an audit client for eight years and McKay & Co has provided audit, taxation and management consultancy advice during this time The client has been satisfied with the services provided, although the taxation fee for the period to 31 December 2005 remains unpaid Audit personnel available for this year’s audit are most of the staff from last year, including Mr Grace, an audit partner and Mr Jones, an audit senior Mr Grace has been the audit partner since Ancients became an audit client You are aware that Allyson Grace, the daughter of Mr Grace, has recently been appointed the financial director at Ancients To celebrate her new appointment, Allyson has suggested taking all of the audit staff out to an expensive restaurant prior to the start of the audit work for this year Required: Identify and explain the risks to independence arising in carrying out your audit of Ancients for the year ending 30 June 2006, and suggest ways of mitigating each of the risks you identify (12 marks) (20 marks) ISA 610 Considering the Work of Internal Auditing states that ‘when the external auditor intends to use specific work of internal auditing, the external auditor should evaluate and perform audit procedures on that work to confirm its adequacy for the external auditor’s purposes.’ Required: (a) In relation to ISA 610, explain the factors the external auditor will consider when evaluating the work of the internal auditor (5 marks) (b) ZPM is a listed limited liability company with a year end of 30 June ZPM’s main activity is selling home improvement or ‘Do-It-Yourself’ (DIY) products to the public Products sold range from nails, paint and tools to doors and showers; some stores also sell garden tools and furniture Products are purchased from approximately 200 different suppliers ZPM has 103 stores in eight different countries ZPM has a well-staffed internal audit department, who report on a regular basis to the audit committee Areas where the internal and external auditors may carry out work include: Attending the year end inventory count in 30 stores annually All stores are visited on a rotational basis Checking the internal controls over the procurement systems (e.g ensuring a liability is only recorded when the inventory has been received) Reviewing the operations of the marketing department Required: For each of the above three areas, discuss (i) the objectives of the internal auditor; (5 marks) (ii) the objectives of the external auditor; and (5 marks) (iii) whether the external auditor will rely on the internal auditor, and if reliance is required, the extent of that reliance (5 marks) (20 marks) [P.T.O 6 International Standards on Auditing (ISAs) are produced by the International Audit and Assurance Standards Board (IAASB), which is a technical committee of the International Federation of Accountants (IFAC) In recent years, there has been a trend for more countries to implement the ISAs rather than produce their own auditing standards A school friend who you have not seen for a number of years is considering joining ACCA as a trainee accountant However, she is concerned about the extent of regulations which auditors have to follow and does not understand why ISAs have to be used in your country Required: Write a letter to your friend explaining the regulatory framework which applies to auditors Your letter should cover the following points: (a) The due process of the IAASB involved in producing an ISA (4 marks) (b) The overall authority of ISAs and how they are applied in individual countries (8 marks) (c) The extent to which an auditor must follow ISAs (4 marks) (d) The extent to which ISAs apply to small entities (4 marks) (20 marks) End of Question Paper ... follow ISAs (4 marks) (d) The extent to which ISAs apply to small entities (4 marks) (20 marks) End of Question Paper ... joining ACCA as a trainee accountant However, she is concerned about the extent of regulations which auditors have to follow and does not understand why ISAs have to be used in your country Required: