Section 1 + 2 F8

Which of the following is the most appropriate definition of the external audit? 

• A.The external audit is an exercise carried out by auditors in order to give an opinion on whether the financial statements of A.company are materially misstated.
• B.The external audit is an exercise carried out in order to give an opinion on the effectiveness of A.company's internal control system.
• C.The external audit is performed by management to identify areas of eficiency within A. company and to make recommendations to mitigate those eficiencies.
• D. The external audit provides negative assurance on the truth and fairness of A.company's financial statements

Is the following statement regarding stewardship true or false? Directors are stewards of the investment made by shareholders in a company.

• True
• False

Which two of the following are elements of an assurance engagement? (1) A.three-party relationship (2) Suitable criteriA. (3) Determination of materiality (4) An engagement letter

• A.(1) and (2) only
• B.(1) and (3) only
• C.(2) and (3) only
• D (1) and (4) only

Who normally appoints the external auditors of A company?

• A Directors
• B Shareholders
• C Audit committee
• D Senior management

The level of assurance provided by an external audit is absolute. Is this statement true or false?

• True
• False

Which of the following could cause ADVOCACY?

• ‘a. Audit team to be offered a balloon flight entertainment
• ‘b. Tax fee to be based on a percentage of tax saved
• ‘c. Firm to represent Stark in a dispute with the tax authorities

You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co (Stark). In an initial meeting with the finance director of Stark, you learn that the audit team will not be entertained on Stark's yacht this year, instead, he has arranged a balloon flight costing less than one-tenth of the expense of using the yacht and hopes this will be acceptable. Which of the following actions should be taken to ensure the firm complies with ACCA’s Code of Ethics and Conduct?

• ‘a. The gift may be accepted as Stark has taken appropriate measures to reduce the value of the gift compared to previous years.
• ‘b. The value of the gift should be assessed to determine whether it is of material value to the financial statements.
• ‘c. The gift should only be accepted if its value is trivial and inconsequential to the recipients.

• ‘d. Only the audit partner and audit manager should accept the gift.

You are the audit manager of Jones & Co and you are planning the audit of LV Fones Co, a listed company, which has been an audit client for four years and specialises in manufacturing luxury mobile phones. The employees of LV Fones Co are entitled to purchase smartphones at a discount of 10%. The audit team has in previous years been offered the same level of staff discount. Which of the following options best identifies the valid potential threats to independence in the audit of LV Fones and allocates the threat to the most appropriate category?

• a) Familiarity
• b) self-interest
• c) Self-review
• d) intimidation

The audit team being offered a 10% discount on mobile phones of the client. Which of the following statements is true in accordance with ACCA's Code of Ethics and Conduct?

• a) The audit team can accept the discount as it is on the same terms as that offered to staff
• b) Junior members of the audit team are allowed to accept the discount, but the audit manager and audit partner should not
• c) Unless the value of the discount is trivial and inconsequential to the audit team members, the offer should be declined
• D) The audit team is only allowed to accept a discount of up to 5%

Which TWO of the following are fundamental principles as stated in the ACCA’s Code of Ethics and Conduct? 1 Objectivity 2 Independence 3 Confidentiality 4 Professional skepticism

• A 1 and 4
• B 1 and 2
• C 2 and 3
• D 1 and 3