AA - Interim Mock - Ch 1 to 6 (50%)

You are an audit manager of Satsuma & Co and have been assigned to the audit of Tangerine Tech Co (Tangerine), a company which is planning to list on a stock exchange within Six months. The listing rules Of the stock exchange require compliance With corporate governance principles, and the directors are unsure whether they are following practice in relation to this. They hove asked the audit engagement partner for their view on this matter.

Tangerine's board is comprised of six executive directors, a chair and three other directors (NEDs). The chair and one of the NEDS are former directors of Tangerine and on reaching retirement age were asked to take on roles. The company has established an audit committee, and all NEDS are members including the chair who chairs the committee, All four members of the audit committee were previously involved in sales or roles.

All of the directors have members of the board for at least four gears. As the chair not have an executive role, he has sole for liaising with the shareholders and answering their questions. The has not established an internal audit function to monitor internal controls.

Q. Which of the following features are corporate governance deficiencies which Tangerine Co would need to prior to their listing?

(1) The chair has sole responsibility for liaising with shareholders.

(2) The company has not established an internal audit function.

(3) The Chair and one of the NEDs are former executive directors of Tangerine co.

• 1 and 2 only

• 1 and 3 only

• 2 and 3 only

• 1, 2 and 3

You are an audit manager of Satsuma & Co and have been assigned to the audit of Tangerine Tech Co (Tangerine), a company which is planning to list on a stock exchange within Six months. The listing rules Of the stock exchange require compliance With corporate governance principles, and the directors are unsure whether they are following practice in relation to this. They hove asked the audit engagement partner for their view on this matter.

Tangerine's board is comprised of six executive directors, a chair and three other directors (NEDs). The chair and one of the NEDS are former directors of Tangerine and on reaching retirement age were asked to take on roles. The company has established an audit committee, and all NEDS are members including the chair who chairs the committee, All four members of the audit committee were previously involved in sales or roles.

All of the directors have members of the board for at least four gears. As the chair not have an executive role, he has sole for liaising with the shareholders and answering their questions. The has not established an internal audit function to monitor internal controls.

The audit engagement partner hos assessed the make-up of the audit committee.

Which of the following would valid conclusions from this assessment?

(1) It is acceptable for the Chair to Chair the audit committee.

(2) A new member of the audit with relevant financial experience must be recruited.

• 1 only

• 2 only

• 1 and 2

• Neither 1 or 2

You are an audit manager of Satsuma & Co and have been assigned to the audit of Tangerine Tech Co (Tangerine), a company which is planning to list on a stock exchange within Six months. The listing rules Of the stock exchange require compliance With corporate governance principles, and the directors are unsure whether they are following practice in relation to this. They hove asked the audit engagement partner for their view on this matter.

Tangerine's board is comprised of six executive directors, a chair and three other directors (NEDs). The chair and one of the NEDS are former directors of Tangerine and on reaching retirement age were asked to take on roles. The company has established an audit committee, and all NEDS are members including the chair who chairs the committee, All four members of the audit committee were previously involved in sales or roles.

All of the directors have members of the board for at least four gears. As the chair not have an executive role, he has sole for liaising with the shareholders and answering their questions. The has not established an internal audit function to monitor internal controls.

The 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.

• 1 and 2 only

• 1 and 3 only

• 2 and 3 only

• 1, 2 and 3

You are the audit manager of Jones & co and you are planning the audit of LV Fones co. a listed compony, which hos an audit client for four years and specializes in manufacturing luxury mobile phones.

During the planning stage of the audit you have obtained the following information. The employees of LV Fones co are entitled to purchase smartphones at a discount of 10%. The audit team has in previous years Offered the same level of staff discount.

During the year the financial controller of LV Fones was ill and hence unable to work. The company had no spare staff able to fulfil the role and hence a audit senior of Jones G Co was seconded to the client for three months to cover the work of the financial controller. The audit engagement partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income from LV Fones was by this engagement and, along with the audit and tax fee, now accounts for 16% of the firm's total fees (15.7% last year).

From a review of the files you note of last gear's audit fee is still outstanding. Based on the information above you have summarised some of the potential risks to independence in the audit of LV as follows.

(1) The audit team has been offered a discount on luxury phones.

(2) The audit senior seconded to LV to cover for the financial controller.

(3) Total fees from LV are over 15% of the total fees of the firm for the second consecutive year.

(4) Fees are overdue in respect of last gear's audit.

Which of the following options best identifies the potential Self Interest threats to independence in the audit of LV Fones and the threat to the most appropriate category?

• 1 and 2 only

• 3 and 4 only

• 1, 3 and 4

• 3 only

You are the audit manager of Jones & co and you are planning the audit of LV Fones co. a listed compony, which hos an audit client for four years and specializes in manufacturing luxury mobile phones.

During the planning stage of the audit you have obtained the following information. The employees of LV Fones co are entitled to purchase smartphones at a discount of 10%. The audit team has in previous years Offered the same level of staff discount.

During the year the financial controller of LV Fones was ill and hence unable to work. The company had no spare staff able to fulfil the role and hence a audit senior of Jones G Co was seconded to the client for three months to cover the work of the financial controller. The audit engagement partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income from LV Fones was by this engagement and, along with the audit and tax fee, now accounts for 16% of the firm's total fees (15.7% last year).

From a review of the files you note of last gear's audit fee is still outstanding. Based on the information above you have summarised some of the potential risks to independence in the audit of LV as follows.

(1) The audit team has been offered a discount on luxury phones.

(2) The audit senior seconded to LV to cover for the financial controller.

(3) Total fees from LV are over 15% of the total fees of the firm for the second consecutive year.

(4) Fees are overdue in respect of last gear's audit.

Which of the following options best identifies the potential Self review threats to independence in the audit of LV Fones and the threat to the most appropriate category?

• 3 and 4 only

• 1 and 2 only

• 2 only

• 1, 2 and 4

You are the audit manager of Jones & co and you are planning the audit of LV Fones co. a listed compony, which hos an audit client for four years and specializes in manufacturing luxury mobile phones.

During the planning stage of the audit you have obtained the following information. The employees of LV Fones co are entitled to purchase smartphones at a discount of 10%. The audit team has in previous years Offered the same level of staff discount.

During the year the financial controller of LV Fones was ill and hence unable to work. The company had no spare staff able to fulfil the role and hence a audit senior of Jones G Co was seconded to the client for three months to cover the work of the financial controller. The audit engagement partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income from LV Fones was by this engagement and, along with the audit and tax fee, now accounts for 16% of the firm's total fees (15.7% last year).

From a review of the files you note of last gear's audit fee is still outstanding. Based on the information above you have summarised some of the potential risks to independence in the audit of LV as follows.

(1) The audit team has been offered a discount on luxury phones.

(2) The audit senior seconded to LV to cover for the financial controller.

(3) Total fees from LV are over 15% of the total fees of the firm for the second consecutive year.

(4) Fees are overdue in respect of last gear's audit.

Which of the following Steps must Jones G Co take, as the fees from LV have exceeded 15% for the last two years?

(1) Resign from the audit

(2) Disclose the matter to those charged With governance

(3) Arrange for a pre- or post-issuance review

• 1 only

• 2 only

• 3 only

• 2 and 3

You are the audit manager of Jones & co and you are planning the audit of LV Fones co. a listed compony, which hos an audit client for four years and specializes in manufacturing luxury mobile phones.

During the planning stage of the audit you have obtained the following information. The employees of LV Fones co are entitled to purchase smartphones at a discount of 10%. The audit team has in previous years Offered the same level of staff discount.

During the year the financial controller of LV Fones was ill and hence unable to work. The company had no spare staff able to fulfil the role and hence a audit senior of Jones G Co was seconded to the client for three months to cover the work of the financial controller. The audit engagement partner has recommended that the audit senior work on the audit as he has good knowledge of the client. The fee income from LV Fones was by this engagement and, along with the audit and tax fee, now accounts for 16% of the firm's total fees (15.7% last year).

From a review of the files you note of last gear's audit fee is still outstanding. Based on the information above you have summarised some of the potential risks to independence in the audit of LV as follows.

(1) The audit team has been offered a discount on luxury phones.

(2) The audit senior seconded to LV to cover for the financial controller.

(3) Total fees from LV are over 15% of the total fees of the firm for the second consecutive year.

(4) Fees are overdue in respect of last gear's audit.

You have also that the audit engagement partner and the finance director have known each other socially for many gears, and in fact went on holiday together last summer with their families to the finance director's villa.

Which TWO threats to independence are raised by this relationship and what safeguards should applied?

• Threat -

  Familiarity and self-interest

  Safeguards -

  Jones G Co to resign as auditors

• Threat -

  Self-review and intimidation

  Safeguards -

  Rotation of audit engagement partner

• Threat -

  Self-review and intimidation

  Safeguards -

  Jones & Co to resign as auditors

• Threat -

  Familiarity and self-interest

  Safeguards -

  Rotation of audit engagement

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), which specializes in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list orange on a exchange within the next few months and have if the audit engagement con attend the meetings With investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he hos asked if Currant & co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and Currant & co as a partner. It has been suggested that due to his familiarity with Orange, he should to provide an independent partner review for the audit.

Once Orange obtains its exchange listing it will require several assignments to be undertaken; for example, obtaining advice about corporate governance practice. Currant & Co is very to be to these engagements; however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it Will need to establish an audit committee, and has asked for some advice in relation to this.

Currant & co has been offered work by Orange Financials. This is dependent on the audit being completed With minimal issues.

Which TWO of the following threats this situation create?

• Intimidation

• Self-interest

• Familiarity

• Advocacy

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), which specializes in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list orange on a exchange within the next few months and have if the audit engagement con attend the meetings With investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he hos asked if Currant & co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and Currant & co as a partner. It has been suggested that due to his familiarity with Orange, he should to provide an independent partner review for the audit.

Once Orange obtains its exchange listing it will require several assignments to be undertaken; for example, obtaining advice about corporate governance practice. Currant & Co is very to be to these engagements; however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it Will need to establish an audit committee, and has asked for some advice in relation to this.

The finance director has made offers to members of the audit team:

(1) Weekend away

(2) Loan at reduced rates

Which of the following correctly summarises which of the offers, if any, can be accepted?

• (1) - Accepted

  (2) - Accepted

• (1) - Accepted

  (2) - Not accepted

• (1) - Not accepted

  (2) - Accepted

• (1) - Not accepted

  (2) - Not accepted

You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), which specializes in the provision of loans and financial advice to individuals and companies. Currant & Co has audited Orange for many years.

The directors are planning to list orange on a exchange within the next few months and have if the audit engagement con attend the meetings With investors. In addition, as the finance director of Orange is likely to be quite busy with the listing, he hos asked if Currant & co can produce the financial statements for the current year.

During the year, the assistant finance director of Orange left and Currant & co as a partner. It has been suggested that due to his familiarity with Orange, he should to provide an independent partner review for the audit.

Once Orange obtains its exchange listing it will require several assignments to be undertaken; for example, obtaining advice about corporate governance practice. Currant & Co is very to be to these engagements; however, Orange has implied that in order to gain this work Currant & Co needs to complete the external audit quickly and with minimal questions/issues.

The finance director has informed you that once the stock exchange listing has completed, he would like the engagement team to attend a weekend away at a luxury hotel with his team, as a thank you for all their hard work. In addition, he has offered a senior of the engagement team a short-term loan at a significantly reduced interest rate.

Orange is aware that subsequent to the stock exchange listing it Will need to establish an audit committee, and has asked for some advice in relation to this.

In accordance with ACCA's Code of Ethics and Conduct you have concluded that if you win the additional work you will need to disclose the proportion of fees obtained from Orange Financials to those charged with governance and conduct a review.

Which of the following explains the basis for your conclusion?

• Total fees from Orange Financials will make up more than of Currant & Co's total fees for the first time Since your appointment.

• Total non-audit fees from all Currant & Co's clients make up more than 5% of the total fees of the firm.

• Total fees from Orange Financials make up more than 15% of Currant & Co's total fees for the second consecutive year.

• The disclosure and review are in all circumstances where services other than audit are offered, irrespective of the level of fees.