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正确答案：
(c) Mr Hogg’s belief that employing child labour is ‘always ethically wrong’
Deontological perspective:
In the case scenario, Mr Hogg is demonstrating a deontological position on child labour by saying that it is ‘always’ wrong.
He is adopting an absolutist rather than a relativist or situational stance in arguing that there are no situations in which child
labour might be ethically acceptable. The deontological view is that an act is right or wrong in itself and does not depend
upon any other considerations (such as economic necessity or the extent of the child’s willingness to work). If child labour is
wrong in one situation, it follows that it is wrong in all situations because of the Kantian principle of generalisability (in the
categorical imperative). Because child labour is wrong and potentially exploitative in some situations, the deontological
position says that it must be assumed to be wrong in all situations. The fact that it may cause favourable outcomes in some
situations does not make it ethically right, because the deontological position is not situational and the quality of the outcome
is not taken into account.
Teleological perspective:
According to the teleological perspective, an act is right or wrong depending on the favourableness of the outcome. It is
sometimes called the consequentialist perspective because the consequences of the action are considered more important
than the act itself.
In the teleological perspective, ethics is situational and not absolute. Therefore child labour is morally justified if the outcome
is favourable. The economic support of a child’s family by provision of wages for family support might be considered to be a
favourable outcome that justifies child labour. There is an ethical trade-off between the importance of the family income from
child labour and the need to avoid exploitation and interfere with the child’s education. Education is clearly important but
family financial support might be a more favourable outcome, at least in the short term, and if so, this would justify the child
working rather than being in school. For HPC, child labour is likely to be cheaper than adult labour but will alienate European
buyers and be in breach of its code of ethics. Child labour may be ethically acceptable if the negative consequences can be
addressed and overcome.
[Tutorial note: other, equally relevant points made in evaluating Mr Hogg’s opinion will be valid. The texts discuss teleology
in terms of utilitarianism and egoism. Although this distinction is not relevant to the question, candidates should not be
penalised for introducing the distinction if the other points raised are relevant]

正确答案：
(ii) Control weakness
ISA 260 contains guidance on the type of issues that should be communicated. One of the matters identified is a control
weakness in the capital expenditure transaction cycle. The assets for which no authorisation was obtained amount to
0·3% of total assets (225,000/78 million x 100%), which is clearly immaterial. However, regardless of materiality, the
auditor should ensure that the weakness is brought to the attention of the management, with a clear indication of the
implication of the weakness, and recommendations as to how the control weakness should be eliminated.
The auditor is providing information to help those charged with governance improve the internal systems and controls
and ultimately reduce business risk. In this case there is a high risk of fraud, as the lack of authorisation for purchase
of office equipment could allow expenditure on assets not used for bona fide business purposes.
Disagreement with accounting treatment of brand
Audit procedures have revealed a breach of IAS 38 Intangible Assets, in which internally generated brand names are
specifically prohibited from being recognised. Blod Co has recognised an internally generated brand name which is
material to the statement of financial position (balance sheet) as it represents 12·8% of total assets (10/78 x 100%).
The statement of financial position (balance sheet) therefore contains a material misstatement.
The report to those charged with governance should clearly explain the rules on recognition of internally generated brand
names, to ensure that the management has all relevant technical facts available. In the report the auditors should
request that the financial statements be corrected, and clarify that if the brand is not derecognised, then the audit opinion
will be qualified on the grounds of a material disagreement – an ‘except for’ opinion would be provided. Once the breach
of IAS 38 is made clear to the management in the report, they then have the opportunity to discuss the matter and
decide whether to amend the financial statements, thereby avoiding a qualified audit opinion.
Audit inefficiencies
Documentation relating to inventories was not always made readily available to the auditors. This seems to be due to
poor administration by the client rather than a deliberate attempt to conceal information. The report should contain a
brief description of the problems encountered by the audit team. The management should be made aware that
significant delay to the receipt of necessary paperwork can cause inefficiencies in the audit process. This may seem a
relatively trivial issue, but it could lead to an increase in audit fee. Management should react to these comments by
ensuring as far as possible that all requested documentation is made available to the auditors in a timely fashion.

正确答案：

(b) The new business
There are two tax advantages to operating the business as a partnership.
(i) Reduction in taxable income
If the new business is operated as a company, Cindy and Arthur would both be taxed at 40% on their salaries. In
addition, employer and employee national insurance contributions would be due on ￡105 (￡5,000 – ￡4,895) in respect
of each of them.
If the new business is operated as a partnership, the partners would have no taxable trading income because the
partnership has made a loss; any salaries paid to the partners would be appropriations of the profit or loss of the
business and not employment income. They would, however, each have to pay Class 2 national insurance contributions
of ￡2·10 each per week.
(ii) Earlier relief for trading losses
If the new business is operated as a company, its tax adjusted trading loss in the year ending 31 March 2008 would
be as follows: