Topic: Audit and Assurance Evidence

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AA – Nov 2024 – L2 – Q5b – Substantive Testing of Accounts Receivable

Explain three substantive tests for verifying accounts receivable balance.

Question

Baaba & Associates, an audit firm, is conducting a year-end audit of Rashida LTD. The audit team is particularly concerned about the accuracy of the accounts receivable balance reported on the statement of financial position as of December 31, 2023. Therefore, as part of their audit procedures, they need to perform substantive tests to identify any material misstatements, errors, or fraud that could impact the accuracy of the financial statements.

Required:
Explain THREE substantive tests that the audit team at Baaba & Associates should perform to obtain sufficient appropriate audit evidence regarding the accuracy of Rashida LTD’s accounts receivable balance.

Answer

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Tags: Accounts Receivable, Audit evidence, Audit Procedures, Financial Reporting, Risk Assessment, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

AA – Nov 2024 – L2 – Q3b – Audit Assertions for the Income Statement

Explain two key audit assertions for the income statement.

Question

Audit assertions are claims made by management regarding the accuracy and completeness of various elements of financial statements. These assertions are used by auditors to develop audit procedures and gather evidence to support their audit opinion. Assertions are categorised into those related to the income statement and those related to the statement of financial position.

Required:
Explain TWO key Audit Assertions for the Income Statement.

Answer

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Tags: Audit Assertions, Audit evidence, Financial Reporting, Financial Statements, Income Statement, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

AA – Nov 2024 – L2 – Q3a – Management’s Expert and Audit Evidence

Explain the term "management’s expert" and four factors to consider before relying on their work as audit evidence.

Question

Question:
ISA 500: Audit Evidence provides guidance for auditors intending to rely on the work of a management’s expert. If the information to be used as audit evidence has been prepared using the work of a management’s expert, the auditor must evaluate the management’s expert.

Required:
i) Explain the term “management’s expert.”
ii) Explain FOUR factors to consider before relying on the work of a management’s expert as audit evidence.

Answer

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Tags: Audit evidence, Audit Reliability, External audit, Financial Reporting, Management’s expert, Professional Judgment, Risk Management
Level: Level 2

Topic: Audit and Assurance Evidence
Series: Nov 2024

AA – July 2023 – L2 – Q5b – Audit and Assurance Evidence, Professional and Ethical Considerations

Explanation of five benefits of documenting audit work.

Question

b) ISA 230: Audit Documentation deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements.

Required:
State FIVE (5) benefits of documenting audit work. (5 marks)

Answer

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Tags: Audit Documentation, Audit Work, Benefits, ISA 230
Level: Level 2

Topic: Audit and Assurance Evidence, Professional and Ethical Considerations
Series: JULY 2023

AA – July 2023 – L2 – Q3a – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Procedures external auditors perform to evaluate the effectiveness of data security controls.

Question

a) Abbey Ltd is a medium-sized manufacturing company that produces various products for consumers. The company has a large amount of confidential data, including financial records, trade secrets, and personal information of employees and customers. The company has recently become concerned about cyber security risks and has hired an external auditor to conduct an audit of their data security controls.

Required:
Explain FIVE (5) procedures the External Auditor would need to perform to obtain evidence to evaluate the effectiveness of Abbey Ltd’s data security controls.

(10 marks)

Answer

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Tags: Audit Procedures, Cybersecurity, Data security, External Auditor
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – July 2023 – L2 – Q1c – Audit and Assurance Evidence, Professional and Ethical Considerations

Explanation of fraud risk factors in risk assessment procedures according to ISA 240.

Question

c) ISA 240 (Redrafted): The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements requires the Auditor to perform procedures to identify the risk of material misstatement due to fraud. The Auditor must evaluate information obtained from other risk assessment procedures to see if any fraud risk factors are present.

Required:
Explain FIVE (5) risk factors in risk assessment procedures with regard to fraud. (5 marks)

Answer

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Tags: Fraud, ISA 240, Misstatement, Risk Assessment
Level: Level 2

Topic: Audit and Assurance Evidence, Professional and Ethical Considerations
Series: JULY 2023

AA – July 2023 – L2 – Q1b – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Explanation of control weaknesses inherent in Non-Profit Organizations (NFPOs).

Question

b) Understanding the client’s business environment is critical to understanding the client’s business. There is a need for this because the objectives of commercial organizations are different from that of not-for-profit organizations (NFPOs). The inherent control weaknesses for both forms of organizations may not be the same.

Required:
Explain FIVE (5) control weaknesses inherent in NFPOs. (10 marks)

Answer

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Tags: Internal Control, Non-Profit Organizations, Risk, Weaknesses
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – Nov 2023 – L2 – Q4c – Completion Procedures and Reporting, Audit and Assurance Evidence

This question explains the auditor's actions if management refuses to provide representations.

Question

ISA 580: Written Representations guides the use of management representations as audit evidence, the procedures to be applied in evaluating and documenting management representations, and the action to be taken if management refuses to provide appropriate representations.

Required:
Explain the action to be taken by the auditor if management refuses to provide representations.
(3 marks)

Answer

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Tags: ISA 580, Qualified Opinion, Scope Limitation, Written representations
Level: Level 2

Topic: Audit and Assurance Evidence, Completion Procedures and Reporting
Series: NOV 2023

AA – Nov 2023 – L2 – Q4a – Audit Failure and Expectation Gap, Audit and Assurance Evidence

This question distinguishes between fraud and error in the audit of financial statements.

Question

ISA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, distinguishes fraud from error and provides significant guidance on the auditor’s responsibilities to consider fraud in an audit of financial statements.

Required:
Distinguish between fraud and error giving an example of each.
(4 marks)

Answer

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Tags: Audit Responsibility, Error, Financial Statements, Fraud, ISA 240
Level: Level 2

Topic: Audit and Assurance Evidence, Audit Failure and Expectation Gap
Series: NOV 2023

AA – Nov 2023 – L2 – Q3b – Audit and Assurance Evidence

This question asks for the verification procedures to be followed for assets, liabilities, and equity in an audit.

Question

Automech Ltd is a manufacturer of automotive parts based in Ghana. The company’s accountant has been manipulating the accounts payable balance by teeming and lading to misrepresent the financial position of the company. The accountant has been recording fictitious invoices and payments to suppliers to increase the accounts payable balance and misrepresent the company’s expenses.

The external auditor, who was engaged to audit the financial statements of the company, performed substantive testing for transaction cycles and verification procedures for assets, liabilities, and equity items. However, the auditor failed to identify the risk of teeming and lading in the accounts payable balance.

During the audit, the auditor reviewed the accounts payable balance and performed confirmation procedures to verify the balance with the suppliers. However, the accountant had provided the auditor with fake confirmation responses, and the auditor failed to detect the fraud.

Although the financial statements of Automech Ltd were misstated, the Auditor issued an unqualified opinion, stating that the financial statements were presented fairly, in all material respects, in accordance with the applicable financial reporting framework. After the audit, the fraud was discovered by a whistle-blower, and the accountant was fired. The company’s reputation was damaged, and the external auditor faced legal action for failing to detect the fraud.

Required:
State and explain the procedures that should be followed for verification of assets, liabilities, and equity items in Automech Ltd.
(10 marks)

Answer

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Tags: Assets, Audit evidence, Equity, Liabilities, Verification procedures
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2023

AA – Nov 2016 – L2 – Q3d – Audit and Assurance Evidence

Explain the differences between statistical and non-statistical sampling in audit engagements. ISA 530 "Audit Sampling" states that the objective of the auditor, when using audit sampling, is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected. Required: Explain the difference between statistical sampling and non-statistical sampling. (

Question

ISA 530 “Audit Sampling” states that the objective of the auditor, when using audit sampling, is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected.

Required:
Explain the difference between statistical sampling and non-statistical sampling.

Answer

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Tags: Audit Sampling, Non-Statistical Sampling, Statistical Sampling
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2016

AA – Nov 2016 – L2 – Q2e – Audit and Assurance Evidence

List factors to consider when relying on the results of analytical procedures as substantive audit procedures.

Question

ISA 520 Analytical procedures provides guidance to auditors on the use of analytical procedures during the course of the external audit.

Required:
When using analytical procedures as substantive audit procedures, list and briefly explain with examples THREE factors to consider when determining the extent of reliance that can be placed on the results of such procedures. (6 marks

Answer

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Tags: Analytical procedures, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2016

AA – May 2020 – L2 – Q4a – Audit and Assurance Evidence

Identify who is responsible for ensuring the going concern basis in preparing financial statements.

Question

Your audit firm has almost completed the audit of SG Ltd. At the review stage, the audit manager assembled the engagement team and wanted to find out whether the audit evidence obtained shows that the company is a going concern.

Required:
i) Outline whose responsibility it is to ensure that the going concern basis used in the preparation of the financial statements is reasonable and acceptable.
(7 marks)

ii) Outline with examples the THREE (3) broad classifications of going concern indicators. (3 marks)

Answer

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Tags: Audit Responsibilities, Financial Statements, Going Concern, ISA 570
Level: Level 2

Topic: Audit and Assurance Evidence
Series: MAY 2020

AA – Nov 2016 – L2 – Q2c – Audit and Assurance Evidence

Explain walk-through tests and audit sampling procedures.

Question

There are a number of key procedures which auditors should perform if they wish to rely on internal controls and reduce the level of substantive testing they perform. These include:

i) Walk-through tests
ii) Audit Sampling

Required:
Briefly explain each of the procedures listed above.

Answer

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Tags: Audit Sampling, Walk-Through Tests
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2016

AA – Nov 2016 – L2 – Q2b – Audit and Assurance Evidence

Define audit software and test data, and explain the advantages of CAATs.

Question

Computer-Assisted Audit Techniques (CAATs) are the use of computers for audit work and comprise mainly audit software and test data.

Required:
Explain the terms ‘audit software’ and ‘test data’ and list the advantages of using CAATs in an audit.

Answer

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Tags: Audit Software, CAATs, Test Data
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2016

AA – May 2020 – L2 – Q3a – Audit and Assurance Evidence

Explain the main assertions about account balances and give examples from the audit of trade receivables.

Question

Audit Evidence requires the auditor to obtain sufficient, appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion. That evidence should be relevant to the financial statement assertions.

Required:
i) Explain the main assertions about account balances and provide an example of each one by reference to the audit of trade receivables. (8 marks)

ii) Identify FIVE (5) of the seven main audit testing procedures (e.g., inspection) and give an example of how each might be used in the audit of plant and machinery. State the assertion being tested in each case. (5 marks)

Answer

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Tags: Audit evidence, Financial statement assertions, ISA 500, Trade receivables
Level: Level 2

Topic: Audit and Assurance Evidence
Series: MAY 2020

AA – May 2020 – L2 – Q2d – Audit and Assurance Evidence

Describe the rights of an auditor in the event of a disagreement and threat of removal.

Question

Your client Abeka Ltd is threatening to remove your firm as auditors as a result of disagreement on account of the use of inappropriate accounting policies.

Required:
Describe THREE (3) rights as an auditor in relation to the disagreement and subsequent threat of removal. (3 marks)

Answer

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Tags: Audit Dispute, Audit Removal, Auditor's Rights, ICAG Regulations, Professional Rights

Topic: Audit and Assurance Evidence
Series: MAY 2020

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

Question

After performing tests of controls, the auditor is of the opinion that the audit evidence is not sufficient to support the audit opinion; in other words, many control errors were found.

Required:
Recommend FIVE (5) actions that the auditor may take in response to this problem

Answer

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Tags: Audit response, Control weaknesses, Insufficient audit evidence, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: AUG 2022

AA – Aug 2022 – L2 – Q3a – Audit and Assurance Evidence

Explains factors that influence the sufficiency of audit evidence obtained during an audit.

Question

Sophie & Co., a firm of Chartered Accountants, is preparing the end-of-year audit for GH Mobile, a client that is listed on the Ghana Stock Exchange. You have been selected to be part of the team to audit the non-current assets of GH Mobile. As an audit associate, you were provided with evidence that you have assessed as not sufficient. Also, you have raised issues regarding the omission of important items in the management representation letter of the client.

Required:
Explain FIVE (5) factors that will influence the auditor’s judgement regarding the sufficiency of the evidence obtained.

Answer

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Tags: Audit evidence, Audit Judgment, Risk Assessment, Sufficiency of audit evidence
Level: Level 2

Topic: Audit and Assurance Evidence
Series: AUG 2022

AA – Aug 2022 – L2 – Q1b – Audit and Assurance Evidence

Defines the term management’s expert and explains audit approaches for obtaining audit evidence.

Question

Auditors may need to rely on other parties such as management’s experts, internal auditors, or component auditors during an audit engagement. Auditors may also use various audit approaches to obtain audit evidence.

Required:
i) Define the term management’s expert.
(2 marks)

ii) State FIVE (5) factors which the auditor should consider before relying on management’s expert as a means of audit evidence.
(10 marks)

iii) Distinguish between substantive approach and system approach in the audit of financial statements.
(3 marks)

Answer

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Tags: Audit evidence, Management’s expert, Substantive approach, System approach
Level: Level 2