Question 1

SECTION B - ADVISORY REPORT

You are a manager in the special assignments department of H&J, a large firm of Chartered Certified Accountants. Your firm is the external auditor of Global Care Alliance (GCA), a large international Non-Governmental Organization (NGO) that provides disaster relief.

GCA's internal audit team recently discovered anomalies in the procurement of relief supplies (tents, medical kits, and clean water systems) in their 'Zambora' regional branch. The internal auditors suspect that the Regional Director of Zambora has misappropriated approximately $2m of donor funds by creating fictitious suppliers and authorizing payments to bank accounts controlled by the Director's family members.

GCA's Audit Committee has approached H&J to conduct a forensic investigation. The objectives of the engagement are to quantify the exact financial loss, identify the methods used to bypass internal controls, and provide an expert witness report that can be used in criminal proceedings against the Regional Director.

Requirements:
(a) Evaluate the ethical and professional issues that H&J should consider before accepting this forensic investigation engagement for an existing audit client. (10 marks)
(b) Recommend the specific forensic investigative procedures that H&J should perform to quantify the extent of the misappropriated donor funds and gather evidence of the fictitious suppliers. (15 marks)

Accepted Answer

Step 1: For part (a), use the IESBA Code framework. Identify the specific threats (Self-review, Advocacy, Management) caused by doing non-audit work for an audit client. Discuss competence and confidentiality. Step 2: For part (b), think like a detective. How do you prove a supplier is fake? Focus on digital forensics, data matching (CAATs), scrutinizing invoices for red flags, and physical verification of the 'purchased' goods.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

In part (a), candidates often just list ethical threats without explaining WHY they arise in this specific scenario. In part (b), candidates often list standard audit procedures (e.g., 'check invoices') instead of specific forensic procedures (e.g., 'use data analytics to match vendor bank accounts to employee bank accounts').

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA AAA — Advanced Audit and Assurance Practice Exam 5

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