QUESTION ONE

(b) Information required to perform analytical procedures are draft accounting information such as financial statements, budgets and management accounts.

1)Difficulties auditors encounter in conducting analytical procedures are; figures found in draft form-analytical procedures performed on these figures may be invalid

by adjustments that are usually only made at the period end, such as the calculation of finance lease liability.

2) Information does not usually cover the entire accounting period. It is not always straightforward to extrapolate figures from just a part of the year to cover a full year

particularly when seasonality has to be taken into accounts. Analytical procedures performed on this information may therefore be misleading.

3) The information might not be produced on the same basis as the previous year, particularly if internal management accounts are being used.

4) If the client is a small entity then it might not have a formal reporting system in place during the year so that no proper information is available before the end of year

accounts are produced.

QUESTION TWO

Sometimes when auditors finish the annual audit they may decide not to audit the company in the future years as such when the board asks them to accept
(a)
nomination for the following year, the auditors may politely decline as they do not wish to seek re-election. This may happen for several reasons:

The client is growing too large

1.
Audit risk is seen to be getting too high
2.
The firm may wish to focus on other clients
3.
The firm have bought shares in the company
4.
Auditors consider ethical matter before accepting the contract and these are:
(b)
Ensure that the firm have the necessary skills and resources to undertake an audit
1.
Ensure that there is no issues of independence that would hinder objectivity
2.
Confirm the outgoing auditors have been removed correctly.
3.
Obtain permission from the client to communicate with the outgoing auditors to find out the circumstances that led to their removal.
4.