ISA 520 Analytical procedures provides guidance to auditors on the use of analytical procedures during the course of the external audit.
Required:
When using analytical procedures as substantive audit procedures, list and briefly explain with examples THREE factors to consider when determining the extent of reliance that can be placed on the results of such procedures.                           (5 marks)

One of the basic assumptions underlying the preparation of financial statements is the going concern concept which assumes that the entity has the ability to continue to operate into the foreseeable future. However some events and conditions may cast doubt on the entity’s ability to continue as a going concern.
Required:
Describe FIVE financial events or conditions that may cast doubt about the going concern assumption of an organization.   (5 marks)

Anaba Sampson is an audit assistant of Global Accountants, a firm of Chartered Accountants. During the audit of a client’s account, for the year ended 31 December 2011, Anaba Sampson detected an error amounting to Ten Ghana Cedis (GH¢10.00) in respect to each interest payment which recurred a number of times. The Chief Accountant of the client advised Anaba not to request for passing any adjustment entry as individually the errors were insignificant. The company had 3000 deposit accounts and interest was paid half yearly.
Required:
i) Describe FOUR factors affecting judgment about materiality.                                                                                       (4 marks)

ii) Discuss the advice of the Chief Accountant.                                                                                                                 (11 marks)

ISA 265 Communication of deficiencies in internal control to management and those charged with governance specifies control deficiencies to be communicated to those charged with governance and management.
Required:
State THREE items to be captured in a management letter.                                                                                              (3 marks)

Introduction
Animo Company Ltd has been operating in the manufacturing sector for over a decade. The Company started as sole proprietorship managed by Daniel Opoku with his wife Daniella Opoku. Internal controls were weak and inadequate at the formative stage of the Company though the Company achieved significant growth over two decades due to consistent product quality and good customer relationship.
Daniella started her professional studies with the Institute of Chartered Accountants (Ghana) and advised Daniel Opoku to introduce the following internal controls over the sales cycle of Animo Company Limited.
To be able to meet increasing demand, the Company bought a huge manufacturing plant and six warehouses for storage of final products until they are despatched to the final customer. Sales ordering, goods despatched and invoicing customers have reference numbers that are unique to each customer. The company has a price list, which is updated quarterly to reflect the high inflation in the economy. Customers are entitled to a discount for bulk purchases. Sales threshold that attracts discount agreed by the sales director are set up within the customer master file.
New customers
A sales manager completes a credit application for new customers. The application is furnished to a credit support company for credit history about the customer. A credit limit is entered into the system by a credit officer. Once the order is entered an acceptance is automatically sent to the customer by post/email confirming the goods ordered and a possible date for despatch. The order is then sorted using the address of customers. The warehouse closest to the customer receives the order electronically and a despatch list and sequentially numbered goods delivery notes (GDNs) are automatically generated. The despatch list is used by the warehouse team to pack the goods and, before they are sent out, a second member of the team double checks the despatch list to the GDN, which accompanies the goods.
Existing customers
Sales orders are entered in the sales orders books with the details of the order not limited to the amount, type of toys and the quantity. The orders are entered by an order clerk and the “Sales Soft” system automatically checks that the goods are available and that the order will not take the customer over their credit limit.
Once despatched, a copy of the GDN is sent to the accounts team at head office and a sequentially numbered sales invoice is raised and checked to the GDN. Periodically a computer sequence check is performed for any missing sales invoice numbers.
Required:

Describe TWO substantive procedures the auditor should perform to confirm Animo Company Limited’s year-end receivables balance.                                                                                                                                                                                (4 marks)

Introduction
Animo Company Ltd has been operating in the manufacturing sector for over a decade. The Company started as sole proprietorship managed by Daniel Opoku with his wife Daniella Opoku. Internal controls were weak and inadequate at the formative stage of the Company though the Company achieved significant growth over two decades due to consistent product quality and good customer relationship.
Daniella started her professional studies with the Institute of Chartered Accountants (Ghana) and advised Daniel Opoku to introduce the following internal controls over the sales cycle of Animo Company Limited.
To be able to meet increasing demand, the Company bought a huge manufacturing plant and six warehouses for storage of final products until they are despatched to the final customer. Sales ordering, goods despatched and invoicing customers have reference numbers that are unique to each customer. The company has a price list, which is updated quarterly to reflect the high inflation in the economy. Customers are entitled to a discount for bulk purchases. Sales threshold that attracts discount agreed by the sales director are set up within the customer master file.
New customers
A sales manager completes a credit application for new customers. The application is furnished to a credit support company for credit history about the customer. A credit limit is entered into the system by a credit officer. Once the order is entered an acceptance is automatically sent to the customer by post/email confirming the goods ordered and a possible date for despatch. The order is then sorted using the address of customers. The warehouse closest to the customer receives the order electronically and a despatch list and sequentially numbered goods delivery notes (GDNs) are automatically generated. The despatch list is used by the warehouse team to pack the goods and, before they are sent out, a second member of the team double checks the despatch list to the GDN, which accompanies the goods.
Existing customers
Sales orders are entered in the sales orders books with the details of the order not limited to the amount, type of toys and the quantity. The orders are entered by an order clerk and the “Sales Soft” system automatically checks that the goods are available and that the order will not take the customer over their credit limit.
Once despatched, a copy of the GDN is sent to the accounts team at head office and a sequentially numbered sales invoice is raised and checked to the GDN. Periodically a computer sequence check is performed for any missing sales invoice numbers.
Required:
i) Tabulate FOUR tests of controls the auditor would normally carry out on the sales system of Animo Company Limited, and state the objective for each test.                                                                                                                                           (8 marks)

Internal audit is a function establish by management to assist in corporate governance by assessing internal controls and helping in risk management. It can be a department of employees or can be outsourced to expert service providers.
Internal auditing is different from external auditing, although the techniques used by both are very similar. While the technique used may be similar, the focus and reasons behind the audit are different.
Required:
Compare and Contrast the role of internal auditors and external auditors.                                                                       (10 marks)

Auditors are regulated by professional bodies and should follow recognised auditing standards such as International Standards on Auditing (ISAs).
Required:
Explain why it is important for audits to be conducted in accordance with Auditing Standards that are common to all audits.   (6 marks)

Ebaatsake Ltd designs and manufactures luxury motor vehicles. The company employs 2,500 staff and consistently makes a net profit of between 10% and 15% of sales. Ebaatsake Ltd is not listed; its shares are held by 15 individuals, most of them from the same family. The maximum shareholding is 15% of the share capital.
The executive directors are drawn mainly from the shareholders. There are no non-executive directors because the company legislation in Ebaatsake Ltd’s jurisdiction does not require any. The executive directors are very successful in running Ebaatsake Ltd, partly from their training in production and management techniques, and partly from their hands-on approach providing motivation to employees.
The board is considering a significant expansion of the company. However, the company’s bankers are concerned with the standard of financial reporting as the Finance Director (FD) has recently left Ebaatsake Ltd. The board is delaying provision of additional financial information until a new FD is appointed.
Although Ebaatsake Ltd does have an internal audit department, the Chief Internal Auditor frequently complains that the board of Ebaatsake Ltd does not understand his reports nor provide sufficient support for his department and the internal control systems within Ebaatsake Ltd. The board of Ebaatsake Ltd concur with this view. Adoko & Co, the external auditors have also expressed concern in this area and the fact that the internal audit department focuses work on control systems, not financial reporting. Adoko & Co are appointed by and report to the board of Ebaatsake Ltd.
The board of Ebaatsake Ltd are considering a proposal from the Chief Internal Auditor to establish an audit committee. The committee would consist of one executive director, the chief internal auditor as well as three new appointees: One appointee would have a non-executive seat on the board of directors.
Required:
Discuss how the formation of an audit committee could address the issues raised in the above scenario.                     (14 marks)

Outline FIVE (5) characteristics each of the following:
Organisation