Audit & Assurance TEST# 1 Time Allowed 30 M

You are an audit manager in CL & Co, an accountancy firm with six offices
and 15 partners. You are planning the audit of LV Fones Co, which has been
an audit client for four years and specialises in manufacturing luxury mobile
phones. During the planning stage of the audit you have obtained the
following information.

The audit team of LV Fones Co are entitled to purchase mobile phone

accessories at a discount of 10%. The finance director has commented that
this is to encourage the audit team to be more favourable towards the
company and to keep them on side. The audit engagement partner has
assessed the potential value of the discount to be trivial and inconsequential
to any individuals who wish to take advantage of this offer.

During the year, the financial controller of LV Fones Co was ill and hence
unable to work. The company had no spare staff able to fulfil the role and
hence a qualified audit senior of CL & Co was seconded to the client for three
months. The fee income derived from LV Fones Co was boosted by this
engagement and along with the audit and tax fee, now accountsfor 16% of
the firm’stotal fees.

From a review of the correspondence files you note that the audit
engagement partner and the finance director have known each othersocially
for many years and in fact went on holiday together last summer with their
families. As a result of this friendship the audit engagement partner has not
yet spoken to the client about the fee for last year’s audit, 20% of which is
still outstanding.

Identify and explain FIVE ethical threats which may affect the independence
of CL & Co’s audit of LV Fones Co; and

For each threat, explain how it might be reduced to an acceptable level.

Note: The total marks will be split equally between each part. (10 marks)
 Time Allowed 30 Minutes Marks 15
Student Name:
Ethical Threats Safeguards
 Audit & Assurance TEST# 1 Time Allowed 30 Minutes Marks 15
Student Name: Type The Answers Below

Explain THREE Limitations of Audit.

(3 Marks)

Explain the Difference between Reasonable and

Limited Assurance.
(2 Marks)