ICAN 2024 Advanced Audit and Assurance | Mixed

Anything Goes Microfinance Bank Limited was incorporated in 2018 to meet the financial needs of low level customers. The Management Accounts of 2019, revealed that the bank has a shareholders fund of N2.1 billion, total assets of over N5 billion, and customer deposits of N2 billion. It is the largest Microfinance bank in Kito. Today, the bank continues to be the core banker for small and medium scale enterprises and accounts for over 70% of the business turnover in Kito. It is the only indigenous microfinance bank that is fully owned by Kito shareholders. The bank directors are elected by key shareholders and they represent all the shareholders both in the public and private sectors. The bank currently has a total employee establishment of over 350. With liberalisation of the economy and globalisation of businesses, the bank embraced the new challenges by becoming commercial bank in 2020 and changed its name to Anything Goes Bank Limited. The change of Chief Executive Officer and the management at Anything Goes Bank Limited in early 2020 ushered in a new era where new ideas are adopted and managers reclaiming managerial responsibilities. The main objective then, was to come up with innovative business strategies that would ensure the bank serve its core customers effectively. However, to reposition, the bank embarked on reviewing its corporate strategic plan which builds on the existing strengths specifically addressing growth and development, information technology and business management, enhanced service delivery, profitability and capital growth. The strategic plan for the bank has been drawn up with the theme “Managing for Value”. The strategies are based on four perspectives: people, customers, financial performance, and risk and control. The goal of the plan is to ensure that the bank meets the shareholders' expectations, provide the bank with a common language and clearly understood objectives, guarantee satisfaction to its chosen customer segments and business partners. A focus on these four perspectives would result in customer satisfaction, efficient and effective processes, motivated and prepared staff. The bank in an effort to ensure it continues to be relevant and meet the needs of customers, believes it needs to revisit the operating structure and expand its business. The bank is interested in becoming a globally acclaimed commercial bank in Africa. Management believes a review of approach to strategic change practices and performance must be dynamic, flexible and innovative, particularly when confronted with discontinuities and turbulence in its operating environment. The review of operations shows that the environment in which Anything Goes Bank Limited exists and with which it interacts is increasing in complexity and the rate of change is accelerating. There is increasing pressure to perform from the government, public and other stakeholders. To attract foreign investors, the bank is interested in early reporting but the software in place cannot drive the volume of transactions being processed currently. Most of the staff are not skilled enough in International Financial Reporting Standards, especially in complex accounting issues on financial instruments. The tax audit has just been conducted and it has back duty assessment and other queries to be sorted out. Added to this, the bank is affected by inefficient service delivery, people’s distrust for the banking sector, weak corporate governance structure and rising bad loans. The bank’s management has prepared a master plan which contains grand strategies, such as product development, market development, turn-around and joint venture strategies. To facilitate the achievement of these grand strategies, functional strategies, namely marketing, operations, organisational and management, and financial strategies are also detailed in the master plan. It attributes a myriad of stumbling blocks to successful implementation of the strategies including; government policies, poor leadership, limited IT capacity, lack of funds, staff capability and a supporting corporate culture as the main challenges. The bank has an audit committee but has not been performing optimally because the operation is not properly structured. It is also in arrears of some of its reporting requirements at this stage and is paying appropriate fines to regulatory authorities. Although the bank believes it is still a small bank, it still requires an auditor to examine the books of account with a view to expressing an opinion. Management is concerned with the need to change its auditors because of the transition to a commercial bank, hence it has decided to send out a request for proposal for appointment of new auditors. The bank has been facing delay in rendering attestation and assurance reports to regulators for which it has been paying fines. One of your friends whose father is a management staff of the company and a student of accountancy has intimated you of this development and was asking you to provide some explanations to enlighten management before they send out proposal for audit services.

The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc: Land and buildings Plant, equipment, fixtures and fittings and motor vehicles Total Costs ₦ ₦ ₦ At January 1, 2020 75,230,481 120,454,850 195,685,331 Additions 12,540,000 16,000,500 28,540,500 Acquisitions through business combinations 24,400,000 35,750,430 60,150,430 Classified as held for sale (10,200,450) (15,450,600) (25,651,050) Disposals (5,000,465) (10,700,250) (15,700,715) At December 31, 2020 96,969,566 146,054,930 243,024,496 Accumulated depreciation and impairment losses At January 1, 2020 46,660,254 66,675,860 113,336,114 Depreciation charge for the year 5,594,523 17,220,518 22,815,041 Classified as held for sale (7,650,338) (9,270,000) (16,920,338) Disposals (3,762,523) (9,034,069) (12,796,592) Impairment losses 5,267,533 6,022,713 11,290,246 Reversal of Impairment losses (4,515,028) (4,818,170) (9,333,198) At December 31, 2020 41,594,421 66,796,852 108,391,273 Net carrying amount At December 31, 2020 55,375,145 79,258,078 134,633,223 At December 31, 2019 28,590,212 53,778,390 82,368,602 The above was the situation of the statement of financial position of the company when it was signed at the board of directors meeting. During further review to sign-off the audit file, it was discovered that the classification of some of the assets as impaired was due to wrong classification and the value had actually increased due to a new road network in the location. This affected the impairment losses for the year. The new value of the buildings affected and shown in the note above as available from market survey had actually grown to ₦8.5million within the period under review.

You are the Manager-in-charge of the audit of Moonshine Limited. Your auditor's report for the financial year ended December 31, 2019, was signed without modification in February 2020. The scope of the audit for the year ended December 31, 2020 has been Limited because the company’s Chief Executive Officer fled the country in April 2020, taking the accounting records with him. You have identified a valuable training opportunity for Richard a member of your audit team. As a training exercise, you have asked Richard, to draft the extracts for the basis of opinion and opinion paragraphs that may not be standard wording in an unmodified auditor’s report. Richard’s draft extracts were produced as follows: 'Basis of opinion (extract) However, the evidence available to us was limited because accounting records were missing from early in the year and it was not possible to reconstruct them completely. Opinion (extract) Because of the possible effect of the limitations in the information available to us, we do not express an opinion on the financial statements.

Demmy Global Limited was a growth-oriented company that had been controlled by its Managing Director, Mr. Longe. The company sells modern sophisticated mobile smartphones directly to the public. A large number of sales agents were employed on commission basis. The mobile phones were sent to these sales agents who then sold them directly to the public. The mobile phones were supplied to the sales agents on a sale or return basis and Demmy Global Limited recognised the sale of a mobile smart phones when it was received by the sales agents. Any returns of the mobile phones were treated as repurchases in the period concerned. The company enjoyed a tremendous growth record. The main reasons for this apparent expansion were: (i) Mr. Longe falsified the sales records. He created several fictitious sales agents who were responsible for 25% of the company's revenue; (ii) At the year end, Mr. Longe dispatched nearly all of his inventories of mobile phones to the sales agents and repurchased those that they wished to return after the year end; (iii) 20% of the cost of sales were capitalised. This was achieved by the falsification of purchase invoices with the co-operation of its suppliers. The suppliers furnished the company with invoices for non-current assets but supplied mobile smart phones; and (iv) The directors of the company enjoyed a bonus plan linked to reported profits. Executives could earn bonuses ranging from 50% to 75% of their basic salaries. The directors did not query the unusually rapid growth of the company, and were unaware of the fraud perpetrated by Mr. Longe. Mr. Longe spent large sums of money in creating false records and bribing accomplices in order to conceal the fraud from the internal audit department. He made efforts to cover up the illicit activities and precluded the auditor from corroborating sales with independent third parties, and from examining the service contracts of the directors or discussing the affairs of the company with the sales agents. The external auditor was sued by a bank that had granted loan to Demmy Global Limited on the basis of interim financial statements. These financial statements had been reviewed by the auditor and a review report issued.

Globamedia is a company listed on The Nigerian Exchange (NGX) and is a long-established media company. In the last three years, it made some losses, though it is making investment in digital publishing. This investment and the company’s projected sound future prospects have led to a good market rating since it was generally seen that this digital publishing is a leading edge in the media industry. Its investments have been funded through the use of reserves built over many years. However, few weeks ago, Globamedia’s shares were suspended having fallen by more than the stipulated threshold by The Nigerian Exchange Group on the rumours that assets values have been significantly over-stated and that the company was no longer financially viable. Your firm as the auditors has come under significant criticism and is considered as being negligent.

The partners of a number of small firms, some of whom act as alternate firms to each other, were considering the outcome of some reviews by the Financial Reporting Council on some of the financial statements the firms prepared. These reviews showed significant lapses in the works they carried out and compliance failure of some appropriate standards. Some other practitioners amongst them also raised concerns about their failure to meet most of the monitoring guidelines issued by the Professional Practice Monitoring Committee of the Institute. Based on these, it has become imperative that something has to be done urgently to save them from further sanctions and possible litigations. The partners of these small firms have consulted, sought and obtained approval of your firm to train them on requirements of relevant regulatory bodies as part of your firm’s contribution to the accountancy profession in general and in recognition of your firm as one of the reputable big firms. Your partner has directed that you prepare and make a presentation to help improve their service delivery standards.

Technology, essentially computerisation has in recent times affected various aspects of life and business activities to varying degrees. For instance, this has led to online purchases, account processing from various other locations than the domiciled bank branches. Though, this electronic business and commerce has made things easy, there are still challenges associated with the process. As an auditor, there is the need to evaluate the audit environment to have proper knowledge of the clients operating environment, whether manual or computerised. This is very essential for your firms newly employed audit staff.