Fraud – Knowsia

AAA – L3 – SA – Q4.8 – Group audits

What must a group auditor communicate to group management?

Question

Which of the following items shall be communicated by a group auditor to the group management?

1 an overview of the planned scope and timing of the audit

2 an overview of the work to be performed at the components of the group

3 component performance materiality

4 Any fraud or suspected fraud

A 1,2,3 and 4

B 1 only

C 1 and 4 only

D 1,2 and 4 only

Answer

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Tags: Audit Scope, Communication, Component audit, Fraud, Group auditor
Level: Level 3

Topic: Group audits

BCL – L1 – SA – Q55 – Contract Law

False statement about fraud or misrepresentation in contracts.

Question

Which of the following statement is false?

A A contract is not voidable if fraud or misrepresentation does not induce the other party to enter a contract.

B A party cannot complain of fraudulent silence or misrepresentation if he had the means of discovering the truth with ordinary means.

C In case of fraud or misrepresentation, aggrieved party can either rescind or affirm the contract.

D A party who affirms the contract, can also change his option afterwards if he so decides.

Answer

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Tags: Contract Law, Contract Rescission, Fraud, Misrepresentation
Level: Level 1

Topic: Contract Law

AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

Question

When an auditor suspects that fraud has occurred in a corporate client’s business, and that senior management are involved in the fraud, the auditor should as a first step:

A discuss the matter with the audit committee

B seek legal advice

C ask a professional accountancy body for advice

D report the matter to the police authorities.

Answer

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Tags: Auditor Responsibility, Confidentiality, Fraud, ICAG
Level: Level 3

Topic: Professional responsibility and liability

BCL – L1 – SA – Q45 – Contract Law

Liability of a minor misrepresenting age to borrow money.

Question

A minor, by misrepresenting his age, borrows some money –

A. He can be sued for the fraud

B. He cannot be sued for the fraud

C. He is liable to return the money

D. None of the above

Answer

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Tags: Contract Capacity, Fraud, Liability, Minor
Level: Level 1

Topic: Contract Law

BCL – L1 – SA – Q44 – Contract Law

Effect of a promise made without intent to perform.

Question

A promise made without the intention of performing it amounts to –

A. Innocent misrepresentation

B. Fraud

C. Negligent misrepresentation

D. Wrongful misrepresentation

Answer

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Tags: Contract Validity, Fraud, Misrepresentation
Level: Level 1

Topic: Contract Law

BCL – L1 – SA – Q38 – Contract Law

Validity of a contract caused by fraud or coercion.

Question

An agreement that is caused by fraud, misrepresentation & coercion is

A. Voidable

B. Partially Void

C. Valid

D. All of these

E. None of these

Answer

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Tags: Fraud, Misrepresentation, Voidable Contract
Level: Level 1

Topic: Contract Law

BCL – L1 – SA – Q30 – Contract Law

Can Robert’s statement “This is the sharpest car on the market” support a claim for misrepresentation?

Question

Robert makes the following statement while negotiating the sale of his car, “This is the sharpest car on the market.” His statement may support a claim for:

A misrepresentation.

B fraud.

C fraud and misrepresentation.

D none of the above.

Answer

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Tags: Contract Law, Fraud, Misrepresentation, Puffery
Level: Level 1

Topic: Contract Law

BCL – L1 – Q66 – Governance and ethical issues relating to business

Explain governance issues and director disqualification factors in a case involving fraud at a company.

Question

In 2015, KWEKU LTD, which carries on the business of exporting cassava and mangoes from Ghana to Europe, opened an account with Zenith Bank at the Tema Branch. In 2016, the Finance Manager, who is the sole accounts officer of the company, forged the signature of the Managing Director (who was also the sole signatory to the bank account of the company) and made several withdrawals from the company to the tune of GH₵550,000. The bank in that same year requested that the Managing Director should, within two weeks of the letter, confirm the credit balance on the account, which at the time stood at GH₵2,200,000. The Managing Director, without any further checks, signed the document, thus confirming the credit balance presented by the bank. In 2017, the auditors raised queries on some of the fictitious withdrawals. The Chairman of the Board ordered the Human Resource Manager to dismiss both the Managing Director and the Finance Manager with immediate effect.

Required:

(a) Explain FOUR (4) issues in the case relating to governance and duties of directors. (10 marks)

(b) Explain THREE (3) factors that disqualify a person from being appointed as a director. (10 marks)

Answer

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Tags: Board authority, Corporate Governance, Directors duties, Disqualification, Fiduciary duty, Fraud, Termination
Level: Level 1

Topic: overnance and ethical issues relating to business

FR – L2 – Q64 – Revenue from Contracts with Customers

Recalculate AX Ltd's profit for the year ended 31 March 20X9, adjusting for sale or return, depreciation, fraud, and tax.

Question

AX LTD
Below is the summarised draft statement of financial position of AX Ltd, a company listed on the West Africa Stock Exchange, as at 31 March, 20X9:

Non-current assets
Property at valuation (land GH₵20,000; buildings GH₵165,000) (note ii)	185,000
Plant (note ii)	180,500
Financial assets at fair value through profit or loss at 1 April 20X8 (note iii)	12,500
	378,000
Current assets
Inventory	84,000
Trade receivables (note iv)	52,200
Bank	3,800
	140,000
Total assets	518,000

Equity and Liabilities
Equity
Stated capital	290,000
Capital surplus	12,300
Income surplus
– At 1 April 20X8	96,700
– For the year ended 31 March 20X9	12,300
	109,000
	411,300
Non-current liabilities
Deferred tax – at 1 April 20X8 (note v)	19,200
Current liabilities	81,800
	101,000
Total equity and liabilities	518,000

The following information is relevant:
(i) AX Ltd’s statement of profit or loss includes GH₵8million of revenue for credit sales made on a “sale or return” basis. At 31 March 20X9, customers who had not paid for the goods, had the right to return GH₵2.6million of them. AX Ltd applied a mark-up on cost of 30% on all these sales. In the past, AX Ltd’s customers have sometimes returned goods under this type of agreement.
(ii) The non-current assets have not been depreciated for the year ended 31 March 20X9. AX Ltd has a policy of revaluing its land and buildings at the end of each accounting year. The values in the above statement of financial position as at 1 April 20X8 when the building had a remaining life of 15 years. A qualified surveyor has valued the land and buildings at 31 March 20X9 at GH₵180million. Plant is depreciated at 20% on the reducing balance basis.
(iii) The financial assets at fair value through profit or loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 20X8 the relevant index was 1,200 and at 31 March 20X9 it was 1,296.
(iv) In late March 20X9 the directors of AX Ltd discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of GH₵4 million of the trade receivables as shown in the statement of financial position at 31 March 20X9 had in fact been paid and the money had been stolen by the credit controller. An analysis revealed that GH₵1.5 million had been stolen in the year to 31 March 20X8 with the rest being stolen in the current year. AX Ltd is not insured for this loss and it cannot be recovered from the credit controller, nor is it deductible for tax purpose.
(v) During the year, the company’s taxable temporary differences increased by GH₵10 million of which GH₵6 million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the income tax rate is 20%.
(vi) The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 20X9. After allowing for any adjustments required in terms (i) to (iv), the directors have estimated the provision of GH₵11.4 million (this is in addition to the deferred tax effects of item (v).
(vii) During the year, dividends of GH₵15.5 million were paid. These have been correctly accounted for in the above statement of financial position.

Required:
Taking into account any adjustments required by items (i) to (vii) above:
(a) Prepare a statement showing the recalculation of AX Ltd’s profit for the year ended 31 March 20X9; and

(b) Redraft the statement of financial position of AX Ltd as at 31 March 20X9.

Answer

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Tags: Deferred Tax, Depreciation, Financial Position, Fraud, Inventory, Revaluation, Trade Receivables
Level: Level 2

Topic: Inventory Accounting

AA – L2 – Q36 – Internal Control Systems

Describe the impact of interim audit work on internal controls for the final audit. List factors to consider for additional work on internal controls at the final audit post-interim audit. Explain how an audit committee benefits external and internal auditors. Explain differences in internal and external auditors' responsibilities for fraud and error prevention, detection, and reporting. List criteria for external auditors to rely on internal audit work per ISA 610.

Question

An audit is often carried out in more than one sitting, especially when there are tight reporting deadlines. The auditors will carry out an interim audit during the period under review followed by a final audit shortly after the year end. Work at the interim audit will often include obtaining audit evidence about the operating effectiveness of controls.

(a)(i) Describe the impact on the final audit of performing work on internal controls at an interim audit.

(ii) Assuming an interim audit has taken place and work on internal controls was carried out, list the factors the auditor should consider when deciding how much more work is needed at the final audit in relation to internal controls.

Businesses may establish an audit committee to help improve corporate governance within a company. This can provide benefits to both internal and external auditors.

(b) Explain how an audit committee can benefit both the external auditors and the internal auditors of an entity.

There are similarities and differences between the responsibilities of internal and external auditors. Both internal and external auditors have responsibilities relating to the prevention, detection and reporting of fraud, for example, but their responsibilities are not the same.

(c) Explain the difference between the responsibilities of internal auditors and external auditors for the prevention, detection and reporting of fraud and error.

ISA 610 Using the Work of Internal Auditors provides guidance to external auditors on the use of internal audit work.
(d) List and explain the various criteria that should be considered by external auditors when assessing whether to take reliance from work performed by internal audit.

Answer

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Tags: Detection, Error, External Auditors, Fraud, Internal Auditors, ISA 240, Prevention, Reporting
Level: Level 2

Topic: Fraud and Error

Tag (SQ): Fraud

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AAA – L3 – SA – Q4.8 – Group audits

What must a group auditor communicate to group management?

BCL – L1 – SA – Q55 – Contract Law

False statement about fraud or misrepresentation in contracts.

AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

BCL – L1 – SA – Q45 – Contract Law

Liability of a minor misrepresenting age to borrow money.

BCL – L1 – SA – Q44 – Contract Law

Effect of a promise made without intent to perform.

BCL – L1 – SA – Q38 – Contract Law

Validity of a contract caused by fraud or coercion.

BCL – L1 – SA – Q30 – Contract Law

Can Robert’s statement “This is the sharpest car on the market” support a claim for misrepresentation?

BCL – L1 – Q66 – Governance and ethical issues relating to business

Explain governance issues and director disqualification factors in a case involving fraud at a company.

FR – L2 – Q64 – Revenue from Contracts with Customers

Recalculate AX Ltd's profit for the year ended 31 March 20X9, adjusting for sale or return, depreciation, fraud, and tax.

AA – L2 – Q36 – Internal Control Systems

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AAA – L3 – SA – Q4.8 – Group audits

What must a group auditor communicate to group management?

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BCL – L1 – SA – Q55 – Contract Law

False statement about fraud or misrepresentation in contracts.

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AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

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BCL – L1 – SA – Q45 – Contract Law

Liability of a minor misrepresenting age to borrow money.

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BCL – L1 – SA – Q44 – Contract Law

Effect of a promise made without intent to perform.

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BCL – L1 – SA – Q38 – Contract Law

Validity of a contract caused by fraud or coercion.

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BCL – L1 – SA – Q30 – Contract Law

Can Robert’s statement “This is the sharpest car on the market” support a claim for misrepresentation?

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BCL – L1 – Q66 – Governance and ethical issues relating to business

Explain governance issues and director disqualification factors in a case involving fraud at a company.

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FR – L2 – Q64 – Revenue from Contracts with Customers

Recalculate AX Ltd's profit for the year ended 31 March 20X9, adjusting for sale or return, depreciation, fraud, and tax.

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AA – L2 – Q36 – Internal Control Systems

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