Short Questions
Which three of the following should the auditor consider if there is a threat to independence?
Withdrawing from the engagement
Applying specific safeguards
Making disclosures to the client
Making disclosures to the ICAEW
Which three of the following should not hold a material financial interest in an audit client?
A member of the audit team
The parent of a member of the audit team
A spouse of a member of the audit team
A minor child of a member of the audit team
Which three of the following threats to independence might arise on the current audit from an audit team member being involved in employment negotiations with the client?
Self interest
Self Review
Intimidation
Familiarity
Allisons LLP is a firm of chartered accountants. It has a reputation for excellence in the banking and insurance industry and has been invited to accept engagements by various institutions as follows.
The audit of Nationally plc, the leading building society in the UK. 40% of staff members of Allisons LLP who have mortgages have mortgaged their home with Nationally.
The audit of Cash It Ltd, a large business which banks cheques and cash items for the general public and also advances loans. A member of the proposed audit team was impressed by the loan rate offered to the team during the tendering process and took out a loan with Cash It Ltd to buy a car.
Which, if any, of the above companies present a major threat to the independence of Allisons LLP, if the engagement were to be accepted?
A Nationally plc and Cash It Ltd
B Cash It Ltd only
C Nationally plc only
D Neither Nationally plc nor Cash It Ltd
Which one of the following is correct in relation to the presumption of dependence for a non-listed client?
There is a presumption of dependence when annual fee income from all services to the client will regularly exceed 15% of gross practice income
There is a presumption of dependence when annual fee income from all services to the client will regularly exceed 5% of gross practice income
There is a presumption of dependence when annual assurance fee income from all services to the client will regularly exceed 15% of gross practice income
There is a presumption of dependence when annual assurance fee income from all services to the client will regularly exceed 5% of gross practice income
Majors LLP, a firm of chartered accountants, offers the following additional services to various audit
clients. In which three of the following situations is an insurmountable self-review threat most likely to arise?
A Preparing the financial statements for Power Group plc, a listed company, on a regular basis
B Carrying out valuations of various non-current property assets for Tower Investments Ltd, a property investment company
C Promoting tax structures to Haven Ltd, where there is scope for doubt about the appropriateness of the accounting treatments involved to achieve the tax benefits
D Helping Craven plc in defining its corporate strategies and identifying possible sources of
finance for a potential new venture
In accordance with FRC’s Ethical Standard, in which three of the following engagements is there a
significant threat to independence?
A Alan Johnson has been the audit engagement partner of Domino Ltd for 11 years.
B Barry Thomson has been the audit engagement partner of Beetle Group plc, a listed company, for seven years.
C Having been the audit engagement partner of Risk Group plc, a listed company, for five years, Colin Jackson resigned as audit engagement partner three years ago; following a reshuffle in the firm, he has just been assigned as a key partner involved in the audit of Risk Group plc.
D Don Matthewson has recently been appointed as the audit engagement partner of Scrabble plc, a listed company; he previously held this position six years ago.
The ethics partner at Juleyson Co, a firm of chartered accountants, is trying to resolve an ethical conflict in respect of two clients of the firm. Which two of the following are appropriate actions for him to take?
A Do nothing because the situation is likely to resolve itself over time
B Refer the matter to the management board of partners because he cannot determine a solution himself
C Solicit advice from the ICAEW ethics helpline
D Seek the opinion of an ethics partner at a different firm
Which two of the following are auditors always required to do on being invited to accept an audit engagement?
Ensure they are professionally qualified to act
Ensure they have existing resources to carry out the audit
Obtain references for key personnel within the client to be audited
Communicate with their predecessor auditors to discover any reasons they should not accept the engagement
Which of the two following might indicate that an assurance client could have higher than normal risk?
Poor recent performance
Strong internal controls
Unusual transactions
The existence of an internal audit department
(4)Which three of the following are benefits of an engagement letter in respect of assurance services?
Clearly defines the assurance provider’s responsibilities
Provides written confirmation of the acceptance of the engagement
Confirms the scope of the engagement
Certifies the assurance provider’s opinion
(5)Which three of the following procedures should be carried out after the audit firm has decided to accept appointment as auditor?
Ensure the outgoing auditor’s removal/resignation has been properly conducted
Ensure that a resolution has been passed at a general meeting appointing new auditors
Perform checks to ensure there are no legal or ethical reasons why the new audit firm cannot act as auditor
Submit an engagement letter to the directors
Which one of the following best describes professional scepticism?
The assurance provider should
Not believe anything that management tells them
Not believe anything that management tells them, without obtaining supporting evidence
Apply a questioning mind to the information and evidence that they obtain
Always assume the worst outcome in cases of uncertainty
Which two of the following must be included in the engagement letter?
The scope of the audit
The reporting framework that is applicable for the financial statements being prepared
Details of client identification procedures to be followed for money laundering
A statement that in accordance with the Companies Act 2006, the auditor’s liability cannot be restricted
