[dunkthefunk]

Hello all,

From my memory my answers were as follows:

1) I used the ASSIF mnemonic – I found that:

Familiarity due to playing at local tennis club and engaged with firm for 7 years. Requires a 2 year period to rest?

Self Interest – Contingent audit fees are against regulation and should be declined as they provide bias

Self Review – Valuation work at year end was to be reviewed by the same audit firm. They should consider using another partner to conduct the firm or decline the work overall. I guess this could all be seen as advocacy if it was also used to sell the WIP at any point.

b) I can’t remember this question

2)

a) I took a punt and said if the shareholders ousted the audit firm then they should the engagement should be re-evaluated.

If a change of management meant the business had a new objectivity then the audit firm would need consider the new business practice and agree to a new engagement.

b)

I used the CREST mnemonic here when considering a new engagement. So that was the Criteria, Report, Evidence, Subject Matter and Third Party relationship. I seem have got this totally wrong as well!

3

a) Cash flow

Threats to going concern status (from what I remember in summary):

Customer facing financial hardship – small amount of key customers indicate that the business may face signifiant loss of revenue. Risk here.

Break down in relationship with Payables – Shorter credit periods and cash demands reduce the working capital cycle. As such the business was at risk of becoming insolvent due to extended periods of receivables and shorter payables. Without deep reserves to cover the losses in the short term, the business was facing difficulty. Appropriate risk here..

Contingent Court Case – Discuss with appropriate legal professionals to consider the likelihood of the outcome of the court case the fees required relating the ongoing litigation to defend against the claim. Risk here..

Forecasting – Figures were not for the next 12 months. I think they were 9 months and so should be extended to 12 months post the engagement.. Also failed to include the legal claims etc..

I can’t remember the rest of the question!

4)

Audit Risks

Inventory – Located at many sites also selling magnets that seemed to be fashionable, potential they were overstated due to obsolesce.

Bonus related performance

Insurance provision

etc

5)

a) I thought there is a duty for the auditor to look into the direct impacts on the financial statements. Ultimately it is the managements reasonability to make sure it’s all legit but I thought the auditor should evaluate if there are any penalties outlying that might indicate there is an impact on the financial statements??

b)

Deficiency
Friends and family discounts
Petty cash passcode and banking
Inventory order by restaurant manager
Tips
Payables, Purchases and Inventory accounting sent late

Recommendation
How to improve the above..

Test Of Control
A ToC using AEIOU

Any input on this would be great for peace of mind!

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