Written Representations

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 – Q61 – Audit Evidence

Discuss reliability of directors' written representations and actions if directors refuse to sign, focusing on revenue and expenditure.

Question

You are the external auditor of Jonas Healthcare Services Co.
A written representation letter has been prepared in which the directors have been asked to confirm that all revenue has been included in the financial statements and that when there is weak evidence of expenditure, the expenditure has been for the benefit of the company and not for the personal benefit of any employee or director.
Required
(a) Discuss the reliability of audit evidence provided by directors in the written representation letter and whether you should rely wholly on the representations of the directors or whether you should obtain other evidence.

(b) Describe the action you would take and the conclusions you would reach if the directors refused to sign a written representation letter. Your answer should specifically consider the statements in the letter concerning completeness of revenue and validity of expenditure.

Answer

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Tags: Audit Evidence, Audit Procedures, Directors' Representations, Reliability, Written Representations
Level: Level 3

Topic: Audit 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 – Q61 – Audit Evidence

Discuss reliability of directors' written representations and actions if directors refuse to sign, focusing on revenue and expenditure.

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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.

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AAA – L3 – Q61 – Audit Evidence

Discuss reliability of directors' written representations and actions if directors refuse to sign, focusing on revenue and expenditure.

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