Assurance and Audit Nov 2008

7/28/2019 Assurance and Audit Nov 2008

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QUESTION 1

The engagement Partner of Ahomka Wo Mu & Co Chartered Accountants has asked you to lead the

planning of the audit of Never Say Die Company Limited for the year ending 31st December 2006.

Never Say Die Limited has been experiencing fluctuating fortunes in its operations over the past five

years.

Required:

(a) What factors will guide you in setting materiality levels (audit gauge) for planning purposes?

(5 marks)

(b) Explain the factors which will help you to determine your firms degree of reliance on the

clients internal control during the conduct of the audit.

(10 marks)

(c) Describe the type of audit software that the auditor can use to collect audit evidence withoutbeing present when transactions are being processed.

(5marks)

Total: 20 marks

QUESTION 2

It is essential that an audit firm should organize its affairs in such a way as to minimize the risk ofpaying damages to clients or others arising out of negligent work.

Required:

(a) What features would you incorporate in your audit firm to minimize risk especially against

the backdrop of the recent international audit scandals involving reputable organizations?

(10 marks)

(b) List the organizational procedures that your audit firm must adopt to ensure that audits are

performed to meet quality control standards.

(10 marks)

Total: 20 marks

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QUESTION 3

In auditing the financial statements of companies which use computerized accounting systems, the

auditors may find that this traditional audit trail is often obscured.

Various techniques can be used in order to give the auditors greater assurance when the audit trail islost. These methods will include auditing through the computer coupled with detailed analytical

procedures.

Required:

(a) Explain why there is possible loss of audit trail when companies utilize computerized

accounting systems, and why auditing through the computer assists the auditors in

overcoming this loss of audit trail. (5 marks)

(b) Explain how the auditors can use analytical procedures in order to give them greater

assurance when there is a loss of audit trail. (5marks)

(c) Outline how audit software can be used by the auditors in order to assist them in carrying out

their analytical procedures. (5

marks)

(d) Explain the possible reasons and audit implications of significant changes in the followingratios when compared with the prior years ratios:

i) The stock turnover ratio has decreased from the previous years rate.

ii) The debtors turnover ratio has decreased over the year.

(5

marks)

Total: 20 marks

QUESTION 4

(a) You are the auditor of Excellent Holding Company Ltd which has subsidiaries in Ghana and

in some West African countries, many of which are audited by other auditing firms. Allsubsidiaries are involved in the manufacture or distribution of alcoholic beverages and have

accounting periods coterminous with the parent/holding company.

Required:

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State the reasons why you would wish to review the work of the auditors of the subsidiaries not

audited by you and to detail the work you would wish to carry out in performing such a review.

(16 marks)

(b) It is not uncommon for two or more firms of accountants to act as joint auditors. This

situation could occur for a number of reasons.

Adduce any four (4) of these reasons. (4 marks)

Total: 20 marks

QUESTION 5

Ahamatrofo Ltd, a renowned mobile phone company has embarked on a restructuring exercise with astrategy to become a market leader in the provision of mobile phone services. In recent times the

companys performance has not been satisfactory. The expected benefits of the restructuring exercise

are that the company will operate on a lower cost base.

The Managing director, Mr. Tarbor, has directed the Finance Director to present a copy of the

companys interim report for the year ending December 2007 and the profit forecast and budgetedbalance sheet for 2008 to the firm of Accountants, Winners & Associates Chartered Accountants of

which you are the audit manager. The Balance Sheet and Income Statement are as follows:

Interim BudgetedDec 2007 Dec 2008

billion billion

Fixed AssetsIntangible Assets

Inventory

DebtorsCash

Current Liabilities

Creditors

Long-term liabilities

5% Debentures

Representing;

Stated capitalCapital surplus

Income surplus

100110

40

7020

340

60280

70210

5040

120

210

8090

30

6010

270

40230

70160

5040

70

160

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Total turnover

Net operating profit before interest Tax

170

15

280

35

Required:

(a) State the matters which a Professional Accountant will consider when examining the

accounting policies, calculations for the Profit Forecast and the procedures followed by thecompany in the preparation of the Profit Forecast.

(5 marks)

(b) State and explain the procedures which Winners & Associates Chartered Accountants should

undertake in order to provide a report on the forecast Balance Sheet of Ahamatrofo Ltd as at

31 December 2008 to Mr. Tarbor.

(5 marks)

(c) Yiadom Kwapong is a fresh graduate from one of the leading universities in the country. Hehas just been recruited by Nyamepe and Co Chartered Accountants.

On his third day of reporting to office the staff partner of Nyamepe Co Chartered Accountants

directed you to brief Yiadom about fraud investigation because there is a pendinginvestigation to be conducted in a clients office.

Required:

Briefly state the stages of Fraud Investigation and content of investigation report.

(10 marks)

Total: 20 marks

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Assurance and Audit Nov 2008