You have identified a number of issues which should be considered prior to tendering for a new client, whether:(1) The firm is independent of the potential client(2) The firm has the appropriate resources to conduct the audit of the potential client(3) The preconditions of audit will be met(4) The outgoing auditors will give Rivers & Co access to working papersGiven what you already know of Severn Co, which of these are most important to consider further prior to tendering for the audit?
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1 .The board of Tangerine is considering establishing an internal audit function.Which of the following factors would be relevant in making this decision?(1) It would help the audit committee to discharge its responsibilities for monitoring internal control(2) The board would no longer need to take responsibility for the prevention and detection of fraud and error(3) The costs of establishing an internal audit function should be considered against the benefits gained
A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
2 .Mason also holds around USD2 million of aircraft spares which are included within inventory. 55 Mason also holds around USD2 million of aircraft spares which are included within inventory. Mason sells the aircraft spares to amateur flying associations. Aircraft spares which are not sold after three years are scrapped.Approximately a quarter of this value is made up of specialist equipment taken out of aircraft when it was replaced by newer or more advanced equipment. Such specialist equipment is transferred from non-current assets to inventory without adjustment, and continue to be recognised at amortised cost.Which of the following summarises the key audit concern arising from the matter described?
A Accuracy, valuation and allocation of non-current assets B Completeness of non-current assets C Existence of inventory D Accuracy, valuation and allocation of inventory
3 .Despite running a successful company, BJM's Board have often needed to be reminded of some fundamental principles and you often have to explain key concepts.Which of the following statements best defines the external audit?
A The external audit is an exercise carried out by auditors in order to give an opinion on whether the financial statements of a company are fairly presented. B The external audit is an exercise carried out in order to give an opinion on the effectiveness of a company's internal control system. C Th...
4 .The audit partner has asked you to prepare some information ready for the tender.Which of the following would NOT be included in the tender for the audit of Severn Co?
A The proposed fee for the initial audit of Severn Co B A description of Rivers & Co, including the curriculum vitae of key staff likely to be assigned to the client C Overall level of materiality to be used in the audit D A summary of potential other services Rivers & Co could provide to Severn Co
5 .The Board has also struggled to differentiate between their responsibilities and those of the external auditor in circumstances such as the prevention and detection of fraud and error, and compliance with regulations.Which of the following statements best describes YHT & Co's responsibility regarding BJM's compliance with hygiene regulations, in line with ISA 250 Consideration of laws and regulations in an audit of financial statements?
A YHT & Co should actively prevent and detect non-compliance with the regulations. B YHT & Co should perform specific audit procedures to identify possible non-compliance. C YHT & Co should obtain sufficient appropriate audit evidence about BJM's compliance with the regulations as they have a direct...
7 .The partner responsible for the review of hygiene compliance has informed you that the engagement is an assurance engagement.Which of the following would NOT have been relevant to the partner in forming this opinion?
A The existence of a three-party relationship B The existence of suitable criteria C The determination of materiality D The subject matter
8 .Your firm has tendered for the engagement and has been successful. You have been asked to follow through the acceptance procedures for the firm.You are re-appraising whether it is appropriate for the firm to accept the engagement.Which of the following issues arising would cause Rivers & Co to decline the engagement?
A The engagement letter has not been received by Rivers & Co. B Rivers & Co losing a major client meaning Severn's audit fee would represent 20% of annual firm income. C A reply from the outgoing auditors stating that they declined to seek reappointment to the audit of Severn Co due to a disagreemen...
9 .The partner responsible for the review engagement has asked you to tell him what level of assurance you believe YHT & Co should provide, and also what type of opinion the firm should give.What is the level of assurance and type of opinion that can be provided on this review engagement?Level of assurance Report wording
A Reasonable Positive B Reasonable Negative C Limited Positive D Limited Negative
10 .You are drafting an engagement letter in respect of Severn Co. You have identified four issues that could be included in the engagement letter:(1) Scope of the audit(2) Responsibilities of management of Severn Co(3) Timetable for the provision of accounting information by Severn Co(4) Fees and billing arrangementsWhich of the above issues MUST be included in the engagement letter for it to comply with ISA 210 Terms of audit engagements?
A 1 and 4 B 2 and 3 C 3 and 4 D 1 and 2
