Chap 15

AA LLP, a large assurance firm, has been asked to carry out recruitment services for its client, Laty plc, by recruiting senior accounting staff. Which TWO of the following threats to independence would arise if AA LLP agree to provide such services?

• Self-review

• Management.

• Advocacy

• Familiarity.

For the situation as follow: A client has offered the auditor an audit fee based on a percentage of reported profits. Which ONE of the following actions be taken by the auditor?

• Accept with no safeguards

• Accept with safeguards

• Take legal advice

• Reject.

ATC & Co is the statutory auditor of Blue Co, a public interest entity. Which of the following services is ATC & Co prohibited from providing to Blue Co under any circumstances?

• Internal audit services

• Assistance in the resolution of tax disputes

• Preparing accounting records and financial statements

• Valuation services

AAT & Co audits Grey Co. In accordance with ICAEW Code of Ethics which TWO of the following circumstances would constitute a threat to objectivity?

• The best friend of the engagement partner owns a significant indirect financial interest in Grey Co

• The audit manager of Grey Co owns a small number of shares in Grey Co

• The husband of the audit partner owns shares in Grey Co

• An employee of AAT & Co owns shares in Grey Co but is not part of the audit team

In respect of conflicts of interest, Which TWO of the following statements are true?

• Where adequate safeguards are available the parties involved do not need to be informed of the conflict of interest

• Where a conflict of interest exists between two audit clients, the auditor must cease to act for one party

• If the effects of a conflict of interest can be mitigated by safeguards these should be recorded.

• Where a conflict of interest exists between two audit clients, the auditor can consider to cease to act for one party.

Which THREE of the following are areas in which a self-interest threat might arise?

• Where there is close business relationship between the auditor and the client

• Where the auditor prepares and audits the financial statements

• Where the auditor has a financial interest in the client

• Where there are a significant amount of overdue fees

• Where the audit firm provides internal audit services and significant reliance is to be placed on the internal audit work for the purposes of the external audit.

Blue Ltd is applying to its bank for a business loan, and as part of its application it is required to submit a business plan and forecast financial statements. Believing that it would add credibility to its application, it has engaged Yellow LLP to provide an assurance report on the forecast financial statements. George Cameron, the chief executive of Blue Ltd, has proposed that a fee only be payable to Yellow LLP if the loan application is successful.

• Advocacy threat

• Self-interest threat

• Intimidation threat.

• Familiarity threat

A private company has requested that its auditor prepare a valuation report on a prospective acquisition target in order to help it obtain finance for the acquisition from its bank. Which TWO of the following threats may arise if the auditor agrees to take on this assignment?

• Self-review threat

• Familiarity threat

• Advocacy threat.

• Self-interest threat

Which THREE of the following situations is it appropriate to disclose confidential information?

• when the client has granted permission

• When there is a public duty to make disclosure

• When there is a legal duty to make disclosure

• In order to obtain audit evidence about an amount in the financial statements.

Which THREE of the following should an accountant take care not to do, in order to safeguard confidentiality?

• Discuss client matters with friends of auditor

• Leave audit files at a client’s premises

• Leave working papers in the car

• Discuss client matters with colleagues in non-public places.