Tag (SQ): Ethics

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  • 15 Marks

FA – L1 – Q63 – Correction of Errors

Prepare journal entries to correct errors in B.B. Ventures' trial balance, including unposted returns, sales errors, and inventory issues.

The trial balance prepared by B.B. Ventures showed a difference of GH₵47,060, which was put on the credit side of a suspense account. An investigation disclosed that:
(i) The total of purchase return day book amounting to GH₵16,160 had not been posted to the ledger.
(iii) The sales account had been added short by GH₵10,000.
(iv) An asset bought four years ago for GH₵7,000 and depreciated to GH₵1,200 had been sold for GH₵1,500 at the beginning of the year. The receipt of cash has been posted in the bank book but corresponding entries have not been recorded.
(v) A credit sale of GH₵1,470 had been credited to the customer’s account as GH₵1,740. An irrecoverable debt of GH₵1,560 has to be written off. Allowance for receivables is to be maintained at 10% of receivables. Receivables appearing in the trial balance are GH₵23,390, and the allowance for receivables account shows a credit balance of GH₵2,320.
(vi) A sub-total of GH₵29,830 on the list of closing inventory had been carried over as GH₵29,380, and another sheet had been overcast by GH₵1,000.

Required:
(a) Prepare journal entries to correct the above errors. (Narrations are not required)

(b) Explain why it is important that the accountant of B.B. Ventures behaves in an ethical manner when preparing financial statements.

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  • 10 Marks

AAA – L3 – Q20 – Professional responsibility and liability

Discuss ethical and professional issues for MM & Co regarding client Pen Co's tax fraud investigation and Scot family's transactions.

You are senior manager in MM & Co, a firm of Chartered Accountants. Recently, you have been assigned specific responsibility for undertaking annual reviews of existing clients. The following situations have arisen in connection with two clients.

(i) MM & Co was appointed auditor of Pen Co last year, and has recently issued an unmodified opinion on the financial statements for the year ended 31 March 2013. To your surprise, the tax authorities have just launched an investigation into the affairs of Pen Co on suspicion of under-declaring revenue. (7 marks)

(ii) Your firm has provided financial advice to the Scot family for many years and this has sometimes involved your firm carrying out transactions on their behalf. The eldest son, Gino, is to take up a position as a senior government official in a foreign country next month. (3 marks)

Required:
Identify and comment on the ethical and other professional issues raised by each of these matters and state what action, if any, MM & Co should now take.

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  • 10 Marks

AAA – L3 – Q14 – Rules of Professional Conduct

Identify and evaluate threats to the Code of Ethics for accountants in BKG Financial Ltd case.

Dabidaba & Co., an audit and assurance firm, has been engaged as auditors for the BKG Financial Ltd, a public limited liability company for some time now. BKG Financial has sixty branches throughout the country and branches in Benin, Mali, and Senegal. The Bank is one of the banks in the country which can boast of large landed properties. Dabidaba & Co. receives about 20% of its income from this particular client. Before last year’s audit, the bank engaged the audit firm to value its land and buildings in all its branches and headquarters. This work was executed by the audit firm and a report has been issued to management. The report has been incorporated in this year’s financial statements to be audited soon. Dabidaba & Co. sees BKG Financial Ltd. as a very important client whose works are always executed with dispatch.

Required:
(i) Identify and evaluate the significance of any threats to the Code of Ethics for Professional Accountants raised in the case.            (ii) Recommend safeguards to eliminate the threats (mentioned in (i) above) or reduce them to an acceptable level, if these are possible.

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  • 20 Marks

AAA – L3 – Q13 – Fraud

Comment on the need for ethical guidance for accountants on money laundering.

(a) Comment on the need for ethical guidance for accountants on money laundering.                                                                                        (b) Explain the difference between fraud and error and how the issues shown here could be categorised as fraud or error.                      (c) Discuss the role of management and the role of the auditor in the prevention and detection of fraud and error.

Daniel’s Maritime and Harbor (DMH) have a marina in Lagos and a large sales operation dealing in yachts and speedboats. You are responsible for the audit of DMH and have found some potential causes of concern that could indicate fraudulent activity or financial misconduct within the company. In particular:

  • 30% of the yachts on sale by DMH are supplied through one of the major international boating companies with a special finance arrangement deal. However, DMH have also obtained separate finance on these yachts, which are therefore in effect being ‘double financed’.
  • Ten yachts shown as assets by DMH cannot be located, with no explanation other than that they have not been sold. These yachts together are worth approximately ₦50 million.
  • Long delays have occurred in performing reconciliations with the last four months of reconciliations still not completed. At the time of the last reconciliation, material differences had been identified upon which no action appears to have been undertaken.
  • Revenues have been overstated by ₦100 million in the current financial statements.
  • The finance director has been off sick with stress for the last five months and therefore has not been available to discuss any of the issues identified.

(d) Describe what steps you would take to further investigate and then report on the matters referred to above.

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  • 15 Marks

AAA – L3 – Q9 – Rules of professional conduct

Explain the importance of ethical principles, demonstrate independence, and outline when confidential client information can be disclosed.

ICAG has adopted IESBA’s ethical guidance, the International Code of Ethics for Professional Accountants. These rules are applicable to all members and students. If these rules are not complied with disciplinary action may result which could lead to reprimand, fine or exclusion.

Required
(a) Explain why you think fundamental principles of ethics are so fundamental to auditing.
(b) Explain how a member can demonstrate that they are truly independent in carrying out the work they perform, and why it is important that they should do so.
(c) Set out the circumstances in which it is permissible to disclose confidential client information.

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