Question 4 You are the audit manager for South Peak Limited. South Peak has grown rapidly...

 

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Question 4 You are the audit manager for South Peak Limited. South Peak has grown rapidly over the last three years. The directors are now considering listing on a stock exchange next year because they think it will help them raise further investment capital and provide an exit route for some of the company's early investors. South Peak's board has four members, all executive directors and all of whom were first appointed to the board when the company was set up eight years ago. The company does not have an internal audit department and therefore you discuss any matters arising on the audit with the Finance Director. Required: a) Discuss four weaknesses in South Peak Limited's corporate governance and for each, give a recommendation to improve that weakness. 12 marks b) Discuss the benefits that South Peak could achieve by creating an Internal Audit function. 5 marks c) Explain whether your audit firm can provide both external and internal audit services to South Peak Limited. Your answer should include a discussion of two ethical threats to independence which an audit firm should consider when deciding whether to provide internal audit services to an external audit client. 8 marks d) The audit partner has reminded the audit team that although South Peak has been an audit client for eight years, they should use their professional scepticism when on the audit. Required: Explain what professional scepticism is and discuss why it is important for an auditor to use professional scepticism. Question 4 You are the audit manager for South Peak Limited. South Peak has grown rapidly over the last three years. The directors are now considering listing on a stock exchange next year because they think it will help them raise further investment capital and provide an exit route for some of the company's early investors. South Peak's board has four members, all executive directors and all of whom were first appointed to the board when the company was set up eight years ago. The company does not have an internal audit department and therefore you discuss any matters arising on the audit with the Finance Director. Required: a) Discuss four weaknesses in South Peak Limited's corporate governance and for each, give a recommendation to improve that weakness. 12 marks b) Discuss the benefits that South Peak could achieve by creating an Internal Audit function. 5 marks c) Explain whether your audit firm can provide both external and internal audit services to South Peak Limited. Your answer should include a discussion of two ethical threats to independence which an audit firm should consider when deciding whether to provide internal audit services to an external audit client. 8 marks d) The audit partner has reminded the audit team that although South Peak has been an audit client for eight years, they should use their professional scepticism when on the audit. Required: Explain what professional scepticism is and discuss why it is important for an auditor to use professional scepticism.

Answer rating: 100% (QA)

AnsThe four weaknesses in South Peak limiteds corporate governance are No internal audit departmentThis is a major weakness as there is no department ... View the full answer