ACCA F8 - Audit and Assurance Revision Kit 2016

BJM Co
1 A The external audit is carried out by external auditors, who are independent of the company so that
they can provide an independent opinion on whether the company's financial statements are
prepared, in all material respects, in accordance with an applicable financial reporting framework. The
principal aim of the audit is not in relation to the control system in place, although deficiencies and
recommendations may be suggested by the external auditors as a by-product of the external audit in
a report to management at the conclusion of the audit.
2 B ISA 250 distinguishes between regulations which have a direct effect on the financial statements (in
the sense of directly affecting the determination of balances), and those which do not have a direct
effect but can still have a material effect (such as an operating licence).
The hygiene regulations do not have a direct effect but they may have a material effect. The external
auditor must therefore perform audit procedures to help identify any non-compliance which might
have a material effect on the financial statements, ie any breaches of the hygiene regulations that
could result in material fines or restaurant closures.
3 C This review engagement is an example of an assurance engagement. There are five elements to an
assurance engagement: criteria, report, evidence, subject matter and three-party relationship
(CREST).
4 D A review engagement, such as a review of compliance with hygiene regulations, is an assurance
engagement where the practitioner carries out limited procedures on BJM's internal controls relating
to hygiene compliance.
As the procedures are limited, the practitioner will gain only enough evidence to provide a negative
expression of opinion. This means the practitioner gives assurance that nothing has come to his or
her attention which indicates that BJM's internal controls relating to hygiene compliance are not, in
all material respects, compliant with national regulation.
5 C The fees from the review engagement are likely to be very lucrative, so there is a risk that YHT & Co
will not seek adjustments during the external audit process for fear of upsetting the Board of BJM
and losing the review engagement work.
Conoy
The provision of non-audit services to unlisted audit clients is not specifically prohibited. While YHT
& Co should be alert to self-review threats, in this case it seems unlikely: the scenario states that the
review engagement does not include the provision of accounting advice or the preparation of figures
in the financial statements. A firm is not required to turn down work when a 15% limit is exceeded.
Where fee income from a listed audit client is expected to exceed 15% of the audit firm's total fee
revenue, this fact should be disclosed to those charged with governance and a separate review may
be required. However, the 15% fee cap is not a major concern to YHT in this instance because BJM is
unlisted.
6 The correct answers are:
The chief internal auditor should not be part of the audit committee. Establishing an audit committee will
mean that there is a specialist group of individuals which is responsible for monitoring high quality internal
controls
The audit committee should be formed of independent non-executive directors, and so the remaining
shareholders should not be appointed to the audit committee.
Although the existence of an audit committee may result in a more efficient external audit there is no direct
link between the existence of the audit committee and the audit fee.
Answers 63