- February 24, 2020 at 4:00 am #562876toushigaParticipant
- Topics: 424
- Replies: 172
Hello Sir, for PYQ Sept/Dec 2019 Q1(c)&(d)
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?
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)?
1.Why recommend another firm which would earn a referral fee will create threat to professional competence and due care?
Thank you.February 24, 2020 at 9:15 am #562913Kim SmithKeymaster
- Topics: 111
- Replies: 7579
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.
1. No – you cannot contradict the scenario “None of the amount received has yet been spent …”
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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