[agnes4325]

Passed with 51%. 1st attempt. Self study with the help of OpenTuition tutorials & notes. Thanks, Mr. Ken Garrett. Your lectures are amazing.

[agnes4325]

Response to agnieszka.

I thought the question requirement was quite clear in that the examiner was asking for what ethical safeguards that can be placed by the audit firm, FAK, in connection to the case. Due to shortage of time, I only managed to described two which were:
i) rotation of audit partners
ii) provision of other services i.e better not to accept if the subsequent assignment would increase the reliance on a particular customer in terms of the audit firm’s revenue

[agnes4325]

**Note: This is purely recalling from my memory the facts of the case so the information is not comprehensive. Just want to share out for discussion purpose here. I like to do post-mortem of my attempt which is why I jot down facts of the case scenario after I come out of exam hall 🙂 **

Question 2
Case scenario revolves around an audit firm, FAK, which had been operating for 25years and had earned long standing reputation locally and had many long standing clients. One of its audit and tax client, Blake Plc, was facing cashflow issue and was facing short-term liquidity issue and the audit partner agreed to stagger their bills, totalling $50,000 for the client over a period of several months to help ease the burden on the client.
To tide it over its short term cashflow issue, Blake Plc needs to get an overdraft extension from its bank but the bank requires the latest audited report before it can process the OD application.The audit firm was actually in the process of finalising the audit but case scenario did not mention what the audit partner subsequently did. Option was laid open. It was mentioned that if the OD application was not approved, the client may go into liquidation and the audit firm would not be able to recover any portion of the debt.

Requirements:
a) Explain how the actions of the audit firm can have influence on the accounting profession as a whole. <or something along this line>
b) Explain how threats of independence can arise in this case.
c) Discuss on what ethical safeguards that the audit firm can impose to prevent such issue.

Question 3
Case scenario revolves on a major national retailer which overstated its profit by $250million. It issued a warning statement to shareholders on this issue.Shareholders reacted negatively and the share price suffered huge drop. Meanwhile, risk committee preliminary findings into this issue and found out that the error was due to revenue was recognised in advance and belated accrual of cost. Scenario mentioned that the internal controls was very poor. Due to scope of investigation, the quarterly report to shareholder was delayed by one month and investors was left in the dark during that time when waiting for the investigation to be completed.

Requirements:
a) Directors have responsibility on internal control. Explain how risk committee can help directors discharge their duty relating to this.(7marks)
b) List of objectives of internal control. (8marks)
c) Explain general principles of disclosure and communication and how can the retailer utilise them in this scenario. (10marks)
** remembered clearly the marks allocation as this is the final question I attempted with not enough time to write and left part b unattempted 🙁 8 marks gone!**

Question 4
< Did not attempt therefore no information to share but I recalled something on “risk awareness”>

Hope it can help you people in your discussion thread. 🙂

[agnes4325]

Hi All,
If this is of any help. Some facts that I can recall on Question 1 (March 2017 session).
*Please note these details are not comprehensive – just what I remembered from memory and in my own words.*

Case scenario revolves around the State Bank of Forenia (SBF) that is trading in highly risk derivatives i.e loan documents to the extent that the “capital ?? ratio” is below recommended industry average level. The existing auditor had been auditing the bank for 20 years and the audit partner happened to be a good long-term friend of SBF Finance Director who highlighted privately to the Finance Director on the issue. But he still signed off the audit report despite his reservations.
Issue was found out and exposed by a journalist and his reporting triggered mass hysteria and many bank depositors went to withdraw out their money and the bank was unable to fulfil such massive demand of withdrawal and nearly faced collapse. It was bailed out by the government of Forenia with a 49% stake in exchange of cash injection.
Several outcome from the crisis:
i) A tender was opened for services of new auditor.
ii) Board propose for internal audit report to be reviewed by an audit committee before being received by the main Board.

Question Requirements:
a) Explain responsibility of the Board of Directors in internal control by reference to the case.
b) Give reason why it is better for audit committee to review internal audit report before being received by the main Board
c) Explain why it is beneficial to the shareholders to have open tender for external auditor service.
d) Draft statement by chairman to shareholders on following
i) state how the board had failed in its fiduciary duties
ii) < cannot recall >
iii) highlight major risks faced by SBF and what counter measures can be taken

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