Question 1

SECTION B - QUESTION 3 (20 MARKS)

HealthBridge NGO is an international non-governmental organization providing medical aid. You are the audit senior for the year ended 31 May 20X6.

During the audit, you note the following:

1. Grant Income: HealthBridge receives substantial funding from international governments. This year, they received a $5m grant specifically restricted to building a new hospital in a developing region. The grant conditions state that if the hospital is not completed by December 20X6, the funds must be repaid in full. HealthBridge has recognized the entire $5m as income in the current year, even though construction has only just begun.

2. Bank and Cash: HealthBridge operates in multiple countries and holds 15 different bank accounts, many in foreign currencies. Due to the remote locations of some clinics, they also hold significant amounts of physical cash in safes at these clinics to pay local suppliers.

Requirements:
(a) Describe the substantive procedures the auditor should perform to obtain sufficient appropriate evidence regarding the $5m Grant Income. (8 marks)
(b) Describe the substantive procedures the auditor should perform to obtain sufficient appropriate evidence regarding the Bank and Cash balances. (8 marks)
(c) Assume the audit team discovers that construction of the hospital has severely stalled and there is a high probability it will not be completed by December 20X6. Management refuses to make any provisions or disclosures regarding the potential repayment of the $5m grant. Explain the impact on the auditor's report. (4 marks)

Accepted Answer

For parts (a) and (b), generate a list of specific audit actions. Use verbs like Obtain, Inspect, Review, Discuss, Recalculate. Tailor the procedures to the scenario (e.g., mention the specific $5m grant, the foreign currencies, the remote cash). For part (c), follow the logic: Identify the error -> Assess materiality -> Determine the type of modified opinion -> State where it goes in the report.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

In part (a), students often just say 'check the income' instead of specifying 'review the grant agreement for conditions'. In part (c), students might confuse a misstatement with a limitation on scope, incorrectly suggesting a disclaimer of opinion.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA AA — Audit and Assurance Practice Exam 5

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