Monday, 3 December 2012

Audit common ACCA AND CPA quiz


List FOUR audit procedures that an auditor will normally perform prior to attending the client’s premises on the day of the inventory count. (2 marks)
Audit procedures prior to inventory count attendance Procedure
– Review prior year working papers
– Contact client to obtain stocktaking instructions
– Book audit staff to attend the inventory counts
– Obtain copy of inventory count instructions from client
– Ascertain whether any inventory is held by third parties
– Obtain last year’s inventory count memo
– Prepare audit programme for the count.

Explain each of the FIVE fundamental principles of ACCA’s Code of Ethics and Conduct.          (5 marks)
Fundamental principles

Integrity. A professional accountant should be honest and straightforward in performing professional services.
Objectivity. A professional accountant should be fair and not allow personal bias, conflict of interest or influence of others to override objectivity.
Professional competence and due care. When performing professional services, a professional accountant should show competence and duty of care by keeping up-to-date with developments in practice, legislation and techniques.
Confidentiality. A professional accountant should respect the confidentiality of information acquired during the course of providing professional services and should not use or disclose such information without obtaining client permission.
Professional behaviour. A professional accountant should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession.


ISA 570 Going Concern provides guidance to auditors in respect of ensuring that an entity can continue as a going concern.
Required:
Explain the actions that an auditor should carry out to try and ascertain whether an entity is a going concern.
Audit work – going concern
– Review management’s plans for future actions based on its going concern assessment.
– Gather additional sufficient and appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists regarding the going concern concept.
– Seek written representations from management regarding its plans for future action.
– Obtain information from company bankers regarding continuance of loan facilities.
– Review receivables ageing analysis to determine whether there is an increase in days – which may also indicate cash flow problems.


Explain the concept of ‘auditing around the computer’ and discuss why this increases audit risk for the auditor. (3 marks)
Auditing around the computer
This term means that the ‘internal’ software of the computer is not documented or audited by the auditor, but that the inputs to the computer are agreed to the expected outputs from the computer.
This method of auditing increases audit risk because:
– The actual computer files and programs are not tested; the auditor has no direct evidence that the programs are working as documented.
– Where errors are found in reconciling inputs to outputs, it may be difficult or even impossible to determine why those errors occurred. Constructive amendments to clients’ systems cannot be made and there is an increased likelihood of audit qualifications.





List and explain FOUR factors that will influence the auditor’s judgement regarding the sufficiency of the evidence obtained. (4 marks)
Sufficiency of evidence
– Assessment of risk at the financial statement level and/or the individual transaction level. As risk increases then more evidence is required.
– The materiality of the item. More evidence will normally be collected on material items whereas immaterial items may simply be reviewed to ensure they appear correct.
– The nature of the accounting and internal control systems. The auditor will place more reliance on good accounting and internal control systems limiting the amount of audit evidence required.
– The auditor’s knowledge and experience of the business. Where the auditor has good past knowledge of the business and trusts the integrity of staff then less evidence will be required.
– The findings of audit procedures. Where findings from related audit procedures are satisfactory (e.g. tests of controls over receivables) then substantive evidence will be collected.
– The source and reliability of the information. Where evidence is obtained from reliable sources (e.g. written evidence) then less evidence is required than if the source was unreliable (e.g. verbal evidence).



ISA 580 Management Representations provides guidance on the use of management representations as audit evidence.
Required:
List SIX items that could be included in a management representation letter. (3 marks)
Management representation letter contents
– No irregularities involving management or employees that could have a material effect on the financial statements
– All books of account and supporting documentation have been made available to the auditors
– Information and disclosures with reference to related parties is complete
– Financial statements are free from material misstatements including omissions
– No non-compliance with any statute or regulatory authority
– No plans that will materially alter the carrying value or classification of assets or liabilities in the financial statements
– No plans to abandon any product lines that will result in any excess or obsolete inventory
– No events, unless already disclosed, after the end of the reporting period that need disclosure in the financial statements.



After performing tests of controls, the auditor is of the opinion that audit evidence is not sufficient to support the audit opinion; in other words many control errors were found.
Required:
Explain THREE actions that the auditor may now take in response to this problem. (3 marks)
Additional audit procedures
– The auditor could expand the amount of test of controls in that audit area. This may indicate that the control weakness was not as bad as initially thought.
– The problem could be raised with the directors, either verbally or in a management letter, to ensure that they are aware of the problem.
– The auditor could perform additional substantive procedures on the audit area. This action will help to quantify the extent of the error and makes the implicit assumption that the control system is not operating correctly.
– If the matter is not resolved, then the auditor will also need to consider a qualification in the audit report; the exact wording depending on the materiality of the errors found.












With reference to ISA 520 Analytical Procedures explain
(i) what is meant by the term ‘analytical procedures’; (2 marks)
(ii) the different types of analytical procedures available to the auditor; and (3 marks)
(iii) the situations in the audit when analytical procedures can be used. (3 marks)

(i) Explanation of analytical procedures
Analytical procedures are used in obtaining an understanding of an entity and its environment and in the overall review at the end of the audit.
‘Analytical procedures’ actually means the evaluation of financial and other information, and the review of plausible relationships in that information. The review also includes identifying fluctuations and relationships that do not appear consistent with other relevant information or results.

(ii) Types of analytical procedures
Analytical procedures can be used as:
– Comparison of comparable information to prior periods to identify unusual changes or fluctuations in amounts.
– Comparison of actual or anticipated results of the entity with budgets and/or forecasts, or the expectations of the auditor in order to determine the potential accuracy of those results.
– Comparison to industry information either for the industry as a whole or by comparison to entities of similar size
to the client to determine whether receivable days, for example, are reasonable.

(iii) Use of analytical procedures
Risk assessment procedures
Analytical procedures are used at the beginning of the audit to help the auditor obtain an understanding of the entity and assess the risk of material misstatement. Audit procedures can then be directed to these ‘risky’ areas.
Analytical procedures as substantive procedures
Analytical procedures can be used as substantive procedures in determining the risk of material misstatement at the assertion level during work on the income statement and statement of financial position (balance sheet).
Analytical procedures in the overall review at the end of the audit
Analytical procedures help the auditor at the end of the audit in forming an overall conclusion as to whether the financial statements as a whole are consistent with the auditor’s understanding of the entity.


 Discuss the advantages and disadvantages of outsourcing an internal audit department.
(8 marks)
Outsourcing internal audit
Advantages of outsourcing internal audit
Staff recruitment
There will be no need to recruit staff for the internal audit department; the outsourcing company will provide all staff and ensure staff are of the appropriate quality.
Skills
The outsourcing company will have a large pool of staff available to provide the internal audit service. This will provide access to specialist skills that the company may not be able to afford if the internal audit department was run internally.
Set up time
The department can be set up in a few weeks rather than taking months to advertise and recruit appropriate staff.
Costs
Costs for the service will be agreed in advance. This makes budgeting easier for the recipient company as the cost and standard of service expected are fixed.
Flexibility (staffing arrangements)
Staff can be hired to suit the workloads and requirements of the recipient company rather than full-time staff being idle for some parts of the year.
Disadvantages of outsourcing internal audit
Staff turnover
The internal audit staff allocated to one company may change frequently; this means that company systems may not always be fully understood, decreasing the quality of the service provided.
External auditors
Where external auditors provide the internal audit service there may be a conflict of interest (self-review threat), where internal audit work is then relied upon by external auditors.
Cost
The cost of the outsourced service may be too high for the company, which means that an internal audit department is not established at all. There may be an assumption that internal provision would be even more expensive.
Confidentiality
Knowledge of company systems and confidential data will be available to a third party. Although the service agreement should provide confidentiality clauses, this may not stop breaches of confidentiality e.g. individuals selling data fraudulently.
Control
Where internal audit is provided in-house, the company will have more control over the activities of the department; there is less need to discuss work patterns or suggest areas of work to the internal audit department.

Define ‘going concern’ and discuss the auditor’s responsibilities in respect of going concern. (4 marks)
Going concern

Going concern means that the enterprise will continue in operational existence for the foreseeable future without the intention or necessity of liquidation or otherwise ceasing trade. It is one of the fundamental accounting concepts used by auditors and stated in IAS 1 Presentation of Financial Statements.
The auditor’s responsibility in respect of going concern is explained in ISA 570 Going Concern. The ISA states ‘when planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements’.
The auditor’s responsibility therefore falls into three areas:
(i) To carry out appropriate audit procedures that will identify whether or not an organisation can continue as a going concern.
(ii) To ensure that the organisation’s management have been realistic in their use of the going concern assumption when preparing the financial statements.
(iii) To report to the members where they consider that the going concern assumption has been used inappropriately, for example, when the financial statements indicate that the organisation is a going concern, but audit procedures indicate this may not be the case.

In the context of the cash flow forecast, define the term ‘negative assurance’ and explain how this differs from the assurance provided by an audit report on statutory financial statements. (4 marks)

Negative assurance
Negative assurance means that nothing has come to the attention of an auditor which indicates that the cash flow forecast contains any material errors. The assurance is therefore given on the absence of any indication to the contrary.
In contrast, the audit report on statutory financial statements provides positive or reasonable assurance; that is the financial statements do show a true and fair view.
Using negative assurance, the auditor is warning users that the cash flow forecast may be inaccurate. Less reliance can therefore be placed on the forecast than the financial statements, where the positive assurance was given.
With negative assurance, the auditor is also warning that there were limited audit procedures that could be used; the cash flow relates to the future and therefore the auditor cannot obtain all the evidence to guarantee its accuracy. Financial statements relate to the past, and so the auditor should be able to obtain the information to confirm they are correct; hence the use of positive assurance.

List FOUR control objectives of a wages system. (2 marks)
Control Objectives – wages system
– Employees are only paid for work that they have done
– Gross pay has been calculated correctly
– Gross pay has been authorised
– Net pay has been calculated correctly
– Gross and net pay have been recorded accurately in the general ledger
– Only genuine employees are paid
– Correct amounts are paid to taxation authorities.














(a) ISA 620 Using the Work of an Expert explains how an auditor may use an expert to obtain audit evidence.
Required:
Explain THREE factors that the external auditor should consider when assessing the competence and objectivity of the expert. (3 marks)
(b) Auditors have various duties to perform in their role as auditors, for example, to assess the truth and fairness of the financial statements.
Required:
Explain THREE rights that enable auditors to carry out their duties. (3 marks)
(c) List FOUR assertions relevant to the audit of tangible non-current assets and state one audit procedure which provides appropriate evidence for each assertion. (4 marks)

(a) Competence and objectivity of experts
– The expert’s professional qualification. The expert should ideally be a member of a relevant professional body or have the necessary licence to perform the work.
– The experience and reputation of the expert in the area in which the auditor is seeking audit evidence.
– The independence of the expert from the client company. The expert should not normally be employed by the client.

(b) Auditor rights
– Right of access to the company’s books and records at any reasonable time to collect the evidence necessary to support the audit opinion.
– Right to require from the company’s officers the information and explanations the auditor considers necessary to perform their duties as auditors.
– Right to receive notice of and attend meetings of the company in the same way as any member of the company.
– Right to speak at general meetings on any matter affecting the auditor or previous auditor.
– Where the company uses written resolutions, a right to receive a copy of those resolutions.

(c) Tangible non-current assets – assertions
– Completeness – ensure that all non-current assets are recorded in the non-current asset register by agreeing a sample of assets physically verified back to the register.
– Existence – ensure non-current assets exist by taking a sample of assets from the register and physically seeing the asset.
– Valuation and allocation – ensure assets are correctly valued by checking the reasonableness of depreciation
calculations.
– Rights and obligations – ensure the company owns the asset by seeing appropriate document of ownership for example, a purchase invoice.
– Presentation and disclosure assertions – ensure all necessary financial statements disclosures have been made by reviewing the financial statements and ensure non-current assets are correctly categorised in those financial statements.


Explain the term ‘audit risk’ and the three elements of risk that contribute to total audit risk.    (4 marks)
Audit risk is the risk that an auditor gives an inappropriate opinion on the financial statements being audited.
Inherent risk is the susceptibility of an assertion to a misstatement that could be material individually or when aggregated with misstatements, assuming that there are no related controls. The risk of such misstatement is greater for some assertions and related classes of transactions, account balances, and disclosures than for others.
Control risk is the risk that a material error could occur in an assertion that could be material, individually or when aggregated with other misstatements, will not be prevented or detected on a timely basis by the company’s internal control systems.
Detection risk is the risk that the auditors’ procedures will not detect a misstatement that exists in an assertion that could be material, individually or when aggregated with other misstatements.






(a) List and explain FOUR methods of selecting a sample of items to test from a population in accordance with ISA 530 (Redrafted) Audit Sampling and Other Means of Testing. (4 marks)
(b) List and explain FOUR assertions from ISA 500 Audit Evidence that relate to the recording of classes of transactions. (4 marks)
(c) In terms of audit reports, explain the term ‘modified’. (2 marks)

(a) Sampling methods
Methods of sampling in accordance with ISA 530 Audit Sampling and Other Means of Testing:
Random selection. Ensures each item in a population has an equal chance of selection, for example by using random number tables.
Systematic selection. In which a number of sampling units in the population is divided by the sample size to give a sampling interval.
Haphazard selection. The auditor selects the sample without following a structured technique – the auditor would avoid any conscious bias or predictability.
Sequence or block. Involves selecting a block(s) of continguous items from within a population.
Tutorial note: Other methods of sampling are as follows:
Monetary Unit Sampling. This selection method ensures that each individual $1 in the population has an equal chance of being selected.
Judgemental sampling. Selecting items based on the skill and judgement of the auditor.

(b) Assertions – classes of transactions
Occurrence. The transactions and events that have been recorded have actually occurred and pertain to the entity.
Completeness. All transactions and events that should have been recorded have been recorded.
Accuracy. The amounts and other data relating to recorded transactions and events have been recorded appropriately.
Cut-off. Transactions and events have been recorded in the correct accounting period.
Classification. Transactions and events have been recorded in the proper accounts.

(c) Audit report term
Modified. An auditor modifies an audit report in any situation where it is inappropriate to provide an unmodified report. For example, the auditor may provide additional information in an emphasis of matter (which does not affect the auditor’s opinion) or qualify the audit report for limitation of scope or disagreement.


Contrast the role of internal and external auditors. (8 marks)

Role of internal and external auditors – differences
Objectives
The main objective of internal audit is to improve a company’s operations, primarily in terms of validating the efficiency and effectiveness of the internal control systems of a company.
The main objective of the external auditor is to express an opinion on the truth and fairness of the financial statements, and other jurisdiction specific requirements such as confirming that the financial statements comply with the reporting requirements included in legislation.
Reporting
Internal audit reports are normally addressed to the board of directors, or other people charged with governance such as the audit committee. Those reports are not publicly available, being confidential between the internal auditor and the recipient.
External audit reports are provided to the shareholders of a company. The report is attached to the annual financial statements of the company and is therefore publicly available to the shareholders and any reader of the financial statements.
Scope of work
The work of the internal auditor normally relates to the operations of the organisation, including the transaction processing systems and the systems to produce the annual financial statements. The internal auditor may also provide other reports to management, such as value for money audits which external auditors rarely become involved with.
The work of the external auditor relates only to the financial statements of the organisation. However, the internal control systems of the organisation will be tested as these provide evidence on the completeness and accuracy of the financial statements.
Relationship with company
In most organisations, the internal auditor is an employee of the organisation, which may have an impact on the auditor’s independence. However, in some organisations the internal audit function is outsourced.
The external auditor is appointed by the shareholders of an organisation, providing some degree of independence from the
company and management.












(a) ISA 500 Audit Evidence requires audit evidence to be reliable.
Required:
List FOUR factors that influence the reliability of audit evidence. (4 marks)
(b) ISA 260 (Revised and Redrafted) Communication with Those Charged with Governance deals with the auditor’s responsibility to communicate with those charged with governance in relation to an audit of financial statements.
Required:
(i) Describe TWO specific responsibilities of those charged with governance; (2 marks)
(ii) Explain FOUR examples of matters that might be communicated to them by the auditor.      (4 marks)

(a) The following five factors that influence the reliability of audit evidence are taken from ISA 500 Audit Evidence:
(i) Audit evidence is more reliable when it is obtained from independent sources outside the entity.
(ii) Audit evidence that is generated internally is more reliable when the related controls imposed by the entity are effective.
(iii) Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control).
(iv) Audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other medium. (For example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed.)
(v) Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.
Other examples are:
(vi) Evidence created in the normal course of business is better than evidence specially created to satisfy the auditor.
(vii) The best-informed source of audit evidence will normally be management of the company (although management’s lack
of independence may reduce its value as a source of such evidence).
(viii) Evidence about the future is particularly difficult to obtain and is less reliable than evidence about past events.

(b)
(i) Those charged with governance are responsible for overseeing:
– the strategic direction of the entity
– obligations related to the accountability of the entity. This includes overseeing the financial reporting process.
– promotion of good corporate governance
– risk assessment processes
– the establishment and monitoring of internal controls
– compliance with applicable law and regulations
– implementation of controls to prevent and detect fraud and errors.

(ii) General audit matters that might be communicated to those charged with governance are addressed in ISA 260:
(1) The auditor’s responsibilities in relation to financial statement audit.
This would include:
– A statement that the auditor is responsible for forming and expressing an opinion on the financial statements.
– That the auditor’s work is carried out in accordance with ISAs and in accordance with local laws and regulations.
(2) Planned scope and timing of the audit.
This would include
– The audit approach to assessing the risk of serious misstatement, whether arising from fraud or error.
– The audit approach to the internal control system and whether reliance will be placed on it.
– The timing of interim and final audits, including reporting deadlines.
(3) Significant findings from the audit.
This heading could include:
– Significant difficulties encountered during the audit, including delays in obtaining information from
management.
– Material weaknesses in internal control and recommendations for improvement.
– Audit adjustments, whether or not recorded by the entity, that have, or could have, a material effect on the
entity’s financial statements. For example, the bankruptcy of a material receivable shortly after the year-end
that should result in an adjusting entry.
(4) A statement on independence issues affecting the audit.
This would include:
– That the audit firm has ensured that all members of the audit team have complied with the ethical standards
of ACCA.
– That appropriate safeguards are in place where a potential threat to independence has been identifi ed.
(Tutorial note: The lists of examples listed under the above headings are not exhaustive and in practice many more
specific matters would be communicated to those charged with governance such as:
– Modifications to the audit report.
– Any management representation points requested.
– Cases of suspected/actual fraud.)






Explain the difference between the interim audit and the final audit. (4 marks)
The interim audit, as its name suggests, is that part of the whole audit that takes place before the year-end. The auditor uses the interim audit to carry out procedures that would be difficult to perform at the year-end because of time pressure. The final audit, on the other hand, will take place after the year-end and concludes with the auditor forming and expressing an opinion on the financial statements for the whole year subject to audit. It is important to note that the final opinion takes account of conclusions formed at both the interim and final audit.
Typical work carried out at the interim audit includes:
– consideration of inherent risks facing the company. (Tutorial note: risk would be initially considered at the planning stage, but is, in fact, reassessed at all audit stages.)
– recording the system of internal control.
– carrying out tests of control on the company’s internal control system and evaluating its effectiveness to determine the level of control risk.
– performing sufficient substantive testing of transactions and balances to be satisfied that the books and records are a reliable basis for the preparation of financial statements.
– identification of potential problems that may affect the final audit work. A basic aim is to ensure as far as possible that there are no undetected problems at the year-end.
Typical work carried out at the final examination includes:
– Follow up of items noted at the inventory count.
– Obtaining confirmations from third parties, such as bankers and lawyers.
– Analytical reviews of figures in the financial statements.
– Reviews of events after the reporting period.
– Consideration of the going concern status of the organisation.
(Tutorial note: At the final audit the auditor would carry out tests to ensure that the conclusions formed at the interim audit were still valid.)

Identify and explain FOUR assertions relevant to accounts payable at the year-end date.
 (6 marks)
As regards accounts payable there are many different assertions that have to be addressed. Some relevant assertions are set out below:
(i) Rights and obligations – Accounts payable represent amounts actually due by the company, that is, there is an obligation taking into account:
– the actual performance of services for the company; or
– transfer of title in goods transferred to the company; and
– cash payments or other genuine debit entry.
(ii) Valuation and allocation – Accounts payable have been correctly valued taking into account original transaction amounts and such matters as trade discounts and local sales tax.
(iii) Existence – The original transaction amounts are valid and the liability exists.
(iv) Completeness – All accounts payable are recorded in the accounting records.
(Tutorial note: The importance of assertions lies in the fact that they provide objectives for the auditor and enable the evidence search to be carried out in a logical fashion. The auditor will determine the assertions that are made about a particular figure appearing in the financial statements. This provides a series of objectives about that audit area and then the auditor searches for evidence to prove that each objective is met and that the assertion is valid or invalid


(a) Auditors are frequently required to provide assurance for a range of non-audit engagements.
Required:
List and explain the elements of an assurance engagement. (5 marks)
(b) ISA 320 Materiality in Planning and Performing an Audit provides guidance on the concept of materiality in planning and performing an audit.
Required:
Define materiality and determine how the level of materiality is assessed. (5 marks)

(a) An assurance engagement will involve three separate parties;
– The intended user who is the person who requires the assurance report.
– The responsible party, which is the organisation responsible for preparing the subject matter to be reviewed.
– The practitioner (i.e. an accountant) who is the professional who will review the subject matter and provide the
assurance.
A second element is a suitable subject matter. The subject matter is the data that the responsible party has prepared and which requires verification.
Suitable criteria are required in an assurance engagement. The subject matter is compared to the criteria in order for it to be assessed and an opinion provided.
Appropriate evidence has to be obtained by the practitioner in order to give the required level of assurance.
An assurance report is the opinion that is given by the practitioner to the intended user and the responsible party.
(b) Materiality is defined as follows:
‘Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.’
In assessing the level of materiality there are a number of areas that should be considered. Firstly the auditor must consider both the amount (quantity) and the nature (quality) of any misstatements, or a combination of both. The quantity of the misstatement refers to the relative size of it and the quality refers to an amount that might be low in value but due to its prominence could influence the user’s decision, for example, directors’ transactions.
In assessing materiality the auditor must consider that a number of errors each with a low value may when aggregated amount to a material misstatement.
The assessment of what is material is ultimately a matter of the auditors’ professional judgement, and it is affected by the auditor’s perception of the financial information needs of users of the financial statements.
In calculating materiality the auditor should also consider setting the performance materiality level. This is the amount set by the auditor, it is below materiality, and is used for particular transactions, account balances and disclosures.
As per ISA 320 materiality is often calculated using benchmarks such as 5% of profit before tax or 1% of gross revenue. These values are useful as a starting point for assessing materiality.


(a) (i) Define a ‘test of control’ and a ‘substantive procedure’; (2 marks)
(ii) State ONE test of control and ONE substantive procedure in relation to sales invoicing.
 (2 marks)
(i) Tests of control test the operating effectiveness of controls in preventing, detecting or correcting material misstatements.
Substantive procedures are aimed at detecting material misstatements at the assertion level. They include tests of detail of transactions, balances, disclosures and substantive analytical procedures.
(ii) Example tests of control over sales invoicing
– Inspect numerical sequence of sales invoices, if any breaks in the sequence noted, enquire of management as to missing invoices.
– Review a sample of sales invoices for evidence of authorisation by a responsible offi cial of any discounts allowed.
– Inspect customer statements for evidence of regular preparation.
Example substantive procedures over sales invoicing
– Select a sample of pre and post year end goods despatch notes and follow through to pre or post year end sales invoices, to ensure the sales cut-off has been correctly applied.
– Perform an analytical review of monthly sales, compare any trends to prior years and discuss significant fluctuations with management.
– Review post year end credit notes to identify if any pre year end sales should be removed.




State the FIVE threats contained within ACCA’s Code of Ethics and Conduct and for each threat list ONE
example of a circumstance that may create the threat. (5 marks)

(a) Compliance with ACCA’s Code of Ethics and Conduct fundamental principles can be threatened by a number of areas. The five
categories of threats, which may impact on ethical risk, are:
– Self-interest
– Self-review
– Advocacy
– Familiarity
– Intimidation.
Examples for each category (Only one example required per threat):
Self-interest
– Undue dependence on fee income from one client
– Close personal or business relationships
– Financial interest in a client
– Incentive fee arrangements
– Concern over employment security
– Commercial pressure from outside the employing organisation
– Inappropriate personal use of corporate assets.
Self-review
– Member of assurance team being or recently having been employed by the client in a position to influence the subject matter being reviewed
– Involvement in implementation of financial system and subsequently reporting on the operation of said system
– Same person reviewing decisions or data that prepared them
– An analyst, or member of a board, audit committee or audit firm being in a position to exert a direct or significant influence over the financial reports
– The discovery of a significant error during a re-evaluation of the work undertaken by the member
– Performing a service for a client that directly affects the subject matter of an assurance engagement.
Advocacy
– Acting as an advocate on behalf of a client in litigation or disputes
– Promoting shares in a listed audit client
– Commenting publicly on future events in particular circumstances
– Where information is incomplete or advocating an argument which is unlawful.
Familiarity
– Long association with a client
– Acceptance of gifts or preferential treatment (significant value)
– Over familiarity with management
– Former partner of firm being employed by client
– A person in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Intimidation
– Threat of litigation
– Threat of removal as assurance firm
– Dominant personality of client director attempting to influence decisions
– Pressure to reduce inappropriately the extent of work performed in order to reduce fees.



These are the PYQs ( 2-5 marks ) from year 2007 to 2010 .
I might have missed out some , so please do go through the PYQs itself as well ! GOOD LUCK !




Post a Comment