Section A (12 marks) Answer ALL multiple-choice questions from this section. Each question carries 3 marks. 1. The permanent file of an auditor's working papers generally would NOT include A) bond indenture agreements. B) organization chart. C) lease agreements. D) working trial balance. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of A) objective judgment. B) independent integrity. C) professional skepticism. D) impartial conservatism. 3. Which of the following is the primary reason for documenting audit work? A) To give the client a full reporting of all work performed on their behalf. B) To provide a stand-alone medium that gives audit conclusions and supports the auditor's opinion. C) To prevent litigation by other parties that questions the audit performance. D) To supply a point of reference for all auditors performing the work subsequently 4. Third-party users of the audit report expect the auditor to do all of the following EXCEPT: A) to determine whether financial statements are presented in accordance with GAAP. B) to evaluate measurements and disclosures made by management. C) to gather sufficient evidence to support their opinion. D) to provide a biased evaluation of the financial statements. End of Section A SECTION B (28 marks) Answer ALL questions from this section. Question 5 (8 marks) Define independence of mind and independence in appearance. (8 marks) Question 6 (20 marks) Your audit firm was recently engaged to conduct the financial statement audit for HHK Automotive (HHK), an original equipment manufacturer (OEM) in the automotive industry. As the audit manager on the engagement, you are performing initial audit planning (Ch 14 assist the audit partner to prepare the audit strategy and prepare the audit plan) by developing an understanding of HHK's business and industry (Ch 15). While the audit partner has experience in the automotive industry. you are new. As part of the planning process, you are reviewing news articles and thought papers on the impact of autonomous vehicles on the industry, including OEMs. You come across a 2017 publication by KPMG on the automotive industry, in which the authors: predict that sales of personally owned sedan vehicles in the U.S. will drop from approximately 5.4 million in 2017 to 2.1 million by the year 2030 due to shifts in mobility patterns, particularly in major cities discuss the importance of automotive manufacturers selecting the vehicles that will allow for economies of scale, ie automotive manufacturers should consider producing autonomous vehicles in future suggest that OEMs should choose to specialize in certain vehicle types rather than try to supply parts for all types You are also aware that HHK recently had a significant recall on one of their parts that is a component of a popular sedan sold by one of the large automotive manufacturers. You read that a lawsuit has been filed related to an accident caused by the defective part. a. Based on the information above, list THREE business risks for HHK (6 marks) b. Briefly discuss the impact each of these business risks as identified in part a) could potentially have on the client's financial statements. Be specific in terms of the accounts affected and in what way they would be affected. (9 marks) BUSINESS RISK IMPACT ON FINANCIAL STATEMENTS c. List Two additional sources of information that you could use to identify additional potential business risks. (5 marks) End of Paper