The audit engagement partner's review has identified the following additional corporate governance weaknesses:(1) All the directors have been members of the board for at least four years(2) The board is comprised of six executive and four non-executive directorsWhich of the following would the engagement partner recommend to address these weaknesses to ensure compliance with corporate governance principles?
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1 .A second audit risk relates to how well the new till system is operating. You are concerned that the system may not be reliable, and that consequently not all sales have been recorded, resulting in an understatement of revenue. You are also concerned that staff may not yet be familiar with the system, leading to an increased risk of errors relating to data entry.Which of the following statements represent valid responses to this audit risk?(1) Perform analytical procedures by comparing daily / weekly sales by store with both the prior year and with expectations, in order to determine whether any unusual patterns have occurred following the installation of the new system(2) Vouch the sales revenue per the system to the till receipts to confirm the accuracy of the sales(3) Obtain a copy of the training manual relating to the new till system and discuss with directors the extent of training staff have received on the new system(4) Test the internal controls relating to the till system and the transfer of data into the accounting system
A 2 and 4 B 3 and 4 C 1, 2 and 4 D 1, 3 and 4
2 .Zoe is also concerned that Ali & Co might breach confidentiality were the audit firm to represent Stark in its dispute with the tax authorities.Which of the following statements best reflects the auditor's duty of confidentiality?
A Auditors must never, under any circumstances, disclose any matters of which they become aware during the course of the audit to third parties, without the permission of the client. B Auditors may disclose any matters in relation to criminal activities to the police or taxation authorities, if requ...
3 .After a number of people living close to one of South's stores became seriously ill, the source of the illness was traced back to meat the customers had purchased from South. Legal proceedings were commenced against South by a number of customers during the financial year, demanding USD1m in compensation. You plan to review the legal correspondence relating to the claims made by customers to whom South sold contaminated meat.Which of the following are valid objectives of this audit procedure?(1) To determine whether South's reputation will have been damaged within the local area(2) To confirm whether there are deficiencies in South's internal controls relating to food hygiene(3) To assess whether a provision for customer compensation is required in South's financial statements(4) To determine whether disclosure of the nature and financial effect of the legal claim is required in South's financial statements
A 2 and 3 only B 3 and 4 only C 2, 3 and 4 only D 1, 2 , 3 and 4
4 .Which of the following features are corporate governance weaknesses which Tangerine Co would need to address prior to their listing?(1) The chairman has sole responsibility for liaising with shareholders(2) The company has not established an internal audit function(3) The chairman and one of the NEDs are former executive directors of Tangerine Co
A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3
5 .Mason has secured a five year contract with each of its four customers (the police force, ambulance service, fire service and the coastguard). The contracts in place are all of equal value. Under the terms of the contract Mason charges customers an annual fee to cover the maintenance, storage and testing of the aircraft and equipment. The annual fee is payable in advance each year with the first annual payment being paid on the date the contract commences.Based on the above information, which of the following statements summarises a key audit risk?
A Mason's assets could be undervalued if the market value of the helicopter fleet exceeds its cost B Mason could breach the terms of its contracts with its customers and be liable to pay penalties, so provisions may be understated C Revenue may be overstated if it is recognised according to the cont...
7 .Mason has not purchased any new helicopters during the year to 31 December 20X3; however there has been a lot of re-fitting, replacement and adding of specialist equipment to some of the existing aircraft. This has been necessary to keep up with the latest developments in search and rescue, and to maintain the aircraft to the high standard required under the contracts in place. This information has led you to be concerned that property, plant and equipment may be overstated in the financial statements.Which of the following statements represents a valid response to this audit risk?
A Perform a proof in total calculation of the depreciation charge for the year and investigate any significant differences B Review minutes of training meetings to determine whether the pilots have been trained how to use the specialist equipment C Obtain a breakdown of the capitalised costs and agr...
8 .The engagement partner has assessed the make-up of the audit committee.Which of the following would be valid conclusions from this assessment?(1) It is acceptable for the chairman to chair the audit committee(2) A new member of the audit committee with relevant financial experience must be recruited
A 1 only B 2 only C 1 and 2 D Neither 1 nor 2
9 .From reading the prior year audit file you have just realised that Mason funded the original purchase of each aircraft with a secured loan carrying substantial interest charges. The loan is in the process of being renegotiated and the bank have indicated that finance costs will increase further.Furthermore, the directors have told you that Mason's contract with the police force expires in March 20X4, at a time when the police are trying to substantially reduce the amount they pay in the wake of government cuts. It is thought that the contract will be put out to tender, and it is possible that another aircraft provider may also bid for the contract.From the above information, which is the MOST important audit risk that should be documented in the detailed audit plan?
A Disclosure relating to the secured loan may be omitted from the financial statements B Mason's going concern status may be at risk if the contract is not renewed C That interest charges may be understated D That the bank will rely on the audited financial statements when deciding whether to renew ...
10 .The directors are aware that in accordance with corporate governance provisions they have responsibilities for internal control but are unclear as to the extent of these responsibilities.Which of the following correctly describes their responsibilities?
A To review internal controls annually No; To report on internal controls to shareholders No B To review internal controls annually Yes; To report on internal controls to shareholders No C To review internal controls annually No; To report on internal controls to shareholders Yes D To review interna...
