Expert Ltd (Expert) is a wholesaler of furniture (such as chairs, tables and cupboards). Expert buys the furniture from six major manufacturers and sells them to over 1,000 customers ranging from large retail chain stores to smaller owner-controlled businesses. The receivables balance includes customers owing up to GHȼ200,000 to smaller balances of about GHȼ20,000, all with different due dates for payments and credit limits. All information is stored on Expert’s computer systems, although previous audits have adopted an ‘audit around the computer’ approach.

You are the Audit Senior in charge of the audit of the receivables balance. For the first time with this client, you have decided to use an audit software to assist with the audit of the receivables balance. IT staff at Expert are happy to help you the Auditor. However, they cannot confirm the completeness of systems documentation and warn that the systems have very old operating system, limiting file compatibility with modern programs.

To limit the possibility of damage to Expert’s computer files, a copy of the files will be provided by Expert’s IT staff for the Auditor to use with their own audit software.

Required:
a) State SIX (6) substantive test that should be carried out using audit software on the receivables balance of Expert Ltd. (9 marks)

You are the external auditor of Paa Willy Ltd (PW) for the year ended 31 March 2019. PW operates 12 convenience stores in the Greater Accra region:
• Each store sells food.
• Each store is responsible for its own inventory procurement and produces monthly management accounts which are sent to the centralised accounting department at PW head office.
PW is financed by a GH¢250,000 bank loan which is repayable at a rate of GH¢50,000 per annum over each of the next 5 years starting on 31 October 2019. It also has an overdraft facility of GH¢100,000 which it uses in full. The bank overdraft facility is due for renewal on 1 May 2020.
The bank has already told the company that it will need a cash flow forecast for two years from 1 February 2020 in order for the bank to decide whether or not the overdraft facility will be renewed. The bank has also said it will require a report from the external auditors to confirm the accuracy of the forecast.
Required:

Outline THREE (3) substantive procedures that should be adopted to verify each of the following assertions:
• The valuation of inventory.                                                                                                                                               (3 marks)

• The completeness of payables.                                                                                                                                          (3 marks)

Recommend FOUR (4) appropriate substantive procedures that should be performed to confirm PW’s bank loan.        (4 marks)

Damongo Ltd (Damongo) is a computer hardware specialist and has been trading for over ten years. Damongo is the only hardware specialist listed on the Ghana Stock Exchange within five years after incorporation.
The company is funded partly through overdrafts and loans and also by several large shareholders. The year end is 31 December 2017. Damongo has experienced significant growth in previous years. However, in the current year a new competitor, HardWare Specialist Co (HardWare), has entered the market and through competitive pricing has gained considerable market share from Damongo. One of Damongo’s large customers has stopped trading with them and has moved its business to HardWare. In addition, a number of Damongo’s specialist developers have left the company and joined HardWare. Damongo has found it difficult to replace these employees due to the level of their skills and knowledge. Damongo has just received notification that its main supplier who provides the company with specialist electrical equipment has ceased trading.
Damongo is looking to develop new products to differentiate itself from the rest of its competitors. It has approached its shareholders to finance this development, however, they declined to invest further in Damongo. Damongo’s loan is long term and it has met all repayments on time. The overdraft has increased significantly over the year and the directors have informed you that the overdraft facility is due for renewal next month, and they are confident it will be renewed.
The directors have produced a cash flow forecast which shows a significantly worsening position in the coming 12 months. They are confident that the new products being developed is viable. Damongo has trading history of significant growth and they believe it is unnecessary to make any disclosures in the financial statements regarding going concern.
At the year end, Damongo received notification from one of its customers that the hardware installed for the customers’ online ordering system has not been operating correctly. As a result, the customer has lost significant revenue and has informed Damongo that they intend to take legal action against them for loss of earnings. Damongo has investigated the problem post year end and discovered that other work-in-progress is similarly affected and inventory should be written down. The Finance Director believes that as this misstatement was identified after the year end, it can be amended in the 2017 financial statements.
Required:
a) Describe THREE (3) procedures the auditors of Damongo Ltd should undertake in relation to the uncorrected inventory misstatement identified above.                                                                                                                                            (6 marks)

International Training Center (ITC) is a large company limited by shares which operates a network of teaching centers in countries across West Africa. The Company was incorporated under the requirements of the Companies Act, 1963 (Act 179) on 19 January 1990 and domiciled in Ghana. Students who register with the Center pay 30% during initial registration and the remaining 70% over the course period. You are the senior Associate of Add Consult. ITC is a new client and you are currently planning the audit with the audit manager to audit the company for the year ended 31 December 2017.
You have been provided with the following planning notes from the audit partner following his meeting with the Finance Director.

• ITC purchases stationery from a supplier in China and these goods are shipped to the company’s central warehouse. The goods are usually in transit for a fortnight and the company correctly records the goods when received. ITC does not undertake a year-end inventory count, but carries out monthly continuous (perpetual) inventory counts and any errors identified are adjusted in the inventory system for that month.
• During the year the directors of the Company have each been paid a significant bonus, and they have included this in wages and salaries expenses. Separate disclosure of the bonus is required by the Companies Act.
• ITC has a policy of revaluing its land and buildings and this year has updated the valuations of all land and buildings.
• During the year the company introduced a bonus based scheme on sales for its sales persons. The bonus target was based on increasing the number of students signing up for 6-month courses by the school for individuals running accountancy examinations. This has been successful and revenue has increased by 25%, especially in the last few months of the year. The level of receivables is considerably higher than last year and there are concerns about the creditworthiness of some students.
  Required:

b) Identify FIVE (5) audit procedures Add Consult should perform in order to place reliance on the continuous (perpetual) counts for year-end inventory.                                                                                                                                             (5 marks)

c) Describe substantive procedures Add Consult should perform to confirm the directors’ bonus payments included in the financial statements.                                                                                                                                                            (5 marks)

i) Identify and explain two financial statement assertions relevant to account balances at the year-end; and                    (2 marks)

ii) For each identified assertion, describe a substantive procedure relevant to the audit of year-end inventory.                (4 marks)

BDE Company Limited operates a hotel providing accommodation, leisure facilities and restaurants. Its year ends on 31 March. You are the senior associate of ABC and Associates and are currently preparing the audit programmes for the year-end audit of BDE Company Limited. You are reviewing the notes of last week’s meeting between the audit manager and finance director where two material issues were discussed.
Depreciation
BDE Company Limited incurred significant capital expenditure during the year for refurbishing the restaurant facilities for the hotel.
The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the straight-line method.
Food poisoning
BDE’s directors received correspondence in January from a group of customers who attended a wedding at the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are claiming substantial damages. BDE’s lawyers have received the claim and believe that the lawsuit against the company is unlikely to be successful.
Required:
i) Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above two issues.    (6 marks)

ii) List and explain the purpose of three items that should be included on every working paper prepared by the audit team during the audit of depreciation and food poisoning of BDE Company Limited.                                                                          (3 marks)

You are part of the audit team auditing the financial statements of Stainless Co. Ltd for the year ended 30 June 2017. The Company has a staff of 200. You have been asked to audit the wages and salaries expenses of the year.
Required:
i) Describe the substantive procedures you would apply in your work.                                                                            (10 marks)

ii) Identify the objective that a substantive procedure seeks to achieve                                                                             (5 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)

Okunka hospital is located in a country where healthcare is free, as the taxpayers funds are used to finance state owned hospitals. Two years ago, management reviewed all aspects of the hospital’s operations and instigated a number of measures aimed at improving overall ‘value for money’ for the local community. Management have asked you, an audit manager in the hospital’s internal audit department, to perform a review over the measures which have been implemented.
Okunka has one centralized procurement department through which all purchase requisition forms are forwarded to. Upon receipt, the procurement team embarks on market research for the lowest price from suppliers after which a purchase order is raised. The purchased order is then submitted to the procurement director, who authorises all orders. The small procurement team receive in excess of 200 forms a day.The human resource department has had difficulties with recruiting suitably trained staff. Overtime rates have been increased to incentivise permanent staff to fill staffing gaps, this has been popular, and reliance on expensive temporary staff has been reduced. Monitoring of staff hours had been difficult but the hospital has implemented time card clocking in and out procedures and these hours are used for overtime payments as well.
The hospital has invested heavily in new surgical equipment, which although very expensive, has meant that more operations could be performed to ensure faster patient recovery. However, there is shortage of well-trained medical staff. A capital expenditure committee has been established, made up of senior managers, and they plan and authorise any significant capital expenditure items.

Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertion in relation to an entity’s property, plant and equipment:

(Note: Assume that the hospital adopts International Financial Reporting Standards).                                                       (6marks)
i) Valuation

ii) Completeness; and

iii) Rights and obligations.