Audit Evidence – Knowsia

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 – Q3.6 – Auditor’s Expert Valuation

True statements about auditor’s expert valuation.

Question

Which of the following are true about a valuation by an auditor’s expert?

1 It may be a part of audit evidence

2 The auditor’s expert should be experienced in the particular field

3 It reduces the responsibility of the auditor

A 1 and 2 only

B 1 and 3 only

C 2 and 3 only

D 1, 2 and 3

Answer

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Tags: Audit Evidence, Auditor’s Expert, ICAG, Valuation
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q2.7 – Auditor’s Working Papers

Incorrect statement about auditor’s working papers.

Question

Which of the following statements about the auditor’s working papers is INCORRECT?

A They record the audit evidence that supports the audit opinion

B They enable the audit partner to assess the progress of an audit

C They assist in the efficiency of an audit

D The client can have access to them

Answer

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Tags: Audit Evidence, Client Access, ICAG, Working Papers
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q1.8 – Going Concern Audit

Incorrect statement about going concern audit.

Question

Which of the following is NOT true about audit of the appropriateness of management’s use of the going concern basis of accounting?

A The auditor must assess the appropriateness of the going concern basis of accounting.

B Auditing the cash flow forecast is a good source of audit evidence.

C Written representations are usually sufficient on their own.

D If there a material uncertainty exists with regards to going concern, an unmodified audit opinion is possible if a Material Uncertainty Related to Going Concern paragraph is included.

Answer

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Tags: Audit Evidence, Audit opinion, Going Concern, ICAG
Level: Level 3

Topic: Evaluation and review

AA – L2 – SA – Q4.9 – Receivables Circularization

Feature not associated with receivables circularization.

Question

What will NEVER be a feature of receivables circularization?

A Using client headed paper to send letters out

B Asking the client if the replies have come back

C A positive circularization

D A negative circularization

Answer

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Tags: Audit Evidence, Audit Procedures, ICAG, Receivables Circularisation
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q3.9 – Existence Evidence

Audit procedure for existence evidence.

Question

Which of the following audit procedures is primarily intended to provide audit evidence as to existence?

A Matching sales invoices to goods dispatch notes

B Casting the sales ledger

C Confirming receivables balances with customers

D Checking the dating of outstanding cheques

Answer

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Tags: Audit Evidence, Existence, ICAG, Receivables Confirmation
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q3.7 – Evidence Reliability

Most reliable type of audit evidence.

Question

Which one of the following types of evidence is the most reliable?
A The client’s sales invoices
B Report obtained from a client’s bank confirming balances
C The written representation letter
D Confirmation during a telephone call with the Managing Director that there are no loans outstanding

Answer

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Tags: Audit Evidence, Bank Confirmation, ICAG, Reliability
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q2.6 – Audit Evidence Reliability

Most reliable source of audit evidence.

Question

Which of the following is normally the most reliable source of audit evidence?

A Internal audit

B Suppliers’ statements

C Board minutes

D Analytical review

Answer

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Tags: Analytical Review, Audit Evidence, Board Minutes, ICAG, Reliability
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q1.10 – IAS 37 Components

Identify what does not appear in IAS 37.

Question

Which of the following does not appear in IAS 37?

A Deferred revenue

B Contingent assets

C Provisions

D Contingent liabilities

Answer

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Tags: Audit Evidence, Contingent Liabilities, IAS 37, ICAG, Provisions
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q1.8 – Test of Control

Identify which is not a test of control.

Question

Which of the following is NOT a test of control? A Checking that all purchase invoices are authorized by the proper people B Test checking from purchase invoices to goods received notes C Where a list of approved suppliers exists, checking that orders are placed only with suppliers on such a list D Checking for sequential numbering by the client of purchase invoices received

Answer

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Tags: Audit Evidence, ICAG, Purchase Invoices, Test of Control
Level: Level 2

Topic: Audit and Assurance Evidence

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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 – Q3.6 – Auditor’s Expert Valuation

True statements about auditor’s expert valuation.

AAA – L3 – SA – Q2.7 – Auditor’s Working Papers

Incorrect statement about auditor’s working papers.

AAA – L3 – SA – Q1.8 – Going Concern Audit

Incorrect statement about going concern audit.

AA – L2 – SA – Q4.9 – Receivables Circularization

Feature not associated with receivables circularization.

AA – L2 – SA – Q3.9 – Existence Evidence

Audit procedure for existence evidence.

AA – L2 – SA – Q3.7 – Evidence Reliability

Most reliable type of audit evidence.

AA – L2 – SA – Q2.6 – Audit Evidence Reliability

Most reliable source of audit evidence.

AA – L2 – SA – Q1.10 – IAS 37 Components

Identify what does not appear in IAS 37.

AA – L2 – SA – Q1.8 – Test of Control

Identify which is not a test of control.

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

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True statements about auditor’s expert valuation.

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Audit procedure for existence evidence.

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