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Question Paper Time allowed Reading and Planning Writing 7½ minutes 1½ hours
Section A: this question is compulsory (in your real exam you will have TWO compulsory questions) Section B: this question is compulsory (in your real exam you will have to attempt TWO questions out of THREE). During reading and planning time only the question paper may be annotated
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ACP7CE11(J) Course Exam 1 Questions
You should read through the paper and plan the order in which you will tackle both questions. With written elements try and make a number of distinct points using headings and short paragraphs. Show and reference your workings clearly. Identify and make sure you pick up the easy marks available in each question. You should aim to make a separate point for each mark. Read the requirements carefully: focus on mark allocation.Get into good exam habits now! Take a moment to focus on the right approach for this exam. establish or select after consideration Process information to explain its meaning To produce reasons in support of State short pieces of information on separate lines To make or get ready for use To advise on a course of action To express the most important facts of 2 ACP7CE11(J) Course Exam 1 Questions . Remember one mark is usually allocated for each valid point you give in a discursive question. Common terminology Advise Analyse Calculate/compute Compare and contrast Define Describe Discuss Distinguish Evaluate Explain Identify Interpret Justify List Prepare Recommend Summarise To counsel. Always start with the one you feel most confident about. criticism or opportunity? Give yourself plenty of space to add extra lines as necessary. Effective planning • This paper is in the same format as the real exam but has only 50 marks on offer and has no choice of questions. Ensure that you explain the points you are making ie why is the point a strength. question words (see below) and potential overlap between requirements. Effective time management • • • Watch the clock. inform or notify Examine in detail the structure of To ascertain or reckon mathematically Show the similarities and/or differences Give the exact meaning of Communicate the key features of To examine in detail by argument Highlight the differences between To appraise or assess the value of Make clear or intelligible/state the meaning of Recognise. allocate 1. it will also make it easier for the examiner to mark. • • Effective layout • • • • Present your numerical solutions using the standard layouts you have seen.8 minutes to each mark and move on if you get behind. Take a few moments to think what the requirements are asking for and how you are going to answer them.
a small listed company whose objective is to promote fair trade and fight poverty. our FD. Many thanks anitamartin@buyfair. Revenue is $14.co.SECTION A – This question is compulsory and MUST be attempted 1 Buy Fair You are a manager working for Roddick & Co. Buy Fair undertook a share restructure and floated on the Stock Exchange. 20.042 (20X6: $354. Buy Fair's results show an increase on the previous year. a firm of Chartered Certified Accountants specialising in providing professional services to businesses in both the voluntary sector and developing economies.000).com auditmanager@roddick&co.898.uk 14th January 20X8 Risks!!! Anita You review the permanent file for Buy Fair and establish the following financial information: Client Overview Report: Buy Fair financial situation In the financial year to 30 June 20X7. Such rights include a right of controlling vote on all matters of strategy. It is associated with a charitable organisation.250 ordinary $1 shares. The cash raised by the flotation enabled the company to pay off some long-term debts and still show an improvement in its cash-in-hand figure.we are told by our investment bank that the usual process is to get someone like you to do this for us? Can you provide us with a list of our ‘business risks’ please? We will need them identifying and describing so we are not only aware of what they are but also why they are risks to us and our investors. In the restructure. Anita Martin: From: To: Date: Subject: Hi there We are mad busy at the moment following all the refinancing and need to get a handle on our risks for some sort of disclosure to the City . A further 40. Just Fair. You have just received the following email from Buy Fair’s Chief Executive.080. One of the firm’s audit clients is Buy Fair.905 (20X6: $11. ACP7CE11(J) Course Exam 1 Questions 3 . but that you have already agreed these with Chris.427) and profit before tax is $612.500 ordinary A 50c shares were bought back by the company and exchanged for 10.750 $1 ordinary shares were sold on the Stock Exchange for $15. I understand there are ‘engagement’ related issues associated with this. Please just send me a list identifying and describing our business risks and we’ll take it from there. The new issue was fully subscribed. which holds one ordinary B share in Buy Fair and has significant powers vested in it by virtue of the constitution of Buy Fair.
You do not need to address any engagement or selfreview issues for this piece of work. at $756. Gifts includes a wide-ranging combination of craft products from around the third world. there are 2 professional marks for the layout and tone of the email response. fabrics and paper. Required (a) Respond to Anita Martin’s email providing her with the required information. (12 marks) Note: within the mark scheme for this requirement. the income from these three sources has been fairly comparable. (6 marks) (Total = 30 marks) (c) 4 ACP7CE11(J) Course Exam 1 Questions . In 20X7. the figure for advanced payments in the company’s financial statements is much bigger than it has been in previous years.199). supermarkets and personal selling via agents. including tea and coffee. Food includes a wide range of products.You also find the following operational report on Buy Fair which helps to increase your knowledge of the company: Client Overview Report: Buy Fair operations Buy Fair has two main product divisions: food and gifts.234 (20X6: $356. The company has three main sources of revenue: mail order catalogue. and various mueslis and cereal bars. Due to Buy Fair's expansion policy and the number of new producers it has forged links with in the year. rice and pasta. and discuss any issues associated with using analytical procedures arising in that year. In the past. Personal selling is carried out by individuals who receive a discount on items purchased from Buy Fair. including items made from wood. (12 marks) Briefly outline how the audit team might make use of analytical procedures in the Buy Fair audit for the year ended 30 June 20X7. cocoa and various chocolate products. the personal selling revenue has seen a large decrease and the income from mail order (which includes sales made through Buy Fair's new website) has increased substantially. Buy Fair sometimes makes advanced payments to suppliers as is common practice amongst fair trade ventures. which they then sell on to family and friends. (b) Identify and describe the principal audit risks presented by the audit of Buy Fair and for each one describe the effect that it will have on the audit plan for the year ended 30 June 20X7.
a firm of Chartered Certified Accountants. Peter Kaye (audit senior) and Jack Duckworth and Betty Turpin (trainees). (8 marks) The Managing Director of Ennios. Betty Turpin had instead been explaining to Jack Duckworth how to extract samples for the audit. Peter Kaye has filed it with the comment that it is 'to be dealt with when all other information for inclusion in the company's annual report is available'. because of the confidentiality of the directors' salaries. Peter Kaye decided to postpone it until later in the audit. Where appropriate suggest actions that you would expect to see on file. the appropriate records will only be made available to the partner-in-charge and not to you or the rest of the audit team. The marks available are shown beside each scenario. The file comment is ‘no further action required . You have summarised the findings of your visit and review of the audit working papers relating to the audit of the financial statements for the year to 30 September 20X7 as follows: (1) Ennios' purchase clerk.5 million ($1. (4 marks) The main office building where Ennios carries out all its testing has just been revalued by the company’s Finance Director. wholesale fresh food markets (meat. Steve Jones has made a note on the permanent file saying ‘partner to chase . (4 marks) Ennios has drafted its first 'Report to society' which contains health. fish and dairy products) and bottling plants. has advised your firm that. The audit supervisor has noted that the new value of $1.client evidence satisfactory’. The audit team comprises Steve Jones (audit supervisor). two hours later. The audit programme shows that counting it is 'outstanding'. Mike Baldwin. He queried this with Mike Baldwin but was reassured that as this was a result of ‘a temporary wobble in market conditions’ it was more likely that the true value of the building was always going to increase due to the buoyancy of the food hygiene industry and the attractive location of the offices.500 cash to meet sundry expenses. The draft accounts for the year ended 30 September 20X7 show revenue of $20 million (20X6 $24 million) and total assets $6.SECTION B – This question is compulsory and MUST be attempted 2 Ennios You are the manager responsible for the quality of the audits of new clients of CLC. Pat Evans. The company provides food hygiene services which include the evaluation of risks of contamination. Peter Kaye has explained that when Betty was sent to count it she reported back. keeps $2.5 million (20X6 $6 million) including land and buildings owned by the company. (Total = 20 marks) ACP7CE11(J) Course Exam 1 Questions 5 .satisfactory. You are visiting the audit team at the head office of Ennios Co. according to a note on the file from Steve Jones. Derek Wilton. safety and environmental performance data for the year to 30 September 20X7.2 million in 20X6) has been calculated despite the current property market reporting similar buildings in the same area falling in value by around 20% over the last 12 months. that she had not done it because it had not been convenient for Pat Evans. carrying out bacteriological tests and providing advice on health regulations and waste disposal Ennios' principal customers include food processing companies. Although Pat Evans had later announced that she was ready to have her cash counted. This is not documented in the audit working papers.’ (4 marks) (2) (3) (4) Required Comment on the implications of each of these findings for CLC's practice management and quality control policies and procedures.
Quiz yourself constantly as you study. Did you waffle? Y/N Layout Was your answer difficult to follow? Y/N Use headings and subheadings. You need to develop your memory as well as your understanding of a subject. Common problems Timing and planning Did you finish too early? Did you overrun? Y/N Y/N Future emphasis if you answer Yes Focus your planning time on generating more ideas. Use numbering sequences when identifying points. Give yourself time and space to make the marker's job easy. London W12 8AA Tel: 0845 0751 100 (for orders within the UK) Tel: +44 (0)20 8740 2211 Fax: +44 (0)20 8740 1184 www. Use this as a basis to focus your future study on effectively improving your performance. Read questions carefully noting all the parts. If you get behind leave space and move on. Classroom students please contact your tutor for further help. Did you fail to explain each point clearly? Did you fail to show any workings or were your workings unclear? Y/N Y/N Content Did you struggle with: Interpreting the questions? Y/N Learn the meaning of common terminology (inside front cover). Use models to help develop breadth to your thinking.Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Learn subject jargon (key terms in study text). Show why the point identified answers the question set. Practise as many questions as possible.bpp. Focus on allocating your time better. Aldine Place. Work through easier examples first. Focus your planning time on developing a logical structure to your answer.com/learningmedia 6 ACP7CE11(J) Course Exam 1 Questions .com). Leave space between each point. Home Study students please contact ACCA queries for further help (accaqueries@bpp. Understanding the subject? Y/N Remembering the notes/text? Y/N ® BPP House. Review your notes/text. Practise questions under strict timed conditions.
Marking scheme and Suggested solutions ACP7CE11(J) Course Exam 1 Solutions AC111 – P7(1) .ACCA Professional Level Paper P7 (INT) Advanced Audit and Assurance Course Examination 1 Guidance.
You may prefer to use this method if you find yourself spending too long on your favourite questions as it forces you to spend the right time on each before moving on. You cannot pass the exam answering two or three questions well and the rest poorly. Show clear workings for any calculations and write full sentences in your explanations.Guidance on improving your exam performance To help improve your performance you should focus on these key areas. Never overrun on any question and once the time is up move on to the next. Write a short plan for each question containing bullet points per mark and use it to write your answer when the writing time begins. Time management Use the reading and planning phase to make sure that you get as many of the marks as possible. making clear. An alternative strategy is to answer all questions in strict order. apply your skills in a practical context. However do not spend too long on the questions you are confident about as you need to spend an appropriate amount of time on each of them. Most importantly. You could use the time saved choosing the order by starting to plan your answers. This means you will build up marks early on giving you a solid base to tackle the harder questions later. You may prefer to attempt the questions that you are more confident about first. Which questions to do first? It is important for you to decide which order to attempt the questions. 2 ACP7CE11(J) Course Exam 1 Solutions . Strategy Make sure your answers are focused and specific to the circumstances in each scenario. succinct points.
governance requirements Impact on financing if unable to comply Charitable aims Products Sales mix Selling methods Website Suppliers 10 Maximum Professional marks .1 for email layout and 1 for tone and language adopted in response Maximum professional marks (b) Up to 1½ marks for each risk identified and described (maximum of ½ mark allowed if risks are identified only) Mention of relevant accounting standards scores ½ mark each Award an extra ½ mark for the effect of each audit risk on the audit plan Factors – audit risk – – – – – – – Share transactions Advanced payments Inventory (IAS 2) Corporate governance Revenue (IAS 18) Website (IAS 38) Related party transactions (IAS 24) 2 Maximum (c) Analytical procedures – – – Planning/risk assessment Overall review at completion Substantive procedures 12 Specific mention of ISA 315. ISA 330 or ISA 520 scores ½ mark each Up to 2 marks per point (plus issues) to a maximum of 6 30 ACP7CE11(J) Course Exam 1 Solutions 3 .1 Buy Fair Marking guide Marks (a) Up to 1½ marks for each risk identified and described (maximum of ½ mark allowed if risks are identified only) Factors – business risk – – – – – – – Stock Exchange listing .
or it will have to be prepared to explain its reasons for not doing so.Suggested solution Chapter references. given the charitable foundation of the company. However. Buy Fair is likely to encounter particular difficulty meeting some of the requirements in relation to the board. Chapters 6 and 8 Top tips. provided you use the information in the question and explain the risks well. particularly obtaining suitable non-executive directors. Note the format required to answer a specific request for information (such as the email here) will be replicated in the real exam. Easier marks are available in part (c) of the question on the use of analytical procedures but make sure you address both elements of this requirement. Financing issues It is possible that failing to comply with corporate governance requirements could compromise the investment potential of Buy Fair's shares for the market.com 15th January 20X8 re: Risks!!! Please find attached a summary of what we feel are the main business risks faced by your company: Stock Exchange listing The fact that the company has achieved Stock Exchange listing in the year brings a high level of additional compliance risk to the company.uk anitamartin@buyfair. 4 ACP7CE11(J) Course Exam 1 Solutions . Part (b) asks you to identify the audit risks to the firm so make sure you do this from the correct perspective. and therefore specific skills may be required from nonexecutive directors that are hard to come by. with a charitable foundation. Listed companies are encouraged to comply with corporate governance requirements and are required to report on any incidence of noncompliance. You should also be able to score reasonably well in parts (a) and (b) on risks. hence its inclusion here. Easy marks. The company will have to ensure either that its corporate governance arrangements comply with best practice. As a small company by listed company standards.co. In part (a) use the information in the question scenario to help you identify the business risks to the company – make sure you distinguish between business risks and audit risks – read the question requirement carefully and don’t just launch into your answer without using some time to plan. it is equally possible that its shares will be held and traded by people in sympathy with its aims rather than for any significant hope of gain from the investment. This problem is exacerbated that the company is an unusual company. (a) From: To: Date: Subject: Hello Anita auditmanager@roddick&co.
Buy Fair has opened itself up to a significant number of risks associated with information technology. There is likely to be a degree of informality in the arrangements with personal sellers and without monitoring. This is an operational risk as the systems of the company may not be flexible to changes in the sales mix. the company could find that it experiences big changes in this source of income which it has very little control over. it is possible that the investment decisions for people wishing to hold shares in Buy Fair will be different from the market generally. Change in sales mix The company has experienced a change in sales mix during the year. This is because it may restrict the attractiveness of the shares in the market. The company must ensure that the goods it imports meet regulatory requirements in terms of food hygiene and packaging for the country in which they are being sold. although in the past the sales mix has been stable. Personal selling In the past the company has relied to an extent on personal selling. the company must be aware that the fact that company strategy is directed and controlled by the charity Just Fair (by virtue of the clause in the company's memorandum) may represent a financial risk. Additionally. It is also possible that the company could waste resources directing marketing and selling effort in the wrong areas. There is also increased use of the company being subject to credit card frauds.Charitable aims As discussed above. While its place in the sales mix has reduced. it is still significant. as shareholders are going to be unable to fully influence policy with regard to capital growth and dividends. Website In opening this new avenue of selling. particularly mail order and web sales. the company may want to use these people to raise awareness of the alternative methods of sales which it has. Products Another risk. so the company may want to invest in encouraging other personal sellers to form a relationship with Buy Fair or in encouraging personal sellers who have stopped selling to start again. The company should monitor this situation. However. the risk of business interruption due to technological failure. with both compliance and operational elements. It is important that the company keeps track of the nature of its sales patterns and directs resources appropriately in order to maintain and grow them. This may be as a result of the new website and the fact that this is really a new source of sales. for example. ACP7CE11(J) Course Exam 1 Solutions 5 . where individuals sold Buy Fair products on behalf of the company. is that Buy Fair imports foodstuffs from developing countries. This source of income appears to have fallen in this year. although it will already be exposed to such risks in its mail order division. It must also ensure that goods are transported and stored in a suitable way to ensure that they do not perish. caused by viruses. These include the high level of technological intelligence the company will require to maintain the web facility and any related systems. which could result in loss to the company and customer dissatisfaction.
However. given the nature of these suppliers that may be difficult in practice. It should be possible to gain good audit evidence by referring to the company's advisers. The auditors must plan to review the accounting policy for accounting for advanced payments to ensure that it is reasonable. for which the company may have very little comeback. They must also review the arrangements and contracts made with the suppliers to ensure that the assumptions inherent in the accounting policy are justified. we will have to audit this disclosure as well as ensuring that the accounting treatment has been carried out satisfactorily. Manager (b) Audit risks Share transactions The company has undertaken a significant share restructure during the year that will require full disclosure in the financial statements. as noted above. particularly the solicitors and by reviewing the statutory records of shares and members. The company needs to ascertain the level of inventories held at the year-end and also where it 6 ACP7CE11(J) Course Exam 1 Solutions . but we will monitor progress of Buy Fair and review these on a regular basis. In addition. The auditors should also ensure that they have planned to collect evidence of the payments and receipts during the year in respect of this transaction. As auditors. Buy Fair should establish systems to ensure that goods are of appropriate quality before shipping. The auditors should allocate some time to a senior member of the audit team to audit the share restructure. and confirm from the suppliers that they were genuinely received by the suppliers . it will still be learning through the course of its trading relationship with them. The company has bought the right to future goods. This is a good list to start off with for your governance reports. with similar effect for the company. Although Buy Fair is likely to have carried out significant research before dealing with the suppliers. Accounting for the advanced payments The advanced payments are a risk for the audit. A. Inventories We have already mentioned that some of the company's products are potentially perishable. please get in touch with me at the office. However. given the implied financial situation of the suppliers that it deals with.Advanced payments to suppliers It is common practice amongst such fair trade enterprises to make advanced payments to suppliers in order to enable them to produce the goods. This risk is currently particularly high due to the number of new suppliers that the company is dealing with. This issue is more risky this year as the amount relating to advanced payments has more than doubled in the year and is material in the context of profit of $600K. It also puts the company at risk of paying in advance for goods which do not meet quality standards. they should verify the payments made to bank statements. this right carries a significant degree of risk. this practice puts Buy Fair at risk of having made payments to a supplier that does not produce the goods.however. Regards. If you have any queries on anything in this list.
The auditors will again have to review the accounting policy to ensure that it is reasonable and verify the costs against invoices as per IAS 38. (c) Analytical procedures Risk assessment Analytical procedures should be used as risk assessment procedures. They will probably not have been required to do this when the company was a private company. depending on who held the shares previously. Website If the website was new in the year.hence careful interpretation is required. This is to ensure correct cut-off between inventories and payments on account in the first instance. and the fact that the sponsorship of overseas suppliers could also result in Buy Fair having a related party relationship with them. but it is also to discover whether the auditors need to plan to attend inventory counts at the premises of suppliers. If the amount of inventories is likely to be material. in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. The auditors must review the accounting policy in the light of the new types of revenue and ensure that it is reasonable in addition to planning time to verify amounts received from these various different sources. An exercise in comparing draft accounts to prior year financial statements and/or budget will highlight areas that may need some attention on the audit. and they may need to incorporate additional systems work into their audit to enable them to assess the new systems becoming a listed company may have entailed. ACP7CE11(J) Course Exam 1 Solutions 7 . due to the relationship between Buy Fair and Just Fair. The fact that this might not be simple and would certainly be expensive should not affect the fact that they should attend. The auditors must plan to devote time on the audit to researching the relationships between Buy Fair and other parties and ensuring that the disclosures in the financial statements are in line with IAS 24. but may be misleading given the change the company has recently gone through . it will represent a risk to the audit in terms of new systems and whether the costs of it were capitalised or written-off. The auditors need to establish at what point the company owns the inventories. attending inventory counts will be an important part of establishing the existence of the inventories as per IAS 2. The firm may have alliances or overseas offices and so could arrange to have other auditors attend any such counts. its controlling party.is held. There is also the issue of the share transactions which may form part of the related party transaction disclosure. Corporate governance External auditors are usually required to review the report on corporate governance included within the annual report (depending on jurisdiction). They should therefore plan additional time to enable them to undertake this task. Revenue Revenue will also be a risky area for the audit given the variety of sales channels and likely difficulty in reconciling each one with accounting records. The recognition of revenue in the financial statements will need careful review to ensure compliance with IAS 18. Related party transactions Related party transactions are clearly an important part of this audit.
the new source of revenue and the fact that the company is now listed. in the audit of Buy Fair for the year to 30 June 20X7.) This is because these key changes may appear to explain differences. but in fact.Overall review level Towards the end of the audit. checking that the level of depreciation in the income statement is reasonable against the value of non-current assets in the balance sheet / statement of financial position. these may mask other changes occurring in the business. However. Substantive procedures Analytical procedures are often used by auditors following ISA 330 The auditor’s responses to assessed risks as a substantive procedure to obtain audit evidence about balances and transactions in financial statements. the auditors will follow ISA 520 Analytical procedures to assess whether the financial statements are internally consistent. 8 ACP7CE11(J) Course Exam 1 Solutions . for example. it may be inappropriate to rely too heavily on analytical procedures due to the high number of changes in the year in the company's business which will make numerous changes in the financial statements (for example. or that the wages and salaries figures are reasonable compared to the staff disclosures in the notes.
4 marks) Immaterial Poor direction of trainees Competence of trainees Lack of documentation Report to society (max. 8 marks) Materiality Make sense if revenues are falling? Poor QC if no professional scepticism or follow up Integrity of management? Poor accounting knowledge . 4 marks) Other information (ISA 720) (mention of specific standard scores ½ mark) Assurance service Necessary resources to undertake assurance assignment Nature of report unclear Impairment (max.2 Ennios Marking guide Cash count (max.suggests impairment IAS36 conditions (mention of specific standard scores ½ mark) Definitions of carrying value and recoverable amount Procedures to verify each value/amount Directors' salaries (max. 4 marks) Partner should speak to MD Emphasise confidentiality of all information provided to audit team Expensive if partner performs the work Junior staff competent to do this work 1 1 1 1 1 1 1 1 Marks 1 1 1 1 1 1 2 2 1 1 1 1 Maximum 20 ACP7CE11(J) Course Exam 1 Solutions 9 .
Monitoring of the trainee may have been inadequate. 9 and 10 Top tips. Chapters 2. Also. the building should have been reviewed for signs of impairment. (1) Cash count Although $2. In this question. Easy marks. The audit supervisor has failed to display the professional scepticism required and should have been more alert to the possible implications of possible concerns about the FD’s integrity. then there is a possible impairment. 10 ACP7CE11(J) Course Exam 1 Solutions .500 is immaterial. 8. 4. (Peter's decision appears justified as it is inappropriate to perform a cash count when the client is 'ready' for it). 'To be dealt with' presumably means 'to be read' with a view to identifying significant misstatements or inconsistencies.Suggested solution Chapter reference. However. Such an impairment requires either writing off against profits for the year if the asset is valued at cost or a reduction in reserves if the asset has been previously revalued. albeit routinely. The reason for the revaluation seemingly makes no sense however. to confirm that it has not been misappropriated. Although it is not practical to document every matter. The trainees do not appear to have been given appropriate direction. the client's management may well expect the auditor to count it. Betty may not have understood the need to count the cash immediately the request was made of the client. sensible comments that are relevant to each situation. deal with each scenario in turn before moving on to the next one. as well as the ethical guidelines that firms should work within. the behaviour of Betty also needs to be investigated in that she failed to report back to the audit senior on a timely basis and allowed herself to be unsupervised. details should have been recorded to support Peter's decision to change the timing of a planned procedure. Ennios may be intending to publish it as an entirely separate report and require an assurance service (other than audit) such as an independent verification statement on performance standards. (2) 'Report to Society' The audit senior appears to have assumed that this is 'other information' to be included in a document containing audited financial statements (the annual report) to be dealt with in line with ISA 720 The auditor’s responsibilities relating to other information in documents containing audited financial statements. (3) ‘Revalued building’ The building’s revaluation is material as it makes up 23% of net assets. if Pat is found to be 'borrowing' the cash) documentation must support why this was not detected sooner by the auditor. as revenues and assets are actually falling and despite the FD’s assertion that the property price issue is ‘temporary’ this must be considered on more than just face value. you should be able to pick up some marks on this question for making logical. Don’t get too bogged down in each – make sure you spend the right amount of time and then move on. Betty may not be sufficiently competent to be explaining sample selection methods to another trainee. if some irregularity is discovered by the client at a later date (e. IAS 36 Impairments indicate that if the carrying amount in the financial statements exceeds the recoverable amount. Remember to consider materiality where relevant and take a logical approach to each situation. For example.g. However. There aren’t easy marks as such in this question but by using the approach outlined above. Remember the risk to the firm of not following any of the quality control procedures outlined. The circumstances seem to suggest that instead of an upward revaluation.
ACP7CE11(J) Course Exam 1 Solutions 11 . He should point out that recommendations in this area are in fact set out in the profession's ethical guide and that this guide is binding upon the most junior member of audit staff just as much as on the partner himself. This is because the charge out rate of a partner's time is much higher than that of a more junior member of the audit team who would normally be considered quite competent to carry out this particular audit task. Value in use considers how much the asset would be worth if retained by the company and calculates the present value of future cash flows earned by the asset. given the uncertain nature of both the property market and the company’s revenues. The MD should therefore be advised that his fears are groundless. which is the higher of fair value less costs to sell and the value in use. Fair value requires some knowledge of market conditions to estimate an amount based on similar properties locally . this is likely to be quite risky and might require an expert surveyor. then the cost to the client would be much greater. the audit supervisor should have queried with the FD how the asset was only likely to increase in value in such circumstances. As both of these measures is highly subjective. Perhaps the most convincing argument in changing the client's mind would be to conclude by saying that if the partner were to carry out his audit work which he would be prepared to do. The partner should perhaps initially write to the Derek Wilton or arrange for a meeting if this were felt to be a better approach. The partner should advise the MD that respecting confidentiality with regard to a client's affairs is an important part of professional ethics.You should expect to see some evidence verifying the recoverable amount. This would require some knowledge of future business performance. This is poor implementation of the engagement. (4) Confidentiality of salaries This matter would need to be handled very tactfully as one would not wish to upset a client needlessly. It would be important for the partner to show that he has every confidence in his audit staff in this respect.given the property slump mentioned.
Aldine Place.bpp. London W12 8AA Tel: 0845 0751 100 (for orders within the UK) Tel: +44 (0)20 8740 2211 Fax: +44 (0)20 8740 1184 www.com/learningmedia 12 ACP7CE11(J) Course Exam 1 Solutions .® BPP House.