ACCA F8 - Audit and Assurance Revision Kit 2016

(b)
(c)
Marks
Up to 1 mark per ethical threat and up to 1 mark per managing method,
max of 6 for threats and max 6 for methods
Engagement partner attending listing meeting
Preparation of financial statements
Assistant finance director as review partner on audit
Total fee income
Pressure to complete audit quickly and with minimal issues
Weekend away at luxury hotel
Provision of loan at preferential rates 12
Up to 1 mark per well explained point
Improve the quality of the financial reporting
Improve the internal control environment of the company
Non-executives will bring outside experience to the executive directors
The finance director will be able to raise concerns with the audit committee
The audit committee will be responsible for appointing the external auditors
Establishing an audit committee will improve the independence of IA
Provide advice on risk management to the executive directors 4
20
(a)
The auditor's responsibilities in relation to the prevention and detection of fraud and error
The auditor's responsibilities regarding the detection of fraud and error are set out in ISA 240 The auditor's
responsibilities relating to fraud in an audit of financial statements. The ISA sets out that the auditor is
responsible for obtaining reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. The risk of not detecting fraud is higher than that from
error due to the nature of fraud.
The auditor is responsible for maintaining professional scepticism throughout the audit, and must consider
the possibility of management of override of controls and recognise that audit procedures effective for
detecting errors may not be effective for detecting fraud.
In accordance with ISAs the auditor is required to identify and assess the risks of material misstatement due
to fraud at the financial statement level and at the assertion level. The auditor must determine overall
responses to address those risks and is required to design and perform further audit procedures whose
nature, timing and extent are responsive to them.
A discussion must also take place amongst the audit team that places particular emphasis on how and
where the financial statements may be susceptible to fraud.
(b)
Ethical threats and how they might be reduced
Ethical threat
The engagement partner has been asked to attend
meetings with potential investors.
This represents an advocacy threat as this may be
interpreted as the audit firm promoting investment
in Orange Financial Co.
How it might be reduced
This represents a significant threat to independence
and it is unlikely that safeguards would be adequate
to reduce it to an acceptable level. The request
should be politely declined.
Answers 69