Topic: Assurance services

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  • 15 Marks

AA – May 2024 – L2 – SA – Q6 – Assurance Services

This question focuses on assurance engagements, explaining the differences between reasonable and limited assurance, and details the elements of assurance engagements as performed by a practitioner.

Each assurance engagement is classified on two dimensions: It is either a reasonable assurance engagement or a limited assurance engagement, and either it is an attestation engagement or a direct engagement.

Required:

a. Specify the two channels through which assurance can be provided. (2 Marks)

b. Differentiate reasonable assurance from limited assurance. (3 Marks)

c. Explain the five elements of an assurance engagement performed by a practitioner. (10 Marks)

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  • 20 Marks

AA – Nov 2020 – L2 – Q3 – Assurance Services

Explain the concept of auditor independence and its importance.

Adetutu Company Limited obtained a loan from a bank in the previous year. The bank has requested an independent review of the company’s compliance with the loan covenants, hence, the Finance Controller has contacted your partner and asked that your firm carry out this assurance engagement.

Required:
a. Discuss the elements of an assurance engagement. (10 Marks)
b. Explain the different levels of assurance. (4 Marks)
c. Explain the categories of threats to the professional ethics of an auditor. (6 Marks)

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  • 15 Marks

AA – May 2018 – L2 – Q6 – Assurance Services

Focuses on identifying and explaining the key elements of an assurance engagement.

In an assurance engagement, an “assurance firm” is engaged by one party to give an opinion on a piece of information that has been prepared by another party.

Required: a. Identify and explain FIVE elements contained in an assurance engagement performed by an auditor. (15 Marks)

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  • 20 Marks

AA – MarJul 2020 – L2 – Q5 – Assurance Services and Due Diligence for Hallmark Ltd

Explanation of assurance services, levels of assurance, and elements of an assurance engagement.

The Directors of Hallmark Limited have decided that in order to improve its operating efficiency, there is need to increase the working capital of the company. The last audited financial statements of the company were up to September 30, 2018. A prospective investor has decided to perform due diligence on the company before investing a certain amount of money in the business. The Financial Controller of Hallmark Limited has advised the directors that prior to the due diligence exercise, there might be need to perform assurance services on the company’s financial result as the investor may not be willing to accept the last audited financial statements for the due diligence. Your father, who is a director of the company, has approached you as an accountancy student to give more explanations to him on the foregoing.

You are required to explain:
a. Assurance services (5 Marks)
b. The various levels of assurance services (7 Marks)
c. The components/elements of an assurance engagement (8 Marks)

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  • 5 Marks

AAA – July 2023 – L3 – Q5b – Assurance services | Current issues

Explains appropriate audit procedures for Corporate Social Responsibility (CSR) reports, focusing on assessing impact and stakeholder engagement.

Corporate Social Responsibility (CSR) is the hallmark of every well managed entity. In some cases, cost of CSR may not involve actual expenditure.

Required:

Explain THREE (3) appropriate procedures for audit engagements for CSR reports. (5 marks)

 

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  • 20 Marks

AAA – July 2023 – L3 – Q2 – Assurance services | The audit approach | Planning

Discuss matters to consider before accepting a review engagement and recommend procedures for examining a cash flow forecast.

Eebuks Ltd is a retailer of academic textbooks that sells through its own network of bookshops and online through its website. The revenue from the website includes both cash sales and sales on credit to educational institutions. The company has provided historical analysis from its trade receivables ledger indicating that for sales made on credit, 25% payment is received in the month of sale, 70% after 30 days, and the remainder are irrecoverable debts.

You are a Manager in Makafui & Associates, a firm of Chartered Accountants offering a range of services from audit to non-audit for its clients. On 1 July 2023, your firm was asked by Eebuks Ltd, a company that is not an audit client of your firm, to consider a potential engagement to review and provide an assurance report on Prospective Financial Information. Makafui & Associates has already conducted specific client identification procedures in line with money laundering regulations with satisfactory results.

Additionally, Eebuks Ltd has approached your firm to obtain an independent assurance opinion on its cash flow forecast, which is being prepared for its bankers in support of an application for an increase in its existing overdraft facility.

Required:

a) In line with ISAE 3400: The Examination of Prospective Financial Information, discuss FIVE (5) matters to be considered by Makafui & Associates before accepting the engagement to review and report on Eebuks Ltd’s Prospective Financial Information. (10 marks)

b) Assuming Makafui & Associates accepts the engagement, recommend EIGHT (8) procedures to be performed in respect of Eebuks Ltd’s cash flow forecast. (10 marks)

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  • 10 Marks

AAA – May 2021 – L3 – Q5b – Audit-related services | Assurance services

Discuss how audit software can be used to audit revenue and trade receivables and evaluate the extent of reliance on internal auditor's use of embedded software.

Mike Developers’ Audit Manager is of the view that audit software can be used effectively in the audit of revenue and trade receivables. He has discussed this with the firm’s computer audit department and with Mike Developers’ Finance Director, and this approach has been agreed as a feasible one. Furthermore, the Finance Director has asked the internal audit team to investigate the possibility of installing embedded software to help the external auditors in their work.

Required:

i) Describe, giving examples, how audit software, in general, could assist the audit firm in their audit of revenue and trade receivables. (6 marks)

ii) Discuss the extent to which the external auditor could rely on the results of the internal auditor’s use of embedded software. (4 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q4a – Assurance services | Professional responsibility and liability

Discuss the considerations before accepting an engagement to certify benchmark petroleum revenue and the issues related to relying on an independent expert’s certification.

Your firm has been contracted by the Office of the Auditor General (AG) of Ghana to provide the Ministry of Finance (MoF) with the certification of the Projection of Benchmark Petroleum Revenue for 2016.

The Petroleum Revenue Management Act (PRMA), 2011 (Act 815) became law in Ghana on 11 April 2011, and Section 17 of the PRMA requires the Minister responsible for Finance to make a projection of the amount of petroleum revenue that would accrue to the Government of Ghana in the coming year, not later than 1 September of each year.

The first schedule of the Act mandates an independent expert to certify the projection of the Benchmark Petroleum Revenue by the Minister before it would be used in the National Budget for the coming year.

The two major issues in the projection are the quantity of Oil and Gas expected and the world market price at which the oil and gas will be valued.

As part of the documents to be used in performing this assignment, MoF has given you:

  • Projection of the Benchmark Petroleum Revenue from oil and gas for 2016, and
  • Certification of the Estimate of the Oil and Gas production for 2016 from the existing and expected oil and gas producing fields in Ghana.

The first schedule of the Act prescribes a formula for the calculation of the Average Unit Price for Crude Oil and Natural Gas on the International Market to be used for the year. The certification in the Estimate of the Oil and Gas production was issued by an independent expert in the Oil and Gas industry.

Required:

i) State FOUR issues your firm will consider in order to decide whether or not to accept this engagement from the Office of the Auditor General. (4 marks)

ii) If your firm decides to accept the engagement, state FOUR issues your firm will consider in order to place reliance on the certification issued by the independent expert in the Oil and Gas industry in performing the engagement. (4 marks)

iii) State TWO audit procedures your firm would perform to determine that the Average Unit Price for Crude Oil and Natural Gas on the International Market for 2016 used by MoF in the Projection of the Benchmark Petroleum Revenue for 2016 is fairly stated. (2 marks)

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  • 10 Marks

AAA – May 2017 – L3 – Q3b – Assurance services | Audit-related services

Discuss the characteristics of auditing International Non-Governmental Organizations (INGOs) and the steps required for a small audit firm to enter this market.

The number of international non-governmental organizations (charitable organizations) is increasing in Ghana, and your firm Zumah and Co. Chartered Accountants (a small firm) is contemplating entering that segment of the audit market. Your managing partner has asked you as an audit senior to conduct research on the audit of such entities to enable the firm to start bidding for jobs from those entities.

Required:

Write a memo to the engagement partner detailing the characteristics of such audit clients, what the firm needs to do, and the audit organization that your firm may need to join to enhance your chances of securing engagements to audit such entities.

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  • 10 Marks

AAA – Nov 2016 – L3 – Q5b – Assurance Services | Audit Evidence

Evaluate the environmental issues that could lead to misstatements and recommend audit actions for J & K Mining Company.

J & K Mining Company operates in the Abuakwa Community of the Eastern Region as a Sand Wining Company. The youth of the area had been opposing the activities of the company of late. Sasana, the Managing Director of J & K Mining Company, approached Kaku & Associates, a Chartered Accounting firm, to accept an attest engagement to examine and report on the environmental issues of J & K Mining Company Ltd. for the year ended 31 December 2013.

Required:
i) Evaluate the environmental issues that may lead to the risk of misstatements in the Financial Statements. (3 marks)

ii) Recommend the actions and the audit procedures that Kaku and Associates should undertake when they realize that J & K Mining Company Ltd. has environmental issues that may affect the Financial Statements. (7 marks)

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  • 20 Marks

AAA – May 2020 – Q2 – Assurance Services

Evaluate the risks, audit implications, and ethical considerations for accepting an engagement to provide assurance on EnvironmentalCare Ghana's Sustainability Report, focusing on environmental and social KPIs.

You are a manager in Sustainability Ghana, an independent member of Sustainability International, a global firm of Chartered Certified Accountants. You are responsible for evaluating proposed engagements and for recommending to a team of partners whether or not an engagement should be accepted by your firm.

EnvironmentalCare Ghana, a listed company, is an existing audit client and is an international energy producing company, with a global network including 220 countries and 300,000 employees. The company offers electricity using renewable resources to individual and corporate customers, as well as storage and logistical services.

EnvironmentalCare Ghana takes its corporate social responsibility seriously, and publishes social and environmental key performance indicators (KPIs) in a Sustainability Report, which is published with the financial statements in the annual report. Partly in response to requests from shareholders and pressure groups, EnvironmentalCare Ghana’s management has decided that in the forthcoming annual report, the KPIs should be accompanied by an independent assurance report. An approach has been made to your firm to provide this report in addition to the audit.

To help in your evaluation of this potential engagement, you have been given an extract from the draft Sustainability Report, containing some of the KPIs published by EnvironmentalCare Ghana. In total, 25 environmental KPIs, and 50 social KPIs are disclosed.

Extract from Sustainability Report Year ended 31 December 2018 Draft Year ended 31 December 2017 Actual
CO2 emissions (million tonnes) 26.8 28.3
Energy use (million kilowatt hours) 4,895 5,250
Charitable donations (GH¢ million) 10.5 8.2
Number of serious accidents in the workplace 60 68
Average annual expenditure on training per employee GH¢180 GH¢175

You have also had a meeting with Kofi Ghana, the manager responsible for the audit of EnvironmentalCare Ghana, and notes of the meeting are given below.

Notes from meeting with audit manager, Kofi Ghana

  • Sustainability Ghana has audited EnvironmentalCare Ghana for three years, and it is a major audit client of the firm, due to its global presence and recent listing on two major stock exchanges. The audit is managed from the Airport office, which is also the location of the global headquarters of EnvironmentalCare Ghana. The audit work is nearly complete, and the annual report is to be published in about four weeks, in time for the company’s meeting, scheduled for 31 January 2019.
  • No work has been done on the KPIs, other than review them for consistency, as we would with any ‘other information’ issued with the financial statements. The KPIs are produced by EnvironmentalCare Ghana’s Sustainability Department, located in Fartown. There has been no visit to EnvironmentalCare Ghana’s offices in Fartown as it is in a remote location overseas, and the department’s based there are not relevant to the audit.
  • Audit procedures were performed on the charitable donations, as disclosed in a note to the financial statements, and our evidence indicates that there have been donations of GH¢9 million this year, which is the amount disclosed in the note. However, the draft KPI has a different figure of GH¢10.5 million, and this is the figure highlighted in the draft Chairman’s Statement as well as the draft Sustainability Report. GH¢9 million is material to the financial statements.
    Your firm has recently established a sustainability reporting assurance team based at the
    Airport office and if the engagement to report on the Sustainability Report is accepted, it
    would be performed by members of that team, who would not be involved with the audit.
    Required:
    a) Identify and explain the matters to be evaluated in making the acceptance decision to
    perform an assurance engagement on the Sustainability Report of EnvironmentalCare
    Ghana. (14 marks)
    b) Recommend procedures that could be used to verify the following draft KPIs:
    i) The number of serious accidents in the workplace; and (3 marks)
    ii) The average annual expenditure on training per employee. (3 marks)
    (Total: 20 marks)

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  • 10 Marks

AAA – May 2019 – L3 – Q3b – Assurance services

Discuss the matters to include in training material on professional scepticism in audit based on IAASB guidelines

You are the audit manager in charge of training in one of the audit firms in Ghana. The Institute of Chartered Accountants (Ghana) invited you to be a resource person of a Continuing Professional Development (CPD) programme to be organised. You are to talk on Professional Scepticism in an audit of Financial Statements.

Required:
Identify and discuss the matters that you will include in your training material.
NB: Your answer should consider the IAASB Q & A paper on professional scepticism.

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  • 10 Marks

AAA – April 2022 – L3 – Q1c – Audit evidence, Assurance services

Discuss the challenges and audit approaches in performing an assurance engagement on an electronic processing system.

K. O. and Associates, a firm of Chartered Accountants, has accepted a statutory audit engagement from Special Cream Ltd, a bookshop with many sales points across the country. In 2021, the company implemented a computerised system that has been networked to all sales points to the Head Office in Accra. In the middle of 2021, the company started accepting mobile money as a means of payment in addition to cash and cheque payment. Mobile money payments are confirmed with an accounts staff before books are supplied.

In planning the audit of Special Cream Ltd, the Audit Manager, Samuel Alhassan, identified risks associated with electronic processing systems which provide additional challenges for auditors.

Required: i) Discuss FOUR (4) challenges K. O. and Associates would encounter in performing an assurance engagement on the electronic processing system. (4 marks)

ii) Discuss FOUR (4) audit approaches K. O. and Associates should adopt in performing an assurance engagement on an electronic processing system. (6 marks)

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  • 20 Marks

AAA – Nov 2015 – L3 – Q3 – Assurance services

This question addresses the considerations before accepting an engagement to review prospective financial information and the reporting requirements thereafter.

You are a manager in BS Cipax, a medium-sized firm which offers a range of services to audit and non-audit clients. You have been asked to consider a potential engagement to review and provide a report on the prospective financial information of Filtane Limited, a company which has been an audit client of BS Cipax for six years. The audit of the financial statements for the year ended 31 August 2015 has been completed and your firm issued an unmodified report. Filtane Limited operates a chain of fashion stores across the country.

Currently its merchandise are out of date and it sells clothing which do not reflect the latest and in mode fashion labels which are becoming more popular especially with the youth. Management is planning to revamp its image and stock the latest fashion in Africa and across the other continents. It also intends to invest in the latest technologies to include online real time trading on the internet order to attract more customers, especially the up-and-coming youth, trendy middle-aged persons and even those far from its shops by attracting them to shop over the internet. The company has sufficient cash to fund half of the necessary capital expenditure, and has approached its bank, Boafo Bank Limited, with a loan application of GHS32 million for the remainder of the funds required. Most of the cash will be used to invest in acquiring inventory and the technology for ensuring secure and safe online trading. The remaining cash will be used for refurbishment of the shops. Management had informed the Audit team, in the invitation to start the audit, of its intention to use the audited financial statements as the basis for preparing the prospective financial information to be used to seek for the loan from Boafo Bank Limited. The draft forecast statements of profit or loss for the years ending 31 August 2016 and 2017 are shown below, along with the key assumptions which have been used in their preparation. The audited statement of profit or loss for the year ended 31 August 2015 is also shown below.

The forecast has been prepared for use by the bank in making its lending decision, and was to be accompanied by other prospective financial information including a forecast statement of cash flows. Note 1: The forecast increase in revenue is based on the following assumptions:
(i) All shops will be stocked with new modern and in mode fashion to attract new customers to the shops and many persons who don’t live in the vicinity of the shops will also be attracted through online shopping by December, 2015.
(ii) Prices will increase by an average of 25% in December 2015.
Note 2: Operating expenses include mainly staff costs, depreciation of property and fittings, and repairs and maintenance to the shop fittings and equipment as well as ensuring continuous safe and secure on-line shopping.

Required:

a) i) Explain the matters to be considered by BS Cipax before accepting the engagement to review and report on the prospective financial information of Filtane Limited. (5 marks)

ii) Assuming the engagement is accepted, and the results of the examination procedures show that the prospective financial information have been prepared in accordance with the assumptions and appear reasonable, discuss the issues that will be in the report your firm will issue in respect of the forecast statement of profit or loss. (8 marks)

b) Boafo Bank Limited gave the loan to Filtane Limited on 15 October 2015, and a review of the first six months of operation in May 2016 of the new shops revealed that the company was not doing well and could not pay the first installment for the loan from Boafo Bank Limited. Further investigation revealed that the audited financial statements signed by BS Cipax, which showed a profit of GHS20.2M, should have been of a loss of GHS4.3M.

Boafo Bank Limited has indicated its intention to sue your firm for negligence on the basis that it placed reliance on the financial statements audited by your firm.

Required:

Comment on the matters that you should consider in deciding whether your firm will contest the matter in court or seek an out-of-court settlement with the bank. (7 marks)

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