ACCA F8 - Audit and Assurance Revision Kit 2016

Which of the following options correctly summarises the correct accounting treatment for the legal claim
made by the managing director?
Accounting treatment
Record a provision
Record a provision
No provision but disclose as
a contingent liability
No provision but disclose as
a contingent liability
Reason
The outflow of economic resources is probable and
the amount of obligation can be reliably estimated.
The outflow of economic resources is not probable,
but the prudence principle requires a provision to be
recorded if the amount of obligation can be reliably
estimated.
A present obligation exists, but the outflow of
economic resources is not probable.
A possible obligation exists, depending on whether or
not some uncertain future event occurs.
80 Which of the following audit procedures is likely to provide the auditor with the MOST reliable audit
evidence regarding the legal claim?
Review the minutes of the disciplinary hearing to understand whether the company has acted in
accordance with employment legislation and its internal rules
Review correspondence between the company and its lawyers regarding the likely outcome of the
case
Request a written representation from management supporting their assertion that the claim will not
be successful
Send an enquiry letter to Newthorpe’s lawyers to obtain their view as to the probability of the claim
being successful
81 The dismissal of Newthorpe’s managing director has alerted you to the possibility that the company may not
have complied with employment regulations. You therefore need to determine the impact that such noncompliance
may have on the audit.
In accordance with ISA 250 Consideration of laws and regulations in an audit of financial statements,
which of the following responsibilities is CORRECT regarding the responsibilities of the auditors of
Newthorpe in relation to compliance with employment regulations?
To obtain sufficient appropriate evidence regarding complianceas they have a direct effect on the
financial statements
To perform specific audit procedures to identify possible non-compliance
The auditors do not have any responsibility as the employment regulations do not have a direct effect
on the financial statements
To prevent and detect all non-compliance with the regulations
Tirrol (6/09) (amended) (CBE)
20 mins
The following scenario relates to questions 82 – 86.
Your audit firm Cal & Co has just gained a new audit client, Tirrol Co, in a tender in which Cal & Co offered
competitively low audit fees. You are the manager in charge of planning the audit work. Tirrol Co's year end is
30 June 20X9 with a scheduled date to complete the audit of 15 August 20X9. The date now is 3 June 20X9.
Questions 41