local Government area of a state in Nigeria. The bank opened three cash centres in three locations in the local government area in 2013.

Business activities have been very encouraging in one of the cash centres until a sudden change in activities in 2016. This resulted in the negative performance of the cash centre. The managing director thereafter decided to investigate the causes of the problems in the cash centre.

An interim report of the preliminary investigation on the cash centre identified infractions on cash takings from customers by some staff of the cash centre during the year 2016.

The managing director and the board decided to engage your firm as forensic accountants with the following terms of reference:

  1. Investigate whether fraud has actually occurred and if so, to obtain evidence to support that assertion in a court of law.
  2. Identify the individual(s) who has/have committed the fraud and obtain evidence that can be used in a court of law to link them with the fraud.
  3. Estimate the financial loss that has occurred because of the fraud.

You are required to:
a. Discuss the concept of forensic accounting and explain the nature of forensic investigation and forensic audit. (10 Marks)
b. Analyse and apply the FIVE fundamental principles of the IFAC’s Code of Ethics for professional accountants to forensic investigation. (10 Marks)
c. Explain the procedures to be followed in a forensic investigation engagement for Ayeniromo Microfinance Bank Limited. (10 Marks)

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  • 15 Marks

AAA – Nov 2014 – L3 – SC – Q7 – Audit of IT Systems and Data Analytics

Evaluates factors influencing the use of CAATs in audit planning and identifies solutions to address audit trail loss.

CAATs

The availability of Computer Assisted Audit Techniques (CAATs) should be considered by auditors when planning the nature, extent, and timing of tests in an audit. Auditors must determine their testing strategies which will depend on their choice of either using a manual testing method or a computer-assisted method.

Required:

(a) Explain FIVE factors that will determine auditors’ 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)

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  • 15 Marks

AAA – Nov 2014 – L3 – SC – Q6 – Environmental and Sustainability Audits

Evaluates the risks and considerations of tendering for the audit of Lagos Leisure Ltd, including fee estimation and tender document components.

You are the senior audit manager for a medium-sized firm of accountants. Your firm has just lost two clients which have gone into receivership and has now been invited to tender for the audit of Lagos Leisure Ltd. The audit fees have been initially estimated at ₦200,000.

Lagos Leisure Ltd is a medium-sized manufacturing organisation which has existed for 35 years and has generally made consistent profits. However, in the last two years, profits have fallen by approximately 10% in each year, although the market sector in which Lagos Leisure Ltd operates is expanding. The company has also stated that they would like some consultancy support regarding business strategy in order to try and reverse the current profit downturn and have set aside ₦1m for this.

You have ascertained the following from a brief discussion with the Managing Director:

  1. There has been no investment in non-current assets in the last 10 years. The company was intending to start a program of investment two years ago but this was cancelled due to reduced profits, and maintenance and repair costs have increased significantly over the last year.
  2. Staff remuneration has been frozen, and there has been some discussion with unions as staff morale is very low and several staff have already left. So far, industrial action has been avoided.
  3. The Financial Director was dismissed three months ago and hasn’t been replaced; he is currently suing Lagos Leisure Ltd for unfair dismissal.
  4. The Managing Director is due to retire next year; a replacement has not yet been considered.
  5. There is an outstanding litigation as an employee is suing Lagos Leisure Ltd due to an accident in the workplace, and the authorities have written a detailed report about the case.

Your firm’s total fee income last year was ₦7m, including ₦500,000 from the lost clients.

Required:

(a) Discuss the advantages and disadvantages of tendering for the audit of Lagos Leisure Ltd, highlighting any key risks to your firm. (7 Marks)

(b) Although the initial estimate of the audit fee was ₦200,000, further work needs to be done before a figure could be included in the tender document. List the factors which should be taken into account when calculating this fee. (4 Marks)

(c) Outline the matters which should be included in the tender document if the firm decides to tender. (4 Marks)

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