ACCA F8 - Audit and Assurance Revision Kit 2016

Section A – ALL 15 questions are compulsory and MUST be
attempted
Each question is worth 2 marks
Scenario 1
The following scenario relates to questions 1 – 5.
You are an audit manager in HTQ & Co. One of your clients, SGCC, has recently become a listed company and has
asked for your advice regarding the changes they should make to achieve appropriate compliance with corporate
governance codes.
The Board
Mr Sheppard is the Chief Executive Officer and Chairman of the Board of SGCC. He appoints and maintains a board
of five executive and two non-executive directors. While the board sets performance targets for the senior
managers in the company, no formal targets are set for each director and no review of board policies is carried out.
Board salaries are therefore set and paid by Mr Sheppard based on his assessment of all the board members,
including himself, and not their actual performance. SGCC does not currently have an audit committee.
1 From a review of the information above, your audit assistant has highlighted some weaknesses in SGCC’s
corporate governance especially concerning the composition of the Board.
Which of the following actions are appropriate to improve SGCC’s corporate governance compliance?
SGCC should appoint an external consultant to review board policies
SGCC should appoint a new Chief Executive Officer or board Chairman
SGCC should create a Remuneration Committee to oversee the appointment of new directors
SGCC should implement a formal and rigorous evaluation of its directors’ performance once every
two years
2 Which ONE of the following statements is correct with regards to the composition of the board at SGCC?
SGCC should appoint three new non-executive directors to the board
SGCC should re-appoint two of its executive directors as non-executive directors
SGCC should appoint three new executive directors to the board
SGCC should re-appoint three of its executive directors as non-executive directors
Internal controls
Internal controls in SGCC are monitored by the senior accountant, although the company assumes that, as external
auditors, your firm will carry out a detailed review of internal controls. SGCC does not have an internal audit
department or an audit committee.
Annual financial statements are produced, providing detailed information on past performance.
3 Your audit assistant does not feel that SGCC’s approach to internal controls in sufficiently robust to comply
with corporate governance principles and has drawn up a list of recommendations.
Which of the recommendations are valid?
SGCC should establish an audit committee with at least four directors as is required for all listed
companies
SGCC must establish an internal audit department as is required for all listed companies
Mock exam 2: questions 215