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EXAMINATION PAPER: ACADEMIC SESSION 2019/2020

Campus Greenwich Maritime and International Partners

Faculty Business

Department Accounting & Finance

Course Code ACCO 1152

Course Title Audit and Assurance - Exam 1

Level 6

Duration 3 HOURS

Date January 2020

Module co-ordinator: Dr Dawn Reilly

INSTRUCTIONS TO CANDIDATES

Section A: Compulsory question (this carries 10 marks).

Section B: Answer THREE of the four questions (each question carries 30 marks).

This is a CLOSED book examination.

Jan 2020
Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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SECTION A – COMPULSORY – You must answer Question 1

Question 1

(a) There are two levels of assurance which a practitioner can give:

(i) Limited assurance

(ii) Reasonable assurance

Required:

Explain three key differences between the two levels.

(6 marks)

(b) An audit opinion states that “the financial statements give a true and fair
view”.

Required:

Explain briefly what is meant by the terms ‘true’ and ‘fair’ in respect of a
set of financial statements.
(4 marks)

Total 10 marks

Jan 2020
Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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SECTION B – Answer THREE of the following four questions ONLY

Question 2

Required:

(a) Briefly explain why auditors use a risk-based approach when planning an
audit.
(4 marks)

(b) You are the audit manager at Jenner LLP and have a new client, K&K Corp.
K&K are a luxury brand, manufacturing cosmetics and fashionable clothing.
As part of your audit planning you have had a meeting with the client and
have found out the following information:
• K&K have been growing rapidly over the past few years as their brand is
very popular with a number of high-profile celebrities and social media
influencers.
• They are a family run business with many of the extended family having
key roles within the organisation.
• Due to the all-natural ingredients used in their cosmetics the products have
a shorter shelf life than other cosmetics, with the average life span of
K&K’s products being 6 months.
• In order to continue with their rapid growth, K&K are seeking a large bank
loan. The client has told you that K&K will be using this year’s audited
financial statements in support of their loan application.
• During the year, K&K have suffered numerous information technology
(I.T.) issues. This is because their current I.T. infrastructure has been
unable to cope with the volume of transactions and has sometimes crashed,
causing K&K to lose some of their orders and customer details.

Required:

Explain each of the following types of risk and give one example of each
from the K&K Corp scenario set out above:

(i) Inherent risk

(ii) Control risk
(iii) Detection risk
(18 marks)

Question 2 continues on the next page.

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Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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(c) The level of materiality for the audit will be set at the planning stage.

Required:

Explain what you understand by materiality.

Your answer should include an example of materiality by size and also an

example of materiality by nature.
(8 marks)

Total 30 marks

Jan 2020
Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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Question 3

It is regarded as essential that an auditor is independent.

Required:

(a) Discuss why it is important that an auditor is independent.

Your answer should include a brief explanation of what independence is.

(6 marks)

(b) Discuss any four different types of threat to independence that a statutory
auditor may encounter.

For each threat discussed, you should include two specific examples in
your answer.
(24 marks)

Total 30 marks

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Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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Question 4

Required:

(a) Explain, with examples, what is meant by sufficient and appropriate audit
evidence.
(12 marks)

(b) Explain any three of the following procedures which may be utilised in
order to obtain audit evidence. Your answer should include a discussion
of one strength and one weakness for each of the procedures which you
explain.

• Inspection
• Observation
• Enquiry
• Confirmation
• Re-calculation
• Analytical procedures

(18 marks)

Total 30 marks

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Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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Question 5

You are tendering for a possible new client, Fontaine D.C.. You are very keen to win
their business because Fontaine D.C. operate in the construction industry where you
currently do not have a large client base and you are hoping to build up your
experience of that sector.

Fontaine D.C.’s year-end is 31st December which will mean that their audit will have
to be completed during your audit firm’s busiest period. Their Finance Director is a
very strong character and has said that he would like there to be financial penalties for
the audit firm if they cannot sign off the accounts within a month of the year end.

Required:

a) List the client screening factors you should consider before taking on
Fontaine D.C. as a new audit client.
(10 marks)

b) Describe the process for contacting the previous auditor when considering
whether to accept a new appointment.

Your answer should refer to any issues within the process which would cause
you to decline the appointment.

(10 marks)

c) Set out the contents of the ‘Engagement letter’ and discuss why the letter is
issued.
(10 marks)

Total 30 marks

End of paper.

Jan 2020
Course Title Audit and Assurance – Exam 1
Course Code – ACCO 1152
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