Question 1

CASE SCENARIO: MediCare NGO
MediCare NGO is a large international non-governmental organization providing medical aid in disaster zones. You are the audit senior for the year ended 31 December 20X7.

MediCare receives funding from two main sources: general public donations and restricted government grants. During the year, MediCare received a $5 million restricted grant from the European Union specifically to build a temporary hospital in a conflict zone. The grant conditions state that any unspent funds, or funds spent on unauthorized activities, must be returned.

MediCare employs over 500 medical staff overseas. The payroll is processed centrally at the head office. Overseas project managers email a monthly spreadsheet detailing the hours worked by their staff. The head office payroll clerk manually enters these hours into the payroll system. There is no formal review of the payroll master file to check for 'ghost employees', and overtime is paid automatically if claimed on the spreadsheet.

REQUIREMENTS:
(a) Describe substantive procedures the auditor should perform to obtain sufficient appropriate audit evidence regarding the $5 million restricted government grant income. (8 marks)
(b) Identify the control objectives for the payroll cycle at MediCare NGO, and describe tests of controls you would perform to ensure these objectives are being met. (12 marks)

Accepted Answer

For part (a), think about the specific risks of restricted funds: were they received? were they spent correctly? is the unspent portion deferred? Write procedures using action verbs (Vouch, Review, Recalculate). For part (b), first state what a good payroll system should achieve (objectives), then explain how you would check if MediCare's system is actually doing that (tests of controls).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Providing generic revenue procedures (e.g., 'check invoices') instead of procedures tailored to restricted grants. For tests of controls, students often write substantive tests (e.g., 'recalculate the tax deduction') instead of testing the control itself (e.g., 'check for manager authorization').

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA AA — Audit and Assurance Practice Exam 6

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