Certificate in Accounting and Finance Stage Examination

Total Marks: 30
Time Allowed: 55 minutes

Audit & Assurance

TEST-3

Instructions to examinees:
(i) Answer All questions.
(ii) Answer in Black pen only.
(iii) Start new question on new page.
(iv) Write Name, CRN and Mode (Physical, Combo or Online) otherwise test will not be checked.

Question:1
Your assurance firm is auditor of Happy Goods. The audit manager has just become engaged to the managing
director’s daughter. The managing director (MD) owns 51% of the shares in Happy Goods.
Required:
List the threats to independence which might arise as a result of the above, explaining clearly why these are
threats. (05)

Question:2
Review the five situations below and comment which threat(s) arises in the circumstances: (08)
1. You are the audit partner on the audit of Pensions Scheme Retirement Fund. The fund has recently
changed its investment policy and decided to outsource all its investment and cash to a mutual fund.
Your spouse is working as a Chief Investment Officer in the mutual fund.
2. Haleeb Processing Plant Limited has been a long standing tax client of your firm. They have outsourced
tax preparation and compliance services to your firm. Due to the good relationship they have also
requested your firm to act as the auditor for the upcoming financial year. They intend to keep the tax
outsourcing with your firm.
3. Haleeb Processing Plant Limited has been facing a litigation with tax authorities. They have offered your
firm to act as a tax representative on their behalf and have offered a material amount in commission if the
outcome is in their favour.
4. Mr. Jahanzaib is the audit partner of APM Investment (Private) Limited for the last 10 years.
5. APM Investment (Private) Limited accounts for 40% of the total audit fee of Mr. Jahanzaib.

Question:3
a) Briefly describe the “integrity” in accordance with the Code of Ethics for Chartered
Accountants. (02)
b) Briefly describe the “advocacy threat” and give an example. (02)
c) The principle of confidentiality imposes an obligation on chartered accountants to refrain
from disclosing confidential information. State three key exceptions to the above rule. (03)

Question:4
You have worked as a job in charge on the audit of financial statements of a multinational listed company,
engaged in pharmaceutical business. During the course of your audit, you became aware of various facts and
details about the company. It was a long engagement for which you had to move out of the city of your
residence.

Consequently, a number of people around you, including family, friends and colleagues, are aware of the fact that
you were job in charge on the said audit. Some of them are interested in having certain information as discussed
below:
a) One of your close relative has got an offer for appointment as director marketing of the said client. He
wants to be aware of the levels of remuneration at comparable positions to negotiate his remuneration
properly.
b) A manager in your firm (other than the engagement manager for the said client) has inquired about the
internal controls in place, in respect of a specific process. Assuming that the same would be effective, he
intends to recommend the same as best practice to a local pharmaceutical client.
c) Your sister has asked you about the ingredients of a specialized nutritional product for children, being
marketed by the company, which she is using for her child. You are aware of all the details about the
said product, as you got the opportunity to perform tests on the costing of that product.
d) One of your friends is working in the Ministry of Health, Government of Pakistan. He has asked you as
to whether the company has complied with certain statutory requirements. You are aware of the fact that
the company is not complying with the same and you have already included the matter in the
management letter. With reference to specific provisions of law, he has convinced you that it is his duty
to enquire about the same, and you are responsible to disclose the relevant information to the Ministry.
He has also informed you that in case of no response, you maybe served with legal notice.
e) Your younger brother intends to commence distribution business. He has asked you about the rate of
commission and volume rebates being allowed by the said client to its distributors, as he wants to work
out the feasibility of business.
Required:
Discuss each situation to conclude as to whether or not you can provide the requisite information and
the extent to which the same can be disclosed without compromising the professional ethics. Support
your conclusions, with appropriate arguments. (10)

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