Auditing and Assurance

You are the auditor of Sika Pa Rural Bank Ltd, a non-listed rural bank in Ghana. You are currently finalizing the audit for the year ended 31 December 2019. Your audit tests have proved satisfactory with the exception of the following four matters:

(a) The year-end balance of short-term investments of GHS 12,500,000 includes an amount of GHS 7,000,000 with Gold Coast Securities Ltd which matured on 14th March, 2018 but has not yet been received to the date of the completion of the field audit on 30th April 2020. The directors are of the opinion that they will receive the full amount in the near future but do not know when.

During the year 2019, interest of GHS 1,400,000 was calculated on the principal amount of GHS 7,000,000 and taken to income.

The following are extracts of the balances before consideration of the outstanding matters:

i) Total Property, Plant and Equipment - GHS105,234,138

ii) Current Assets - GHS 78,516,617

iii) Current Liabilities - GHS 96,422,823

(b) Included in the Loans and Advances balance of GHS 18,250,000 carried in the Statement of Financial Position at 31st December 2019 is a total overdraft facility of GHS 13,500,000 The banks records indicate that out of the GHS 13,500,000 overdraft balance, a total amount of GHS 11,300,000 is unscheduled due to system generated balances over the past six years. This therefore does not represent a valid asset. The directors are not prepared to make the necessary adjustments in the 2019 accounts.

(c) The total interest income amount shown in the statement of comprehensive income for the year ended 31st December, 2019 is GHS 22,000,000 and the net operating results for the year showed a loss of GHS, 2,534,500 (2018: Loss of GHS 1,437,100) Over the past four years, the management of the bank has operated a policy where they anticipate income on short-term investments and take credit to the statement of comprehensive income and debiting interest receivable account each year. Over the four year period, the bank has an amount of GHS 5,600,000 as interest receivable but this account is fictitious and does not represent a valid asset. The directors are not prepared to write off the whole amount in 2019 but want to spread it over the next five years.

(d) The financial statements of Sika Pa Rural Bank Ltd do not contain a statement of cash flows and Changes in Equity.

Required:

a) Comment on the financial reporting implications, and advise the further audit procedures to be performed if any.

b) Draft the Independent Auditors report on the financial statements for the year 2019.

c) Based on the outstanding matters above, prepare long form report / management letter to the client.

Note: You are to apply all the necessary accounting and auditing standards, laws and regulations that are applicable