Audit and Internal Review: the Firm, Its Partners Financial Interest
Audit and Internal Review
(International Stream)
PART 2 TUESDAY 10 DECEMBER 2002
QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL THREE questions are compulsory and MUST be answered TWO questions ONLY to be answered
Section B
Paper 2.6(INT)
Section A – ALL THREE questions are compulsory and MUST be attempted 1 The objectivity of the external auditor may be threatened or appear to be threatened where: (i) There is undue dependence on any audit client or group of clients;
(ii) The firm, its partners or staff have any financial interest in an audit client; (iii) There are family or other close personal or business relationships between the firm, its partners or staff and the audit client; (iv) The firm provides other services to audit clients. Required: (a) For each of the four examples given above, explain why the objectivity of the external auditor may be threatened, or appear to be threatened, and why the threat is important. (12 marks) (b) Describe ACCA’s requirements that reduce the threats to auditor objectivity for each of the four examples given above. (8 marks) NB: In part (a) all parts carry equal marks. NB: In part (b) all parts carry equal marks. (20 marks)
2
(a) ISA 400 ‘Risk Assessments and Internal Control’ identifies a number of key procedures which auditors should perform if they wish to rely on internal controls and reduce the level of substantive testing they perform. These include: (i) Documentation of accounting and internal control systems;
(ii) Walk-through tests; (iii) Audit sampling; (iv) Testing internal controls; (v) Dealing with deviations from the application of control procedures. Required: Briefly explain each of the procedures listed above. NB: (i) – (v) above carry equal marks. (b) Flowers Anytime sells flowers wholesale. Customers telephone the company and their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are
(International Stream)
PART 2 TUESDAY 10 DECEMBER 2002
QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL THREE questions are compulsory and MUST be answered TWO questions ONLY to be answered
Section B
Paper 2.6(INT)
Section A – ALL THREE questions are compulsory and MUST be attempted 1 The objectivity of the external auditor may be threatened or appear to be threatened where: (i) There is undue dependence on any audit client or group of clients;
(ii) The firm, its partners or staff have any financial interest in an audit client; (iii) There are family or other close personal or business relationships between the firm, its partners or staff and the audit client; (iv) The firm provides other services to audit clients. Required: (a) For each of the four examples given above, explain why the objectivity of the external auditor may be threatened, or appear to be threatened, and why the threat is important. (12 marks) (b) Describe ACCA’s requirements that reduce the threats to auditor objectivity for each of the four examples given above. (8 marks) NB: In part (a) all parts carry equal marks. NB: In part (b) all parts carry equal marks. (20 marks)
2
(a) ISA 400 ‘Risk Assessments and Internal Control’ identifies a number of key procedures which auditors should perform if they wish to rely on internal controls and reduce the level of substantive testing they perform. These include: (i) Documentation of accounting and internal control systems;
(ii) Walk-through tests; (iii) Audit sampling; (iv) Testing internal controls; (v) Dealing with deviations from the application of control procedures. Required: Briefly explain each of the procedures listed above. NB: (i) – (v) above carry equal marks. (b) Flowers Anytime sells flowers wholesale. Customers telephone the company and their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are