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Hello Sir, for PYQ Sept/Dec 2019 Q1(c)&(d)
(c)(i)
1. Why the first paragraph and last two-point (nature of access and no restriction of the group’s shared control) really matter for investment in Peppers Co?2. I observe that examiner answer always include “understand the business/management rationale” for disposal or acquire a company/subsidiary/joint venture. Why it’s important as an audit procedure?
c(ii)
1. Apart from using the forecast/marketing plan to verify the use of the grant, can we verify through cap exp document /NCA register /cash book (analysis column)?(d)
1.Why recommend another firm which would earn a referral fee will create threat to professional competence and due care?Thank you.
(c)(i)
1. Because, for example, if Ryder Co were to have control rather than joint control (e.g. through different voting rights attached to any or all of the 50% of the shares or through control of the board), Pepper would be a subsidiary – which would make equity accounting incorrect treatment of the investment.
2. The auditor must always understand the business rationale of significant transactions. If business/commercial rationale seems dubious in any way that might suggest a related party transaction or a special purpose vehicle (for example) which would require further audit consideration.
(c)(ii)
1. No – you cannot contradict the scenario “None of the amount received has yet been spent …”
(d)
1. “professional competence” and “due care” get wrapped up together in one fundamental principle – in this case I suggest that Squire & Co’s duty of due care to its audit client, Ryder Co, would be compromised if it were to make an unsuitable recommendation of another firm.
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