QUESTION 2

a) Nana Adom Company Ltd, end its financial year on 31st December, which is traditionally a busy time for

Samyantwi and Associates. Nana Adom Company Ltd., currently has an internal audit department of five

employees but they have struggled to undertake the variety and extent of work required by the company,

hence Nana Adom Company Ltd. is considering whether to recruit to expand the department or to outsource

the internal audit department. If outsourced, Nana Adom Company Ltd. would require a team to undertake

monthly visits to test controls at the various shops across the country, and to perform ad hoc operational

reviews at shops and head office. Nana Adom Company Ltd is considering using Samyantwi and Associates

to provide the internal audit services as well as remain as external auditors.

Required:

Discuss any SIX advantages and FOUR disadvantages to both Nana Adom Company Ltd. and Samyantwi

and Associates for outsourcing the internal audit department functions. (5 marks)

b) The audit engagement partner for ABC Company Ltd. has been in place for approximately six years and his son

has just accepted a job offer from ABC Company Ltd. as a sales manager; this role would entitle him to

shares in ABC Company Ltd. as part of his remuneration package. Ackah and Associates have been

appointed as internal as well as external auditors. ABC Company Ltd. has suggested that the external audit

fee should be renegotiated with at least 20% of the fee being based on the profit after tax of the company as

they feel that this will align the interests of ABC Company Ltd and Ackah and Associates.

DC: ACD01-F004DC: ACD01-F004

Required:

i. Explain any FIVE ethical threats which may affect the independence of Ackah and Associates in respect of

the audit of ABC Company Ltd, and for each threat explain how it may be reduced. (5 marks)

ii. Explain any FIVE factors that should be considered by an external auditor before reliance can be placed on

the work performed by a companys internal audit department. (5 marks)

(Total = 15 marks)

QUESTION 3

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange),

which specialize in the provision of loans and financial advice to individuals and companies. Currant & Co has

audited Orange for many years. The directors are planning to list Orange on a stock exchange within the next

few months and have asked if the engagement partner can attend the meetings with potential investors. In

addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant &

Co can produce the financial statements for the current year. During the year, the assistant finance director of

Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange,

he should be appointed to provide an independent partner review for the audit. Once Orange obtains its stock

exchange listing it will require several assignments to be undertaken, for example, obtaining advice about

corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however,

Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly

and with minimal questions/issues. The finance director has informed you that once the stock exchange listing

has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his

team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team

a short-term loan at a significantly reduced interest rate.

Required:

i.

Explain FIVE ethical threats which may affect the independence of Currant & Cos audit of Orange

Financials Co. (5 marks)

ii.

For each threat explain how it might be reduced to an acceptable level. (5 marks)

iii.

Describe FIVE types of procedures for obtaining audit evidence. (5 marks)

(Total = 15 marks)

QUESTION 4

a) You are employed by Twumasi and Co, a firm of certified accountants. KPTP is a new audit client

recently taken on by the firm. KPTP is an importer and wholesaler of specialist computer hardware.

During the year the company's chief accountant resigned and in the three months leading up to the

appointment of her replacement, no checking had been performed on the monthly reconciliations of the

bank account in the receivables and payables ledgers.DC: ACD01-F004

Required:

(i)

From the scenario, identify examples of inherent risk and control risk, clearly explaining the nature of

any misstatements that might arise in the financial statements. (4 marks)

(ii)

From the scenario, identify any potential detection risk, and explain how the firm could minimize this

risk.

(4 marks)

b) Auditors have various duties to perform in their role as auditors, for example, to assess the truth and

fairness of the financial statements.

Required: Identify six (6) rights that enable auditors to carry out their duties. (3 marks)

c) You are about to review the internal control system of your client company.

Identify four (4) factors that would determine the nature, timing and extent of controls that you would

expect.

(4 marks)

(Total = 15 marks)