Your firm has been contracted by the Office of the Auditor General (AG) of Ghana to provide the Ministry of Finance (MoF) with the certification of the Projection of Benchmark Petroleum Revenue for 2016.

The Petroleum Revenue Management Act (PRMA), 2011 (Act 815) became law in Ghana on 11 April, 2011 and Section 17 of the PRMA requires the Minister responsible for Finance to make a projection of the amount of petroleum revenue that would accrue to the Government of Ghana in the coming year not later than 1 September of each year.

The first schedule of the Act mandates an independent expert to certify the projection of the Benchmark Petroleum Revenue by the Minister before it would be used in the National Budget for the coming year.
The two major issues in the projection are the quantity of Oil and Gas expected and the world market price at which the oil and gas will be valued.

As part of the documents to be used in performing this assignment, MoF has given you:

• Projection of the Benchmark Petroleum Revenue from oil and gas for 2016 and
• Certification of the Estimate of the Oil and Gas production for 2016 from the existing and expected oil and gas producing fields in Ghana.

The first schedule of the Act prescribes a formula for the calculation of the Average Unit Price for Crude Oil and Natural Gas on the International Market to be used for the year.
The certification in the Estimate of the Oil and Gas production was issued by an independent expert in the Oil and Gas industry.
Required:

If your firm decides to accept the engagement, state FOUR issues your firm will consider in order to place reliance on the certification issued by the independent expert in the Oil and Gas industry in performing the engagement.                      (4 marks)

You are a manager in Amable & Co, a firm of Chartered Accountants, responsible for the audit of Kpandu Sika Limited for the year ended 31 December 2015. Kpandu Sika Limited is a company listed on the Ghana Stock Exchange (GSE) which has been a client of your firm in the past three years. The company manufactures consumer electronic appliances which are then sold to major retail organisations. You are aware that during the last year, Kpandu Sika Limited lost several customer contracts due to cheap imports. However, a new division has been created to sell its products directly to individual customers in Ghana and worldwide via a new website, which was launched on 1 December 2015.

Financial information provided by the Finance Manager is shown below:

NOTES

i) Kpandu Sika Limited established an equity-settled share-based payment plan for its executives on 1 January 2015. 250 executives and senior managers have received 100 share options each, which vest on 31 December, 2015 if the executive remains in employment at that date, and if Kpandu Sika Limited’s share price increases by 10% per annum. No expense has been recognised this year as Kpandu Sika Limited’s share price has fallen by 5% in the last six months, and so it is felt that the condition relating to the share price will not be met this year end.
ii) On 1 July 2015, Kpandu Sika Limited entered into a lease which has been accounted for as a finance lease and capitalised at GH¢19 million. The leased property is used as the head office for Kpandu Sika Limited’s new website development and sales division. The lease term is for five years and the fair value of the property at the inception of the lease was GH¢76 million.
iii) On 30 June 2015 Kpandu Sika Limited’s properties were revalued by an independent expert.
iv) A significant amount has been invested in the new website, which is seen as a major strategic development for the company. The website has generated minimal sales since its launch last month, and advertising campaigns are currently being conducted to promote the site.
v) The long-term borrowings are due to be repaid in two equal instalments on 30 September 2016 and 2017. Kpandu Sika Limited is in the process of renegotiating the loan, to extend the repayment dates, and to increase the amount of the loan.
vi) The provision relates to product warranties offered by the company.
vii) The overdraft limit agreed with Kpandu Sika Limited’s bank is GH¢5.7 million

Required:

State the principal audit evidence which you would expect to find in respect of the classification of the new lease in terms of IAS 17 Leases (Do not consider the application of the new leasing standard IFRS 16 Leases)                                       (4 marks)