A. You are a manager in Aboom Prah & Co, responsible for the audit of Kpehe...
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A. You are a manager in Aboom Prah & Co, responsible for the audit of Kpehe Abloh Co, an owner-managed business which operates a chain of bars and restaurants. This is your firm's first year of auditing the client and the audit for the year ended 31 March 20X2 is underway. The audit senior sends a note for your attention: "When I was auditing revenue, I noticed something strange. Kpehe Abloh Co's revenue, which is almost entirely cash-based, is recognised at GHS5.5m in the draft financial statements. However, the accounting system shows that till receipts for cash paid by customers amount to only GHS3.5m. This seemed odd, so I questioned Doris Green, the financial controller about this. She said that Kpehe Abloh, the company's owner, deals with cash receipts and posts through journals dealing with cash and revenue. Doris asked the reason for these journals, but he refused to give an explanation. "While auditing cash, I noticed a payment of GHS2m made by electronic transfer from the company's bank account to an overseas financial institution. The bank statement showed that the transfer was authorised by Kpehe Abloh, but no other documentation regarding the transfer was available. "Alarmed by the size of this transaction, and the lack of evidence to support it, I questioned Kpehe Abloh, asking him about the source of cash receipts and the reason for electronic transfer. He would not give any answers and became quite aggressive." Required i. Discuss the implications of the circumstances described in the audit senior's note. [6 marks] ii. Explain the nature of any reporting that should take place by the audit senior. [4 marks] A. You are a manager in Aboom Prah & Co, responsible for the audit of Kpehe Abloh Co, an owner-managed business which operates a chain of bars and restaurants. This is your firm's first year of auditing the client and the audit for the year ended 31 March 20X2 is underway. The audit senior sends a note for your attention: "When I was auditing revenue, I noticed something strange. Kpehe Abloh Co's revenue, which is almost entirely cash-based, is recognised at GHS5.5m in the draft financial statements. However, the accounting system shows that till receipts for cash paid by customers amount to only GHS3.5m. This seemed odd, so I questioned Doris Green, the financial controller about this. She said that Kpehe Abloh, the company's owner, deals with cash receipts and posts through journals dealing with cash and revenue. Doris asked the reason for these journals, but he refused to give an explanation. "While auditing cash, I noticed a payment of GHS2m made by electronic transfer from the company's bank account to an overseas financial institution. The bank statement showed that the transfer was authorised by Kpehe Abloh, but no other documentation regarding the transfer was available. "Alarmed by the size of this transaction, and the lack of evidence to support it, I questioned Kpehe Abloh, asking him about the source of cash receipts and the reason for electronic transfer. He would not give any answers and became quite aggressive." Required i. Discuss the implications of the circumstances described in the audit senior's note. [6 marks] ii. Explain the nature of any reporting that should take place by the audit senior. [4 marks]
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Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
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