You the audit senior for the audit of Hawk Co. Hawk manufacture kites which it sells via its website directly to customers. Hawk has a year-end of 31 December and you are currently planning the audit. The following notes were taken by the audit manager during a planning meeting with the finance director of Hawk. 1 October the financial controller of Hawk was dismissed, He had been employed by the company for over 20 years, and he has threatened to sue the company for unfair dismissal. The role of financial controller has not yet been filled and so his tasks have been shared between the existing finance department team. In addition, the purchase ledger supervisor left in August and are placement has only been appointed in the last week. However, for this period no supplier statement reconciliations or purchase ledger control account reconciliations were performed. As part of the planning process you intend to perform analytical procedures using the latest management accounts. 1. Which of the following are appropriate audit responses to the increased audit risk created by the finance team being allocated the work of the financial controller? (1) The audit team should be fully briefed and be alert throughout the audit for additional errors (2) The auditor would need to appoint an expert to properly assess the risks of misstatement (3) The finance director should be requested to provide the audit team with assistance for matters that cannot be addressed by the remaining finance function (4) The auditor should consider resigning from the engagement as audit risk cannot be managed to an acceptable level A 1,2 and 3 B 2, 3and 4 C 1 and 3 only D 1 and 4 (2 marks) 2. Which of the following statements is NOT true in relation to the lack of supplier statement reconciliations? A The auditor should perform supplier statement reconciliation for August to December B There is an increased risk of misstatement of trade payables C Misstatements in the purchase accrual balance may go undetected D Increased substantive testing will need to be performed over purchases and payables (2 marks) 3. Which of the following would be appropriate sources of evidence to enable the auditor to assess the appropriate accounting treatment of unfair dismissal claim in the financial statements? (1) correspondence between the financial controller and the company (2) Board meeting minutes (3) Correspondence between the company and its lawyer (4) A telephone conversation with the financial controller and the auditor A 1 and 2 only B 1,2 and 3 only C 1,3 and 4 only D All of them (2 marks) 4. Which of the following are reasons why analytical procedures will be performed during the planning of Hawk? (1) To help identify areas of risk (2) To help obtain an understanding of Hawk (3) To help detect material misstatements in the financial statement features A 1 only, B 1, 2and3 C 2 and 3 only D 1 and2 only (2 marks) 5. Which of the following statements, if any, are correct? (1) Analytical procedures are required to be performed at the planning stage, but not as a substantive procedure. (2) Auditors are required to perform risk assessment procedures consisting of inquiries, analytical procedures, observation and inspection. A Both 1and 2 B 1 only C 2 only D Neither 1 nor 2 (2 marks)