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PYQ Dec 2018
Question 1(d)The question asked to evaluate the matters to be considered in deciding whether to accept an engagement to provide an audit or limited assurance review to Emu Gyms Co.
The answer only discussed about ethical threats, competences and resources, integrity etc
When I first read that question, all I thought was about acceptance procedures for prospective financial information eg intended use of the information, general or limited distribution, period covered etc
But the answer did not talk about what I thought it was. Why? Is it wrong to write about that?
Because I thought they requested a cash flows and profits forecast for the bank to make lending decision?
Short answer – because you are considering an “ideas list” of points that might be relevant to PFI and the requirement is not about PFI.
The engagement referenced in the requirement (as you have copied it out) is “an audit or limited assurance”. Then the 1st para of Exhibit 4 has:
“…an audit of the company’s financial statements, or a limited assurance review of them. This would be the first time that the financial statements have been subject to audit or limited assurance review. ”
Later in the scenario … “The bank manager has asked for the company’s financial statements for the year to 30 September 20X8 and comparative information … ”
Yes the bank manager “has ALSO requested a cash flow and profit forecast for the next three years in order to make a lending decision within the next two months.” – but the requirement is not about that.
Does that mean the question is asking about “general” acceptance procedures to be considered?
Yes but absolutely tailored to the scenario – so competence/experience (clearly yes – say how you know that) – other practical issues like timeframe/resources (consider how quickly the bank wants financial statement for this business that has never been subject to an audit/review before) – ethics (consider other services – payroll and PFI – and conflict of interest) – there’s easily 8 marks there.
The thing to remember is that the information in the exhibits isn’t there to be ignored – it’s there to be made use of.
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