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EXAMINATION PAPER: ACADEMIC SESSION 2019/2020

Campus Greenwich Maritime and International Partners

Faculty Business

Department Accounting & Finance

Module Code ACCO 1152

Module Title Audit and Assurance - Exam 1

Level 6

Duration THREE HOURS

Date July 2020

Module co-ordinator: Dr Dawn Reilly

INSTRUCTIONS TO CANDIDATES

Section A: Compulsory question (this carries 10 marks).

Section B: Answer THREE of the four questions (each question carries 30 marks).

This is a CLOSED book examination.

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Module Code – ACCO 1152
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SECTION A – Compulsory – You must answer Question 1

Question 1

Required:

Discuss the importance of the following concepts for the auditing profession.

a) Materiality
5 marks
b) Independence
5 marks

Total 10 marks

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SECTION B – Answer THREE of the following four questions ONLY

Question 2

You are an audit manager and have been on the audit of Targaryen Ltd, a clothing
manufacturer, for the last two years. Targaryen are based in the UK but intend to expand
into Europe and the USA and are seeking outside investment in order to help fund this
expansion.

Whilst you are planning for this year’s audit, the Chief Executive Officer (CEO) of
Targaryen calls you to ask about the following:

• The CEO would like your firm to review forecasts that have been prepared for
the investors;

• The CEO would like your firm’s help in choosing a new accounting system to
cope with the increased volume of transactions which the company will be
dealing with after the expansion; and

• The directors have discovered a fraud which began two years ago and the CEO
wants to understand why it was not found during last year’s audit.

Required:

a) Describe the ethical threats posed by the additional work (review of

forecasts and choosing an accounting system) requested by the CEO and
explain any safeguards that could be used to mitigate these threats.
12 marks

• Explain what level of assurance the audit firm will provide on the review
of Targaryen’s forecasts and how this level of assurance differs from that
required for a statutory audit.
10 marks

• Explain to the CEO the responsibilities in relation to fraud for both the
directors and the auditor.
8 marks

Total 30 marks

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Module Code – ACCO 1152
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Question 3

a) Audit evidence must be sufficient and appropriate.

Required:

Explain, with examples, what is meant by sufficient and appropriate audit

evidence.
10 marks

b) Audit evidence can be collected through both tests of controls or substantive tests.

Required:

Explain the differences between a controls-based approach and a substantive

approach to an audit.
8 marks

c) All evidence collected must be documented.

Required:

i. Explain why auditors must document evidence; and

8 marks

ii. List four items which should be included on an audit working paper.

4 marks

Total 30 marks

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Question 4

The internal audit function has been described by the International Federation of
Accountants (IFAC) as:

“A function of an entity that performs assurance and consulting services designed to

evaluate and improve the effectiveness of the entity’s governance, risk management and
internal control processes”

Required:

a) Discuss the factors which a company should consider when assessing the need
for internal audit.
6 marks

b) Explain how the internal audit function differs from external audit.
10 marks

c) Explain the differences between ‘business risk’ and ‘audit risk’ giving one
example of each.
8 marks

d) Some companies outsource their internal audit function to their external auditors.

Required:

Explain the ethical threats that arise if the internal and external auditors are
from the same firm.
6 marks

Total 30 marks

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Module Code – ACCO 1152
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Question 5

You have recently tendered for, and won, a new client, Rainbow Limited. You must
now contact Rainbow’s previous auditor and then issue the Engagement letter.

Required:

a) Explain the factors your firm would have taken into consideration when
performing client screening prior to taking on Rainbow Limited as a client.

In part a) you should not explain your communication with the previous auditor.
12 marks

b) Explain the process your firm will follow in communicating with the previous
auditor.
12 marks

c) Explain the purpose of the Engagement letter and list four items which the
letter must include.
6 marks

Total 30 marks

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Module Code – ACCO 1152
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