ACCA F8 - Audit and Assurance Revision Kit 2016

Scenario 3
The following scenario relates to questions 11 – 15.
You are the audit manager of Savage & Co. It is a busy time of year for you as you have several on-going audit
clients at the moment, for some of these the audits are entering the review and finalisation stage of the audit, whilst
others are at the stage where fieldwork is complete.
11 You have just received a ‘phone call from on particular audit senior who is unsure about the steps to take in
relation to uncorrected misstatements.
Which of the following statements correctly describe the auditor’s responsibility in respect of
misstatements?
A
B
C
D
ISA 450 Evaluation of misstatements identified during the audit states that the auditor only has a
responsibility to accumulate material misstatements identified during the audit
Where misstatements are not material the auditor should request that management to correct the
misstatements in the following accounting period
If management refuses to correct some or all of the misstatements, the auditor should consider the
implications of this for their audit opinion
A written representation should be requested from management to confirm whether they believe that
the effects of the unadjusted misstatements are immaterial, both individually and in aggregate, to the
financial statements as a whole
One audit client for which the audit fieldwork is complete is Czech Co (Czech), you are currently reviewing the audit
file and the audit senior has raised the following issue.
12 Czech is a pharmaceutical company and has incurred research expenditure of $2.1m and development
expenditure of $3.2m during the year, all of which has been capitalised as an intangible asset. Profit before
tax is $26.3m.
Which of the following audit procedures should be performed in order to form a conclusion on whether
an amendment is required to Czech’s financial statements?
(1) Discuss the requirements of IAS 38 Intangible assets with the directors in order to determine whether
they understand the required accounting treatment of research and development expenditure
(2) Obtain a breakdown of the $5.3m capitalised as an intangible asset and agree to supporting
documentation to determine the nature of the expenditure
(3) Review minutes of Board meetings to determine whether the expenditure was authorised
(4) Visit the laboratory where the current research is being undertaken and to confirm occurrence of the
research expenditure
A 1 and 2
B 1 and 4
C 2 and 3
D 3 and 4
13 Which of the following options correctly summarises the impact on the auditor’s report if the issue
remains unresolved?
A
B
C
D
Unmodified opinion with key audit matters paragraph
Qualified opinion with key audit matters paragraph explaining the issue
Qualified opinion
Adverse opinion
Mock exam 1: questions 189