GRANDE FINALE PROBLEM SOLVING SESSION

AUDIT AND ASSURANCE (C2)

SET 2 - FOR NOV 2023 EXAMS

SET 2 - QUESTIONS
GRANDE FINALE - NOV 2023

Prepared By: Dalton Mkaro - Masters. Investment & Finance , Bachelor of Accountancy, ATEC II , CPA (T)
Keep in touch via : +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com
 AUDIT AND ASSURANCE (C2) GRANDE FINALE – NOV 2023 (SET 2)

QUESTION ONE

a) Computer-Assisted Audit Techniques (CAATs) are the use of computers for audit
workand comprise mainly audit software and test data.

Required:
Explain the terms ‘audit software’ and ‘test data’ and list the advantages of
usingCAATs in an audit.

b) There are a number of key procedures which auditors should perform if they wish to
rely on internal controls and reduce the level of substantive testing they perform.
Theseinclude:
i) Walk-through tests;
ii) Audit Sampling;

Required:
Briefly explain each of the procedures listed above.

c) Compare and contrast the role of internal auditors and external auditors

d) 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.

e) ISA 700 Forming an opinion and reporting on financial statements indicates the
basic elements that will ordinarily be included in the audit report.
Required: List SIX basic elements of an auditor’s report. Briefly explain why each
element is includedin the report.

Prepared By: Dalton Mkaro - Msc .Investment & Finance, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 1
 AUDIT AND ASSURANCE (C2) GRANDE FINALE – NOV 2023 (SET 2)

QUESTION TWO

The audit of Nkwa Ltd’s financial statements for the year ended 30 November 2022 is
nearing completion and the auditor’s report is due to be signed next week. Nkwa Ltd
manufactures parts and components for the aviation industry. You are conducting an
engagement quality control review on the audit of Nkwa Ltd which is a listed entity and a
significant new client of your firm. The draft financial statements recognise revenue of
TZS8·7 million, assets of TZS15·2 million and profit before tax of TZS1·8 million.

You have identified the following issues as a result of your review:

a) The planned audit approach to trade payables was to place reliance on purchasing controls
and keep substantive tests to a minimum. During control testing on trade payables, from a
random statistical sample, the audit team identified three purchase orders which had not
been authorised by the procurement manager. On review of the supporting documentation,
the audit team concluded that the items were legitimate business purchases and therefore
concluded thatno additional procedures were required.

b) Following a review of petty cash transactions, the audit assistant identified that the petty
cashier paid for taxi fares for personal, non-business journeys with a total value of
TZS175. Following discussions with the Audit Assistant, you have ascertained that he did
not report the matter as the amount is immaterial. The audit assistant also commented that
the petty cashier is his brother and that he did not want to get him into trouble.

c) Cut-off testing on revenue has identified two goods despatch notes, dated 2 December
2022, for items sent to Chinn Co, with a combined sales value of TZS17,880 which had
been included in revenue for the year ended 30 November 2022. The client’s financial
controller, David Mount, has explained that Chinn Co does not order on a regular basis
from Nkwa Ltd. In the absence of a regular payment history with Chinn Co therefore, and
in order to minimise the receivables collection period from this particular customer, the
sales invoice was raised and sent to the customer on the same day that the sales order was
received. The average time period between the receipt of an order and despatching the
goods to the customer is approximately one to two weeks. The audit working papers have
concluded that no further investigation is necessary.

d) The Finance Director, Leslie Gray, has not completed the tax computation for the year
ended 30 November 2022. He has recently asked the audit assistant to compute the
company’s tax payable for the year on the basis that as a newly qualified chartered
accountant, the audit assistant was more up to date with recent changes in tax legislation.

Required:
Evaluate the quality control issues and the implications for the completion of the audit
including any further actions which should be taken by your audit firm. Your answer
should include the matters to be communicated to management and those charged with
governance inrelation to the audit of Nkwa Ltd.

Prepared By: Dalton Mkaro - Msc .Investment & Finance, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 2
 AUDIT AND ASSURANCE (C2) GRANDE FINALE – NOV 2023 (SET 2)

QUESTION THREE

a) Your firm has been approached to tender for an audit assignment by STK Tanzania Ltd. The
company is a multinational with its headquarters in Europe. STK Tanzania Ltd is a
manufacturing company which has operated in Tanzania since 2010 and has made steady
profits over the years. However, over the past few years, the company’s profits have been
dwindling and the group director in charge of Anglophone East Africa subsidiaries have charged
the company to reduceits costs.

In a meeting with the country manager, you ascertained the following information:
 Several creditors are pursuing the company for payment of their outstanding debt including the
previous auditor who is being owed for the past three years of audit work. The company has
negotiated a payment plan for all its creditors.
 Staff wages have been frozen, staff morale is very low and several have left.
 The company’s liquidity challenges commenced when the license of Glow Savings and Loans
was revoked as part of the banking sector crises with STK Tanzania Ltd funds exceeding
TZS1 million locked up in short and long-term investments.

In the Terms of Reference (TOR) for the audit engagement you are required to provide
timelines for the overall audit and a financial proposal that is competitive. Upon receiving the
TOR, a debate ensued among the partners on the relevance of submitting a proposal in response
to the TOR.

Required: Discuss FIVE (5) factors to be considered prior to developing a proposal for
submission.

b) You are the Audit Manager at Tunaanza Usiku & Associates whose client portfolio includes
ABC Credit Plc which is a listed financial institution offering loans and credit facilities to both
commercial and retail customers. You have received an email from the Audit Supervisor who
is currently supervising interim testing on systems and controls in relation to the audit of ABC
Credit Plc for the year ending 31 October 2022. The email gives the following details for your
consideration:

i) One of the audit team members, Bunju Imefika, has provisionally agreed to apply for a loan
from ABC Credit Plc to finance the purchase of a domestic residence. The loan will be
secured on a property and the client’s business manager has promised Bunju Imefika that he
will ensure that she gets ‘the very best deal which the bank can offer.’
ii) The payroll manager at ABC Credit Plc has asked the audit supervisor if it would be possible
for Tunaanza Usiku & Associates to provide a member of staff on secondment to work in the
payroll department. The payroll manager has struggled to recruit a new supervisor for the
organisation’s main payroll system and wants to assign a qualified member of the audit firm’s
staff for an initial period of six months.

Required: Assess the ethical and professional implications on the issues raised in respect of
the audit of ABC Credit Plc and recommend actions to be taken in each case by the audit
firm.

Prepared By: Dalton Mkaro - Msc .Investment & Finance, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 3
 AUDIT AND ASSURANCE (C2) GRANDE FINALE – NOV 2023 (SET 2)

QUESTION FOUR
You are the manager responsible for the audit of Mmesha Toboa Ltd, a listed company specialising
in the manufacture and installation of sound-proof partitions for domestic and industrial buildings.
You are currently reviewing the draft auditor’s report on the company’s financial statements for the
year ended 31 March 2022. Extracts from the draft auditor’s report are shown below:

Independent auditor’s report to the shareholders and directors of Mmesha Toboa Ltd Basis
for opinion
We conducted our audit of Mmesha Toboa Ltd (the Company) in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those standards are further described
in the auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Company in accordance with the ethical requirements which are relevant to our
audit of the financial statements in the jurisdiction in which the Company operates, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
We have audited the financial statements of Mmesha Toboa Ltd, which comprises of the statement
of financial position as at 31 March 2022, and the statement of comprehensive income, statement of
changes in equity and statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies. In our opinion, the
accompanying financial statements present fairly, in all material respects, the financial position of
the Company as at 31 March 2022, and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards.
Material uncertainty regarding going concern
The Company is financed by a long-term loan from its bankers which is due for redemption in August
2022. At the date of this auditor’s report, the Company is in the process of renegotiating the loan
but has not yet reached a final agreement with its bankers. It is our view that the loan finance is
essential to the continued survival of the Company and that at the time of reporting, therefore, the
absence of a finalised agreement represents a material uncertainty regarding going concern. The
financial statements have been prepared on a going concern basis but do not make any reference to
the loan redemption or the ongoing negotiations with the bank. As the external auditor therefore, we
are fulfilling our duty by bringing the matter to the attention of users of the financial statements.
Other information
The Company’s principal activity is the manufacture and installation of sound-proof partitions
for domestic and industrial buildings. The Company therefore engages in long- term contracts
which are incomplete at the reporting date and which are material to its revenue figure. The
installation process is complex and significant judgement is applied in assessing the percentage
of completeness which is applied to calculate the revenue for the year. The significance of this
judgement requires us to disclose the issue as other information which is relevant to the users of
the financial statements.

Required: Comment on the issues raised in the extract from the draft auditor’s report for the
yearended 31 March 2022.
(Note: You are NOT required to re-draft the extracts from the auditor’s report.)

Prepared By: Dalton Mkaro - Msc .Investment & Finance, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 4
 AUDIT AND ASSURANCE (C2) GRANDE FINALE – NOV 2023 (SET 2)

COVENANT INSTITUTE OF ACCOUNTANCY & TECHNOLOGY (CIAT)

Application for Certificate Application for Certificate
/Diploma programs for the /Diploma programs for the
March intake starts in October intake starts in NOV
January
Application for short computer courses such as Word, Excel, PowerPoint,
Access, Web design, Graphic designs etc. are accepted at any time
Programs and Entry Qualification: -
1 Basic Certificate in Accountancy /Business 4 passes of at least a “D” grade
Administration in form four or a pass in NVA
level III
2 Ordinary Diploma in Accountancy /Business Form Six with 2 passes (At least
Administration “E” & “S” grades) or Basic
Certificate from any recognized
college.
3 VETA Certificate in Business Operation 2 passes of at least a “D” grade
Assistant (BOA) or Information Technology in form four
4 CPA reviews (both physical & Online classes) As per NBAA’s criteria
**Bachelor Degree in Accounting with Information Technology (In pipeline)
We provide a 100% CPA scholarship to all students enrolled in our Certificate /
Diploma programs. We are going to give your career new wings to fly to greater
heights.
We use a blended approach such that the candidate finishes his/her studies
(Certificate/Diploma/Bachelor Degree), along with a CPA qualification.
We offer students’ loans (ADA chap chap) at affordable rates through Mwalimu
Commercial Bank (MCB).
Hostels are available with conducive environment
Call us: 0719466664/0719877778/0719377773. Website: www.ciat.ac.tz
CIAT: Knowledge for Professional Excellence

Prepared By: Dalton Mkaro - Msc .Investment & Finance, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 5