Question 1:

a: Explain the 'audit expectation gap'. What causes the gap?(3 marks)

b: Potter and Partners are a chartered accounting firm with offices in capital cities in most states. The head of the business development department is seeking to grow the firm's revenue from non-audit services.(4marks)

Required:

What non-audit services could a chartered accounting firm provide to its listed company clients? Explain why a company would buy these services from its audit firm instead of another consulting firm.

Question 2:

The audit team is preparing to audit a new client in the toy retail industry. The client imports items from manufacturers in several Asian countries and retails them in a chain of shops located throughout the country.

You have access to the following information for the client:

• prior period financial reports
• anticipated results for the current year
• industry averages.

Required:

Explain how you would use the information to understand your new client.