Topic: Audit evidence

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AAA – Nov 2024 – L3 – Q2b – Audit Procedures for Long-term Loan in Ecowud Co. LTD

Audit procedures to obtain sufficient appropriate evidence for a long-term loan.

Question

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company operates across Ghana and West Africa and has secured a GH¢3.5 million long-term loan as part of its financial restructuring. The loan agreement has bank-imposed financial conditions, including maintaining a minimum total asset level. If these conditions are breached, the loan becomes immediately repayable.

As part of the audit procedures, you are required to obtain sufficient and appropriate audit evidence regarding the GH¢3.5 million long-term loan.

Required:
Describe FIVE audit procedures you would perform to obtain sufficient appropriate evidence in relation to the long-term loan of GH¢3.5 million.

Answer

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Tags: Audit evidence, Compliance, Debt Classification, Financial Statements, Loan
Level: Level 3

Topic: Audit evidence, Loan Compliance
Series: Nov 2024

AAA – Nov 2013 – L3 – AII – Q3 – Audit Evidence

Explores the type of confirmation sent directly to a debtor for balance verification.

Question

A letter addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct, and if incorrect by what amount is………………………….confirmation.

Answer

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Tags: Audit evidence, Audit Procedures, Confirmation, Debtor Balance, Direct Communication
Level: Level 3

Topic: Audit evidence
Series: NOV 2013

AAA – Nov 2013 – L3 – AII – Q2 – Audit Evidence

Audit Evidence, Balance Confirmation, Reporting Dates, Discrepancy, Fraud

Question

A reported difference in a confirmation of balances by a debtor to a client due to different reporting date but not due to misstatement or fraud is known as………………….

Answer

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Tags: Audit evidence, Balance Confirmation, Discrepancy, Fraud, Reporting Dates
Level: Level 3

Topic: Audit evidence
Series: MAY 2013, NOV 2013

AAA – Nov 2017 – L3 – Q5 – Audit Evidence

Evaluate XYZ Bank’s provision for litigation, discuss audit procedures per ISA 501, and prepare litigation disclosure for financial statements.

Question

You are the audit manager for XYZ Bank Limited for the year ended December 31, 2016. The Bank’s Board noted a litigation issue involving a lawsuit from BBB Limited, where the Bank was found liable for a cheque conversion worth ₦2.1 billion. The high court imposed a penalty on the Bank for this amount, which BBB Limited is now claiming.

The Bank has objected to the judgment, appealing to the Court of Appeal, with legal counsel advising that a favorable outcome is expected. The Bank’s litigation-related financial information is as follows:

Provision for litigation (recognized in financial statements): ₦96 million
Litigation cases as defendant: 50
Litigation cases as plaintiff: 10
Claims in favor of the Bank: ₦2.7 billion
Claims against the Bank (including the ₦2.1 billion case): ₦3.2 billion

Requirements:
a. Discuss FOUR specific considerations under ISA 501 for obtaining audit evidence on litigation provisions.

(5 Marks)
b. Evaluate the adequacy of the litigation provision recognized in the financial statements as at December 31, 2016.

(5 Marks)
c. Prepare a summary disclosure of the litigation status for inclusion in the financial statement notes as at December 31, 2016.

(5 Marks)

Answer

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Tags: Audit evidence, Financial Disclosure, IAS 37, Litigation, Provisions
Level: Level 3

Topic: Audit evidence
Series: NOV 2017

AA – Nov 2023 – L2 – Q2 – Audit Evidence

Discuss requirements and methods for designing an audit sample and circumstances when sampling may be inappropriate.

Question

ISA 530 Audit sampling states that the objective of the auditor when using audit sampling is to provide a reasonable basis to draw conclusions about the population from which the sample is drawn.

Required:

a. In accordance with ISA 530, what are the requirements the auditor should consider in designing a sample size? (6 Marks)

b. Explain FIVE sampling methods that are available for the use of the auditor. (10 Marks)

c. State FOUR circumstances where sampling may not be appropriate for use by the auditor. (4 Marks)

Answer

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Tags: Audit evidence, Audit Methods, ISA 530, Non-Sampling Circumstances, Sampling
Level: Level 2

Topic: Audit evidence

AA – May 2016 – L2 – Q7a – Audit Evidence

Identify additional information needed to determine the audit opinion for Musky Fresh Ltd following supplier difficulties.

Question

Musky Fresh Limited has been in existence, for a number of years, importing perfume. The managing director had built up the business using contacts he already had in the industry. The company imports only one brand of perfume which is manufactured exclusively by one company. The perfume is distributed via ‘shops within shops’ at 20 branches of a well-known store. Under this agreement, Musky Fresh Limited pays a percentage of its takings to the store, with a minimum annual payment of N100,000 per store.

The audit is nearing completion, but you have just heard that the Arabian manufacturer is facing serious financial difficulties, and that supplies have ceased.

Required:

a. Set out the further information the auditor would require before reaching his audit opinion. (6 Marks)

Answer

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Tags: Audit opinion, Financial difficulties, Going Concern, Supplier Risks, Trade Payables
Level: Level 2

Topic: Audit evidence
Series: MAY 2016

AA – May 2016 – L2 – Q2 – Planning an Audit

Planning and identifying audit risks for a new client with an increased demand for products, using a standard costing system for inventory valuation.

Question

Sweet Dreams, a limited liability company, is a new audit client and you are at the
planning meeting for the forthcoming audit. The company has grown rapidly and has
May 31 as year-end. The financial statements have not been audited in previous years
since the organization has only just converted from a partnership to a company.
The company’s bankers have requested that an audit be undertaken on the financial
statements for the year ending May 31, 2016. Higher levels of inventory required to
meet the increasing demand for its products have necessitated a request for an increase
in the bank’s overdraft facility.
The company makes beds, buying its materials directly. At the year-end, inventory
comprises raw materials, work-in-progress and finished goods. It does not undertake
continuous inventory counting but does intend to perform a full inventory count on
May 31, 2016. It uses standard costing system to value finished products and work-inprogress.

Answer

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Tags: Audit Planning, Audit Risk, Control Systems, Inventory Management, Material Misstatement
Level: Level 2

Topic: Audit evidence, Planning an Audit, Risk Assessment and Internal Control
Series: MAY 2016

AA – Nov 2022 – L2 – Q4 – Audit Evidence for Engineering Assets and Liabilities

Addressing audit evidence for engineering company assets and liabilities, including procedures for confirmations and plant disposals.

Question

You are part of an audit team engaged on the audit of an engineering company which has a substantial amount of plant and machinery in its books. While reviewing the accounts, you also observed that there were some current assets and liabilities that may require external confirmations.

Required:

a. How would you establish the amount and level of audit evidence required for the current assets and liabilities? (5 Marks)

b. State which procedures will be applied to generate audit evidence in the following scenarios:

i. Confirming the accuracy of figures in the trade receivables account
ii. Confirming that the plant and machinery purchased in the year is actually in use during the year
iii. Ascertaining that the change in performance is in line with expectations
iv. Confirming the accuracy of the total receivable figures in the statement of financial position
v. Confirming contingent liability as to legal fees (5 Marks)

c. State the audit procedures you would take concerning the disposal of plant and machinery. (5 Marks)

d. State the requirements of ISA 505 concerning maintaining control over the external confirmation requests of current assets and liabilities. (5 Marks)

Answer

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Tags: Audit evidence, Current Liabilities, Engineering Assets, External Confirmations, ISA 505 Compliance, Plant and Machinery Disposal
Level: Level 2

Topic: Audit evidence
Series: NOV 2022

AA – Nov 2014 – L2 – Q2 – Audit Evidence

Discuss factors affecting sufficiency of audit evidence and audit procedures for current liabilities in Radcliffe Co.

Question

Radcliffe Co.

ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”

Required:

a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)

b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:

Description	2013	2012
Trade payables	884,824	816,817
Accruals	56,903	51,551
Provision for legal action	60,000	–
Total	1,001,727	868,368

The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.

List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.

Marks are allocated as follows:

Trade payables (9 Marks)
Accruals (3 Marks)
The provision for legal action (4 Marks)

Answer

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Tags: Audit evidence, Audit Judgment, Current Liabilities, ISA 500, Substantive Procedures
Level: Level 2

Topic: Audit evidence

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

Question

JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:

i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;

ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;

iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;

iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and

v. Figures in the financial statements could not be traced to the respective working papers.

As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.

You are required to explain:

a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)

Answer

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Tags: Audit evidence, Audit Procedures, Documentation, Quality control
Level: Level 2

Topic: Audit Documentation, Audit evidence
Series: MAY 2021

AAA – Nov 2016 – L3 – Q2b – Audit evidence | Audit-related services

Recommend the composition of an audit committee for a company preparing to list and describe its responsibilities.

Question

Ghana Sugar Company Limited, a private company, has been in operation for many years. Owing to a rising need to raise additional capital, the shareholders have passed a resolution to convert the company into a public company and list it on the Ghana Stock Exchange. You have been contracted to help the Directors to carry the resolution through. During your preliminary discussion with the Directors, you realized that they were not very conversant with the listing rules of the Ghana Stock Exchange, and you drew their attention to the establishment of an Audit Committee as a condition for listing on the Ghana Stock Exchange.

The Directors agreed to discuss the establishment of the Audit Committee at the next emergency meeting and invited you to be present.

Required: Recommend the composition of the audit committee and describe its responsibilities to the Directors. (10 marks)

Answer

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Tags: Audit Committees, Corporate Governance, Public Companies, Stock Exchange Listing Requirements
Level: Level 3

Topic: Audit evidence, Audit-related services
Series: NOV 2016

AAA – Nov 2017 – L3 – Q5b – Reporting, Audit Evidence

Evaluate the suitability of the unmodified audit report issued for a client with significant going concern uncertainties and recommend improvements.

Question

Your firm, Atinalp Consulting, is the Auditor of Ghana Kitchen Utensils Limited, a company that was incorporated in the 1960s, as part of Ghana’s industrial revolution after the Republic had attained independence. It manufactures and distributes kitchenware in the local and the West African markets. It has seen good old days but has suffered from the effects of cheap imports in the past few years.

The financial statements for the year ended 31 December 2015 have the following note:

Going Concern

The Company incurred a net loss for the year ended 31 December 2015 of GH¢24.8 million (2014: GH¢14.4 million) and as of that date its current liabilities exceeded its current assets by GH¢37.8 million (2014: GH¢24.9 million). The Company continues to incur losses.

The directors are engaging with strategic investors to help turn the fortunes of the Company around. A strategic investor has shown substantial interest in the Company and has approached the directors of the Company with the intent of acquiring a controlling interest in the Company. In September 2015, the shareholders passed a resolution authorizing the directors to enter into discussion with this strategic investor. If discussions are successful, this strategic investor will become a major shareholder. Based on preliminary discussions, the strategic investor is expected to further invest into the operations of the Company in addition to financing the necessary acquisition of shares directly from the company.

The investments and expertise of this strategic investor are expected to ensure a change of the Company to one that is profit-making. In pursuance of this transaction, the company has completed a professional revaluation of its assets and equipment.

The financial statements are prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realization of assets and settlement of liabilities will occur in the ordinary course of business.

The ability of the Company to continue as a going concern largely depends on the successful conclusion of the takeover by the strategic investor and its ability to execute plans to turn around the fortunes of the Company.

The opinion section of the audit report issued by your firm was as follows:

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of Ghana Kitchen Utensils Limited as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1963 (Act 179).

Required:
Comment on the suitability of the report issued and recommend some improvement, if any, you believe would be necessary under the circumstances.

(8 marks)

Answer

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Tags: Audit opinion, Emphasis of Matter, Going Concern
Level: Level 3

Topic: Audit evidence, Reporting
Series: NOV 2017

AAA – Nov 2017 – L3 – Q1b – Audit Evidence, The Audit Approach

Describe the auditor's procedures and evidence required in relation to related party transactions.

Question

Central to a number of government investigations in various countries have been companies trading with organisations or individuals other than at arm’s length. Such transactions were made possible by a degree of control or influence exercised by directors over both parties. Directors are responsible for the identification of such related party relationship and transactions, however, the auditor has a responsibility of ensuring good reporting in that area.

You are the audit senior of an audit firm preparing to audit a group company and its subsidiaries and sub-subsidiaries, which also trade with companies owned by some directors of the parent company.

Required:
What procedures and evidence should the auditor consider to discharge his responsibility in relation to related party transactions?

Answer

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Tags: Audit Procedures, Evidence, Financial Statements, Related parties
Level: Level 3

Topic: Audit evidence, The audit approach
Series: NOV 2017

AAA – Nov 2017 – L3 – Q1a – Planning, Audit Evidence

Analyze the materiality of management's plans to discontinue sales of ladies wear and the provision for redundant employees.

Question

The draft accounts of your client Good Days Ltd., a shopping mall for the year ended 31 December 2016 showed the following:

	2016 (GH¢ million)	2015 (GH¢ million)
Revenue	84.40	83.60
Profit before tax	5.00	4.40
Total Assets	75.00	46.80

In December 2016, management announced plans to stop the sales of ladies wear from the end of the month. These sales amounted to GH¢1.4 million for the year ended 31 December 2016 (2015 GH¢1.6 million). A provision of GH¢0.6 million has been made at 31 December 2016 for the compensation of redundant employees who are mainly sales girls.

Required:
Comment on the materiality of these two plans.

Note: The following materiality levels are to be used as benchmarks:

Value	%
Profit Before Tax	5
Gross Profit	½ – 1
Revenue	½ – 1
Total Assets	1 – 2
Net Assets	2 – 5
Profit After Tax	5 – 12

Answer

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Tags: Financial Statements, Materiality, Provision, Revenue
Level: Level 3

Topic: Audit evidence, Planning
Series: NOV 2017

AAA – March 2023 – L3 – Q2a – Audit evidence, The audit approach

Comment on matters to consider and audit evidence for group audits, focusing on Fuga Plc, Bavi Plc, and Kontomo Plc.

Question

You are an Audit Manager in Aboto & Associates, responsible for the audit of the Obina Group (the Group). You are reviewing the audit working papers for the consolidated financial statements relating to the year ended 31 March 2021. The Group specializes in the wholesale supply of steel plate and sheet metals. The draft consolidated financial statements recognize revenue of GH¢7,670 million (2020 – GH¢7,235 million), profit before taxation of GH¢55 million (2020 – GH¢80 million) and total assets of GH¢1,560 million (2020 – GH¢1,275 million). Aboto & Associates audits all of the individual company financial statements as well as the Group consolidated financial statements. The Audit Senior has brought the following matters, regarding a number of the Group’s companies, to your attention:

Fuga Plc
The Group purchased 40% of the share capital and voting rights in Fuga Plc on 1 May 2020. Fuga Plc is listed on the Ghana Alternative Market. The Group has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable in 18 months from 1 May 2021. Fuga Plc’s draft financial statements for the year ended 31 March 2021 reveals revenue of GH¢90 million and a loss before tax of GH¢12 million. The Group’s Finance Director has recognized Fuga Plc as an associate in this year’s group accounts and has included a loss before tax of GH¢4.4 million in the consolidated statement of profit or loss.
(7 marks)
Bavi Plc
Bavi Plc is a foreign subsidiary whose functional and presentational currency is the same as Obina Plc and the remainder of the Group. The subsidiary specializes in the production of stainless steel and holds a significant portfolio of forward commodity options to hedge against fluctuations in raw material prices. The local jurisdiction does not mandate the use of IFRS and the Audit Senior has noted that Bavi Plc follows local GAAP, whereby derivatives are disclosed in the notes to the financial statements but are not recognized as assets or liabilities in the statement of financial position. The disclosure notes include details of the maturity and exercise terms of the options and a directors’ valuation stating that they have a total fair value of GH¢6.1 million as at 31 March 2021. The disclosure notes state that all of the derivative contracts were entered into in the last three months of the reporting period and that they required no initial net investment. (6 marks)
Kontomo Plc
Kontomo Plc is a long-standing subsidiary in which the Group parent has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kontomo Plc has revealed sales of aluminum to its parent company in March 2021 amounting to GH¢77 million which have been recorded in the subsidiary’s financial statements. However, the audit procedures have identified that the receipt of aluminum was not recorded by the parent company until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kontomo Plc makes a 10% profit margin on the sale of aluminum. (7 marks)

Required:
Comment on the matters to be considered and the audit evidence you should expect to find during your review of the Group audit working papers in respect of each of the issues raised above.

Answer

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Tags: Audit evidence, Financial Consolidation, Group Audits, ICAG
Level: Level 3

Topic: Audit evidence, The audit approach
Series: MAR 2023

AAA – May 2020 – L3 – Q3 – Audit evidence, Evaluation and review

Discusses audit procedures for accounting estimates, the appropriateness of written representations, and additional audit procedures.

Question

GGC Co. Ltd (GGCL) specializes in manufacturing equipment which can help to reduce toxic emissions in the production of chemicals. The company has grown rapidly over the past eight years, and this is partly due to the warranties that the company gives to its customers. It guarantees its products for five years, and if problems arise during this period, it undertakes to fix them or provide a replacement.

You are the manager responsible for the audit of GGCL, and you are performing the final review stage of the audit and have come across the following issues:

Receivable balance owing from Nhyira Co. Ltd
GGCL has a material receivable balance owed by its customer, Nhyira Co. Ltd. During the year-end audit, your team reviewed the aging of this balance and found that no payments had been received from Nhyira Co. Ltd for over six months. GGCL would not allow this balance to be circularized. Instead, management has assured your team that they will provide a written representation confirming that the balance is recoverable.

Warranty provision
The warranty provision included within the statement of financial position is material. The audit team has performed testing over the calculations and assumptions which are consistent with prior years. The team has requested a written representation from management confirming that the basis and amount of the provision are reasonable. Management is yet to confirm acceptance of this representation.

Required:

Describe the audit procedures required in respect of accounting estimates.
(8 marks)
For each of the two issues above:
i) Discuss the appropriateness of written representations as a form of audit evidence; and
(6 marks)
ii) Describe additional procedures the auditor should now perform in order to reach a conclusion on the balance to be included in the financial statements.
(6 marks)

(Total: 20 marks)

Answer

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Tags: Accounting estimates, Audit evidence, Audit Procedures, Receivables, Warranty provision, Written representations
Level: Level 3

Topic: Audit evidence, Evaluation and review
Series: MAY 2020

AAA – May 2020 – L3 – Q1b – Planning, Audit evidence

Analyze specific issues pertinent to the audit of Mobilefone Ltd, including risks associated with the rapid growth of the client, weak internal controls, and the introduction of new products.

Question

Mobilefone Ltd (Mobilefone) is a large communication group which operates from several locations around the world. It has recently announced plans to expand its operations where it will offer a range of mobile communication facilities and provide internet services such as access, navigation, and internet-related software and services.

You are an Audit Manager of Kasim Hamza & Co. and you have been assigned with the planning work for the audit of Mobilefone, and this will be the second year in which your firm has provided its audit services.

You have just met with the Finance Director (FD) of Mobilefone prior to agreeing on the engagement letter for this year. The FD has informed you that Mobilefone has continued to grow quickly, with financial accounting systems changing rapidly and appropriate control systems being difficult to maintain. Additional services in terms of review and implementation of control systems have been requested. An internal audit department has recently been established within Mobilefone, and the controller wants you to ensure that external audit work is limited by using this department.

You have also learned that Mobilefone is to market a new type of mobile telephone, which is able to intercept messages from the emergency services. The legal status of this telephone is unclear at present, and development is not being publicized. The granting of the franchise to market the mobile telephone is dependent on the financial stability of Mobilefone. The FD has indicated that Kasim Hamza & Co. may be asked to provide a report to the mobile telephone franchiser regarding Mobilefone’s cash flow forecast for the year ending 31 March 2019, to support the franchise application.

Required:
As part of risk assessment procedures for the audit of Mobilefone for the year ending 31 March 2019, analyze FIVE (5) specific issues pertinent to this particular audit.
(10 marks)

Answer

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Tags: Audit Planning, Client Growth, Fee Income, Going Concern, Internal Controls, Risk Assessment
Level: Level 3

Topic: Audit evidence, Planning
Series: MAY 2020

AAA – Nov 2018 – L3 – Q5b – Reporting, Audit evidence

Determining the type of audit opinion for incorrect inventory valuation and drafting the audit report paragraphs.

Question

You have just audited the financial statements of Yawa Company Ltd for the year ended 31 December 2017. You discovered during the audit that inventories were not stated at the lower of cost and net realizable value but stated solely at cost on the statement of financial position.

Records of the company indicated the cost of the inventories to be GH¢600,000, of which the net realizable value was GH¢400,000. Management is not prepared to adopt the lower of cost and net realizable principle in their inventory valuation.

Required:
i) Identify and justify the type of opinion you will issue. (2 marks)

ii) Prepare the appropriate paragraphs under management responsibility, auditor’s responsibility, and the auditor’s opinion for inclusion in the audit report of Yawa Company Limited. (8 marks)

Answer

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Tags: Audit opinion, Inventory Valuation, Reporting
Level: Level 3

Topic: Audit evidence, Reporting
Series: NOV 2018

AAA – Nov 2018 – L3 – Q1b – Audit evidence, Planning

Discuss the auditor’s need to identify related party transactions during an audit.

Question

Central to a number of government investigations in Ghana have been companies trading with organisations or individuals other than at arm’s length. Such transactions were made possible by a degree of control or influence by directors over both parties to the transactions. ISA 550: Related parties covers this area.

Management is responsible for the identification of related party transactions. Such transactions should be properly approved as they are frequently not at arm’s length. Management is also responsible for the disclosure of related party transactions.

As a senior partner of your audit firm, you are considering how to identify all the related party transactions of your audit client whose financial statement for the year ended December 31, 2017, you are about to audit.

Required:
Discuss FOUR (4) reasons why the auditor needs to identify related parties transactions during an audit. (8 marks)

Answer

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Tags: Audit evidence, Related parties, Risk Assessment
Level: Level 3

Topic: Audit evidence, Planning
Series: NOV 2018

AAA – May 2019 – L3 – Q3a – Audit evidence

Discuss the risks encountered in the audit of a company involved in possible money laundering activities, specifying the risk format and actions required.

Question

Musah Diara is a Malian resident in Ghana. He has established Tagoe Company Ltd (Tagoe) which engages in trading in West African countries; Ghana, Nigeria, and Mali. Musah is always funded by his brother who is also a resident in Ghana. Musah’s brother does not have a bank account in Ghana. He always gives huge cash to Musah who buys goods in Ghana and sells it in Nigeria or Mali. He pays the profit into Tagoe’s account in Ghana and bank the amount given to him by his brother into his brother’s account in Mali.

Required:
You have been engaged to audit Tagoe. Discuss the risk you are likely to encounter in this audit, specifying your expectation of the risk format and the action you have to take.

Answer

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Tags: Audit risks, Financial audit, Money laundering, Risk Assessment
Level: Level 3