Integrity, objectivity and independence Flashcards
Which principal threat is this?
Peter Perkins recently resigned as finance director of Assiduous Limited. Peter joined the assurance firm that provides the audit to Assiduous after his notice period of six months.
Self-review
Which principal threat is this?
Artifice Limited has suggested to the engagement partner that a qualified audit report would be unacceptable in current year because company is considering flotation
Intimidation
Which principal threat is this?
Anonymous Limited has requested that audit team should not be changed from previous year as they got on well with client staff
Familiarity
Notorious Limited is a small company that has had a number of JMRC investigations in recent years. The company has had to pay a number of back taxes where incorrect figures had been declared. Recently a director was banned from being a director for five years for wrongful trading. This person has left Notorious and a new managing director has been appointed, who has intimated to the firm that improved corporate governance is at the top of his agenda.
Should the auditor accept the engagement?
A. Do not accept
B. Accept with safeguards
C. Accept with no safeguards
B. Accept with safeguards
Pristine Plc is a listed company that has good references from all parties whom the firm made enquiries of. It has requested that Notable Co both prepare and audit the financial statements. It does not feel that these services as divisible.
Should the auditor accept the engagement?
A. Do not accept
B. Accept with safeguards
C. Accept with no safeguards
A. Do not accept.
Massive self-review threat!!
You are a trainee in the audit department of Harris Brothers & Co. You have recently started your training, have not attended any courses and have attended one audit, where you carried out some simple audit tests under supervision from audit senior.
An audit manager has asked you to attend inventory count of Brox Bros, which has a large amount of inventory, which is subject to annual inventory count. There are very few other controls over inventory at Brox Bros. Inventory is highly material to Brox Bros’ financial statements. No other audit staff will be attending the inventory count.
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
B. Refer to training partner
It is best to try and resolve this issue in-house.
Imo is a qualified accountant. She has recently moved out of practice and taken up position of financial controller of a small, unlisted company, Lavender Lane Limited. The company has a short-term cash flow problem.
Imo was recently called into a meeting and asked if she could defer some income from the previous financial year so as to influence when the tax (both VAT and corporation tax) would be due on those sales. The directors were insistent that such deferral was necessary and that she should consider the request in the nature of an order.
Which two of the following possible courses of action are likely initially to be the most appropriate in this situation?
A. Report her concerns to the audit committee of the board of directors
B. Seek advice from ICAEW
C. Take steps in line with the company’s formal dispute resolution process
D. Take advice from her legal advisors
E. Resign her job
B and E
There is unlikely to be an audit committee, and the company’s formal dispute resolution process will feed back to the directors which intimidated her!
Which of the following services would it be least appropriate for a firm to carry out for an audit client?
A. Preparation of tax computation
B. Provision of tax advice
C. Provision of internal audit services
D. Preparation of the financial statements for a public interest entity
D. Preparation of the financial statements for a public interest entity
You cannot prepare financial statements for a public interest entity as an audit firm!!
Audit engagement partners of listed companies should be rotated away from the engagement after how many years?
5, as laid down by ES3
