Audit, Assurance and Forensics · November 2025

(a) “Professional negligence of the forensic practitioner” when conducting forensic investigation, refers to failure of the forensic practitioner to:

(i) comply with professional standards of care; (ii) provide detailed attention expected of him, leading to avoidable errors or omission that can compromise the integrity of evidence, investigation or court proceedings; (iii) prevent injury to a person or, damage property through the practitioners action; (iv) observe duty of care to his client; like the doctor would do to his patient; and (v) act with regard to the safety and right of others.

(b) Ways by which professional negligence may occur during a forensic investigation include:

(i) Investigation–related negligence

- Inadequate planning: This occurs when the practitioner does not have adequate or comprehensive investigation plan on the assignment. This will invariably lead to overlooking required evidence or his inability to meet the investigation deadline.

- Inexperience or lack of required skill: Professional due care may be breached, if the practitioner is not duly experienced or lacks required skills. Professional accountants are not expected to take up any assignment for which they lack required skill or sufficient training.

- Insufficient resources: This will occur when the professional or forensic firm lacks adequate resources for the engagement. This would include time, finance and personnel for the engagement.

(ii) Evidence-related negligence: Evidence obtained should be able to prove or disprove allegations. However, negligence occurs when: - evidence is corrupted as a result of improper handling, storage or transmission; and - evidence collection and analysis are inadequate: Evidence, be it physical, digital and testimony obtained in a forensic investigation must be appropriate and sufficient to stand as a proof or disproof of allegation or assertion. Failure to properly analyse evidence, including misinterpretation or misrepresentation might lead to negligence.

(iii) Reporting–related negligence: The forensic investigation is expected to provide a report at the end of the investigation, however, negligence may occur when:

- the report is not complete, inaccurate and/ or not timely. This might lead to misinformed decision-making; - there is poor or lack of documentation of findings, such as property documentation, investigation findings, conclusion, recommendation and supporting evidence; and - investigation findings and recommendations are not duly communicated to relevant stakeholders.

(iv) Other manners where negligence may occur

- Conflict of interest: This will compromise the integrity of the investigation. - Objectivity: Lack of objectivity is viewed as a breach of required standard of care. - If investigation findings and recommendations are influenced by bias and prejudice. - Consideration of Res Ipsa Loquitur (The thing speaks for itself): That is, the event/circumstance implies negligence. The burden of proof now shifts to the defendants. - Failure to comply with established procedures, protocols or standards.

(c) Consequences of professional negligence to the practitioner

(i) Loss of credibility: The professional firm may suffer loss of reputation. (ii) Financial consequences: Financial loss would arise when there is negligence in carrying out forensic investigation. (iii) Professional sanction: There may be professional sanction against the practitioner – determined by the gravity of negligence. (iv) Justice: There might be miscarriage of justice as justice may be delayed, or denied the relevant party. (v) Stress: There may be emotional stress or harm to the client.

(d) Professional firms engaging in forensic investigation may avoid or manage negligence by adhering to the following:

(i) providing continuous training and education for all the staff, especially on new developments in forensics;

(ii) assessing the risks involved in the engagement and providing procedures for responding to identified risk;

(iii) peer review: There should be peer review among professional firms on forensic engagements as this will assist in identifying and addressing potential errors, reliability and other critical areas;

(iv) development and upgrading procedures: Procedures may change where there are latest developments in forensic investigations like computer forensics. Professional accounting firms should follow the update and bring it in the procedures of the assignment;

(v) periodic or annual conduct of quality management assurance in forensic investigation engagement by the professional firm; and

(vi) adequate monitoring and evaluation of investigation process will enhance quality services by identifying arrears for improvement.

(e) The skills that the forensic practitioner must possess include:

(i) accounting; (ii) data analytics; (iii) fraud detection; (iv) interrogative; (v) custody and preservation of evidence; (vi) investigative; (vii) presentation – ability to communicate understandably; and (viii) legal.

(f) TWO codes of ethics that are issued for application, based on different ethical views between countries and cultures are:

(i) Rules-based codes of ethics Rules-based codes of ethics apply to specific action that an accountant must take in specific circumstances, even if the circumstances are varied and complex, since the specific rules are made in advance and should not be varied, even with the changing environment. A rule book cannot easily make allowances for national and cultural differences.

(ii) Principle-based codes of ethics These are codes of ethics issued by regulating bodies containing general principles of ethical behaviour that require the accountant to act in accordance with the principles, using judgment in deciding whether in each case a particular course of action is a proper and ethical one.

(g) Artificial intelligence tools that can enhance the work of the auditor include:

(i) Data analytics and visualisation: These tools process large data sets using statistical tools to reveal anomalies and potential fraud.

(ii) Ai powered cloud-based audit platforms with analytics: This integrates data from various sources, automatically gathers evidence, supports risk assessment, sampling and audit strategy adjustments.

(iii) Robotic process automation (RPA): This helps to automate compliance, control testing, transaction monitoring. This is good for risk and control audits and for recurring audit procedures, for example, using drone for inventory count.

(iv) Natural language processing (NLP): This reviews and extracts important information from client documents e.g. minutes of Board meetings.

(v) Continuos monitoring tool: This tracks high-risk activities continuously and supports fraud prevention rather than just defection.

(vi) Machine learning (ML) predictive analytic models: This tool helps to detect abnormal journal entries, identifies more risky accounts and transactions and supports fraud-risk analysis.

Examiner’s report The question tests candidates’ knowledge of professional negligence of a forensic practitioner, codes of ethics and application of AI tools for audit purpose. Being a compulsory question, virtually all the candidates attempted it, but the performance was poor. The commonest pitfalls were apparent apathy of candidates to the forensics part of the new syllabus and the misrepresentation of the “external” codes of ethics for fundamental professional ethics which are “internal”. Candidates are strongly advised to adequately cover every part of the examination syllabus.

Marking guide Marks Marks (a) Explanation of the phrase “professional negligence of a forensic practitioner” (1 mark each for any explanation, subject to a maximum of 4 points). 4

(b) Ways by which professional negligence may occur (1 mark each for any point, subject to a maximum of 3 points) 3 (1 mark each for any explanation, subject to a maximum of 3 correct points) 3 6

(c) Consequences of professional negligence (1 mark each for any point, subject to a maximum of 4 points) 4

(d) How professional negligence may be mitigated or managed (1 mark each for any point, subject to a maximum of six points) 6

(e) Skills of the forensic practitioners (1 mark each for any skill, subject to a maximum of 4 skills) 4

(f) Two types of ethics codes (1 mark each for any correct code, subject to a maximum of 2 codes) 2 (1 mark each for any explanation, subject to a maximum of 2 explanations) 2 4

(g) Artificial intelligence (AI) tool that can enhance the worth of the auditor 2 TOTAL 30

(a) The risk that Oghenebiko Limited is exposed to in invoicing and dispatch of goods on credit include:

(i) goods might not be dispatched to some customers’ orders; (ii) goods might be dispatched twice for some customers’ orders; (iii) goods might be dispatched to customers who do not have sufficient credit facility or credit limit; (iv) goods might be dispatched to some customers without invoices; (v) some customers may claim non-receipt of goods already dispatched to them; (vi) the company may experience insolvency due to untimely and non- settlement of bills; (vii) there may be high collection costs or fees, consequent upon pursuing over-due payments or settlements; and (viii) sales return may not be properly recorded.

(b) The control objectives to eliminate or reduce the above risks include:

(i) dispatch of goods should be to only authorised dealer or customer; (ii) dispatch of goods should not be made twice for same sales order; (iii) dispatch of goods should be made only to customers with sufficient credit facility or credit limit; (iv) there should be an invoice prepared for every dispatch note; (v) customers should duly acknowledge receipt of goods on the goods delivery note;

(vi) customers should settle their bills and commitments as and when due; (vii) additional unnecessary collection costs should be avoided as this would be an unnecessary burden; and (viii) there should be authorised credit notes for all goods returned by customers.

(c) The suitable principal controls would include:

(i) sequentially pre-numbered dispatch notes and good delivery notes (GDNs) should be attached to copies of specific customer orders. The GDN should be signed by authorised member of the dispatch staff; (ii) customers should acknowledge receipt of goods by signing the delivery notes for confirmation every time; (iii) there should be confirmation of available credit facility or limit from the finance/accounts department; (iv) each sales invoice should be linked to a copy of the dispatch note and customer order; (v) Sales invoices should be sequentially pre-numbered and signed by the customer evidencing receipt of goods; (vi) proper assessment of the customer should be initially made to avoid non-fulfilment of financial commitments; and (vii) there should be proper authorisation of issuance of sequentially numbered delivery notes to customers.

(d) The tests of control the auditor should apply include:

(i) the auditor should check some delivery notes to confirm that customers sign them; (ii) the auditor should confirm lists of sequential invoicing showing customer order numbers and dispatch numbers; (iii) there should be a check to ensure that all goods delivery notes are sequentially numbered and so applied; (iv) the auditor should confirm customers’ acknowledgement of receipts of goods on duly signed goods delivery notes; (v) there should be a confirmation of authorisation of credit facility or limit by responsible officer; (vi) the credit limit should be checked by an auditor for unauthorised increase or decrease; (vii) the auditor should check a list of credit notes to ensure that they cross- refer to appropriate sales invoice numbers; and

(viii) the auditor should check that appropriate segregation of duties exists, including, but not limited to the officers in charge of dispatch and those who prepare sales invoices.

Examiner’s report The question tests candidates’ knowledge of tests of control in a credit sales system. About 70% of the candidates attempted the question. The performance was below average. The most common pitfall was inability of candidates to translate their theoretical knowledge to practical scenarios, and situations. Candidates are advised to cultivate the ability of relating their knowledge to practical situations, especially since this is skills level of the professional examinations. They should also make use of the Institute’s Study Texts.

Marking guide Marks (a) Risks the company is exposed to invoicing and dispatch of goods on credit (1 mark each for one risk, subject to a maximum of 5 marks) 5

(b) Control objectives to eliminate or reduce the risks in (a) above (1 mark each for any point, subject to a maximum of 5 points) 5

(c) Principal controls to assist in achieving control objectives in (b) above (1 mark each for any control, subject to a maximum limit of 5 controls) 5

(d) Tests the auditor could apply to test effective operation of controls (1 mark for each test, subject to a maximum of 5 tests) 5 TOTAL 20

(a) The criteria to be met for development costs to be recognised as intangible assets as stated by IAS 38

(i) The technical feasibility of completing the intangible assets so that it will be available for use or sale as a commercial product or service. (ii) The intention, as stated in the minutes of management meetings or discussion paper, to complete the intangible asset and use or sell it. (iii) The ability to use or sell the intangible asset.

(iv) The ability to demonstrate how the intangible asset will generate probable future economic benefits, market for the output of the product/intangible asset or usefulness internally. (v) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. (vi) The ability to measure reliably the expenditure attributable to the intangible asset during its development.

(b) The audit procedures that would assist the auditor determine the qualification of the figure as intangible assets

(i) Assess the feasibility of the project and product, and also assess other matters like:

- projection and forecasts; - production and marketing; - funding requirements; and - ability to complete, use or sell the asset.

(ii) Inspect development contracts and records, supporting and safeguarding patents. (iii) Test controls concerning the documentation and safekeeping of relevant scientific notes, discoveries and conclusions. (iv) Test a sample of development costs for appropriate capitalisation. (v) Confirm that development costs are properly amortised over their useful lives or reviewed annually for impairment as necessary. (vi) Obtain written representation from management as to the commitment to complete the project and either to use or sell it. (vii) Review the minutes of meetings of directors or those charged with governance on matters relating to the development of the new product.

Examiner’s report The question tests candidates’ knowledge of recognition of development costs as intangible assets. Above 35% of the candidates attempted the question and the performance was poor. The commonest pitfall was that, though the area being tested is covered by an accounting standard, the candidates could not provide relevant procedures that would make the auditor make informed decisions on the intangible assets.

Marking guide Marks (a) Criteria for development costs to be recognised as intangible assets (2 marks for each correct point, subject to a maximum of 5 points) 10

(b) Audit procedures to enable the auditor make informed judgement on the figure of intangible assets (2 marks for each procedure, subject to a maximum of 5 points) 10 TOTAL 20

(a) There are misunderstandings in the expectations of the public as against the role and responsibilities of the external auditors in law and relevant regulations. Consequent upon this different perception, there is emergence of “audit expectation gap”. The perception of the public is that:

(i) the auditor’s report amounts to a certificate that the financial statements are correct and accurate and can be relied upon for all decision-making purposes; (ii) the auditor has a duty to prevent and detect fraud; (iii) the auditor checks all the transactions for the relevant period; (iv) the auditor should take responsibility for the financial statements; and (v) auditors are seen as protectors and guardians of interests of investors and other stakeholders

(b) The components of audit expectation gap include:

(i) Reasonableness gap: The difference between what the public unreasonably expects auditors to achieve and what they can reasonably accomplish. (ii) Performance gap: This represents the gap between what the society can reasonably expect auditors to achieve and the auditor’s perceived performance in achieving those goals. (iii) Evolution gap: The ongoing need for the audit profession to evolve to meet changing needs and expectation of the public.

(c) Ways to address or close the “audit expectation gap” include:

(i) Education and communication: Improving communication and educating users about how the audit process can narrow the gap.

(ii) Strengthened auditors’ responsibilities: The audit profession needs to consider accepting new demands for auditor’s responsibilities in the current context.

(iii) Regulatory action: Regulations and standards setting the process can take action to address the misperception and narrow the gap.

(iv) Longer and responsible audit reports: Providing more detailed information in the audit report can improve clarity for users and reduce the expectation gap.

(v) Corporate governance code: Enhancing of corporate governance code to strengthen the role and responsibilities of directors for good internal control and accounting system.

Examiner’s report The question tests the candidates’ knowledge on audit expectation gap. About 90% of the candidates attempted the question, but the performance was just average. The commonest pitfall was inability to judiciously treat part (a) that required candidates to explain the public perception of the auditor’s role and responsibilities. Candidates are advised to properly understand the requirements of a question before attempting it to earn good marks.

Marking guide Marks (a) Explanation of public perception of auditor’s roles and responsibilities (2 marks for each correct point, subject to a maximum of 4 points) 8

(b) Components of “audit expectation gap” (2 marks each for any component, subject to a maximum of 2 points) 4

(c) Ways to close the “audit expectation gap” (2 marks for each way, subject to a maximum of 4 points) 8 TOTAL 20

(a) The deficiencies in the system of Integrity Ventures Limited

(i) Cash and cheques are secured in a cabinet and only banked every few days. A cabinet is not adequate for security of considerable cash received, as it can easily be stolen. (ii) The cashier collects cash and records the receipt into the cash register. No segregation of duties. (iii) Cash and cheques are banked only every few days by any member of the finance team. No specific staff member is given the responsibility. (iv) Cash should ideally not be held overnight, as it is not secure. Also, if any member of the team banks cash, then this could result in very junior staff having undue access to significant amounts of cash, even with no fireproof safe and relevant issurance policy. (v) The cashier updates both the cash book and the sales ledger. This is lack of segregation of duties, as the cashier could incorrectly enter a receipt and this would impact both the cash book and the sales ledger. (vi) Bank reconciliations are not performed every month, and when prepared, they do not appear to be reviewed by a senior member of the Finance Department. Errors in the cash cycle may not be promptly identified, if reconciliations are not performed frequently.

(b) Controls to address the deficiencies as stated above

(i) Cash and cheques should be ideally banked daily, if not, then it should be stored in a fire proof safe and access to this safe should be restricted to supervisors or responsible officers. (ii) A second member of the accounts team or staff independent of the accounts team should assist with recording cash received in the register. (iii) Cash and cheques should be banked daily. (iv) The cashier should prepare the paying-in-slip from the cash register. (v) A responsible individual should have responsibility for banking the cash daily. (vi) The cashier should update the cash book from the cash register. A member of the sales ledger team should update the sales ledger. (vii) Bank reconciliations should be performed monthly. A responsible individual should then review them properly. (viii) With cash takings increasing, it should be necessary to have insurance cover for cash handling and cash holding.

(c) Tests the auditors would perform to assess the effectiveness of the controls

(i) Enquire of management where the cash takings not banked are kept. (ii) Inspect the location to ensure cash is suitably secure. (iii) Observe cash collection process to assess if the control is operating effectively. (iv) Inspect the paying-in-slips and books to see if cash and cheques have been banked daily. (v) Review bank statements against the cash register to confirm all amounts were banked promptly. (vi) Enquire of staff as to who performs the banking process and confirm that the person is suitably responsible. (vii) Observe the process for recording cash received into the relevant ledgers and note if the segregation of duties is enforced. (viii) Review the file of bank reconciliations for evidence of regular performance and proper review by senior finance team members. (ix) Ensure that adequate insurance cover is taken for cash handling and cash holding, as necessary.

Examiner’s report The question tests candidates’ knowledge of internal control weaknesses in a given scenario. About 85% of the candidates attempted the question, but the performance was just fair. The commonest pitfall was repetition of controls to address the deficiencies in the system as tests the auditor would have to perform to test the effectiveness of the controls. Candidates are advised to prepare well for their examinations and cultivate the habit of using their skill to simulate real life situations.

Marking guide Marks (a) Deficiencies in the system of Integrity Ventures Limited (1 mark for each deficiency, subject to a maximum of 5 deficiencies) 5

(b) Controls to address the deficiencies in (a) above (1 mark for each control, subject to a maximum of 5 controls) 5

(c) Tests the auditor would perform to assess effectiveness of the controls (1 mark for each test, subject to a maximum of 5 tests) 5 TOTAL 15

(a) The objectives of the auditor as per ISA 450, requiring a list of the uncorrected misstatements to be attached to the letter of representation are to evaluate the effect of:

(i) identified misstatements on the audit; and (ii) any uncorrected misstatements on the financial statements.

(b) ISA 450 requires the auditor to:

(i) accumulate all misstatements identified during the audit, unless they are clearly trivial; (ii) decide if the overall audit strategy and audit plan need to be revised if the total misstatements identified during the audit, approach or could approach misstatements; (iii) communicate all misstatements found during the audit to an appropriate level of management and request that the misstatements be corrected; (iv) obtain the reasons for the management’s refusal to correct the misstatements and take those reasons into account when evaluating whether the financial statements as a whole are free from material misstatements; (v) decide whether uncorrected misstatements are material, individually or when added together. In making this assessment, the auditor should take into account the size, nature and circumstances of the misstatements and the effect of any uncorrected misstatements from prior period; (vi) reaccess materiality per ISA 320, prior to evaluating the effect of uncorrected material misstatements; (vii) communicate to those charged with governance the effect which uncorrected misstatements may have on the audit report; (viii) request a written representation from management as to whether it believes the effects of uncorrected misstatements are material individually, or in total; and (ix) document

- the amount below which misstatements would be regarded as trivial; - all misstatements accumulated during the audit and whether they have been corrected; and - the conclusion as to whether uncorrected misstatements are material individually, or in total.

Examiner’s report The question tests candidates’ knowledge of ISA 450 Evaluation of misstatements identified during the audit. About 40% of the candidates attempted the question and the performance was generally poor. The most common pitfall was exhibition of a poor understanding of the question. Candidates are advised to cover all parts of the examination syllabus and make use of the Institute’s Study Texts and other publications.

Marking guide Marks (a) Objectives of the auditor per ISA 450 on uncorrected misstatements (2½ marks for each correct point, subject to a maximum of 2 points) 5

(b) Requirements of the auditor as regards identified misstatements as per ISA 450 (2 marks for each requirement, subject to a maximum of 5 points) 10 TOTAL 15

(a) The type of assurance services required

(i) Reasonable assurance: Ecofriends would like to present high level of confidence to users and customers by concluding that the Environmental Impact Assessment report is “true and fair”.

(ii) Limited assurance: The engagement can be a limited assurance because of complexities in data collection which may be costly. Also, the moderate level of confidence is needed by the intended user - for only record purpose in the government agency.

(b) The key risks associated with this engagement involving non-financial data include:

(i) Inherent risk of management bias: The management of Ecofriends has the tendency to present the most favourable EIA report to attract users and investors.

(ii) Risk of measurement uncertainty: To quantify “carbon dioxide emission” can be complex and subjective, depending on assumptions and estimates.

(iii) Risk of expertise: The assurance firm may not have adequate specialised knowledge to assess the relevant management calculation and assumptions.

(iv) Inadequate control: There may not have been adequate internal controls over data collection and calculation, leading to inaccurate information.

(c) Procedures to be undertaken in this assignment include:

(i) obtaining an understanding of Ecofriends methodology of collection and calculation of carbon emission data; (ii) collecting quantitative data, select conversion factors and calculate emission; (iii) performing analytical procedures comparing company current data with previous year’s or industry benchmark and analyse; (iv) considering hiring an expert for necessary review; (v) reviewing disclosures and record findings; and (vi) issuing an assurance report.

Examiner’s report The question tests candidates’ knowledge of assurance engagements. About 70% of the candidates attempted the question, but the performance was just average. The commonest pitfall was candidates’ lack of knowledge of types of assurance services. Candidates are advised not to shy away from the area of assurance engagement, since it is a veritable integral part of modern auditing syllabus.

Marking guide Marks (a) Types of Assurance Services required by Ecofriends Green (2 marks for each type, subject to a maximum of 2 types) 4

(b) Risks associated with provision of the assurance engagements (2 marks for each risk, subject to a maximum of 3 points) 6

(c) Procedures to be taken in this assurance engagement (1 mark for each procedure, subject to a maximum of 5 points) 5 TOTAL 15