Responsibility, Quality Control, Ethics & applicable professional requirements.

(a) Indicate whether each of the following activities are the responsibility of those charged with governance or of the auditor (consider “those charged with governance” to include directors, senior executives & management).

1. Obtain external confirmations from banks and debtors (accounts receivable).

2. Designing internal control procedures suitable for the preparation of the financial reports.

3. Verify financial statements are presented in accordance with applicable accounting standards.

4. Prepare and distribute the audited financial report to shareholders.

5. Selecting & applying appropriate accounting policies that ensure the financial report presents a true and fair view.

(b) APES 110 presents examples of potential types of threats to members in public practice being able to comply with fundamental ethical principles. Indicate in the right hand column which type of threat is illustrated by each example.

NOTE: A type of threat may be applicable to more than one example.

1. Our largest client, also our fastest growing audit client, has not paid their fees for the last two years.

2. Our audit engagement partner has agreed to decide on a new computer system for one of our clients.

3. An audit client has raised the potential of commencing legal action for negligence by our audit firm if we do not agree with specific accounting policy interpretations.

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4. The Chief Financial Officer (CFO) of a client threatens to change auditors unless our firm reduces the extent of the work performed to reduce the audit fee.

5. Our audit engagement manager has commenced discussions about potential employment with an audit client company as a director.

(c) Wang Ying is the audit partner in the small, four partner CPA firm you work with. A potential new client comes into the firm and says she needs a financial report audit done immediately and is willing to pay the agreed fee up front. The potential new client operates a small business. Wang accepts the audit without hesitation or delay.

You are aware all audit staff are currently engaged working with existing clients. The need to complete the new engagement immediately requires Wang to draw a recent graduate from the accounting services division to do the audit work. The recent graduate has no previous audit experience and receives a two hour briefing on basic auditing tasks before being sent out to the new client. The recent graduate is also provided with the audit program for another small client as the basis for the engagement. She is instructed to complete the required work papers documenting the work completed and return them to Wang.

Required: Briefly explain which facts above indicate a potential breach of each of the following quality control guidelines set out in ASA220:

1. Client Evaluation
2. Assignment of personnel to engagements
3. Guidance & assistance
4. Supervision