MARA University of Technology

AACOUNTING 610

Recap 4

1)Auditing standards differ from auditing procedures in that procedures relate to

1. Measure of performance.
2. Audit principles.
3. Acts to be performed.
4. Audit judgements.

2. Due professional care requires

1. A critical review of the work done at every level of supervision.
2. The examination of all corroborating evidence available.
3. The exercise of error free judgment.
4. A study and review of the I/C's that include tests of controls

3. A chartered public accounting firm (CPA) establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to

1. Enable the auditor to attest to the integrity or reliability of a client.
2. Comply with the quality control standards established by regulatory bodies.
3. Minimize the likelihood of association with clients whose management lacks integrity.
4. To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.

4. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client?
   1. The SA has no responsibility to contact the PA.
   2. The SA should obtain permission from the prospective client to contact the PA.
   3. The SA should contact the PA regardless of whether the prospective client authorizes contact.
   4. The SA need not contact the PA if the successor is aware of all available relevant facts

5. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to

1. Determine appropriate pricing of the audit.
2. Determine the integrity of management.
3. Determine the beginning balances of the current year's financial statements.
4. Establish consistency in application of GAAP between years.

6. Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should
   1. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential.
   2. Accept the engagement without contacting the predecessor auditor since the CPA can include audit

procedures to verify the reason given by the client for the termination.

1. 3. Not communicate with the predecessor auditor because this would, in effect, be asking the auditor to violate the confidential relationship between auditor and client.
   4. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.

7. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's
   1. Awareness of the consistency in the application of GAAP between periods.
   2. Evaluation of all matters of continuing accounting significance.
   3. Opinion of any subsequent events occurring since the predecessor's audit report was issued.
   4. Understanding as to the reasons for the change of auditors.

8. Which of the following is a quality control standard in an audit firm?

1. Peer review.
2. Administrative control.
3. Engagement performance.
4. Time studies.

9. 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 lef t 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.

10. Compliance with the fundamental principles in ACCA’s Code of Ethics and Conduct can be threatened in a number of ways.

11. In accordance with ISA 570 Going Concern, explain the responsibilities of auditors and management regarding going concern.