Chapter 5: Introduction to internal control

1. ISA (UK) 315, Identifying and Assessing the Risks of Material

Misstatement Through Understanding of the Entity and Its Environment
states that an internal control system in an organisation consists of five
components: the control environment, the entity's risk assessment
process, the information system, control activities and monitoring of
controls. For each of the following examples, select the component
which it illustrates.
The process of preparing the financial statements
B. Information system
Locking the inventory storeroom
F. Control activities
2. In each of the following three cases, select whether control risk is
higher or lower than normal.
The company has an established and well-resourced internal audit
function.
B. Control risk is lower than normal
The company has a history of reviewing financial performance on a
regular basis at board level.
D. Control risk is lower than normal
Purchase invoices are not authorised before payment.
E. Control risk is higher than normal
3 Which three of the following statements about audit committees are
correct?
B. Listed companies are required to have an audit committee
C. Audit committees are considered to be good practice for all large
companies
E. Audit committees are an important aspect of a company's
control environment
4 According to ISA (UK) 315, Identifying and Assessing the Risks of
Material Misstatement Through Understanding of the Entity and Its
Environment, which three of the following are aspects of an entity's
control environment?
A. The attitude of the directors to internal controls
C. The awareness of internal control issues in the company
D. The actions of senior management in relation to internal controls
5. Which one of the following is not part of an entity's risk assessment
process?
E. Report the process to the auditors
6 For each of the following statements about the information system in
a company, select whether they are true or false.
The information system comprises only the IT system of a company.
B False
The information system includes the process of preparing the financial
statements, such as the production of journals.
C True
7 The following are examples of internal controls which operate at
Badweather plc. For each example, select the type of control activity
which it illustrates.
The financial controller counts petty cash on a monthly basis.
C Physical control
There are two keys to the locked finance department safe: one held by
the finance director and the other by the managing director.
F Physical control
8 The following are examples of internal controls which operate at
Castle Ltd. For each example, select the type of control activity which it
illustrates.
The financial controller conducts a monthly review of authorisation
controls over dispatch notes.
B Information processing
The receivables ledger clerk posts invoices to the receivables ledger. The
cash clerk posts
cash receipts to the receivables ledger.
F Segregation of duties
9 The following are examples of computer controls which operate at
Goody plc. For each example, select the type of computer control which
it illustrates.
Storing extra copies of programs and data files off-site
A General
Programmes to check data fields on input transactions
D Application
Manual checks to ensure that input data were authorised
F Application
10 Which one of the following would be the simplest way of recording a
straightforward
system not subject to a great deal of change annually?
B Narrative notes
11 Which three of the following would be the best sources of
information about a company's systems?
A The company's procedures manual
B The internal audit function's system notes
D Inquiries made of company staff
12 Most entities make use of IT systems for financial reporting and
operational purposes. Controls operating in an IT environment can be
split into general controls and application controls.
Which one of the following is an application control?
D Cyclical reviews of all master files
13 Which two of the following represent inherent limitations of a system
of internal controls?
B Lack of understanding of the purposes of controls
D The possibility that staff members will collude in fraud
14 Which two of the following are authorisation control activities?
A A bank reconciliation signed by the finance director
B A cheque payment run approved by the finance director
15 With regards to internal control systems in small entities, select
whether each of the following statements is true or false. Smaller
companies are more likely to be successful in the implementation of
segregation of duties controls.
B False
Management override is more likely to take place in smaller companies.
C True
16 ISA (UK) 315 states that an internal control system in an
organisation consists of five components: the control environment, the
entity's risk assessment process, the information system, control
activities and monitoring of controls. For each of the following
examples, select the component which it illustrates.
Training programme for all staff
A Control environment
Review of actual performance against budget
E Control activity
17 For each of the following statements, select whether they are true or
false in respect of the limitations of any system of internal control. The
cost of implementing controls may be more expensive than the cost of
any potential risk arising.
A True
The effectiveness of many controls rely on the integrity of those
applying them.
C True
Internal controls are only applied to material items.
F False
Standard controls may not be designed to deal with unusual transactions.
G True
18 For each of the following statements, select whether they are true or
false in respect of business risk.
Business risk is the risk inherent to the company in its operations.
A True
Business risk is of no relevance to the auditor. The auditor is only
concerned with audit risk.
D False
Management are responsible for identifying and controlling business
risks.
E True
19 The following are examples of internal controls which operate at
Elm plc. For each example, select the type of control activity which it
illustrates. The financial controller reconciles the payables ledger with
supplier statements on a monthly basis.
B Information processing
The payables ledger clerk posts invoices to the payables ledger. The
cash clerk posts cash payments to the payables ledger.
C Segregation of duties
20 The following are examples of computer controls which operate in
the payroll system at Dobson Ltd. For each example, select the type of
computer control which it illustrates.
Password protection limiting access to data
A General
Range checks on payroll processing
D Application
Manual checks to ensure that timesheets are authorised before details are
processed
F Application
21 Which three of the following are general controls?
A Disaster recovery procedures
B Back-up copies of programs stored at an alternative safe location
D Staff training in the use of new/revised programs
22 Peach plc is a large organisation with a complex accounting and
information system. Critical to an understanding of the system are the
reporting lines and relationships between different departments. In this
situation which one of the following methods is most likely to be used
by the auditor to record the system of document flow?
B Flowcharts
23 Which two of the following are reasons why organisations need to
have effective systems of control?
To help the organisation in:
A minimising business risks
E complying with laws and regulations
24 An effective system of internal control requires segregation of basic
functions.
Which three of the following functions should ideally be segregated?
A Authorisation of transactions
C Custody or handling of assets
E Recording of transactions
25 An audit committee is a committee with responsibility for audit-
related matters.
Which one of the following could be members of an effective audit
committee?
B Non-executive directors only
26 ISA (UK) 315, Identifying and Assessing the Risks of Material
Misstatement Through Understanding of the Entity and Its Environment
states that an internal control system in an organisation consists of five
components: the control environment, the entity's risk assessment
process, the information system, control activities and monitoring of
controls. For each of the following examples, select which component is
illustrated.
The entity's organisational structure
A Control environment
Review by management of monthly bank reconciliations
F Monitoring of controls
27 The following are examples of internal controls which operate at
Fairweather plc. In each example select which control activity is
illustrated.
The financial accountant signs the bank reconciliation, which was
prepared by a member of his staff.
A Authorisation
The finance director compares monthly expenditure on consumables to
budgeted expenditure.
D Performance review
28 Most entities make use of IT systems for financial reporting and
operational purposes. Controls operating in an IT environment can be
split into general controls and application controls.
Which one of the following is an application control?
C Authorisation of data for input
29 Which two of the following reduce password effectiveness?
B User selection of passwords
E Displaying the password on screen
30 ISA (UK) 315, Identifying and Assessing the Risks of Material
Misstatement Through Understanding of the Entity and Its Environment
states that an internal control system in an organisation consists of five
components: the control environment, the entity's risk assessment
process, the information system, control activities and monitoring of
controls. For each of the following examples, select which component is
illustrated.
The entity's internal audit function
C Monitoring of controls
The audit committee
D Control environment
31 For each of the following internal controls, which is the principal
limitation?
The preparation of an accounts payable reconciliation
A Human error
Authorisation of new starters in a wages system in which duties are
segregated
D Collusion
32 For each of the following statements about audit committees, select
whether the statement is true or false.
Audit committees are responsible for recommending the appointment of
the external auditor
A True
One of the roles of the audit committee is to review the integrity of
formal announcements
relating to the company's performance
C True
33 Which two of the following are controls over input completeness?
A Document counts
D Programmed matching of input to an expected input control file
34 For each of the following internal controls, select whether a
preventive or a detective
control is being described.
Segregation of duties between raising and authorisation of purchase
orders
A Preventive
Monthly reconciliation of payables ledger with supplier statements
D Detective
Restricting users to read-only access of key folders on internal network
E Preventive
F Detective
35 The following are examples of computer controls which operate at
Mesa plc. For each example, select the type of computer control which it
illustrates.
Approval of new applications by a sample of users and by management
A General
Virus checks on software on employees' computers
C General
A check that all data entered in a field contains the correct number of
digits
F Application

Chapter 15: Integrity, objectivity and independence

1 Which three of the following should an auditor consider if there is a
threat to independence?
A Withdrawing from the engagement
B Applying specific safeguards
C Making disclosures to the client
D Making disclosures to ICAEW
2 Which three of the following should not own a material financial
interest in an audit client?
A A member of the audit team
B A minor child of a member of the audit team
C A parent of a member of the audit team
D A spouse of a member of the audit team
3 Which three of the following threats to independence might arise on
the current audit when
an audit team member is involved in employment negotiations with an
audit client during
the course of the audit?
A Self-interest
B Self-review
C Intimidation
D Familiarity
4 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.
(1) 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.
(2) 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
5 Which one of the following is correct in relation to the presumption of
dependence for a
non-listed client?
A There is a presumption of dependence when annual fee income from
all services to the
client will regularly exceed 15% of gross practice income.
B There is a presumption of dependence when annual fee income from
all services to the
client will regularly exceed 5% of gross practice income.
C 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.
D 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.
6 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
7 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.
8 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
9 Julia is a member of ICAEW who works in industry at KiwiCorp plc,
a listed company. The
company is experiencing difficulty meeting the expectations of the
market, and Julia has
been told by the board of directors that the company must meet its
optimistic profit targets
at the year end, regardless of what accounting is required to achieve this.
Which two of the following are the most appropriate initial courses of
action for Julia to take
in these circumstances?
A Report her concerns to the audit committee
B Resign
C Take legal advice
D Obtain advice from the human resources department at KiwiCorp plc
10 There are various general threats to independence recognised by
ethical codes.
For the following two examples, select the type of threat which might
arise in that situation.
The audit senior assigned to the audit of Loesdon Ltd has recently
become engaged to the
finance director's daughter.
A Self-interest
B Management
C Advocacy
The finance director of Litten Ltd has recently informed the audit
engagement partner that
Litten Ltd will be seeking a stock exchange listing. The finance director
has implied that
Litten Ltd will want to use the firm for significant amounts of advisory
work in relation to the
listing, but joked at the same time that 'clean bills of health' would be
crucial from now on.
D Self-interest
E Management
F Self-review
11 Estelle LLP is a 10-partner assurance firm which has been asked to
consider taking on the
audit of the financial statements of two separate companies. The
following potential issues
have been identified before acceptance of any such appointments.
For each of the following clients, select the basis on which the
engagement could be
accepted, if at all.
Othello Ltd, which will also require you to provide routine tax
compliance work and advice
A Do not accept
B Accept with safeguards
C Accept with no safeguards
Desdemona Ltd, the finance director of which worked at Estelle LLP
two years ago, but who
does not know any of the members of the proposed audit team
personally
D Do not accept
E Accept with safeguards
F Accept with no safeguards
12 The following are examples of situations in which an audit firm
might be faced with threats
to its independence.
For each example, select the type of threat which that situation best
illustrates.
The finance director of Fussy Ltd has requested that the audit team for
the current year
audit be the same as the team which performed last year's audit.
A Self-review
B Familiarity
C Intimidation
The finance director of Pernickety Ltd has told the audit manager that he
is not happy with
the proposed audit opinion and is likely to seek a second opinion.
D Self-review
E Familiarity
F Intimidation
13 The following are examples of situations in which Carnation LLP, an
audit firm with 50
similar medium-sized audit clients, which are non-listed, might need to
implement
safeguards in order to protect its independence.
For each situation, select the most appropriate safeguard in accordance
with Ethical
Standards, or state that there are no safeguards that could reduce the risk
to an appropriate
level.
Carnation LLP has been invited to accept the audit of a major listed
company. The fee
income from this engagement would represent 5% of the gross fee
income of the firm.
A Separate personnel
B Discuss the issues with the audit committee
C No safeguards possible
Carnation LLP has been invited to accept the audit of a major competitor
of an existing
client and has obtained consent from both to act.
D Separate personnel
E Discuss the issues with the audit committee
F No safeguards possible
14 Which three of the following are areas in which a self-interest threat
might arise?
A Where there is a close business relationship between the auditor and
the client
B Where the auditor prepares and audits the financial statements
C Where the auditor has a financial interest in the client
D Where there are a significant amount of overdue fees
E Where the audit firm provides internal audit services and significant
reliance is to be
placed on the internal audit work for the purposes of the external audit
15 Monty LLP, an audit firm, has a number of medium-sized audit
clients which are non-listed.
It has a current gross practice income of £500,000.
For each of the following prospective clients taken separately, select
whether there are
safeguards which could reduce any risk to independence to an
acceptable level in
accordance with Ethical Standards.
Marty Ltd has insisted that the audit fee be based on 5% of reported
profit after tax.
A Safeguards possible
B No safeguards possible
Fee income in respect of Andrews Ltd is expected to be £95,000.
C Safeguards possible
D No safeguards possible
Fee income in respect of Borne Ltd is expected to be £65,000.
E Safeguards possible
F No safeguards possible
16 Wright LLP, a firm of auditors, has the following employees who
previously worked for current audit clients.
A Both Hastle Ltd and Morgan Ltd
B Hastle Ltd only
C Morgan Ltd only
D Neither Hastle Ltd nor Morgan Ltd
17 Edward is an audit trainee working on the audit of Trekker Trailers
Ltd. It is the day before
the audit manager is coming out to the client to review the files. Edward
has been asked to
perform some additional tests on inventory valuation by his supervisor.
These tests have
revealed a number of problems which Edward has highlighted to the
supervisor. The
supervisor has told Edward that it is too late to deal with these and has
asked him to falsify
the working papers.
Which one of the following is the most appropriate course of action for
Edward to take?
A Falsify the results as instructed
B Inform the audit manager
C Seek legal advice
D Inform the client
18 Morgan LLP, an audit firm, has a number of prospective clients:
Masons Ltd, Burton Ltd and
Dewburry Ltd.
For each of these following prospective clients, select whether the
holding of the stated
financial interest should result in the firm declining the engagement or
the individual being
excluded from the audit team in accordance with Ethical Standards.
(Assume that the
interests are not disposed of.)
Bill Brown, a partner in Morgan LLP, owns 10% of the shares in
Masons Ltd.
A Firm must decline
B Individual excluded
Sam Larson's wife owns 5% of the shares in Burton Ltd. Sam Larson is
an audit manager at
Morgan LLP.
C Firm must decline
D Individual excluded
Jane Smith's husband owns 15% of the shares in Dewburry Ltd. Jane
Smith is a partner in
Morgan LLP.
E Firm must decline
F Individual excluded
19 Panama LLP is an audit firm with 30 similar, non-listed, medium-
sized audit clients. The
following are examples of situations in which Panama LLP might need
to implement
safeguards in order to protect its independence.
For each situation, select the most appropriate safeguard or state that
there are no
safeguards which could reduce the risk to an acceptable level in
accordance with the
FRC's Ethical Standard.
One of Panama LLP's clients is a competitor of one of its other clients.
A Separate personnel
B Fee threshold not exceeded
C No safeguards possible
Panama LLP has been asked to take on the role of internal auditor at one
of its clients and
would be responsible for implementing its own recommendations.
D Separate personnel
E Fee threshold not exceeded
F No safeguards possible
20 Jane Stanley is a qualified accountant working for a small catering
company. The directors
of the company are looking to expand and have approached a number of
potential
investors. Jane has been asked to produce management accounts for the
investors to
review. The managing director has specifically told her that they must
show a gross profit
margin of 30% and he "doesn't care how she achieves it." The gross
profit margin is
normally approximately 20%. There is no internal complaints procedure.
Which one of the following is the most appropriate initial course of
action for Jane to take?
A Resign
B Seek legal advice
C Contact the ICAEW telephone helpline
D Comply with her employer's request
21 Richard Richardson LLP is a multi-national audit firm responsible
for the audit of a high
street bank, Barkers Bank.
For each example below of loans provided to members of the audit team
by Barkers Bank,
select whether the loan gives rise to a threat to Richard Richardson
LLP's independence in
accordance with ethical standards.
The audit junior's student loan
A Threat
B No threat
The audit partner's mortgage, negotiated on normal commercial terms
C Threat
D No threat
The audit manager has recently taken out a car loan. He is being charged
an interest rate of
2% below the standard rate applied to this product
E Threat
F No threat
22 The following are examples of situations in which an audit firm
might be faced with threats
to its independence.
For each example, select the type of threat which that situation
illustrates.
The audit firm has been asked to underwrite its client's shares in relation
to a proposed
flotation.
A Self-review
B Advocacy
The board of directors does not contain a qualified finance professional
and the company
has asked the audit firm to prepare the financial statements.
C Self-review
D Advocacy
23 Talland LLP is the external auditor of Huntley Ltd, a retailer. The
managing partner has been
called to a meeting with the board of directors of Huntley Ltd. At that
meeting the firm has
been asked if it can provide the following non-audit services.
Huntley Ltd would like to implement a new sales system. They have
asked Talland LLP to
take on a consultancy project whereby the firm will evaluate several
possible systems,
advise on which system should be selected, and oversee the installation
of the new system.
Which one of the following sets of threats would arise from the above
scenario, if the
project was accepted by Talland LLP?
A Advocacy and management
B Management and familiarity
C Management and self-review
D Advocacy and familiarity
24 Hammers LLP is a firm of chartered accountants. It has been invited
to accept engagements
by various institutions as follows.
(1) Advisers to New Generation Insurance and Co, a small group of
insurers seeking to
buy out the home insurance business of Insurance Plus, a major UK
insurer. The partner
in charge of the advice team has made certain guarantees to New
Generation
Insurance and Co's bank in respect of one of the members of New
Generation
Insurance and Co, whom he knows personally. Hammers LLP has been
promised the
audit of New Generation Insurance and Co if the buy out is successful.
(2) A review of banking procedures at NatEast plc, a major high street
bank. Hammers LLP
has a modest business loan from NatEast plc.
Which, if any, of the above companies presents a major threat to the
independence of
Hammers LLP, if the engagement were to be accepted?
A New Generation Insurance and Co and NatEast plc
B NatEast plc only
C New Generation Insurance and Co only
D Neither New Generation Insurance and Co nor NatEast plc
25 The following are examples of situations in which Bouldry LLP, an
audit firm, might need to
implement safeguards to protect its independence. Bouldry LLP has 75
small, non-listed
audit clients and has been asked to provide additional services to three of
these clients.
For each situation, select whether the additional services could be
accepted with
appropriate safeguards, in accordance with Ethical Standards, or state
that there are no
safeguards that could reduce the risk to an appropriate level.
Bouldry LLP has been asked to carry out a valuation service. The
valuation is material to the
financial statements but does not involve a significant degree of
subjectivity.
A Accept with safeguards
B No safeguards possible
Bouldry LLP has been asked to provide accounts preparation assistance.
C Accept with safeguards
D No safeguards possible
Bouldry LLP has been asked to design and implement an IT system
which will significantly
impact on the accounting system. Historically, Bouldry LLP has placed
reliance on the
accounting system as part of the audit.
E Accept with safeguards
F No safeguards possible
26 Brown LLP has been invited by Alpha plc, a listed company, and
Beta Ltd, a non-listed
company, to provide audit and non-audit services. If accepted, the fees
for Alpha plc would
represent 11% of the firm's gross fee income, and the fees for Beta Ltd
would represent
12%.
Assuming Brown LLP would like to take on as many clients as is
permitted by ethical
standards, which one of the following is the most appropriate course of
action?
A Accept both Alpha plc and Beta Ltd as clients
B Accept Alpha plc as a client and refuse Beta Ltd
C Accept Beta Ltd as a client and refuse Alpha plc
D Refuse to take on either Alpha plc or Beta Ltd as clients
27 Helena LLP is an eight-partner assurance firm which has been asked
to consider taking on
the statutory audit of two separate companies. The following potential
issues have been
identified.
For each of the following potential clients, select on what basis the
engagement could be
accepted or state that the engagement should not be accepted, in
accordance with the
FRC's Ethical Standard.
Titania plc, a listed company, will also require Helena LLP to prepare
the financial
statements.
A Do not accept
B Accept with safeguards
C Accept with no safeguards
Puck Ltd, whose finance director is the brother of one of the partners at
the assurance firm.
D Do not accept
E Accept with safeguards
F Accept with no safeguards
28 Two different audit juniors have been asked to carry out the
following tasks. For each of the
tasks you should select the action that the audit junior should take.
An audit junior at Oberon LLP, a large assurance firm, has been asked to
join the audit team
at a major client to carry out the receivables section of the audit. The
junior has not carried
out this section of the audit before but has covered it in his training.
A Perform the work
B Refer to training partner
C Contact the ICAEW telephone helpline
An audit junior at Lear LLP, a sole practitioner audit firm, has been
asked to commence the
audit of a small manufacturing client. The junior has expressed
reservation about this but
the practitioner has insisted that he should go out to the client
unsupervised at the
beginning of the following week.
D Perform the work
E Refer to training partner
F Contact the ICAEW telephone helpline
29 David, a recently qualified ICAEW Chartered Accountant, is the
newly-appointed financial
controller of Hartpury Ltd. Hartpury Ltd is a relatively small company,
which is likely to be
taken over in the near future.
As one of his first assignments, David has been asked to prepare the
financial statements
for the year ended 31 December 20X6. David has now been called into
the last part of a
board meeting where the directors have given him a profit target which
must be met in
those financial statements. They have stressed that this profit target must
be met, even if it
means that accounting standards are not followed.
Which two of the following describe possible appropriate courses of
action which David
could consider taking?
A Report his concerns to the audit committee
B Resign his post
C Report his concerns to the finance director
D Take legal advice
E Use Hartpury Ltd's formal dispute resolution process to resolve the
issue
30 The following are examples of situations in which an audit firm
might be faced with a threat
to its independence.
For each example, select the main type of threat that situation illustrates.
The finance director has a very strong personality and insists on the
audit team working in
his office.
A Familiarity
B Intimidation
C Management
The audit team and the management team at the client have remained
unchanged for
several years.
D Familiarity
E Intimidation
F Management
31 Dudley & Partners is a large assurance firm. They have acted as the
external auditors to
Birmingham Ltd, a small owner-managed company, for two years.
The managing director and major shareholder of Birmingham Ltd, Mr
Black, has now asked
the firm to represent the company's interests in a legal case which has
been brought
against it. Mr Black has indicated that if the firm refuse to do this they
will not be
reappointed as external auditor. He is also making matters difficult for
those members of
the audit team carrying out the interim audit.
Which one of the following sets of threats arises from the above
scenario?
A Intimidation, self-review and management
B Advocacy, self-interest and management
C Intimidation, advocacy and self-interest
D Intimidation, advocacy and management
32 Callinicos LLP is a 12-partner assurance firm which has been asked
to consider taking on the
audit of the financial statements of two separate companies. The
following potential issues
have been identified before acceptance of any such appointments.
For each of the following clients, select the basis on which the
engagement could be
accepted, if at all.
Luxemburg Ltd, which will also require Callinicos LLP to provide a
valuation service in
relation to some immaterial financial assets
A Do not accept
B Accept with safeguards
C Accept with no safeguards
Cliff plc, a listed company which will also require you to provide routine
bookkeeping work
D Do not accept
E Accept with safeguards
F Accept with no safeguards
33 You are a trainee in the audit department of Termite LLP. You have
been working in the
department for 18 months and have experience of completing audit
testing under
supervision, but are yet to work independently.
Several months ago, you had worked on the audit of Cioran Ltd. You
have just received a
call from the audit manager, asking you to address a review point in
relation to some
accruals testing that you did. The manager said that the audit report is to
be signed
tomorrow, and that you need to resolve the point immediately. You are
finding it difficult to
understand what was wrong with your testing, and do not know how to
resolve the review
point.
Which of the following is the most appropriate course of action for you
to take?
A Perform the work
B Refer to training partner
C Contact ICAEW
You have also been assigned to the upcoming audit of Schopenhauer
Ltd, in which you are
to be allocated the non-current assets section of the audit. You have not
carried out this
section of the audit before, but you have covered it in his training.
Which of the following is the most appropriate course of action for you
to take?
D Perform the work
E Refer to training partner
F Contact ICAEW