You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co (Stark). Stark, a listed company, provides investment advice to individuals, and is regulated by the relevant financial conduct authority.

Mr Day, a partner in Ali & Co, has been the audit engagement partner for Stark for the previous nine years and has excellent knowledge of the client. Mr Day has informed you that he would like his daughter Zoe to be part of the audit team this year; Zoe is currently studying for her first set of fundamentals papers for her ACCA qualification.

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.

Ali & Co has always carried out tax advisory work for Stark. The tax advisory services do not have an impact on the figures reported in the financial statements. The finance director has stated that he feels strongly that the firm that offers taxation services this year should charge a fee which is based on a percentage of tax saved. He also trusts that your firm will accept a fixed fee for representing Stark in a dispute regarding the amount of sales tax payable to the taxation authorities.

In relation to the audit engagement partner holding the role for nine years:

Which of the following safeguards should be implemented in order to comply with ACCA's Code of Ethics and Conduct?

You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co (Stark). Stark, a listed company, provides investment advice to individuals, and is regulated by the relevant financial conduct authority.

Mr Day, a partner in Ali & Co, has been the audit engagement partner for Stark for the previous nine years and has excellent knowledge of the client. Mr Day has informed you that he would like his daughter Zoe to be part of the audit team this year; Zoe is currently studying for her first set of fundamentals papers for her ACCA qualification.

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.

Ali & Co has always carried out tax advisory work for Stark. The tax advisory services do not have an impact on the figures reported in the financial statements. The finance director has stated that he feels strongly that the firm that offers taxation services this year should charge a fee which is based on a percentage of tax saved. He also trusts that your firm will accept a fixed fee for representing Stark in a dispute regarding the amount of sales tax payable to the taxation authorities.

Mr Day's daughter, Zoe, is currently learning about International Standards on Auditing (ISAs) in her studies. She has asked you for clarification of the following.

Which is the correct order of the following stages involved in the development of an ISA?

(1) Distribution of exposure draft for public comment

(2) Consideration of comments received from the public

(3) Approval by IAASB members

(4) Establishment of task force to develop draft standard

(5) Discussion of proposed standard at a public meeting

You are an audit manager of Ali & Co and have just been assigned the audit of Stark Co (Stark). Stark, a listed company, provides investment advice to individuals, and is regulated by the relevant financial conduct authority.

Mr Day, a partner in Ali & Co, has been the audit engagement partner for Stark for the previous nine years and has excellent knowledge of the client. Mr Day has informed you that he would like his daughter Zoe to be part of the audit team this year; Zoe is currently studying for her first set of fundamentals papers for her ACCA qualification.

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.

Ali & Co has always carried out tax advisory work for Stark. The tax advisory services do not have an impact on the figures reported in the financial statements. The finance director has stated that he feels strongly that the firm that offers taxation services this year should charge a fee which is based on a percentage of tax saved. He also trusts that your firm will accept a fixed fee for representing Stark in a dispute regarding the amount of sales tax payable to the taxation authorities.

Zoe is also concerned that Ali & Co might breach confidentiality were the audit firm to represent Stark in its dispute with the tax authorities.

Which of the following statements best reflects the auditor's duty of confidentiality?

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.

Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee, and has asked for some advice in relation to this.

As part of your planning work you have identified a number of potential risks to independence:

(1) The engagement partner has been asked to attend meetings with potential investors

(2) Currant & Co has been offered the opportunity to provide other services to Orange Financials

(3) Currant & Co have been asked to produce the financial statements of Orange Financials

(4) There is a suggestion that a partner who previously worked for Orange Financials should be the review partner

Which of these issues could give rise to an advocacy threat?

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.

Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee, and has asked for some advice in relation to this.

Orange Financials has been offered work by Orange Financials. This is dependent on the audit being completed with minimal issues.

Which TWO of the following threats does this situation create?

1. Intimidation

2. Self-interest

3. Familiarity

4. Advocacy

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.

Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee, and has asked for some advice in relation to this.

The finance director has made two offers to members of the audit team:

(1) Weekend away

(2) Loan at reduced rates

Which of the following correctly summarises which of the offers, if any can be accepted?

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.

Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee, and has asked for some advice in relation to this.

In accordance with ACCA's Code of Ethics and Conduct you have concluded that if you win the additional work you will need to disclose the proportion of fees obtained from Orange Financials to those charged with governance and conduct a post-issuance review.

Which of the following explains the basis for your conclusion?

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialise in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list Orange on a stock exchange within the next few months and have asked if the engagement partner can attend the meetings with potential investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he has asked if Currant & Co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and joined Currant & Co as a partner. It has been suggested that due to his familiarity with Orange, he should be appointed to provide an independent partner review for the audit.

Once Orange obtains its stock exchange listing it will require several assignments to be undertaken, for example, obtaining advice about corporate governance best practice. Currant & Co is very keen to be appointed to these engagements, however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has been completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior member of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it will need to establish an audit committee, and has asked for some advice in relation to this.

The board has noted down a number of statements relating to the audit committee and have asked you to confirm whether their understanding is correct. Indicate whether the following statements are true or false.

True False

1. The audit committee should be made up of independent non-executive directors

2. The audit committee normally appoints the external auditors at the AGM

3. The audit committee monitors and reviews the internal audit function

4. The audit committee sets out the scope of the external auditor's work

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs three permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to three days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

Based on your understanding of the nature of EuKaRe you have identified that income is primarily in the form of cash.

Which element of audit risk is increased by this fact?

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs three permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to three days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and at the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.

Which of the following statements is NOT an explanation of why ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment requires a risk assessment to be carried out at the planning stage?

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs three permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to three days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and at the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.

You have identified several audit risks which you feel your team will need to address. One such audit risk relates to the risk that income may be understated in the financial statements. You are concerned that not all income may be recorded.

Which of the following statements is NOT a valid response to this audit risk?

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs three permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to three days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and at the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.

Another identified audit risk is the susceptibility of EuKaRe's business to fraud due to the high levels of cash involved.

Which of the following statements correctly describes the auditor's responsibilities in accordance with ISA 240 The auditor's responsibilities relating to fraud in an audit of financial statements?

You are an audit senior of TEY & Co and are responsible for planning the audit of EuKaRe for the year ended 30 September 20X8.

EuKaRe is a charity which was established over five years ago. The charity's aim is to provide support to children from disadvantaged backgrounds who wish to take part in sports such as tennis, badminton and football.

EuKaRe has a detailed constitution which explains how the charity's income can be spent. The constitution also notes that expenditure relating to the administration of the charity cannot exceed 10% of the charity's income in any year. EuKaRe currently employs three permanent members of staff. At present, 100 volunteers work for EuKaRe: some commit up to three days a week and others help out on an ad hoc basis. The organisation, including its finance department, is primarily run by volunteers.

The charity's income is derived wholly from voluntary donations. Sources of donations include the public in the form of cash collected in buckets by volunteers in shopping areas, and from generous individuals.

Your audit partner has highlighted to you that it is imperative that TEY & Co acts in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. This means it must identify and assess the risks of material misstatement at both the financial statements level and at the assertion level, for classes of transactions, events and their related disclosures, and account balances and their related disclosures.

The audit manager has noted in the detailed audit plan that EuKaRe's control environment may be weak.

Which TWO of the following statements are valid reasons as to why EuKaRe may have a weak control environment?

1. EuKaRe has a detailed constitution which explains how the charity's income can be spent

2. EuKaRe's finance department relies on volunteers who may not have accounts experience

3. A high proportion of the income of EuKaRe is cash

4. Understaffing in the finance department at certain times is due to the ad hoc nature of volunteer working hours

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

The ACCA Code of Ethics and Conduct requires that an external auditor implement appropriate safeguards to ensure that a conflict of interest is properly managed.

Which of the following actions should NAB & Co take regarding the potential confidentiality issue?

(1) Inform the audit committees of both Goofy and Mickey of the potential conflict of interest and obtain their consent to act for both parties

(2) Use separate audit teams for each audit with a common independent review partner to determine whether confidentiality has been maintained

(3) Draw up confidentiality agreements to be signed by the Board of Directors of Goofy and Mickey

(4) Prevent unauthorised physical access to the information relating to the both company audits

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

From a review of the information above, your audit assistant has highlighted some of the potential risks to independence in respect of the audit of Goofy.

(1) Audit engagement partner has been in the position for six years

(2) Audit engagement partner's daughter works for Goofy 's daughter's bonus would be in the form of shares

(3) Audit engagement partner

(4) 5% bonus offered if audit is completed three weeks earlier than last year

Which of the following options correctly identifies the valid threats to independence and allocates the threat to the appropriate category?

A B C D 2 and 3 1 and 4

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

NAB & Co have decided that they would like to accept nomination as Mickey's auditors and Mickey's existing auditors have agreed to resign rather than be removed from office. The audit manager in charge of the tender has set out a list of procedures that the firm must undertake before Mickey can be approved as an audit client. (1) Ensure that the existing auditor's resignation has been properly conducted

(2) Communicate with Mickey's existing auditors

(3) Submit an engagement letter to Mickey's management

(4) Perform client screening procedures, including an assessment of Mickey's risk profile

Which of the following summarises the correct order in which the above procedures should be undertaken?

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

Before NAB & Co can accept appointment as Mickey's auditors they must determine whether the preconditions for an audit are met and obtain management's agreement that it acknowledges and understands its responsibilities.

Which of the following is NOT included in the agreement obtained by the auditor?

You are an audit manager in NAB & Co, a large audit firm which specialises in the audit of retailers. The firm currently audits Goofy Co (Goofy), a food retailer, but Goofy's main competitor, Mickey Co (Mickey), has approached the audit firm to act as auditors. Both Goofy and Mickey are listed companies. Goofy is concerned that if NAB & Co audits both companies then confidential information could pass across to Mickey.

The audit engagement partner for Goofy has been in place for approximately six years and her daughter, Emma, has just accepted a job offer from Goofy as a warehouse manager. Emma's employment contract states that if a bonus is to be paid it will be awarded as shares in Goofy rather than in cash. Goofy is offering NAB & Co a 5% bonus on top of the audit fee if this year's audit can be completed three weeks earlier than last year. This is to reduce the demands on the finance director's time as he is busy working on other projects.

Once NAB & Co has accepted appointment as Mickey's auditor they must draw up an engagement letter. Which of the following must be included in the audit engagement letter?

You are an audit senior of YHT & Co and have worked on the external audit of BJM Co (BJM), an unlisted company, since your firm was appointed external auditor two years ago.

BJM owns a chain of nine restaurants and is a successful company. BJM has always been subject to national hygiene regulations, especially in relation to the food preparation process. Non-compliance can result in a large fine or closure of the restaurant concerned.

The Board of BJM have recently notified you that the national hygiene regulations have been updated and are now much more stringent and onerous than before.

With this in mind, the Board have asked your firm to conduct a review of BJM's compliance with hygiene regulations, in order to allow the Board to assess whether the appropriate processes have been implemented at each of the nine restaurants. The review is not expected to include the provision of accounting advice or the preparation of figures in the financial statements.

The work is likely to be very lucrative. Your firm has sufficient experience to undertake the above review engagement.

The Board has also struggled to differentiate between their responsibilities and those of the external auditor in circumstances such as the prevention and detection of fraud and error, and compliance with regulations.

Which of the following statements best describes YHT & Co's responsibility regarding BJM's compliance with hygiene regulations, in line with ISA 250 Consideration of laws and regulations in an audit of financial statements?