Professional Level – Options Module, Paper P7 (UK) Advanced Audit and Assurance (United Kingdom) June 2009 Answers 1

Maximum marks
17
–––
26 9J–UKAA
Paper P7UK

Marks
4
(a)
Competence and due care
Generally 1 mark per comment from ideas list:
–
Definition competence
–
Competence – attain knowledge/skills
–
Competence – maintain knowledge/skills
–
Definition due care
–
To ensure compliance: training, study support, QC, appraisals, etc
Maximum marks
4
(b)
(i)
Plastic ingredients
Generally 1 mark per comment/specific action to be taken:
–
Management lack integrity
–
Encourage management to disclose
–
Auditors’ duty of confidentiality
–
Consider law and regs
–
Consider disclosure in public interest
–
Legal advice
–
Consider resignation
–
Seek evidence/information re matter
–
Impact on financial statements and planned audit procedures
–
Safety of staff attending inventory count
1
/
2
mark ref ISA 250
Maximum marks
8
(ii)
Audit of Cong Ltd
Generally 1 mark per comment/specific action to be taken:
–
Conflict of interest – explain why
–
Disclosure to both parties
–
Other safeguards (1 mark each max 3)
–
Commercial considerations
Maximum marks
5
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Maximum marks
17
–––
27

Marks
5
(a)
Fraudulent financial reporting
Generally 1 mark per comment/example:
–
Material misstatement in financial statements
–
Deliberate/intentional
–
Manipulation of underlying accounting records
–
Misrepresentation/omission in financial statements
–
Misapplication of accounting standards
–
Earnings management
Ref ISA 240 1
/
2
mark
Maximum marks
4
(b)
Critical appraisal of audit report
Up to 1 1
/
2
marks per issue explained:
Adverse opinion:
–
Inadequate explanation of disagreement
–
No financial impact given
–
Clearer title needed
–
Better to refer to FRS 12 in full
–
Clearer reference to note needed
–
Explanation of disagreement should be in separate paragraph
–
Should it be except for rather than adverse?
–
No reference to impact on balance sheet
Emphasis of matter:
–
Refers to a breach of financial reporting standards
–
Except for disagreement
–
EOM not used for this situation
Ref ISA 700 1
/
2
mark
Ref FRS 22 1
/
2
mark
Maximum marks
9
(c)
Eligibility to perform an engagement quality control review
Generally 1 mark per comment:
–
Technical expertise
–
Experience
–
Authority
–
Independence from audit team
Ref ISQC 1 –
1
/
2
mark
Maximum marks
4
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Maximum marks
17
–––
28