1307312189-P7BPPMock1June2011 | Audit | Sales

ACCA Professional Level Paper P7 (INT) Advanced Audit and Assurance Course Examination 1

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

Instructions:
Please attempt this exam under test conditions and attach the frontsheet complete with your name and address to your script. The completed package should be sent to BPP Professional Education. Take a few moments to review the notes on the inside of this page titled, ‘Get into good exam habits now!’ before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

ACP7CE11(J) Course Exam 1 Questions

You should aim to make a separate point for each mark. 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 . 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. question words (see below) and potential overlap between requirements. With written elements try and make a number of distinct points using headings and short paragraphs. 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. Show and reference your workings clearly. Identify and make sure you pick up the easy marks available in each question. Effective time management • • • Watch the clock. it will also make it easier for the examiner to mark. 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. Take a few moments to think what the requirements are asking for and how you are going to answer them. Ensure that you explain the points you are making ie why is the point a strength. criticism or opportunity? Give yourself plenty of space to add extra lines as necessary. You should read through the paper and plan the order in which you will tackle both questions.8 minutes to each mark and move on if you get behind. allocate 1. 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. • • Effective layout • • • • Present your numerical solutions using the standard layouts you have seen.

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.250 ordinary $1 shares.750 $1 ordinary shares were sold on the Stock Exchange for $15.427) and profit before tax is $612. Revenue is $14. a small listed company whose objective is to promote fair trade and fight poverty.000).898. Buy Fair undertook a share restructure and floated on the Stock Exchange. which holds one ordinary B share in Buy Fair and has significant powers vested in it by virtue of the constitution of Buy Fair. A further 40. Such rights include a right of controlling vote on all matters of strategy.500 ordinary A 50c shares were bought back by the company and exchanged for 10.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.042 (20X6: $354. I understand there are ‘engagement’ related issues associated with this.905 (20X6: $11. Many thanks anitamartin@buyfair. but that you have already agreed these with Chris. 20. our FD.SECTION A – This question is compulsory and MUST be attempted 1 Buy Fair You are a manager working for Roddick & Co. Just Fair. You have just received the following email from Buy Fair’s Chief Executive. Please just send me a list identifying and describing our business risks and we’ll take it from there.com auditmanager@roddick&co. One of the firm’s audit clients is Buy Fair. 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 . ACP7CE11(J) Course Exam 1 Questions 3 .080. a firm of Chartered Certified Accountants specialising in providing professional services to businesses in both the voluntary sector and developing economies.co. Buy Fair's results show an increase on the previous year. The new issue was fully subscribed.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. It is associated with a charitable organisation.

the figure for advanced payments in the company’s financial statements is much bigger than it has been in previous years.199). (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. at $756. including tea and coffee. Buy Fair sometimes makes advanced payments to suppliers as is common practice amongst fair trade ventures. (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. You do not need to address any engagement or selfreview issues for this piece of work. Due to Buy Fair's expansion policy and the number of new producers it has forged links with in the year. which they then sell on to family and friends. fabrics and paper. 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. the income from these three sources has been fairly comparable. rice and pasta. and various mueslis and cereal bars. Personal selling is carried out by individuals who receive a discount on items purchased from Buy Fair. Gifts includes a wide-ranging combination of craft products from around the third world. In 20X7. In the past. and discuss any issues associated with using analytical procedures arising in that year. (6 marks) (Total = 30 marks) (c) 4 ACP7CE11(J) Course Exam 1 Questions . The company has three main sources of revenue: mail order catalogue. including items made from wood. (12 marks) Note: within the mark scheme for this requirement. 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. supermarkets and personal selling via agents. there are 2 professional marks for the layout and tone of the email response. Required (a) Respond to Anita Martin’s email providing her with the required information.234 (20X6: $356. cocoa and various chocolate products.

The audit programme shows that counting it is 'outstanding'. that she had not done it because it had not been convenient for Pat Evans. Although Pat Evans had later announced that she was ready to have her cash counted. because of the confidentiality of the directors' salaries. 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'. (4 marks) The main office building where Ennios carries out all its testing has just been revalued by the company’s Finance Director. This is not documented in the audit working papers. according to a note on the file from Steve Jones. 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.5 million ($1. 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. 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.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. The file comment is ‘no further action required . The marks available are shown beside each scenario.client evidence satisfactory’.’ (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. The audit team comprises Steve Jones (audit supervisor). Peter Kaye (audit senior) and Jack Duckworth and Betty Turpin (trainees). carrying out bacteriological tests and providing advice on health regulations and waste disposal Ennios' principal customers include food processing companies. wholesale fresh food markets (meat. has advised your firm that.500 cash to meet sundry expenses. (4 marks) Ennios has drafted its first 'Report to society' which contains health. 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 audit supervisor has noted that the new value of $1. The draft accounts for the year ended 30 September 20X7 show revenue of $20 million (20X6 $24 million) and total assets $6. Pat Evans. Derek Wilton. two hours later. a firm of Chartered Certified Accountants. Steve Jones has made a note on the permanent file saying ‘partner to chase . (Total = 20 marks) ACP7CE11(J) Course Exam 1 Questions 5 . Mike Baldwin. fish and dairy products) and bottling plants. (8 marks) The Managing Director of Ennios. You are visiting the audit team at the head office of Ennios Co.satisfactory.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. The company provides food hygiene services which include the evaluation of risks of contamination. Peter Kaye decided to postpone it until later in the audit. Betty Turpin had instead been explaining to Jack Duckworth how to extract samples for the audit. safety and environmental performance data for the year to 30 September 20X7. Where appropriate suggest actions that you would expect to see on file.

Practise questions under strict timed conditions. 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. If you get behind leave space and move on. Quiz yourself constantly as you study. Home Study students please contact ACCA queries for further help (accaqueries@bpp. 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. Show why the point identified answers the question set.bpp. Use models to help develop breadth to your thinking. Aldine Place. Work through easier examples first. Review your notes/text. Did you waffle? Y/N Layout Was your answer difficult to follow? Y/N Use headings and subheadings. Focus your planning time on developing a logical structure to your answer. Practise as many questions as possible. Classroom students please contact your tutor for further help. Focus on allocating your time better.Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. You need to develop your memory as well as your understanding of a subject. Use numbering sequences when identifying points.com). Leave space between each point.com/learningmedia 6 ACP7CE11(J) Course Exam 1 Questions . Use this as a basis to focus your future study on effectively improving your performance. Understanding the subject? Y/N Remembering the notes/text? Y/N ® BPP House. Give yourself time and space to make the marker's job easy. Read questions carefully noting all the parts. 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). Learn subject jargon (key terms in study text).

ACCA Professional Level Paper P7 (INT) Advanced Audit and Assurance Course Examination 1 Guidance. Marking scheme and Suggested solutions ACP7CE11(J) Course Exam 1 Solutions AC111 – P7(1) .

You could use the time saved choosing the order by starting to plan your answers. Which questions to do first? It is important for you to decide which order to attempt the questions. Never overrun on any question and once the time is up move on to the next. You cannot pass the exam answering two or three questions well and the rest poorly. succinct points. An alternative strategy is to answer all questions in strict order.Guidance on improving your exam performance To help improve your performance you should focus on these key areas. making clear. Strategy Make sure your answers are focused and specific to the circumstances in each scenario. Write a short plan for each question containing bullet points per mark and use it to write your answer when the writing time begins. This means you will build up marks early on giving you a solid base to tackle the harder questions later. 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. Show clear workings for any calculations and write full sentences in your explanations. Most importantly. Time management Use the reading and planning phase to make sure that you get as many of the marks as possible. 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. 2 ACP7CE11(J) Course Exam 1 Solutions . apply your skills in a practical context. You may prefer to attempt the questions that you are more confident about first.

governance requirements Impact on financing if unable to comply Charitable aims Products Sales mix Selling methods Website Suppliers 10 Maximum Professional marks . 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 .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.

particularly obtaining suitable non-executive directors. The company will have to ensure either that its corporate governance arrangements comply with best practice.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. hence its inclusion here. Buy Fair is likely to encounter particular difficulty meeting some of the requirements in relation to the board. 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. Listed companies are encouraged to comply with corporate governance requirements and are required to report on any incidence of noncompliance.co. Easy marks. 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. 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. This problem is exacerbated that the company is an unusual company. Note the format required to answer a specific request for information (such as the email here) will be replicated in the real exam. 4 ACP7CE11(J) Course Exam 1 Solutions . You should also be able to score reasonably well in parts (a) and (b) on risks. As a small company by listed company standards. However. Part (b) asks you to identify the audit risks to the firm so make sure you do this from the correct perspective. or it will have to be prepared to explain its reasons for not doing so. 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. Chapters 6 and 8 Top tips. and therefore specific skills may be required from nonexecutive directors that are hard to come by. provided you use the information in the question and explain the risks well. given the charitable foundation of the company. (a) From: To: Date: Subject: Hello Anita auditmanager@roddick&co.Suggested solution Chapter references. with a charitable foundation.

This may be as a result of the new website and the fact that this is really a new source of sales. ACP7CE11(J) Course Exam 1 Solutions 5 . These include the high level of technological intelligence the company will require to maintain the web facility and any related systems. is that Buy Fair imports foodstuffs from developing countries. although in the past the sales mix has been stable. This source of income appears to have fallen in this year.Charitable aims As discussed above. This is an operational risk as the systems of the company may not be flexible to changes in the sales mix. While its place in the sales mix has reduced. although it will already be exposed to such risks in its mail order division. particularly mail order and web sales. The company should monitor this situation. as shareholders are going to be unable to fully influence policy with regard to capital growth and dividends. 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. Products Another risk. it is still significant. There is also increased use of the company being subject to credit card frauds. 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. the company could find that it experiences big changes in this source of income which it has very little control over. There is likely to be a degree of informality in the arrangements with personal sellers and without monitoring. It must also ensure that goods are transported and stored in a suitable way to ensure that they do not perish. Buy Fair has opened itself up to a significant number of risks associated with information technology. This is because it may restrict the attractiveness of the shares in the market. It is also possible that the company could waste resources directing marketing and selling effort in the wrong areas. Website In opening this new avenue of selling. Change in sales mix The company has experienced a change in sales mix during the year. 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. However. the risk of business interruption due to technological failure. where individuals sold Buy Fair products on behalf of the company. Personal selling In the past the company has relied to an extent on personal selling. the company may want to use these people to raise awareness of the alternative methods of sales which it has. for example. it is possible that the investment decisions for people wishing to hold shares in Buy Fair will be different from the market generally. which could result in loss to the company and customer dissatisfaction. 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. caused by viruses. Additionally. with both compliance and operational elements.

however. However. this practice puts Buy Fair at risk of having made payments to a supplier that does not produce the goods. it will still be learning through the course of its trading relationship with them. please get in touch with me at the office. The auditors should allocate some time to a senior member of the audit team to audit the share restructure. It also puts the company at risk of paying in advance for goods which do not meet quality standards. particularly the solicitors and by reviewing the statutory records of shares and members. Although Buy Fair is likely to have carried out significant research before dealing with the suppliers. as noted above. This is a good list to start off with for your governance reports. we will have to audit this disclosure as well as ensuring that the accounting treatment has been carried out satisfactorily. 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. for which the company may have very little comeback.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. As auditors. and confirm from the suppliers that they were genuinely received by the suppliers . Inventories We have already mentioned that some of the company's products are potentially perishable. 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. but we will monitor progress of Buy Fair and review these on a regular basis. If you have any queries on anything in this list. 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 . They must also review the arrangements and contracts made with the suppliers to ensure that the assumptions inherent in the accounting policy are justified. However. 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. In addition. The company has bought the right to future goods. with similar effect for the company. Buy Fair should establish systems to ensure that goods are of appropriate quality before shipping. A. this right carries a significant degree of risk. Regards. 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. they should verify the payments made to bank statements. Accounting for the advanced payments The advanced payments are a risk for the audit. given the nature of these suppliers that may be difficult in practice. given the implied financial situation of the suppliers that it deals with.

The recognition of revenue in the financial statements will need careful review to ensure compliance with IAS 18. If the amount of inventories is likely to be material. ACP7CE11(J) Course Exam 1 Solutions 7 . They will probably not have been required to do this when the company was a private company. 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. 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. its controlling party. This is to ensure correct cut-off between inventories and payments on account in the first instance. 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. The auditors need to establish at what point the company owns the inventories. Website If the website was new in the year. it will represent a risk to the audit in terms of new systems and whether the costs of it were capitalised or written-off. attending inventory counts will be an important part of establishing the existence of the inventories as per IAS 2. but it is also to discover whether the auditors need to plan to attend inventory counts at the premises of suppliers.hence careful interpretation is required. 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. The firm may have alliances or overseas offices and so could arrange to have other auditors attend any such counts. but may be misleading given the change the company has recently gone through . in line with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment. (c) Analytical procedures Risk assessment Analytical procedures should be used as risk assessment procedures. due to the relationship between Buy Fair and Just Fair. and the fact that the sponsorship of overseas suppliers could also result in Buy Fair having a related party relationship with them. Corporate governance External auditors are usually required to review the report on corporate governance included within the annual report (depending on jurisdiction). 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. There is also the issue of the share transactions which may form part of the related party transaction disclosure. depending on who held the shares previously. They should therefore plan additional time to enable them to undertake this task. The fact that this might not be simple and would certainly be expensive should not affect the fact that they should attend.is held. Related party transactions Related party transactions are clearly an important part of this audit.

8 ACP7CE11(J) Course Exam 1 Solutions . 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. for example. 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 new source of revenue and the fact that the company is now listed.Overall review level Towards the end of the audit. or that the wages and salaries figures are reasonable compared to the staff disclosures in the notes. the auditors will follow ISA 520 Analytical procedures to assess whether the financial statements are internally consistent.) This is because these key changes may appear to explain differences. these may mask other changes occurring in the business. 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. but in fact. However. in the audit of Buy Fair for the year to 30 June 20X7.

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) 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 .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) 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.

500 is immaterial. The circumstances seem to suggest that instead of an upward revaluation. For example. Also. 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. 9 and 10 Top tips. 4. Chapters 2. 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. to confirm that it has not been misappropriated. albeit routinely. (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. the client's management may well expect the auditor to count it. There aren’t easy marks as such in this question but by using the approach outlined above. 8. IAS 36 Impairments indicate that if the carrying amount in the financial statements exceeds the recoverable amount. (3) ‘Revalued building’ The building’s revaluation is material as it makes up 23% of net assets. details should have been recorded to support Peter's decision to change the timing of a planned procedure. Monitoring of the trainee may have been inadequate. 'To be dealt with' presumably means 'to be read' with a view to identifying significant misstatements or inconsistencies. 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. if some irregularity is discovered by the client at a later date (e.Suggested solution Chapter reference. then there is a possible impairment. 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. Remember the risk to the firm of not following any of the quality control procedures outlined. The trainees do not appear to have been given appropriate direction. However. The reason for the revaluation seemingly makes no sense however. (1) Cash count Although $2. you should be able to pick up some marks on this question for making logical. Easy marks. deal with each scenario in turn before moving on to the next one. (Peter's decision appears justified as it is inappropriate to perform a cash count when the client is 'ready' for it). Don’t get too bogged down in each – make sure you spend the right amount of time and then move on. the building should have been reviewed for signs of impairment. if Pat is found to be 'borrowing' the cash) documentation must support why this was not detected sooner by the auditor. Betty may not have understood the need to count the cash immediately the request was made of the client. as well as the ethical guidelines that firms should work within. However. 10 ACP7CE11(J) Course Exam 1 Solutions . Remember to consider materiality where relevant and take a logical approach to each situation.g. sensible comments that are relevant to each situation. Although it is not practical to document every matter. Betty may not be sufficiently competent to be explaining sample selection methods to another trainee. In this question. 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.

given the uncertain nature of both the property market and the company’s revenues. Fair value requires some knowledge of market conditions to estimate an amount based on similar properties locally . This is poor implementation of the engagement. which is the higher of fair value less costs to sell and the value in use.You should expect to see some evidence verifying the recoverable amount. This would require some knowledge of future business performance. The partner should advise the MD that respecting confidentiality with regard to a client's affairs is an important part of professional ethics. As both of these measures is highly subjective. this is likely to be quite risky and might require an expert surveyor.given the property slump mentioned. (4) Confidentiality of salaries This matter would need to be handled very tactfully as one would not wish to upset a client needlessly. 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. The MD should therefore be advised that his fears are groundless. the audit supervisor should have queried with the FD how the asset was only likely to increase in value in such circumstances. It would be important for the partner to show that he has every confidence in his audit staff in this respect. 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. 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. then the cost to the client would be much greater. ACP7CE11(J) Course Exam 1 Solutions 11 . 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.

bpp.® BPP House. 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. Aldine Place.com/learningmedia 12 ACP7CE11(J) Course Exam 1 Solutions .

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