OLIVER TWIST PROFESSIONAL INSTITUTE

THE INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA)

MOCK FOR NOV, 2024 EXAMINATIONS

(PROFESSIONAL)

LEVEL 3

ADVANCED AUDIT AND ASSURANCE

(PAPER 3.2)
QUESTIONS
Time Allowed
3 Hours Plus 15 Minutes for Reading & Planning

Reading Time
During the reading time, you may write notes on the examination paper but you should not commence
writing in your answer booklet provided.

Answer ALL Questions

Date: 26th Oct, 2024

Contact us: 0542827566

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QUESTION ONE
Your firm, Odogu and Associate co. has been offered an appointment to audit Power Limited for the first
time. Power limited is an insurance company with over 30,000 customers, 1,567 staffs and 50 branches
across Ghana. You are the audit Partner of this assignment, and you need to gain an understanding of
the risks facing the new client. Notes from your meeting with the company and the findings from the
preliminary risk assessment are as follows;

Kwame boga an unemployed university graduate who owned 98% shares in Power Insurance Limited
consistently provide a huge loan to support the operation of the business. The money is always used for
a period of 5 months and transferred to Kwame boga through his GCB bank account without interest.
Kwame boga’s brother, the managing director of the company has indicated that, the business can even
assist the firm get a loan with limited formalities to support the firm’s financial crisis, should the offer be
accepted by the audit firm.

Management had made it clear that, they have lost the contact of the previous auditor and therefore,
reaching them is nearly impossible, adding with a smile that the previous firm is not popular. The payroll
manager at Power Limited has also asked that, if it would be possible for Odogu and Associate co to
provide a member of staff on secondment to work in the payroll department and compile the financial
statements for a period of 2 months.

On 12 March 2022, an explosion occurred in one of Power Limited’s premises, destroying about one
quarter of the premises. Luckily, the explosion happened at night when the premises was empty and there
were no injuries to any persons. Structural engineers and surveyors are currently assessing the stability
of the remainder of the premises and it is, as yet, unclear whether they can be repaired or will need to
be demolished and rebuilt in their entirety. The neighbors have sued the business for claims since the
explosion affected the structural integrity of their buildings.

Below is the financial statement extract of Power Insurance Limited for the period ended;
31st March, 2022 31st March, 2021
GHS’billion GHS’billion
Revenue 87.00 47.00
Pre-tax profit 2.99 1.31
Total Asset 900.00 800.00

On 1st April, 2022, Power Insurance Limited received an e-mail accompanied by a letter from the
Commissioner General of Ghana Revenue Authority which read; “Hello Manager, your business has been
selected for comprehensive tax audit scheduled on 15th August, 2022”, The management has asked your
firm to carry out pre-audit on the books to put things right and represent them in any tax administrative
issues.
The audit firm experienced labour turnover in 2022 because of its poor working conditions. You have just
been informed that your firm has received an invitation to tender for the audit of Prosper Insurance
Limited, a major competitor of Power Limited. The partner has claimed that it is possible for the firm to
carry out the audit with the limited staff because the audit will be carried out on different dates.
Power Insurance Limited has an incentive for management which is dependent on their performance. The
management had a pre-tax profit target of GHS 2.98 billion, and for achieving the target, a bonus payment
amounting to GHS 50million was made to the five staffs holding managerial positions. The management

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staff are well paid by the insurance company to get the best out of them. Each of the five staffs holding
managerial positions receive annual salary of GHS 2.4million (GHS 200,000 a month). The salary of the
management is paid in dollars.
Required:
Using the information above;
a. Discuss any Four (4) ethical issues relevant to the audit of Pinto Insurance Limited
(6 marks)
b. explain the impact of the bonus payment on the financial statements of Power Insurance
Company (2 marks)
c. Identify any four risks of material misstatement that will have significant impact on the audit of
Power Insurance Company Limited (6 marks)
d. Explain any two (2) matters to consider by Odogu and Associate before accepting the work
of Power Insurance Company (3 marks)

e. ISA 520 Analytical Procedures requires that the auditor performs analytical procedures during
the initial risk assessment stage of the audit. These procedures, also known as preliminary
analytical review, are usually performed before the year end, as part of the planning of the final
audit
Required:
Explain with a example, Two (2) reasons for performing analytical procedures as part of risk
assessment; (3 marks)
(Total: 20 marks)
QUESTION TWO
Manu Expert LTD manufactures motor vehicle components and its year end was 30 June 2022. You are
an audit supervisor of Asem Beba Debi & Partners and the final audit is due to commence shortly. Total
assets are GHS 43.2m and profit before tax is GHS 7.2m. This matter have been brought to your attention:
Bank balances
The bank and cash figure included in Manu Expert LTD’s draft financial statements is comprised of a
number of bank account balances: an overdraft of GHS 5.1m which is the company’s main current account
and GHS 0.2m relating to several savings accounts. The finance director has informed the audit manager
that all accounts have been reconciled as at the year end. The overdraft of GHS 5.1m has increased
significantly since the prior year (2021: GHS 1.2m). The directors have informed you that the overdraft
facility, which the company requires in order to operate on a daily basis, is due for renewal in October
2022 and that they are confident it will be renewed.
Required:
a. Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit
evidence in relation to Manu Expert LTD’s bank balance (4 marks)
b. Describe the audit procedures the auditor should perform in assessing whether or not Manu Expert
LTD is a going concern. (4 marks)

c. During the final audit, the finance director has informed the audit team that Manu Expert LTD’s bankers
will not make a decision on the renewal of the overdraft facility until after the auditor’s report is signed.
The audit engagement partner is satisfied that the use of the going concern basis is appropriate. The

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 directors have agreed to include some brief going concern disclosures in the draft financial statements
and the audit team still have to assess the adequacy of these disclosures.
Required:
Discuss the issue and describe the impact on the auditor’s report of Manu Expert LTD of adequate and
inadequate going concern disclosure. (5 marks)

d. Your Audit firm have been invited for presentation on the topic “Emphasis of matter and other
matter paragraph” to the staffs of Price WaterCorporation (PWC). You have been appointed to
make this presentation.

Required
i. Briefly explain these two concepts in auditing (3 marks)
ii. Outline the two (2) circumstances each for including each paragraph in an audit report
(4 marks)

(Total: 20 marks)
QUESTION THREE
a. One of your colleagues at Quality Control Partners, Kofi Aseda, has been taken ill at short notice and
you have been temporarily assigned as audit manager on IT Consult PLC, an IT consultancy company
which is listed on the alternative market of the Ghana Stock Exchange. The final audit of IT Consult
PLC for the year ended 30 June 2022 is approaching completion and you are in the process of reviewing
the audit working papers. The draft financial statements for the year recognise profit before taxation
for the year of GHS 54.2 million and total assets of GHS 237.1 million. The audit supervisor, who is a
part-qualified chartered certified accountant, has sent you an email from which the following extract
is taken:

‘It’s great to have you on board as I was beginning to worry that there would be no manager review
of our working papers prior to the final audit clearance meeting next week. The audit assistant and
myself have done our best to complete all of the audit work but we only saw Rodney on the first day
of the audit about a month ago when I think he was already feeling unwell. We had a short briefing
meeting with him at which he told us ‘if in doubt, follow last year’s working papers.’

One issue which I wanted to check with you is that IT Consult PLC has introduced a cash-settled share-
based payment scheme by granting its directors share appreciation rights (SARs) for the first time this
year. This was not identified at planning as a high risk area. The SARs were granted on 1 July 2017 at
which date the client obtained a valuation of the rights which was performed by an external firm of
valuers. I have filed a copy of the valuation report and I have looked up the valuers online and have
found a very professional looking website which confirms that they know what they are doing. The
cost of the SARs scheme based on this valuation is being appropriately recognised over the three year
vesting period and a straight line expense of GHS 195,000 has been recognised in the statement of
profit or loss on this basis. A corresponding equity reserve has also been correctly recognised on the
statement of financial position. The amount also seems immaterial and I can’t see any need to propose
any amendments to the financial statements in relation to either the amounts recognised or the
disclosures made in the notes to the financial statements.’

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 Required:
Comment on the quality of the planning and performance of the audit of IT Consult PLC discussing the
quality management and other professional issues raised. (8 marks)

b. IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding balances
with an entity's related parties. The standard defines various classes of entities and people as related
parties and sets out the disclosures required in respect of those parties, including the compensation
of key management personnel. On the other hand, ISA 550, which is mainly procedural, focus more
on the identification and assessment of risks of material misstatement associated with related party
relationships and transactions, and performing appropriate procedures to respond to such risks. You
are the audit manager with Expert & Associates, a firm of Chartered Certified Accountants. You are
currently supervising a Senior Associate who is a member of your team in charge of auditing related
party transactions. You overheard the Senior Associate stating that to his friends in a conversation that
the audit of related party transactions generally carry with it some difficulties. He also stated that it
even difficult to know which evidence should be obtained that will be sufficient and appropriate to
support the audit report on the financial statements.
Required:
In respect of the audit of, and evaluation of audit evidence on related party transactions;
i. State and explain four difficulties associated with the audit of related party transactions, and
(8 marks)
ii. the impact on the audit report for non-disclosure of related party transactions. (4marks)
(Total: 20 marks)
QUESTION FOUR
a. Supreme Audit Institution (SAI) perform two types of review. The two different types of reviews or
assessments conducted by a Supreme Audit Institution (SAI) or an auditing body include Pre-audit
and post-audit.

Required
Explain and state the relevance of;
i. Pre Audit (3 marks)
ii. Post Audit (3 marks)

b. The Ghana Water Company Limited (GWCL), responsible for providing safe drinking water to the
population, has faced allegations of non-compliance with environmental regulations. In a recent
incident, the GWCL was accused of discharging untreated wastewater directly into a nearby river,
potentially contaminating the water source and endangering the local ecosystem. This act not only
raises environmental concerns but also questions about the company's adherence to the environmental
regulations and acts in the country. The incident underscores the need for stricter oversight and
enforcement of environmental compliance in GWCL's operations. This has come to audit team of
Supreme Audit Institution (SAI) responsible for the audit of GWCL. ISSAI 1250: Consideration of laws
and regulations in an audit of financial statements requires the SAI to obtain sufficient appropriate
evidence in respect of noncompliance with laws and regulations which might be expected to have a
direct effect on material amounts and disclosures in the financial statement.

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 Required
i. State examples of the possible type of information that might have come to the audit team’s
attention that might indicate non-compliance with any environmental regulations. (2 marks)
ii. Evaluate the possible effect on the financial statements for non-compliance with the law
according to ISSAI 1250. (2 marks)
iii. Perform procedures to detect a material misstatement due to non-compliance with
environmental regulations (2 marks)

c. Compliance audit is performed by “assessing whether activities, financial transactions and

information are, in all material respects, in compliance with the authorities which govern the audited
entity
Required
Explain any five (5) factors affecting the coverage of a compliance audit (5 marks)

d. Discuss the concept of Cost Effectiveness under performance audit on the affair of public sector
entities. (3 marks)

(Total: 20 marks)
QUESTION FIVE
a. In many situations, the auditor assesses the reasonableness of an Accounting Estimates by
performing procedures to test the process used by management to make the estimate. The IAASB has
published the Exposure Draft, Proposed ISA 540 (Revised) Auditing Accounting Estimates and Related
Disclosures (ED-540) stating ‘the objective of ED-540 is for the auditor to obtain sufficient appropriate
audit evidence to evaluate whether accounting estimates and related disclosures are reasonable in the
context of the applicable financial reporting framework, or are misstated. ED-540 includes enhanced
requirements for risk assessment procedures and the auditor’s work effort in responding to the
assessed risks of material misstatement to support this evaluation.’
Required:
i. Recommend procedures that auditor may consider in assessing the reasonableness of an
accounting estimates. (3 marks)
ii. Explain why accounting estimates are considered to be a source of high audit risk. (3 marks)
iii. Discuss the reasons for the development of ED-540, commenting on its proposals for an
enhanced risk assessment in relation to the audit of accounting estimates. (4 marks)

b. XYZ Company is a large manufacturing firm listed on the Ghana Stock Exchange. The company's board
is composed of the following members:
• Mr. John Doe (CEO and Chair of the Board)
• Mrs. Mary Brown (CFO and Executive Director)
• Mr. David Green (Non-Executive Director, Industry Consultant)
• Ms. Sarah Black (Non-Executive Director, retired academic)
• Dr. Robert Blue (Independent Non-Executive Director, retired judge)
• Ms. Jane White (Non-Executive Director, Investor Relations Specialist)
You are have been hired to comment on the board structure of XYZ Ltd under the Corporate Governance
Code for Listed Companies 2020 Sec/Cd/001/10/2020

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Required
i. Comment on the composition of the board at XYZ Company (4 marks)
ii. Suggest any improvements to the board's composition to align with best practices for corporate
governance. (2 marks)
iii. State any two (2) functions of the board and any two (2) functions of audit committe (4 marks)

(Total: 20 marks)

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