You are the audit supervisor of Tokota Associates and are currently planning the audit of your existing client, Chipantepante PLC, a listed company. During a recent visit to the company you obtained the following information: The management accounts for the first 10 months of the year show a significant increase in revenue and profit compared to the prior year. This was achieved by attracting new customers by offering extended credit. The new credit arrangements allow customers three months credit before their debt becomes overdue, rather than the one-month credit period allowed previously. As a result of this change, receivables days have increased from 55 to 123 days. Unfortunately, there have been some recent reliability problems with the companys products, which have resulted in legal claims being brought against the company by customers, and customers refusing to pay for the products. Partly as a result of this the chief financial officer and purchasing manager were dismissed on 15 August. A replacement purchasing manager has been appointed but it is not expected that a new chief financial officer will be appointed before the year-end of 31st January 2022. The accounts supervisor will be responsible for preparing the financial statements for audit. The company installed a new computerised inventory control system which has operated from 1st June 2021. As the system records inventory movements and current inventory quantities the company is proposing to use the inventory quantities on the computer as a basis for the year-end inventory figure rather than carrying out a full year-end count as has happened in previous years. Test counts have been carried out on a monthly basis. Required: a. Explain FIVE audit risks, and explain the auditors response to each risk, in planning the audit of Bridgford Products Cob. The new inventory control system has been designed with password controls to help improve the internal control system over inventory. Required: (i) Explain the purpose of password controls. (4 marks) (ii) List FOUR tests of control you would carry out in order to ensure that the password controls are operating effectively. (8 marks) Zambezi limited deducts employment taxes from its employees wages and salaries on a monthly basis and pays these to Zambia Revenue Authority (ZRA) in the following month. At the year end, the financial statements will contain an accrual for Pay As You Earn (PAYE) payable. Required: (c) Describe the substantive procedures you as the auditor should perform to obtain sufficient and appropriate audit evidence in respect of Zambezi Limiteds year-end accrual for PAYE tax payable. (4 marks) The listing rules of the Lusaka Stock Exchange (LuSE) require compliance with corporate governance principles. Zambezi Limiteds directors are confident that best practice in relation to corporate governance is being followed. However, the chairman recently received correspondence from a shareholder, who is concerned that the company is not fully compliant. The companys finance director has therefore requested a review of the companys compliance with corporate governance principles. Zambezi limited has been listed for over eight years and its board comprises four executive and four independent non-executive directors (NEDs), excluding the chairman. An audit committee comprised of the NEDs and the finance director meets each quarter to review the companys internal controls. The directors remuneration is set by the finance director. NEDs are paid a fixed fee for their services and executive directors are paid an annual salary as well as a significant annual bonus based on Zambezi Limiteds profits. The companys chairman does not have an executive role and so she has sole responsibility for liaising with the shareholders and answering any of their questions. Required: (d) Describe TWO corporate governance weaknesses faced by Zambezi limited and provide a recommendation to address each weakness to ensure compliance with corporate governance principles. Note: Prepare your answer using two columns headed Weakness and Recommendation respectively. (4 marks) (e) Some people argue that we are born ethical. Others argue that ethics are taught. The likely undisputable argument however is that ethics are important in many critical professions. The accounting profession is one such field where ethics are important. Hence the enshrining of ethical principles in the IFAC code of ethics. List and explain the five principles enshrined in the IFAC code of ethics and separately explain the five potential threats to these principles. (10 marks) (Total: 40 mhave an executive role and so she has sole responsibility for liaising with the shareholders and answering any of their questions. Required: (d) Describe TWO corporate governance weaknesses faced by Zambezi limited and provide a recommendation to address each weakness to ensure compliance with corporate governance principles. Note: Prepare your answer using two columns headed Weakness and Recommendation respectively. (4 marks) (e) Some people argue that we are born ethical. Others argue that ethics are taught. The likely undisputable argument however is that ethics are important in many critical professions. The accounting profession is one such field where ethics are important. Hence the enshrining of ethical principles in the IFAC code of ethics. List and explain the five principles enshrined in the IFAC code of ethics and separately explain the five potential threats to these principles. Lee Key Co has undergone a period of substantial growth following its establishment five years ago by two plumbers using their redundancy pay. Because of a lack of accounting expertise within the company it has traditionally looked to its auditors, FourthIR and Partners, for accounting services in the preparation of annual financial statements as well as for the statutory audit function. As the fees have grown significantly over the last five years the company has recently asked the audit firm whether, going forward, it would be possible to calculate the audit fee as a percentage of profit. FourthIR and Partners is a small firm of certified accountants and registered auditors whose clients are mainly small businesses. Although Lee Key Co was originally a typical small company client, its growth over the last five years has meant that it now accounts for approximately 20% of FourthIR and Partners gross fee income and the company has indicated that it may wish to issue shares on the stock market in the near future. FourthIR and Partners have been keen to expand their client base and have recently launched an advertising campaign in which they guarantee that to maximise the efficiency of the audit they will only allocate staff to the audit who have experience in the relevant business sector. As a result, Cran and Western Co, a major competitor of Lee Key Co has asked FourthIR and Partners to replace their existing auditors immediately. Required: (a) From the information above identify and explain FOUR ethical threats and for each threat explain the steps which FourthIR and Partners should take to reduce the threat. (8 marks) (b) If, despite having been re-elected as the companys auditors, FourthIR and Partners decide to resign during the year state the procedures they should go through. (2 marks) (c) Outline the benefits to companies of having an external audit (4 marks) (d) The IAASB International Framework for Assurance Engagements permits two types of assurance engagements.