C2 GRANDE FINALE SOLVING MAY 2024 - SET 1 (QUESTIONS)

(C2) - AUDIT AND ASSURANCE GRANDE FINALE SESSION - MAY 2024 - SET 1
GRANDE FINALE PROBLEM SOLVING SESSION

(C2) - AUDIT AND ASSURANCE
FOR MAY 2024 EXAMS
SET 1 - QUESTIONS
Prepared : Dalton Mkaro - Masters of Finance & Investment , Bachelor of Accountancy, ATEC II , CPA (T)
Keep in touch via : +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com
QUESTION ONE
Panone Ltd is a large supermarket chain which has outlets in Kilimanjaro, Dar Es Salaam and
Arusha. It was incorporated in 2021 and began its business operations on 1 July 2021. It currently
has three hundred (300) employees.
You are a Senior Audit Supervisor in Deloitte & Co. responsible for the audit of the financial
statements for Panone Ltd for the year ended 30 June 2022. The following information relates to
Panone Ltd.
Corporate governance:
On 1 January, 2022, the Board of Directors (BOD) established an Audit Committee consisting of
three (3) Non-Executive Directors (NEDs). However, the Executive Directors (EDs) perceive that
the Audit Committee is detracting from their authority since it has no written terms of reference.
To minimize misunderstandings, the directors have requested Deloitte & Co. to assist in
developing written terms of reference for the Audit Committee. Panone Ltd has no separate Board
Risk Committee.
Internal Audit Function:

The Finance Director considers the Internal Audit Function as very effective and wants Deloitte
& Co. to use the work of Internal Audit. The Internal Audit Function reports to the Board of
Directors and internal auditors are members of (NBAA). The Human Resource Department (HRD)
oversees the employment decisions regarding internal auditors. The Internal Audit Function has
appropriate quality control procedures and internal audit documentation. However, management
has been too busy to act on the recommendations made by internal auditors.
Credit sales system:

Panone Ltd only allows credit sales to government institutions. Once a government institution
places a purchase order with Panone Ltd, any sales representative for Panone Ltd raises a sales
order that details the purchase order placed by the government institution. The sales orders are not
pre-numbered. The sales representative packs the required goods and raises a dispatch note. At the
end of each month, consolidated invoices are prepared by the marketing department and sent to
respective government institutions. The credit period is 30 days from the date of invoice and there
is no credit limit. A number of sales representatives are casual workers and they are paid in cash,
on a weekly basis.
Prepared By: Dalton Mkaro – Masters of Finance & Investment, Bachelor of Accountancy , ATEC II, CPA (T),
Contacts: +255 719 305 808 | info@covenantfinco.com | www.covenantfinco.com Page | 1
The following audit risks were noted by the Audit Manager when he was reviewing the planning
working papers of the audit of the financial statements of Panone Ltd.
(1) Inventories are susceptible to theft.
(2) Invoicing government institutions in arrears.
(3) Management bonuses are based on sales performance.
(4) Large amounts of cash are collected and held prior to banking.
The year-end bank reconciliation shows an amount of Tshs1.5 million as deposits made and not
credited by the bank. This is one of the reconciling amounts between the balance per cash book
and the balance per bank statements.
Required:
(a) Define corporate governance and recommend four (4) responsibilities which should be
included in the written terms of reference for the Audit Committee for Panone Ltd.
(b) Using the guidance given in ISA 610 (Revised) Using the work of internal auditors:
(i) State the criteria used to evaluating the internal audit function.
(ii) Evaluate whether Deloitte & Co. should use the work of the Internal Audit Function
for Panone Ltd.
(c) Identify and explain four (4) control deficiencies in the credit sales system for Panone Ltd.
(d) Recommend five (5) appropriate audit procedures which the auditors should carry out
regarding the wages for sales representatives paid in cash.
(e) Explain the audit risks identified by the Audit Manager and recommend appropriate
responses.
(f) Explain the meaning of substantive procedures and recommend three (3) suitable
substantive procedures for outstanding lodgments.
QUESTION TWO
You are a new Audit Manager in Palamaganda Associates, a firm registered by NBAA and you
have been assigned to the financial statements audit of Kijazi Ltd for the year 31 March 2022. The
following information has come to your attention during your pre-audit meeting with the Finance
Director of Kijazi Ltd.
Palamaganda Associates were appointed auditors for Kijazi Ltd ten (10) years ago. The
Engagement Partner has been lowballing and as a result has been able to provide Kijazi Ltd with
lucrative other services.
During the year ended 31 March 2022, Kijazi Ltd designed and implemented an Information
Technology (IT) system that generates information that is significant to Kijazi Ltd.’s accounting
records. The Finance Director has requested Palamaganda Associates to assist with the recruitment
of four (4) Accounts Assistants who will undergo specialized training in the operation of the new
IT system.
Depreciation has been identified as a significant matter in view of the massive disposals and
acquisitions made during the year. In an effort to improve audit efficiency, Kijazi Ltd promised to
provide the Audit Senior with a laptop. The Engagement Partner is happy that the audit will be
completed on time. Palamaganda Associates budgeted to procure laptops for all audit staff before
the end of the year 2022.
The Board of Directors for Kijazi Ltd believes that audit costs would fall by 20% if Palamaganda
Associates also provided internal audit services. Palamaganda Associates has received notification
that it has been nominated to provide internal audit services to Kijazi Ltd.
Required:
a) State three (3) advantages of professional codes of ethics.
b) Identify and explain four (4) ethical threats in the audit of the financial statements for Kijazi
Ltd and recommend the responses that should be made.
c) Explain two (2) methods of obtaining audit evidence which can be used when auditing the
depreciation figure in the financial statements of Kijazi Ltd for the year ended 31 March
2022.
d) Discuss how analytical procedures can be used as substantive audit procedures to provide
audit evidence on the accuracy of the depreciation figure in the financial statements for
Kijazi Ltd.
QUESTION THREE
You are the Audit Manager in charge of the final audit of the financial statements for Tupo Imara
Plc which is nearing completion. The following two (2) matters have been brought to your
attention:
Receivables balance:
There is a dispute between Tupo Imara Plc and one (1) of the major customers. It appears that the
main reasons for the dispute could be teeming and lading fraud and cut-off problems. The new
Audit Senior has no detailed experience in the audit of teeming and lading fraud and cut- off
problems. The Engagement Partner has requested you to guide him.
Going concern:
Apart from collecting a seven (7) months’ forecast from the period end, no other audit work has
been performed on going concern. The new Audit Senior has requested for your guidance. After
ten (10) years of performance levels well above the industry average, the current performance
levels for Tupo Imara Plc are showing a downward trend. During the year under review, a new
management was appointed to address some of the issues.
Required:
(a) With reference to receivables:

i. Explain, using a suitable illustration, what is meant by teeming and lading fraud.
ii. State the action that the auditors must take in view of the suspected teeming and lading
fraud.
iii. Recommend four (4) cut-off tests, which should be performed on the receivables
balance for Tupo Imara Plc.
(b) Using the guidance given in ISA 570 (Revised) Going concern:
i. State the objectives of the auditor regarding going concern.
ii. Explain the actions which the auditors must take given that management of Tupo
Imara Plc have only provided the auditors with a seven (7) months’ forecast.
QUESTION FOUR
(a) Your Audit Manager, has requested you to provide training to New Audit trainees on
“professional skepticism”, “reasonable assurance” and “limited assurance”.
Required:
(i) Explain the importance of “professional skepticism” when performing an audit.
(ii) Explain the difference between “reasonable assurance” and “limited assurance”.
(b) Azam Co (Azam) is a producer of Ukwaju drink. The company’s year-end is 31 March 2023.
You are an Audit Supervisor of Nganga & Co. and are currently reviewing extracts of
documentation of Azam internal control systems.
Production raw materials are purchased from different suppliers. Due to employees’
resignations in the creditors department, suppliers’ accounts reconciliations are no longer
performed. Credit customers undergo credit checks prior to being accepted and credit limits are
set by a senior sales ledger clerk. Customers place their orders through the sales supervisor,
who decides on sales discount levels.
The Human Resources department has been very busy and to ensure operational efficiency, the
payroll department has helped by setting up any new employees who have joined. On 1 January
2023, employees’ salaries were increased by 5% by the Finance Director and he directed the
payroll accountant to make changes to the payroll details in the payroll master file. The changes
were done as directed.
In order to prudently manage cash flows, Azam has a policy of delaying payments to all
suppliers for four (4) months. Suppliers are paid using on-line payments and the Finance
Director is given the total amount of the payments list, which he authorises and then processes
the on-line bank payments.
Required:
(i) Identify and explain five (5) deficiencies in the internal control systems of Azam Co,
and suggest a recommendation to overcome each deficiency.
(ii) State five (5) elements of an assurance engagement.
QUESTION FIVE
Omo Ltd sells cleaning chemicals it imports from Europe. Mr. Mlangila is the Managing Director
and Chairman whiles his nephew and son as co-directors. The son supervises an accounting staff
of four (4) employees.
The company opened four (4) branches in Dar Es Salaam, Arusha, Mwanza and Mbeya. This
necessitated the need to recruit more accounting staff as current workforce was overwhelmed with
work and at times errors and omissions occur when recording transactions in the books of account.
The company has not appointed external auditors and most of the internal audits are done by the
son to the Managing Director who has little knowledge of accounting.
The Managing Director single handedly appointed PWC Chartered Accountants as external
auditors. He justified the appointment as quicker and cost effective and that it is important to
provide checks and balances on accounting staff in the shortest possible time.
The Managing Director has been reading and attending workshops on Corporate Governance.
Some of the recommendations he came across included the need of appointing a Board of Directors
with committees such as nominations, risk, audit and remuneration committees. These are needed
in order to strengthen governance structure and avoid mismanaging of the company.
PWC Chartered Accountants begun the audit of the financial statements of Omo Ltd and the audit
team discovered that a lot of supporting documents for transactions had gone missing especially
those involving large amounts of money. Some of the cash receipts that were recorded did not have
supporting documents. The accountant who is in charge of receivables and payables was dismissed
from employment after being suspected of fraudulent activities. PWC Chartered Accountants
assessed the risks as significant and were planning to respond to them.
Omo Ltd pays its casual workers on cash basis according to an hourly rate and the hours worked.
All related benefits are checked to the statutory documents before they are deducted and remitted
to the Tanzania Revenue Authority (TRA).The details of all employees who resign and newly
employed are sent to the payroll department and a copy is retained by the Human Resources
department. For wages paid on cash basis, the cashier withdraws cash from the bank and the payroll
clerk effects the payments to casual workers in pay packets.
Required:
(a) (i) Explain why the appointment PWC Chartered Accountants is not valid.
(ii) Suggest how the appointment of PWC Chartered Accountants can be regularized.
(iii)Explain the functions of the following board committees:
1. Nomination committee
2. Risk committee
3. Audit committee
4. Remuneration committee
(b) Explain five (5) ways in which external auditors can respond to assessed risks of Misstatements
in Omo Ltd, accordance with ISA 330 the auditor’s responses to Assessed risks.
(c) State and explain two (2) audit procedures for each of the following assertions on the payroll
of Omo Ltd:
1. Completeness
2. Cut-off
3. Accuracy
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*******TO BE CONTINUED, WATCH OUT FOR SET 2 ******

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(C2) - AUDIT AND ASSURANCE GRANDE FINALE SESSION - MAY 2024 - SET 1

GRANDE FINALE PROBLEM SOLVING SESSION

Internal Audit Function:

Credit sales system:

(a) With reference to receivables:

COVENANT INSTITUTE OF ACCOUNTANCY & TECHNOLOGY (CIAT)

3 VETA Certificate in Business 2 passes of at least a “D” grade in form four

*TO BE CONTINUED, WATCH OUT FOR SET 2

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