Topic: Advanced Audit Planning and Strategy

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AAA – May 2021 – L3 – Q4 – Advanced Audit Planning and Strategy

Discussion of engagement letter elements, reasons for rejecting an engagement, procedures for new client acceptance, and opening balances audit.

Question

As a Senior Manager in Inagbe and Co. (Chartered Accountants), you act as a mentor to some of the young auditors in practice. As a mentor, you discuss frequently with your young mentees on professional and personal matters. Zainab Nigeria Limited is a cosmetics company and has just recently appointed Inagbe and Co. as its auditor. One of your young mentees has been asked to be part of the engagement team. The mentee has come to you for some advice and you decided to use the opportunity to explain the process and procedures to be carried out when accepting a new engagement.

Required:

(a) Explain the elements of an engagement letter. (7 Marks)
(b) Discuss the circumstances under which an auditor may reject an audit engagement. (3 Marks)
(c) Discuss the procedures that an audit firm needs to carry out before accepting to audit a new client. (4 Marks)
(d) Explain the audit procedures that should be carried out on opening balances. (6 Marks)

Answer

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Tags: Audit Acceptance, Audit Procedures, Engagement letter, Opening Balances
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2013 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Describe a series of questions used by auditors to evaluate accounting and control policies.

Question

A series of questions about accounting and control policies and procedures that the auditor considers necessary to prevent material misstatements in the presentation of financial statements is………………………

Answer

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Tags: Accounting Policies, Audit Planning, Control Procedures
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2013

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Question

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

Answer

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Tags: Audit Planning, Audit strategy, Internal Control
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Question

Which of the following is an analytical procedure generally used to produce audit evidence?
A. Confirmations mailed directly to the auditor by the client’s customers
B. Physical observation of inventories
C. Relationship among current financial balances and prior balances, forecasts, and non-financial data
D. Detailed examination of external and internal documents
E. Circularisation letters to debtors and creditors of the company

Answer

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Tags: Analytical procedures, Audit evidence, Audit Techniques
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q20 – Advanced Audit Planning and Strategy

Identifies an essential element of the audit process that reduces time and cost.

Question

Audit …………….. is essential in every audit process as this reduces audit time and invariably the cost.

Answer

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Tags: Audit Efficiency, Audit Process, Cost reduction, Planning, Time Management
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

Question

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

Answer

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Tags: Audit Engagement, Audit Planning, Audit strategy, Resource Allocation, Staff Scheduling
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2021 – L3 – Q2 – Advanced Audit Planning and Strategy

Evaluate internal and external business risks and outline pre-engagement activities for Sunsit Manufacturers Ltd.

Question

The auditors of Sunsit Manufacturers Limited had disagreements with the company on various issues. This came to a climax with the withholding of a part of the payment of the last audit fees. The auditors had also been disenchanted with the undue pressures of management and have decided that, as a result of this and the withheld fees, they would disengage from the client.

The company’s chairman, in consideration of past issues, has considered the size of the audit firm as being partly responsible for its inability to manage adequately the pressures from the company’s accounting and management team. He has subsequently approached your firm for a change, and the partners have accepted the engagement despite the predecessor auditor’s declaration of the forfeiture of the firm’s outstanding fees and no further involvement with the client and issues relating to the company.

Required:

a. Following the background to the client and the engagement, evaluate the internal and external business risks that need to be considered with respect to the client. (10 Marks)

b. Discuss the pre-engagement activities to be carried on the client. (10 Marks)

Answer

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Tags: Auditor Independence, Business risk, Engagement Acceptance, Pre-engagement activities, Risk Assessment
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2011 – L3 – SAII – Q1 – Advanced Audit Planning and Strategy

Definition of audit sampling application in evidence evaluation.

Question

The application of audit procedures to less than 100% of the items within an account balance or class of transactions to enable the auditors obtain and evaluate evidence is known as……………………..

Answer

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Tags: Audit Procedures, Audit Sampling, Evidence Evaluation
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2011

AAA – Nov 2020 – L3 – Q5 – Advanced Audit Planning and Strategy

Identification of financial statement risks in planning the final audit for Maideline Nigeria Limited’s winding-up.

Question

Maideline Nigeria Limited manufactures tyres for use by cars, trucks, and trailers. The company is owner-managed, meaning the shareholders are also the directors. On June 1, 2020, the directors decided to wind up the company due to the high cost of operations, the Naira’s depreciation against the US dollar, and the economic impact of COVID-19, which have severely impacted the company’s ability to continue business.

Management notified employees, suppliers, and customers that Maideline would cease all manufacturing activities by September 30. Consequently, all factory workers and most employees in accounts and administration were terminated effective September 30. Remaining employees will face redundancy by November 30. A minimal head office team, including the Company Secretary and some support staff, will remain operational for a few more years until the company winds down completely.

Maideline operated 20 branches and a head office. Of these, 12 branches are located in company-owned buildings, while the remaining 8 operate from leased buildings with lease terms of three to five years. Lease agreements prohibit sub-letting and sale. On adopting IFRS 16, the entity assumed lease renewals at term end, recording lease liabilities and right-of-use assets. A small head office building will remain in use until its lease expires in three years. Maideline accounts for its tangible non-current assets at cost, less depreciation, and has recognized deferred tax assets due to past tax losses and unutilized capital allowances.

All products sold carry a one-year warranty. Until May 31, 2020, the company offered two- and three-year extended warranties, but these were discontinued from March 1, 2020. Maideline distributes products nationally and internationally under three-year agreements and maintains annual supplier contracts. While no distributors or suppliers have pursued legal actions, some are withholding payments, awaiting penalty settlements they claim are due.

Required:
Using the information provided, identify and explain the financial statement risks to be taken into account in planning the final audit of Maideline in respect of the year ended December 31, 2020. (20 Marks)

Answer

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Tags: COVID-19 Impact, Deferred Tax, financial statement risks, IFRS 16, Inventory Valuation, Legal claims, Winding-up
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – May 2021 – L3 – Q4 – Advanced Audit Planning and Strategy

Discussion of engagement letter elements, reasons for rejecting an engagement, procedures for new client acceptance, and opening balances audit.

Question

Required:

Answer

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Tags: Audit Acceptance, Audit Procedures, Engagement letter, Opening Balances
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2013 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Describe a series of questions used by auditors to evaluate accounting and control policies.

Question

Answer

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Tags: Accounting Policies, Audit Planning, Control Procedures
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2013

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Question

Answer

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Tags: Audit Planning, Audit strategy, Internal Control
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Question

Answer

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Tags: Analytical procedures, Audit evidence, Audit Techniques
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q20 – Advanced Audit Planning and Strategy

Identifies an essential element of the audit process that reduces time and cost.

Question

Audit …………….. is essential in every audit process as this reduces audit time and invariably the cost.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Efficiency, Audit Process, Cost reduction, Planning, Time Management
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Defines the schedule used to determine the timing and grade of staff required for an audit engagement.

Question

A schedule prepared as part of the audit plan for determining the timing and grade of staff needed for an audit engagement is referred to as ……………..

Answer

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Tags: Audit Engagement, Audit Planning, Audit strategy, Resource Allocation, Staff Scheduling
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2021 – L3 – Q2 – Advanced Audit Planning and Strategy

Evaluate internal and external business risks and outline pre-engagement activities for Sunsit Manufacturers Ltd.

Question

Required:

a. Following the background to the client and the engagement, evaluate the internal and external business risks that need to be considered with respect to the client. (10 Marks)

b. Discuss the pre-engagement activities to be carried on the client. (10 Marks)

Answer

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Tags: Auditor Independence, Business risk, Engagement Acceptance, Pre-engagement activities, Risk Assessment
Level: Level 3

Topic: Advanced Audit Planning and Strategy

AAA – Nov 2011 – L3 – SAII – Q1 – Advanced Audit Planning and Strategy

Definition of audit sampling application in evidence evaluation.

Question

Answer

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Tags: Audit Procedures, Audit Sampling, Evidence Evaluation
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2011

AAA – Nov 2020 – L3 – Q5 – Advanced Audit Planning and Strategy

Identification of financial statement risks in planning the final audit for Maideline Nigeria Limited’s winding-up.

Question

Answer

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Tags: COVID-19 Impact, Deferred Tax, financial statement risks, IFRS 16, Inventory Valuation, Legal claims, Winding-up
Level: Level 3