ACCA F8 - Audit and Assurance Revision Kit 2016

Section A
Objective test answers
1 B The management of both Goofy and Mickey should be informed and their consent obtained.
Separate audit teams should be used including audit partners and independent review partners.
Confidentiality agreements should be signed by NAB & Co’s staff, not by the client.
2 C The long association of the audit engagement partner with Goofy represents a familiarity threat as
she may not maintain professional scepticism and objectivity. Similarly the audit engagement
partner’s daughter being employed by Goofy is also a familiarity threat, although there would not be a
need for additional safeguards as a warehouse manager is unlikely to influence the financial
statements.
A self-interest threat arises from the financial interest in Goofy which the audit engagement partner’s
daughter will receive if she is awarded a bonus. As an immediate family member of the partner this
creates an indirect interest in a client which is not permitted by the ACCA.
A bonus relating to the audit being completed three weeks earlier than last year creates a self-interest
threat, as there is a danger NAB & Co will be less thorough in order to achieve the deadline and not
risk losing the client as a result of not meeting it.
3 D NAB & Co should contact the existing auditor before accepting nomination, in order to find out
whether there are any reasons behind Mickey’s decision to change its auditors about which NAB &
Co should be aware. Once this is done, client screening must be performed.
Ensuring that the existing auditor’s resignation has been properly conducted and issuing an
engagement letter are procedures which should be taken after accepting nomination.
4 D Although management are responsible for the prevention and detection of fraud this is not one of the
matters included in the agreement obtained by the auditors to establish that the preconditions of an
audit exist.
5 C In accordance with ISA 210 Agreeing the terms of audit engagements the expected form and content
of any reports must be included. The other items may be included but there is no requirement to do
so.
6 A The steps should be undertaken in this order. The objective of the CAAT procedures should be
determined first and foremost. The accessibility of the data files must be considered before the scope
and nature of the procedures are determined.
7 D Testing orders for unusually large quantities identifies whether any reject controls requiring special
authorisation for large orders are effective. Testing orders with fields left blank determines whether
controls are in place to prevent orders being placed that can’t be fulfilled due to missing information
(ie incomplete delivery address). Testing orders with invalid inventory codes identifies whether
controls are in place to ensure that the correct goods are despatched. Finally, orders with correct and
complete details should be accepted by the system. This will allow the auditor to inspect the order
confirmation to determine whether the order details are transferred accurately into the despatch
system.
8 B Options A and D are difficulties relating to test data, not audit software. Option C is incorrect because
audit software allows the auditors to test the source files from the originating programme, therefore
eliminating the risks of manually reviewing extracted files which may be subject to errors in other
systems or tampering.
9 C Sequence checks on sales invoices provide evidence on the completeness of sales.
10 B Where the sample has not provided the auditor with a reasonable basis for forming an audit
conclusion, the auditor must tailor the nature, timing and extent of further audit procedures to
198 Mock exam 1: answers