Topic: Professional and Ethical Considerations

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AA – Nov 2024 – L2 – Q1b – Engagement Letter Contents

Explains the key contents of an audit engagement letter, highlighting the responsibilities and scope of an audit.

Question

A firm or individual having accepted an appointment as an auditor of a client company shall submit an engagement letter to the board of directors of the client company. The engagement letter can be seen as the basis for the contract between the company and the auditor.

Required:
In relation to the above statement, state and explain FIVE contents of the engagement letter.

Answer

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Tags: Audit Contract, Audit Scope, Auditor Responsibilities, Client Expectations, Engagement letter, IAASB, Professional Ethics
Level: Level 2

Topic: Professional and Ethical Considerations
Series: Nov 2024

FR – May 2020 – L2 – Q5a – Ethical Dilemmas in Tendering Process

This question focuses on the ethical course of action in tendering when faced with insider information in the internal audit context.

Question

Mrs. Stella Amoah (Stella), a Chartered Accountant and Head of Internal Audit in Ningo Communications Authority (NCA), is about to tender for a contract in Internal Audit Service. A new member of her team, Mr. Stephen Appiah Coker (Stephen), has been recruited from the Internal Audit Service, where he previously worked in the department responsible for devising the tender contract. Although Stephen was not involved with the tender process, his former colleague and friend is responsible for the tender specification document and the evaluation process.

Stephen had sight of some of the requirements and has offered to share with Stella information that may be of use when preparing the tender. However, this information is confidential and should not be seen by any of the tendering parties.

It will be an open tender process for both external and internal providers. Bids from external providers are being encouraged. The evaluation process has been designed with this in mind. If the contract is awarded externally, Stella will be unsure of her personal position in the organization. She understands that using any insider knowledge of the tendering process would be inappropriate when preparing the tender proposal, but she feels she would have a better chance of success if she used this confidential information.

Required:
Advise Mrs. Stella Amoah on THREE (3) courses of action she should take in order to act ethically in the tendering process given in the above scenario.

Answer

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Tags: Confidentiality, Ethics, Internal Audit, Professional Responsibility, Tender Process
Level: Level 2

Topic: Professional and Ethical Considerations, Professional and Ethical Issues in Financial Reporting

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 – Q5a – Professional and Ethical Considerations

Explanation of the five fundamental principles of the ICAG Code of Ethics.

Question

a) As a member of the International Federation of Accountants (IFAC), the Institute of Chartered Accountants, Ghana (ICAG) subscribes to the code of ethics prescribed by the International Ethics Standards Board for Accountants (IESBA).

Required:
Explain each of the FIVE (5) fundamental principles of the Code of Ethics of the Institute of Chartered Accountants, Ghana (ICAG). (5 marks)

Answer

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Tags: Code of Ethics, Fundamental Principles, ICAG, IFAC
Level: Level 2

Topic: Professional and Ethical Considerations
Series: JULY 2023

AA – July 2023 – L2 – Q3b – Audit and Assurance Risk Environment, Professional and Ethical Considerations

Factors external auditors should consider when engaging an actuary for evaluating an insurance company's reserves and premium rates.

Question

b) Fritz Insurance is a large insurance company that provides a wide range of insurance products to individuals and businesses. As part of their annual audit, the external auditor has engaged the services of an Actuary to assist with the evaluation of the company’s reserves and the adequacy of its premium rates.

Required:
Explain FIVE (5) factors to be considered by External Auditors in engaging the services of an Actuary to assist with the evaluation of the company’s reserves and the adequacy of its premium rates. (10 marks)

Answer

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Tags: Actuary, External Auditor, Insurance, Premium Rates, Reserves
Level: Level 2

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

AA – July 2023 – L2 – Q2b – Professional and Ethical Considerations

Safeguards to be applied by an auditor in various relationships with clients.

Question

b) What are the safeguards to be applied by an auditor in relation to the following?
i) Financial interest in the client.
ii) Loans and Guarantees to or from the client.
iii) Business relationship with the client.
iv) Family and personal relationship with the client.
v) Employment with an Assurance Client. (5 marks)

Answer

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Tags: Auditor Independence, Auditor Relationships, Ethical considerations, Safeguards
Level: Level 2

Topic: Professional and Ethical Considerations
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 – Q1a – Institutional Regulation and Standard-Setting, Professional and Ethical Considerations

Requirements in the composition and functions of Audit Committees in corporate governance.

Question

a) Boards rely on the Audit Committee to offer effective oversight of the financial reporting process, making it one of the cornerstones for effective corporate governance. Effective Audit Committee is vital for protecting investors and the health of the capital markets.

Required:
i) Identify THREE (3) requirements in the composition of Audit Committees in accordance with the best practice in Corporate Governance. (3 marks)
ii) List TWO (2) functions of an Audit Committee. (2 marks)

Answer

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Tags: Audit Committees, Best Practices, Composition, Corporate Governance, Functions
Level: Level 2

Topic: Institutional Regulation and Standard-Setting, Professional and Ethical Considerations
Series: JULY 2023

AA – Nov 2023 – L2 – Q2b – Professional and Ethical Considerations, Audit and Assurance Risk Environment

This question discusses five key factors to consider before accepting an audit engagement.

Question

Afrak and Associates is an Audit Firm that has been providing audit and assurance services for over 20 years. The firm has recently received a request from a new client, XYZ Ltd., to provide audit services. The audit engagement will cover the financial statements for the year ended December 31, 2022.

Required:
Explain FIVE (5) factors Afrak and Associates must consider prior to accepting the audit engagement, paying attention to, risk areas that may give rise to liability, including fraud, error, and non-compliance.
(10 marks)

Answer

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Tags: Audit Engagement, Audit Risk, Client Acceptance, Ethical considerations, Fraud risk
Level: Level 2

Topic: Audit and Assurance Risk Environment, Professional and Ethical Considerations
Series: NOV 2023

AA – Nov 2019 – L2 – Q2b – Professional and Ethical Considerations

Discusses whether the audit firm complied with the IFAC Code of Ethics in relation to independence in two scenarios.

Question

Sowah Quartey & Co., a firm of Auditors with a number of clients listed on the Ghana Stock Exchange, recently held a staff training session on quality control. During the session, staff raised matters from their experience relating to the ethical code on independence. Some of these matters are outlined below:

i) Shortly before commencing the final audit of a large listed company, a Junior Staff member on the audit team inherited a substantial number of shares in that company. No action was taken because, although representing a large investment for the staff member concerned, the number of shares was totally immaterial with respect to the company. Moreover, the partner knew that if the company’s results are announced, there will be a rise in the share price, and he did not think it was fair to require the staff member to sell them beforehand.
(5 marks)

ii) The Management Accountant of another listed client company had an accident and was away from work for three months. At the time of the accident, the audit senior was winding up the prior year’s audit. Given his familiarity with the company’s management accounting system, it was agreed that he would take over as Management Accountant for the three months.
(5 marks)

Required:
Discuss whether Sowah Quartey & Co had complied with the IFAC’s Code of Ethics or had acted unprofessionally in any other way with respect to each of the above scenarios.

Answer

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Tags: Conflict of Interest, Ethics, IFAC Code of Ethics, Independence
Level: Level 2

Topic: Professional and Ethical Considerations
Series: NOV 2019

AA – May 2017 – L2 – Q1b – Professional and Ethical Considerations

Identification of major threats to compliance with professional ethics.

Question

The IFAC International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants sets out the five fundamental principles of professional ethics and provides a conceptual framework for applying those principles. Professional Accountants must apply this conceptual framework to identify threats to compliance with the principles, evaluate their significance, and apply appropriate safeguards to eliminate or reduce them so that compliance is not compromised.

Required: Identify FIVE major threats identified in the code of ethics, giving examples of each

Answer

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Tags: Code of Ethics, IESBA, IFAC, Professional Ethics, Safeguards, Threats
Level: Level 2

Topic: Professional and Ethical Considerations
Series: MAY 2017

AA – Aug 2022 – L2 – Q2c – Professional and Ethical Considerations

Explains factors to consider before accepting a new audit client and preconditions for agreeing to an audit engagement.

Question

There are factors to consider and procedures to follow before accepting a new client, a new engagement for an existing client, or agreeing to the terms of any new engagement. It could be an audit, a non-audit engagement, or an assurance engagement. Acceptance decisions are critical since new clients and/or engagements can impair the objectivity or expose the firm to an audit risk, both of which must be carefully considered.

Required:
i) Explain TWO (2) factors a professional accountant in public practice should consider before accepting a new audit client.
(5 marks)

ii) Explain TWO (2) preconditions that should exist when agreeing to the Terms of Audit Engagement.
(5 marks)

Answer

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Tags: Audit Engagement, Client Acceptance, Preconditions for audit, Professional Ethics
Level: Level 2

Topic: Professional and Ethical Considerations
Series: AUG 2022

AA – Aug 2022 – L2 – Q2a – Professional and Ethical Considerations

Discusses the threats to auditor independence and objectivity when transferring clients and possible safeguards.

Question

The Managing Partner of A & B Partners, Mr. Pumpa, has decided to put measures in place for the survival of the firm immediately after the enactment of the Company Act, 2019 (Act 992), which requires that “An Auditor shall hold office for a term of not more than six years and is eligible for re-appointment after a cooling-off period of not less than six years.”

Mr. Pumpa then had a gentle arrangement with his colleague, also a Managing Partner in C & D Associates, to transfer all clients who have exceeded their mandatory six years with A & B Partners and vice versa.

Required:
Discuss FIVE (5) major threats to the auditor’s independence and objectivity and how these inherent threats could be mitigated in the decision to transfer client C & D Associates.
(5 marks)

Answer

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Tags: Auditor Independence, Client transfer, Safeguards, Threats to objectivity
Level: Level 2

Topic: Professional and Ethical Considerations
Series: AUG 2022

AA – May 2021 – L2 – Q2a – Professional and Ethical Considerations

Explain the five fundamental principles of the Code of Ethics for audit practitioners.

Question

The IFAC Code of ethics governs the practice of auditing to ensure that practitioners will act in the public interest. Furthermore, in an audit, many relevant auditing standards must be followed to perform work that will serve the needs of the users of the Auditor’s report.

Required:
Explain each of the FIVE (5) fundamental principles of the Code of Ethics and conduct for professional audit practitioners. (5 marks)

Answer

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Tags: Code of Ethics, Confidentiality, Integrity, Objectivity, Professional Behavior, Professional competence
Level: Level 2

Topic: Professional and Ethical Considerations
Series: MAY 2021

AA – Nov 2021 – L2 – Q3c – Professional and Ethical Considerations

Discusses threats to audit independence due to personal relationships and financial incentives during audit engagements and suggests safeguards.

Question

Kom & Associates, an audit firm, has regularly been auditing Ake Ltd. At the beginning of the current financial year, the wife of Koffie, the engagement partner of Kom & Associates, was appointed the personal assistant to the Chief Executive of Ake Ltd. In the course of the fieldwork, the audit team was given lunch and money for transport by Ake Ltd.

Required:
Discuss the threats and safeguards for the audit.

Answer

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Tags: Ethical Threats, Financial Incentives, Independence, Personal Relationships, Safeguards
Level: Level 2

Topic: Professional and Ethical Considerations
Series: NOV 2021

AA – Nov 2021 – L2 – Q3b – Professional and Ethical Considerations

Discusses the threats and safeguards related to a former Finance Director reviewing audit work for their former company.

Question

Ackah Senzu had been the Finance Director of Keke Ltd for the immediate past eight years, influencing all the major financial policies of the company. Last year, he moved to Plus Associates, an audit firm, as a Partner. The Directors of Keke Ltd then appointed Plus Associates as their auditors because of the strong relationship with Ackah Senzu. The Senior Partner assumed the engagement responsibility of the audit of Keke Ltd but asked Ackah Senzu to review the audit work.

Required:
Discuss the threats and safeguards of this decision.

Answer

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Tags: Audit Independence, Ethical Issues, Familiarity Threat, Safeguards, Self-review threat
Level: Level 2

Topic: Professional and Ethical Considerations
Series: NOV 2021

AA – Nov 2021 – L2 – Q3a – Professional and Ethical Considerations

Lists areas of non-compliance by clients and explains actions auditors can take when they become aware of non-compliance situations.

Question

The International Ethics Standards Board for Accountants (IESBA) code guides all Professional Accountants on how to respond when their clients are not complying with the laws and regulations of a country or a state.

Required:
i) State FIVE (5) areas where auditees can be non-compliant.
ii) When an auditor becomes aware of non-compliant situations, what FIVE (5) actions can the auditor take?

Answer

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Tags: Auditor Actions, Ethics, IESBA, Legal Violations, Non-compliance
Level: Level 2

Topic: Professional and Ethical Considerations
Series: NOV 2021

AA – May 2018 – L2 – Q2a – Professional and Ethical Considerations

Identifies corporate governance weaknesses in a company and provides solutions to align with good governance principles.

Question

Mr. Frimpong Dogbe is the Leader, Founder, Chief Executive Officer, and Board Chairman of Awurade Hwe Ltd. He single-handedly appointed a board of five executive and two non-executive directors. No formal performance targets are set for the senior managers in the company, and no review of board policies is carried out. Mr. Frimpong Dogbe is the one who sets Board salaries based on his assessment of all the board members, including himself, and not on their actual performance.

Internal controls in the company are monitored by the Senior Accountant, although detailed review is assumed to be carried out by the external auditors. Awurade Hwe Ltd does not have an internal audit department.

Required:
Describe FIVE corporate governance weaknesses faced by Awurade Hwe Ltd, which do not comply with corporate governance principles, and for each weakness, recommend a solution to overcome the weakness. (10 marks)

Answer

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Tags: Board Structure, Corporate Governance, Governance weaknesses, Internal Controls, Recommendations
Level: Level 2

Topic: Professional and Ethical Considerations
Series: MAY 2018

AA – May 2019 – L2 – Q5b – Professional and Ethical Considerations

Explains the auditor's objectives and significant matters for communication with those charged with governance under ISA 260.

Question

b) Due to increased workload, your firm has just recruited a new junior audit staff member, George Ansong, who has joined the practice directly from University and so has no previous work experience. You have been assigned as his training manager.

George is now looking at summarised material given to him by the audit partner on ISA 260. ISA 260: Communication with those charged with governance deals with the auditor’s responsibility to communicate with those charged with governance in an audit of financial statements. It focuses primarily on communications from the auditor to those charged with governance.

George would like you to explain in more detail what he has read.

Required:
In relation to George’s request, detail the provisions set out in ISA 260 in relation to the following:
i) The main objectives of the auditor in communicating with those charged with governance.
(4 marks)
ii) SIX (6) significant matters the auditor should communicate with those charged with governance about the responsibilities of the auditor in relation to the audit of the financial statements.
(6 marks)

Answer

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Tags: Audit Responsibilities, Auditor-Governance Interaction, Communication, Governance, ISA 260
Level: Level 2

Topic: Professional and Ethical Considerations
Series: MAY 2019

AA – Nov 2018 – L2 – Q3d – Professional and Ethical Considerations

Explains safeguards to manage conflicts of interest when auditing competitors.

Question

The Finance Director of the Company informed the audit partner that the reason for appointing Add Consult as auditors was because they audit other similar companies, including the Company’s main competitor. The Finance Director doubts how Add Consult keeps information (obtained during the audit) confidential.

Required:
Explain the safeguards which your firm should implement to ensure that this conflict of interest is properly managed. (5 marks)

Answer

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Tags: Auditor Independence, Confidentiality, Conflict of Interest, Safeguards
Level: Level 2