ACCA F8 - Audit and Assurance Revision Kit 2016

7 The correct answer is:
Appointing the external auditor
The audit committee will make recommendations regarding whether the external auditor is re-appointed or
whether an alternative audit firm should be used. However, the external auditor is actually appointed by the
shareholders at a general meeting of the company.
8 The correct answers are:
The position of the internal audit department will be strengthened within the organisation
The effectiveness of the internal audit department will be improved as the audit committee will monitor and
review its performance on a regular basis
Conoy's internal audit department is currently poorly supported and reports directly to the Board, which
does not understand its reports. Establishing an audit committee will strengthen the position of the internal
audit department by providing a greater degree of independence from management. The audit committee
will also monitor and review the effectiveness of internal audit.. The audit committee should report to the
board as it undertakes tasks on behalf of the board, as opposed to the board reporting to the audit
committee. Although the audit committee provides an independent channel of communication between the
external auditor and the Board, it is not involved in planning the external audit in any way.
9 The correct answer is:
The audit committee will have at least one member who has relevant financial experience, so that they can
monitor the integrity of the financial statements
Conoy's finance director has left and had not yet been replaced. It appears that no-one else has appropriate
financial reporting knowledge required by Conoy. The audit committee should contain at least one member
who has financial experience so that they can monitor the integrity of the financial statements. This may give
the bank the confidence they need before they lend Conoy the money.
Guaranteeing the loan or standing in as interim finance director are not acceptable options, as that will
impair the independence of the audit committee.
Substantiating evidence for information used in financial reporting is a function of internal audit, not the
audit committee.
10 The correct answer is:
Stark
The audit committee will support RWG & Co's viewpoint in the event of any disputes with the management
of Conoy
The audit committee will be an impartial platform for the external auditors to raise issues they have not been
able to resolve with Conoy's management. However, RWG & Co cannot assume that the audit committee will
always support its viewpoint.
11 B Including Mr Day's daughter, Zoe, is unusual but should not raise any significant risks to the audit.
The gift of the balloon flight represents a self-interest threat.
The tax fee represents a self-interest threat as Ali & Co will want to save as much tax as possible in
order to charge as high a tax fee as possible. There is also an intimidation threat created by the
request as the finance director may make Ali & Co feel that it has to accept the method of calculating
tax fees in order to keep Stark as a tax client.
The fact that Stark expects Ali & Co to represent it in a dispute with the tax authorities creates an
advocacy threat to audit independence.
12 C Gifts and hospitality should only be accepted where the value is trivial and inconsequential. In this
case it is likely that the value of the gift is too high, so the balloon flight should be declined.
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