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Hi sir, I have 2 question in this case
You are an audit senior of YHT & Co and have worked on the external audit of BJM Co (BJM), an unlisted company, since your firm was appointed external auditor two years ago. BJM owns a chain of nine restaurants and is a successful company. BJM has always been subject to national hygiene regulations, especially in relation to the food preparation process. Non compliance can result in a large fine or closure of the restaurant concerned. The board of BJM has recently notified you that the national hygiene regulations have been updated and are now much more stringent and onerous than before. With this in mind, the board has asked your firm to conduct a review of BJM’s compliance with hygiene regulations, in order to allow the board to assess whether the appropriate processes have been implemented at each of the nine restaurants. The review is not expected to include the provision of accounting advice or the preparation of figures in the financial statements. The work is likely to be very lucrative. Your firm has sufficient experience to undertake the above review engagement.
1) The board has also struggled to differentiate between its responsibilities and those of the external auditor in circumstances such as the prevention and detection of fraud and error, and compliance with regulations. Which of the following statements best describes YHT & Co’s responsibility regarding BJM’s compliance with hygiene regulations, in line with ISA 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements?
A) YHT & Co should actively prevent and detect non-compliance with the regulations.
B) YHT & Co should perform specific audit procedures to identify possible non-compliance.
C) YHT & Co should obtain sufficient appropriate audit evidence about BJM’s compliance with the regulations as they have a direct effect on the financial statements.
D) YHT & Co does not have any responsibility as the hygiene regulations do not have a direct effect on the financial statements.IN THERE I DIDIN’T UNDERSTAND WHY A OPTION IS INCORRECT. I UNDERSTAND THE OTHER OPTIONS BUT COUDN’T CHOOSE RIGHT ANSWER BETWEEN A AND B. (CORRECT VARIANT IS B). CAN U EXPLAIN IT?
2) The audit engagement partner has told you that the independence threats arising from YHT & Co performing the review engagement should be monitored carefully. Which of the following is likely to cause the audit engagement partner most concern?
A) According to the ACCA Code of Ethics and Conduct, YHT & Co is prohibited from providing other
assurance services to an audit client.
B) The review engagement is likely to give rise to a self-review threat, as the outcomes of the review
could form the basis of the financial statements which the audit team will audit.
C) The lucrative nature of the review engagement may make the external audit team less inclined to
require management to make adjustments or to issue a modified audit opinion, for fear of losing the review engagement.
D) If the new review engagement causes YHT & Co’s fee income from BJM to exceed 15% of the firm’s total fees, the ACCA Code of Ethics and Conduct states that the new engagement must be turned down.IN THIS QUES WHY B OPTION IS WRONG? (CORRECT VARIANT IS C).
CAN YOU EXPLAIN BOTH QUESTION FOR ME. THANKS IN ADVANCE
1) It is management’s responsibility to “prevent and detect” fraud and, similarly, non-compliance with laws and regulations (see page 114 of our notes). This is an “active” responsibility (i.e. management must implement control policies and procedures).
The auditor’s responsibility is “to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error …” see the auditor’s report on page 33 of our notes. Hence the auditor’s responsibility is to perform audit procedures designed to detect MATERIAL misstatements.
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