TECH PLANET (Questions 1 5)

You are the internal auditor of Tech Planet, which runs a chain of DVD rental stores.

The company guarantees that if a movie is not available for rental, the customer will get free alternative DVD rental until that movie DVD comes back into inventory.

The company purchases several copies of each movie, with the aim of meeting demand, but has no way of monitoring whether their procurement strategy is effective. Procurement decisions are made and actioned locally (by each store).

1. Which TWO of the following are TRUE about BOTH internal audit and external audit?

A. Both require professional qualifications for the auditor to be effective in carrying out their duties

B. Both are expected to communicate with those charged with governance, particularly the Audit committee

C. Independence and objectivity are essential in executing their role and duties

D. Family members cannot work on the same audit team

2. Identify TWO business risks from the above scenario

A. Procurement decisions are made locally. This could lead to too few copies being

6. Night Club \& World Cup There has been considerable concern over the lack of understanding among the users of financial statements of the level of assurance being given in the report of the statutory aldititn of a mmpany a. Discuss the steps that the accountancy profession has taken to try to resolve this issue. (5 marks) You have recently come across the following professional issues. (i) During a night out at the pub following your exams, one of your fellow students told you in strictest confidence that he had tampered with his degree certificate on his computer to improve the classification. He explained that he had done this to satisfy the minimum requirements to secure a job at his firm, one of your main rivals. He boasted about how easy it was with new computer technology currently avallable. ii) One of the audit clients you recently worked on was so impressed with your courtesy. towards his staff members that he wanted to make you a gift of tickets to the football World Cup final, along with an overnight stay in a hotel. b. Set out the ethical and professional matters to consider in each of these situations, and recommend any actions that should be taken. (7 marks) You are the quality control manager in N.Club \& Co, a firm of Chartered Certified Accountants. You are carrying out a random quality control review on the audit file for the Gretchen Group before the audit opinion is delivered. You have noted that profit before tax for the group is $3.2 million, and total assets are $24 million. Gretchen purchased a 22.5% stake in a related party. Natasha Co, with which it conducts a lot of business, in Apnil 20X5. In the year ended 31 March 20X6, this investment was accounted for under the equity method, which resulted in an investment in the statement of financial position of $2 million and share of profits of $500,000. However. since 2May206, Gretchen has no longer been represented on the board of Natasha Co. The directors of Gretchen have therefore determined that the company is no longer an associate of Gretchen plc and have accounted for it in the 207 financial statements as a non-current asset trade investment. They have restated the previous year's accounts to reflect this position. As Gretchen acts as a buying agent for Natesha. several of Gretchen's suppliers use Natasha's products in their own manutacturing processes and Natasha pays Gretchen a commission of 1% of sales revenue to Gretchen's suppliers and of 1% of purchase price of goods purchased through Gretchen. Consequently, the audit team determined that Gretchen still retained significant influence in Natasha and have disagreed with the accounting treatment. Relevant sections of the draft auditor's report read as follows: Page 4 of 7 6. Night Club \& World Cup There has been considerable concern over the lack of understanding among the users of financial statements of the level of assurance being given in the report of the statutory aldititn of a mmpany a. Discuss the steps that the accountancy profession has taken to try to resolve this issue. (5 marks) You have recently come across the following professional issues. (i) During a night out at the pub following your exams, one of your fellow students told you in strictest confidence that he had tampered with his degree certificate on his computer to improve the classification. He explained that he had done this to satisfy the minimum requirements to secure a job at his firm, one of your main rivals. He boasted about how easy it was with new computer technology currently avallable. ii) One of the audit clients you recently worked on was so impressed with your courtesy. towards his staff members that he wanted to make you a gift of tickets to the football World Cup final, along with an overnight stay in a hotel. b. Set out the ethical and professional matters to consider in each of these situations, and recommend any actions that should be taken. (7 marks) You are the quality control manager in N.Club \& Co, a firm of Chartered Certified Accountants. You are carrying out a random quality control review on the audit file for the Gretchen Group before the audit opinion is delivered. You have noted that profit before tax for the group is $3.2 million, and total assets are $24 million. Gretchen purchased a 22.5% stake in a related party. Natasha Co, with which it conducts a lot of business, in Apnil 20X5. In the year ended 31 March 20X6, this investment was accounted for under the equity method, which resulted in an investment in the statement of financial position of $2 million and share of profits of $500,000. However. since 2May206, Gretchen has no longer been represented on the board of Natasha Co. The directors of Gretchen have therefore determined that the company is no longer an associate of Gretchen plc and have accounted for it in the 207 financial statements as a non-current asset trade investment. They have restated the previous year's accounts to reflect this position. As Gretchen acts as a buying agent for Natesha. several of Gretchen's suppliers use Natasha's products in their own manutacturing processes and Natasha pays Gretchen a commission of 1% of sales revenue to Gretchen's suppliers and of 1% of purchase price of goods purchased through Gretchen. Consequently, the audit team determined that Gretchen still retained significant influence in Natasha and have disagreed with the accounting treatment. Relevant sections of the draft auditor's report read as follows: Page 4 of 7