GOVERNANCE AND COMPLIANCE AUDIT AUGUST 2022 PAST PAPER

TUESDAY: 2 August 2022. Morning paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of each question. Do NOT write anything on this paper.

QUESTION ONE

MARKWELN EREKTA ENTERPRISES LIMITED (MEEL)

Markweln Erekta Enterprises Limited (MEEL), a private limited company based in Nairobi was established in Kenya in the year 2010 as a manufacturing entity. The company’s products targeted the middle-class city dwellers. MEEL started operations with several product lines. With growing demand for its products and increasing investors interest, the company rapidly expanded its product range and opened branches in major towns of Kenya. Four years ago, the company opened its first subsidiary outside Kenya and currently has eight of them spread across Africa.

The company’s board upholds diversity and tries as much as possible to ensure board effectiveness. Since its
establishment, the board has never been audited. During a board meeting held in December 2021, it was resolved that the board should undertake governance audits. This good governance practice would ensure that appropriate governance mechanisms and processes are in place to mitigate against compliance risk, liabilities and penalties. The board’s audit committee was tasked with the responsibility of sourcing for a governance auditor.

Monicker Associates Limited (MAL) was appointed as MEEL governance and compliance auditors for the year 2022.
Immediately after their appointment, the auditor set out to gather the necessary documents that would provide audit
evidence. The lead auditor was categorical that collecting audit evidence would not be an easy task given that the company had not been audited since its inception. However, he was positive that they would deliver quality audit within the agreed timelines. The auditor’s confidence was based on the fact that he had participated in governance audit peer reviews. All his reviews had been positive.

The corporation secretary had presented an idea to the board chair on the need to enter and participate in corporate awards. This elated the chair who in turn invited the auditor to the last board meeting and requested him to prepare and make a presentation to the board on the whole process of participating in the Institute of Certified Secretaries (ICS) Champion of Governance (COG) awards. At the end of the presentation, the board was convinced that participation in the COG awards would be beneficial to the company. The company started preparations for participation in the awards in earnest.

Required:

1. Examine five factors that MEEL board’s audit committee should consider while negotiating the fees to be charged in an audit engagement. (10 marks)

2. Analyse five factors that MAL should consider while determining the nature, timing and extent of audit procedures in relation to gathering their audit evidence. (10 marks)

3. MAL has been participating in governance audit peer reviews.

Assess five benefits they enjoy from such peer reviews. (10 marks)

4. Discuss five roles of the Corporate Secretary while conducting the governance and compliance audit. (10 marks)

(Total: 40 marks)

QUESTION TWO

1. The purpose of documenting the audit work performed is both to enhance transparency about the work performed and to enable an experienced auditor having no previous connection with the audit understand significant matters arising during the audit, the conclusion(s) reached thereon, and significant professional judgments made in reaching those conclusion(s).

Identify the items that the documents implied above should cover. (8 marks)

2. The governance audit team is assembled to collectively have the necessary competence, knowledge, skills and
expertise to perform the audit in accordance with professional standards.

Justify the above statement. (7 marks)

(Total: 15 marks)

QUESTION THREE

1. Explain five uses of an inception report. (5 marks)

2. Examine the process of developing a risk assessment matrix. (10 marks)

(Total: 15 marks)

QUESTION FOUR

1. A governance and compliance auditor should prepare an audit report based on crucial principles.

Evaluate four of these principles. (4 marks)

Explain four impacts of non-compliance in a governance and compliance audit. (4 marks)

2. The audit committee is one of the key governance organs in an organisation.

With respect to the above statement, examine seven functions of an audit committee relating to the internal audit

function. (7 marks)

(Total: 15 marks)

QUESTION FIVE

1. Explain the two types of subsequent events in governance and compliance audit. (4 marks)

2. To achieve the desired action recommendations, governance audit must have certain characteristics.

Analyse six of these characteristics. (6 marks)

3. Following up on audit findings and recommendations serves several purposes.

Examine five of these purposes. (5 marks)

(Total: 15 marks)

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