Решение задач по аудиту ACCA F8 Pilot paper Q3 NorthCee

Третье задание по аудиту "стоит" 20 марок и должно быть выполнено за 1,8*20 = 36 минут. Традиционно третье задание - это сценарий, по которому необходимо применить теоретические знания к конкретным специфическим условиям сценария.

Question 3 part a)

Identify, and explain the relevance of, any factors which may threaten the independence of Dark & Co's audit of NorthCee Co's financial statements for the year ending 31 December 2007. Briefly explain how each threat should be managed.
(10 marks, 1,8*10 = 18 minutes, 0.5 mark for identifying the risk, 1 mark for explanation risk and 1 mark to suggestion how to resolve. Maximum 2.5 marks for each area)

Threats for independence

- rotate of audit partner


NorthCee plans to become a listed company. Under ACCA's Code of ethics the audit partner should be rotated at least every 5 years. The reason is that the audit partner may be very close with the client and his independence may be impaired.

It is not required for the 2007 audit. The audit partner should be rotated before the 2008 audit to follow 5 years rotation rule for listed companies to avoid familiarity threat.

- preparation of financial statements

Dark and Co prepared the financial statements for NorthCee in previous years and have been asked to prepare it in 2008. It raises a self-review threat because the financial statements may be prepared and audited by the same audit team members.

Before listing Dark and Co can continue prepare financial statements. They should employ separate team: one - to prepare and one - to audit. The work should be reviewed by independant partner. If NorthCee become listed, it will be forbidden to continue to prepare financial statements.

- attendance a social event

NorthCee is preparing for listing and invites the audit firm to attend a public event which is devoted to the listing. If the auditors come there they may be considered as supporting to NorthCee. This is an advocacy threat to independence. If auditors receive the expensive gifts or hospitality, it may affect their independence by familiarity threat.

Dark and Co should politely decline the invitation to the event and clearly state the reasons.

- unpaid taxation fee

The fee of tax service will be paid after the agreement the tax liability by the tax authority. The unpaid fee is an equivalent of a loan to the client. It may affect the independence by the fear to lost the fee if the audit report will be modified.

To avoid self-interest threat Dark and Co may delay the audit work till the fee will be paid or consider resinging.

- inheritance

The audit manager has 5% of share capital of NortCee. Having financial interest the auditor may be reluctant to modify the audit report because it may affect the share price.

To avoid the self-interest threat the auditor can dispose the shares or can be replaced by other auditor.

Question 3 part b)
Explain the actions that the board of directors of NorthCee must take in order to meet corporate governance requirements for the listing of NorthCee Co.
(6 marks, 1.8*6 = 10 minutes, 1 mark for each action)

To meet the corporate governance requirements for the listing NorthCee, the audit committee was already established.
The other actions required are:

- the audit committee should comprised by at least three non-executive directors (NED) to provide independant supervision of the audit process and to monitor the work of internal control;

- the board of directors needs to compose 50% of executive directors (who run business) and 50% of NEDs to provide advice and guidance;

- ensure that at least one NED has relevant financial experience;

- separate roles for the Chairman and the Chief Executive, so no one has unrestricted power for decision making;

- establish an internal audit department to perform a review and monitoring function of internal controls;

- establish nomination and remuneration committees to supervise the appointment of new directors and their's pay (which should be attractive, but not excessive)

Question 3 part c)
Explain why your audit firm will need to communicate with NorthCee Co's audit committee for this and future audits.
(4 marks, 1,8*4=7 minutes, 1 mark for a reason)

There are the following reasons for communications with audit committee:

- initially, to ensure that there is an independence between the audit firm and the board of directors. The audit committee consists of NEDs who are independent of the company and therefore can provide the objective view on audit report;

- the audit committee has more time to review an audit report and other communications (eg. management letters) than the board. The auditor has a benefit from careful review its report.

- the audit committee can ensure that auditor recommendations are implemented. Independent NEDs can enforce the board to take the actions on auditor recommendations.

- the audit committee has also more time to review the effectiveness and efficiency of the auditor work than the board. Therefore it can recommend the re-appointment of the auditor or suggest a different firm.