AA- Ch-1 To Ch-7,Ch-11 To Ch-12 Interim Mock

You are an audit manager at Buffon & Co, responsible for the audit of

Maldini Co and you have become aware of the following information:

Audit engagement partner

The audit engagement partner for Maldini Co, a listed company, has

been in place for approximately eight years and her son has just been

offered a role with Maldini Co as a sales manager. This role would

entitle him to shares in Maldini Co as part of his remuneration

package.

Internal audit function

Maldini CO's board of directors are considering establishing an internal

audit function, and the finance director has asked your firm about the

differences in the role of internal audit and external audit. If the internal

audit function is established, the board has suggested that they may

wish to outsource this to Buffon & Co.

Auditor characteristics

Following management's request for information regarding the

different roles of internal and external auditors, the audit assistant has

collated a list of key characteristics:

(1) Appointed by audit committee

(2)Reports are publicly available to shareholders

(3)Review effectiveness of internal controls to improve operations

(4)Express an opinion on the truth and fairness of the financial

statements.

Fees

The finance director has suggested to the board that if Buffon & Co

are appointed as internal as well as external auditors, then fees should

be renegotiated with at least 20% of all internal and external audit fees

being based on the profit after tax of the company, as this will align the

interests of Buffon & Co and Maldini Co. This fee income would be

significant to Buffon & Co.

Your audit assistant has highlighted a number of potential threats to in

respect of the audit of Maldini Co.

Identify which of the following represent valid threats to independence,

matching each threat to the appropriate category.

Length of time the audit engagement

partner has been in position?

• self Interest

• self Interest

• Familiarity

• Self-Review

You are an audit manager at Buffon & Co, responsible for the audit of

Maldini Co and you have become aware of the following information:

Audit engagement partner

The audit engagement partner for Maldini Co, a listed company, has

been in place for approximately eight years and her son has just been

offered a role with Maldini Co as a sales manager. This role would

entitle him to shares in Maldini Co as part of his remuneration

package.

Internal audit function

Maldini CO's board of directors are considering establishing an internal

audit function, and the finance director has asked your firm about the

differences in the role of internal audit and external audit. If the internal

audit function is established, the board has suggested that they may

wish to outsource this to Buffon & Co.

Auditor characteristics

Following management's request for information regarding the

different roles of internal and external auditors, the audit assistant has

collated a list of key characteristics:

(1) Appointed by audit committee

(2)Reports are publicly available to shareholders

(3)Review effectiveness of internal controls to improve operations

(4)Express an opinion on the truth and fairness of the financial

statements.

Fees

The finance director has suggested to the board that if Buffon & Co

are appointed as internal as well as external auditors, then fees should

be renegotiated with at least 20% of all internal and external audit fees

being based on the profit after tax of the company, as this will align the

interests of Buffon & Co and Maldini Co. This fee income would be

significant to Buffon & Co.

Your audit assistant has highlighted a number of potential threats to in

respect of the audit of Maldini Co.

Identify which of the following represent valid threats to independence,

matching each threat to the appropriate category
Potential holding of shares by audit

partner's son?

• Self-Interest

• Self-review

• Familiarity

You are an audit manager at Buffon & Co, responsible for the audit of

Maldini Co and you have become aware of the following information:

Audit engagement partner

The audit engagement partner for Maldini Co, a listed company, has

been in place for approximately eight years and her son has just been

offered a role with Maldini Co as a sales manager. This role would

entitle him to shares in Maldini Co as part of his remuneration

package.

Internal audit function

Maldini CO's board of directors are considering establishing an internal

audit function, and the finance director has asked your firm about the

differences in the role of internal audit and external audit. If the internal

audit function is established, the board has suggested that they may

wish to outsource this to Buffon & Co.

Auditor characteristics

Following management's request for information regarding the

different roles of internal and external auditors, the audit assistant has

collated a list of key characteristics:

(1) Appointed by audit committee

(2)Reports are publicly available to shareholders

(3)Review effectiveness of internal controls to improve operations

(4)Express an opinion on the truth and fairness of the financial

statements.

Fees

The finance director has suggested to the board that if Buffon & Co

are appointed as internal as well as external auditors, then fees should

be renegotiated with at least 20% of all internal and external audit fees

being based on the profit after tax of the company, as this will align the

interests of Buffon & Co and Maldini Co. This fee income would be

significant to Buffon & Co.

Your audit assistant has highlighted a number of potential threats to in

respect of the audit of Maldini Co.

Identify which of the following represent valid threats to independence,

matching each threat to the appropriate category
Possible provision of internal audit?

• Self -Interest

• Self -review

• Familiarity

In relation to the audit engagement partner holding the role for eight years, and her

son's offer of employment with Maldini Co:

Which of the following safeguards should be implemented in order to comp

with ACCA's Code of Ethics and Conduct?

• The audit partner should be removed from the audit team

• An engagement quality control reviewer should be appointed

• A third party such as a professional body should consulted on key audit judgments

• Buffon & Co should resign from the audit

In line with ACCA's Code of Ethics and Conduct, which TWO of the following

factors must be considered before the internal audit engagement should be

accepted?

• Whether the external audit team have the expertise to carry out the internal audit

• If the assignments will relate to the internal controls over financial reporting

• If management will accept responsibility for implementing appropriate

  recommendations

• The probable timescale for the outsourcing of the internal audit function

If the internal and external audit assignments are accepted, which of the

following statements is TRUE regarding the proposed basis for the fee?

• As long as the total fee received from Maldini Co is less than 15% of the firm's

  total fee income then no safeguards are needed

• The client should be informed that only the internal audit fee can be based on

  profit after tax

• The fees should be based on Maldini CO's profit before tax

• No safeguards can be applied and this basis for fee determination should be

  rejected

Which of the following correctly calculates the depreciation

expense for the new assets for the year ended 31 December 20X4

and explains the resultant impact on non-current assets?

• Depreciation Should be $10,660, assets are understated

• Depreciation should be $18,583, assets are understated

• Depreciation should be $9.111. assets are overstated

• Depreciation should be $12,549, assets are overstated

Which of the following audit procedures would provide the auditor with the

MOST reliable audit evidence regarding the likely outcome of the litigation?

• Request a written representation from management their assertion that

  the claim will not be successful

• Send a confirmation request to the lawyers of Balotelli Co to obtain their view as to

  the probability of the claim being successful

• Review the correspondence from the customers claiming food poisoning to assess

  whether Balotelli Co has a present obligation as a result of a past event

• Review board minutes to understand why the directors believe that the claim will

  not be successful

Which TWO of the following are benefits of carrying out a trade receivables

circularisation?

• It provides evidence from an independent extemal source

• It provides sufficient appropriate evidence over all balance assertions

• It improves audit effciency as all customers are required to respond

• It improves the reliability of audit evidence as the process is under the control of

  the auditor

Which TWO of the following audit procedures should to form a conclusion as

to whether the financial statements require adjustment?

• Discuss with management the reasons for not amending the financial statements

• Review the cash post year end for receipts from Pirlo Co

• Send a request to Pirlo Co to confirm the outstanding balance

• Agree the outstanding balance to invoices and sales orders