The following scenario relates to question 1 – 5

You are an audit senior of ABC & Co and have worked on the external audit of FND Co (FND), an unlisted company, since your firm was appointed external auditor two years ago.

FND owns a chain of nine restaurants and is a successful company. FND has always been subject to national hygiene regulations, especially in relation to the food preparation process. Noncompliance can result in a large fine or closure of the restaurant concerned.

The board of FND has recently notified you that the national hygiene regulations have been updated and are now much more stringent and onerous than before.

With this in mind, the board has asked your firm to conduct a review of FND's compliance with hygiene regulations, in order to allow the board to assess whether the appropriate processes have been implemented at each of the nine restaurants. The review is not expected to include the provision of accounting advice or the preparation of figures in the financial statements.

The work is likely to be very lucrative. Your firm has sufficient experience to undertake the above review engagement.

1. Despite running a successful company, FND’s board has often needed to be reminded of some fundamental principles and you often have to explain key concepts.

Which of the following statements best defines the external audit?

2. The board has also struggled to differentiate between its responsibilities and those of the external auditor in circumstances such as the prevention and detection of fraud and error, and compliance with regulations.

Which of the following statements best describes ABC & Co’s responsibility regarding FND’s compliance with hygiene regulations, in line with ISA 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements?

3. The partner responsible for the review of hygiene compliance has informed you that the engagement is an assurance engagement.

Which of the following would NOT have been relevant to the partner in forming this opinion?

4. The partner responsible for the review engagement has asked you to tell him what level of assurance you believe ABC & Co should provide, and also what type of opinion the firm should give.

What is the level of assurance and type of opinion that can be provided on this review engagement?

5. The audit engagement partner has told you that the independence threats arising from ABC & Co performing the review engagement should be monitored carefully.

Which of the following is likely to cause the audit engagement partner most concern?