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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  • 1 Marks

AAA – Nov 2013 – L3 – AII -Q8 – Forensic Auditing

Explores the components of forensic accounting, including investigative aspects.

Forensic accounting encompasses both …………… and investigative accounting.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q7 – Audit of Specialized Industries

Addresses the accounting practices of farmers and incomplete record-keeping.

Farmers usually operate as …………………, in which case they keep incomplete records.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q6 – Public Sector Audits

Explores the alternate terminology for balance sheets of parastatals.

 The balance sheet of parastatals is also referred to as a statement of………….and…………….

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q5 – Quality Control in Audit Firms

Discusses the scope of quality control within an audit firm.

Quality control should not be in respect of each engagement only but must be a……………………….in the entire firm.

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  • 1 Marks

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

Identifies the computer file used to record and maintain payroll transactions and cumulative data.

 A computer file for recording payroll transactions for each employee and maintaining total employee salaries paid and related data for the year to date is called……………………………

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q3 – Audit Evidence

Explores the type of confirmation sent directly to a debtor for balance verification.

A letter addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct, and if incorrect by what amount is………………………….confirmation.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q2 – Audit Evidence

Audit Evidence, Balance Confirmation, Reporting Dates, Discrepancy, Fraud

A reported difference in a confirmation of balances by a debtor to a client due to different reporting date but not due to misstatement or fraud is known as………………….

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q1 – Auditor’s Legal Liability

Explores the legal defence for auditors against damages claimed by clients.

1. An auditor’s legal defence that the damages claimed by the client were not brought about by any act of his is …………………………..

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  • 15 Marks

AAA – May 2022 – L3 – Q7 – Risk Management in Audits

Evaluate key risk areas for auditors in consolidating Nigerian and UK company accounts, considering transfer pricing and related party transactions.

BARCHI International Limited is a company with corporate registrations in both the United Kingdom (U.K.) and Nigeria. The Chairman of the company is based in Nigeria and from time to time travels to the U.K. to oversee the office there and order for the purchase of some of the articles for sale. To ensure steady supply of the products, some of the products are also ordered from China. The purchases from the U.K. are charged to the Nigerian entity in pound sterling, while the purchases from China are charged to the Nigerian company in American dollars.

In September 2020, the Chairman embarked on a trip to Dubai for two weeks where he spent part of his annual holiday. During this period, he hosted a couple of friends with the costs that were paid for by the company as the costs were above his approved annual holiday expenses. He subsequently traveled to the U.K. and was quarantined for two weeks due to COVID-19 before moving to the usual business lodge that he uses. Despite using that period to oversee the U.K. company, all the costs incurred were borne by the Nigerian company.

The products bought in the U.K. and sent to Nigeria were charged at cost plus 25%, while the Nigerian company was responsible for insurance and freight. The goods purchased from China were forwarded to Nigeria at the cost of landing in Nigeria plus 30%. The China-made products are less expensive and therefore give better profits despite the cost of the long-distance freight.

Money was transferred to the Chairman’s account for the company’s purchases in the U.K., the purchases made in China, and the Chairman’s personal expenses. An agent in China bought the goods which were paid for by the Chairman.

The U.K. company staff handled the documentation of all the transactions of the Chairman while there and transferred them to Nigeria subject to the approval of the Chairman.

Separate records were not maintained for the Chairman’s expenses in the U.K. However, his comparison of the results of the two units showed that for the immediate past financial year, the Nigerian company had performed sub-optimally and way below the targeted profit in relation to the U.K. company. The Chairman is very unhappy about this as he expects that his personal visit to the U.K. would reduce the purchasing and associated costs.

It is usual for the Chairman to account for the cost of purchases based on his personal expenses attributable to each purchase together with the actual cost of purchases. The U.K. component is elated about this costing method which favors it and would wish that this arrangement continues.

The two units prepare separate financial statements which are audited by separate accounting firms before the two financial statements are consolidated in Nigeria for the Chairman’s evaluation.

Required:

Evaluate, with appropriate justifications, from the scenario above, the areas of risk which the auditor needs to consider. (15 Marks)

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  • 15 Marks

AAA – May 2022 – L3 – Q5 – Regulatory Framework and Professional Standards

Discuss arguments for and against audit exemption for small companies and evaluate considerations for auditing small entities.

The Companies and Allied Matters Act, 2020 has classifications and responsibilities for various types of companies incorporated under it. A particular class that has received more attention in recent times and in the Act is small companies.

Your audit team has been approached by a few of these small companies for guidance on the issue and your team has been assigned this responsibility. Part of the concerns of your firm is whether or not those small companies merit the concerns of regulatory authorities and the accounting firms that have to be responsible for their audit.

Your team has a number of young assistants who are yet to understand the differences and therefore need enlightenment on this as part of the training programs.

Required:

a. Discuss the arguments for and against the exemption of small companies from audit. (10 Marks)

b. On the basis that an audit may be conducted for a small entity, evaluate the points the auditors would consider. (5 Marks)

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