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O'Neil operates a few restaurants and has been recently listed in Hong Kong. Cho ＆ Co is the auditor of O'Neil. After the listing, the following situations happened: information technology ("IT") team of Cho ＆ Co to provide the IT services to O'Neil. The proposed IT areas of deficiencies which caused the malfunction; and suggesting possible solutions to improve the inventory system. (5 marks) (b) The management invited the audit team of Cho ＆ Co to a listing ceremony. In the ceremony, all team members of the working parties, including the sponsors, lawyers, valuers, analysts and Cho ＆ Co, received a perpetual membership to join one of O'Neil's private clubs. (5 marks) (c) After the listing, O'Neil has recruited an internal audit director who is responsible for the internal audit function and report to the Audit Committee. As there is a lack of manpower, the directors of O'Neil suggested to out-source the control testing to Cho ＆ Co. Cho ＆ Co will assist the internal audit director to design the internal audit plan for the internal controls over financial reporting and handle the execution of work procedures under the supervision of this internal audit director. Cho ＆ Co will also present the testing results at the audit committee meeting. (5 marks) Reguired: For each of the above situations, evaluate the respective independence threats which that Cho ＆ Co should take. (15 marks)

12 marks / 22 min Alex Gao ("Gao") and Felix Fang ("Fang") have recently joined Heng ＆ Co as audit partner and tax Hong Kong, to take up the next financial year (2020) audit service. Heng ＆ Co plans to assign Gao and the tax related matters for the audit engagement). Wolf ＆ Co is the outgoing auditor of Kooi and has been its auditor since 2005. Both Gao and Fang were partners of Wolf ＆ Co before they joined Heng ＆ Co. They also participated in the audits of Kooi for the concurrence on the audit strategies and significant judgement exercised by the audit engagement partner of Kooi. Fang acted as the tax review partner when he was in his old firm. Required: (a) Evaluate if there is any independence threat if Gao acts as the audit engagement partner of Kooi for the 2020 financial year audit. (6 marks) (b) Evaluate if there is any independence threat if Fang acts as the tax review partner of Kooi for the 2020 financial year audit. (3 marks) propose safeguards if necessary. (3 marks)

Analyse and explain any ethical issues for each of the following series of scenarios and advise relevant safeguards if applicable. (a) Joshua and Martin were primary school classmates but they did not meet for more than 30 recent primary school alumni dinner. Joshua is the Chief Financial Officer of a large retail bank in Hong Kong which is owned and run by his family. Martin is an audit partner of MNM ＆ Co. Joshua invites Martin to participate in the audit service proposal for his bank. (3 marks) (b) Joshua and Martin are both art lovers and are especially fond of surrealist paintings. Martin bought a painting at a gallery visit and would like to give it to Joshua. MNM ＆ Co has recently submitted their audit service proposal to Joshua's bank for consideration. (3 marks) (c) MNM ＆ Co just won the bidding to provide Joshua's bank audit service. Martin has just bought a property in Hong Kong and is looking for a mortgage. Joshua has introduced to Martin a few mortgage plans that his bank offers in the market. (2 marks) (d) Joshua's bank holds significant private equity investments which are required to be revalued at each of the reporting periods. Joshua would like MNM ＆ Co to perform the valuation for his bank and seeks a fee quotation from Martin. (2 marks)

14 marks / 25 min Cho Kee Sewage System Limited ("Cho Kee") is an unlisted entity which provides sewage maintenance services. Your audit firm has acted as the auditor of Cho Kee for many years. The financial controller of Cho Kee resigned close to this financial year-end. In view of this situation, Cho Kee's directors foresee many audit adjustments may arise to correct material misstatements, therefore, to enhance efficiency, they request your firm to prepare the financial statements. Cho Kee has made an investment in a private entity in this year. In accordance with the accounting policy, the investment is required to be stated at fair value in the financial statements. Cho Kee's management, therefore, determined its fair value by themselves. Management knows that, as part of the audit, the audit team will engage an internal valuation team to assess the fair value of this investment. Accordingly, management wants to simply take up the fair value to be proposed by the auditor's internal valuation team in its financial statements. In addition, Cho Kee has received an enquiry from the Inland Revenue Department (IRD") regarding the previous years' onshore and offshore claims. As Cho Kee does not have an in-house tax advisor, the management has proposed engaging your tax partner to act on Cho Kee's behalf to negotiate with the IRD regarding the tax disputes, including suggesting any terms on the tax settlements. This tax partner is also assisting the audit team to review the adequacy of Cho Kee's tax provision in the upcoming audit. You are Thomas Lee who has been newly assigned as the audit manager for Cho Kee this year. Required: Prepare a memo to Richard Chan, your audit partner reporting the independence threats based on the above, and propose safeguards to mitigate these threats. Note: A maximum of 2 marks for communication skill and 2 marks for analytical skill will be awarded. (14 marks)

SECTIONAICASEBACKGROUND Halo Motors Limited (the "Company") is a company listed on the Hong Kong Stock Exchange. The Company, together with its subsidiaries, (hereafter collectively known as the "Group") is the authorised dealer of a few European brands automobiles in mainland China. The Group usually enters into a dealership agreement with each car manufacturer. The Group is granted the authorised dealership to sell specific brands or models of vehicles within mainland China. The Group is also responsible for the selling and marketing activities, and their related costs, and the provision of warranties and repair and maintenance services to the car owners. The Group makes direct purchases of vehicles from the car manufacturers and resells them through its responsible for the shipment costs and all the in-country storage costs. Sales of vehicles are only authorised in mainland China. All sales are invoiced in Renminbi (RMB). Vehicle sales have a quick turnaround of cash because the buyers either settle in cash or apply for car loans so that the full amounts are settled by the banks within 7 days. Once sales are made, the Group Accordingly, the Group does not have long outstanding trade receivables. exchange differences for that year. CPA Limited is the auditor of the Company and is engaged in performing the audit of the Company's consolidated financial statements for the year ended 30 June 2022. Bob is one of the engagement managers and supervises 5 audit staff to work on the account balances of "Inventories" and "Provisions and accruals". Bob is responsible for reporting his work to Alice Ma, the engagement senior manager. Below are the management schedules prepared by the Group's accounts department relating to "Inventories" and "Provisions and accruals" which are extracted from the sub-ledgers: L. Inventories 30 June 2022 30 June 2021 Unit cost RMB'000 Unit cost RMB'000 Quantity Quantity (RMB) (Unaudited) (RMB) (Audited) Model A 720,000 745,000 93,125 72,000 Model B 810,000 895,000 120,825 61,560 Model C 677,000 88,010 550,000 44,000 Model D 22,760 650,000 569,000 65,000 Model E 950,000 950,000 19,000 23,750 Parts and accessories 15.000 12.000 Grossbalance 358,720 278,310 Less: provision for net realisable value (3.000) and obsolescence Net balance 355.720 278.310 According to the Group's accounting policies, inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined using the first-in, first-out method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and attributable to the sale and non-incremental costs which the Group must incur to make the sale. As at the reporting date, provision for net realisable value amounting to RMB3 million was made, which was related to Model E. Due to keen competition in the market, the selling price of Model E dropped significantly during the year. The provision for net realisable value was calculated based on its selling price as of the year-end date. Il. Provisions and accruals 30 June 2022 30 June 2021 RMB'000 RMB'000 (Unaudited) (Audited) 23,000 (i) Provision for warranties 23,400 (ii) Provision for penalties 30,000 (ii) Accrued selling and marketing expenses 12,000 11,500 (iv) Accrued sales incentives 14.000 9.000 Total 79.000 43.900 charges provision for warranties to the profit and loss account based on management estimation with a formula of "Average historical claim rate for the past 5 years x annual sales". When actual warranty claims are made by customers, the provision balance will be deducted and indicated as "claims during the year" in the movement below: 2022 2021 RMB'000 RMB'000 (Unaudited) (Audited) Balance at 1 July 23,400 19,000 Claims during the year (20,100) (5,600) 19,700 Provision for the year 10.000 23.000 Balance at 30 June 23.400 Claim rates for the last five years 2022 1.20% 2021 0.60% 0.60% 0.55% 2020 0.55% 2019 0.53% 0.53% 0.52% 2018 0.52% 2017 N/A 0.45% 0.68% Average claim rate 0.53% (ii) Provision for penalties - As continuous loss from the sale of Model E had incurred, the Group's management decided to terminate its dealership agreement with the car manufacturer early. According to the dealership agreement which originally would have expired on 30 June 2025, any party which terminates the agreement early is required to pay a penalty of RMB25 million per year to the other party for the remaining period (i.e., 3 years) unless the parties agree otherwise. During the year, the management started negotiations with the car manufacturer for an overall settlement amount of the penalties at RMB3o million. However, as of yet, the Group has not obtained agreement from the car manufacturer. (ii) Accrued selling and marketing expenses - This represents the costs incurred for selling and marketing activities conducted before the year-end date but not yet paid. Subsequent to the year-end date, all these unpaid selling and marketing expenses have been paid. (iv) Accrued sales incentives - This represents the accrual for sales incentives payable to the salesmen. As part of the bonus system, salesmen who can meet the sales quantity targets of certain car models The sign-off of the auditor's report is scheduled to occur in a week. You are Bob, the engagement manager, and you just realised that your wife bought 2,o00 shares of Halo Motors Limited two days ago. Required: Prepare a memo to report this matter to the engagement senior manager, Alice Ma, and the engagement partner, Elaine Lee. Evaluate the independence threat and propose safeguards, if necessary. Note: A maximum of 2 marks for communication skill and 2 marks for analytical skill will be awarded. (10 marks)

12 marks 1 22 min Evaluate the following situations and advise on whether you agree or disagree with the audlit senior's analysis, and if there is any need to propose safeguards. Required: (a) In a client meeting, the audit senior overheard that the Chief Executive Officer is planning to acquire a listed company. The audit senior is thinking to ask his mother to buy this listed company's shares, The audit senior considers that he will not breach any Codes of Ethics for Professional Accountants ("Code of Ethics") because he does not intend on disclosing any client information to his mother, the acquisition is not confirmed yet, and his mother is not his close family member; therefore, she can invest in any securities. (4 marks) (b) An audit senior has accepted a mortgage loan from a bank which is an audit client of his firm. This audit senior is one of the audit team members. The audit senior considers that he has not breached any Code of Ethics because the mortgage loan is determined at market terms, and thus it is not material to the size of the bank. (4 marks) (c) An audit senior has realised that his firm has recently accepted a listed company as an audit client and he will be assigned as one of the audit team members. This audit senior has found that his wife owns 10,000 shares in this listed entity which were purchased by his wife three years ago. The audit senior considers that he has not breached any Code of Ethics because the shares were owned before his firm accepted this audit client, and thus the audit senior can continue to audit this new audit client. (4 marks)

12 marks / 22 min Kong. YKL CPA Limited is a global audit firm registered in Hong Kong and has been the auditor of Castle since its incorporation. Gary has been the engagement partner of Castle and just completed the Chief Financial Officer of Castle. (a) Castle has recently completed its first statutory audit and wishes to promote itself as a pioneer in the industry that is audited by a global CPA firm. Castle plans to organise a series of marketing events where it can showcase its creditworthiness and attract potential customers and investors. Jerry invites Gary, in his capacity as Castle's audit partner, to speak at the joint public conferences of the marketing event. Limited for accounting advisory services. The services include assisting the company in setting up the contract terms with customers and the relevant revenue recognition policies under Hong Kong Financial Reporting Standards. (c) Jerry invited Gary to a marketing event dinner. During the dinner, Jerry suggested that he could introduce Gary to other cryptocurrency exchange founders at the event who might be potential audit clients. In exchange for the introduction, Jerry asked Gary if he could offer a discount on audit fees for the next year. Required: For each scenario above, evaluate if there is any independence threat to YKL CPA Limited and propose safeguards if necessary. (12 marks)

First.com is a travel agency which is listed in Hong Kong. A＆L International CPA ("A＆L") has been the auditor of First.com since its listing. Aron was the engagement partner from 2020 to 2023. Leo was the engagement quality control reviewer ("EQCR") from 2016 to 2023. On 1 January 2024, Aron was promoted to the head of his audit group and Leo, being in the same audit group as Aron, is now required to report directly to Aron. Required: (a) Identify if there is any independence threat in the composition of the engagement team and propose safeguards (if any) to mitigate the threat. (5 marks) the leakage of its customers' personal information but did not impact its accounting system. The advice in strengthening its cyber security controls. Regarding the IT-related consulting service (non-audit services) by A＆L, advise the audit team's considerations and responsibilities under the Code of Ethics for Professional Accountants. (5 marks)

"Company"), a private entity. Your team is currently conducting the year-end audit for tax filing, with a deadline set for 15 August 2024. Reguired: During the audit process, the following situations have arisen. Evaluate the respective independence threats which may affect the objectivity of World cPA Limited. Advise on possible safeguards and the actions that World cPA Limited should take in each scenario below: (a) The Company's sole accountant, who is responsible for monthly bookkeeping, has unfortunately sustained an injury during a soccer game. Consequently, the accountant is on sick leave and is not expected to return to work until after the tax filing deadline. Before going on sick leave, the trial balance and audit period book were completed and approved by the Chief Financial Officer (CFO). Given the tight timeline, the CFO is requesting your team's assistance in preparing the financial statements using the approved books and records. (4 marks) (b) Due to the business expansion and the increasing workload of the Finance department, the CFo invited a member of your audit team to join the Company as an accountant during the audit process. The audit team member accepted the offer and his on-boarding date will be after the completion of this year's audit. (4 marks) (c) You are at the client office for the audit progress update meeting with other professional parties, where discussions are still underway to reach an agreement on the audit issues and findings prior to the issuance of the financial statements. Following the meeting, in a gesture of courtesy, the CFo only invites your team to a luxury restaurant for a thank-you dinner. (4 marks)

SECTIONAICASEBACKGROUND You are Chris, an audit manager at GY Hong Kong CPA Firm ("GY-HK"). You and an audit partner, James, have been assigned to take up the financial year 2024 ("FY2024") consolidated financial statements audit for InnoBio Group Limited (lnnoBio" or "the Group"), a non-listed private group. InnoBio, a leading biotechnology company based in Hong Kong, specialises in innovative cancer treatments. It operates laboratories in Hong Kong, Germany and Japan to leverage diverse expertise and cutting-edge research environments. These locations were chosen to foster global collaboration, access a wide talent pool, and ensure proximity to key markets and regulatory bodies. Research and Development ("R＆D") expenses are significant for InnoBio. According to the latest management account, the R＆D expenses account for over 60% of InnoBio's total expenses in FY2024. InnoBio invested HK$$350 million in R＆D projects, including an HK$$200 million multi-year cancer drug development initiative. This investment included the following: HK$'000 Employee benefits expenses 200.000 Laboratory and sample fees 100.000 Other technology costs 50.000 Total R＆D expenses 350.000 department. This process aims to ensure that only eligible costs are capitalised as R＆D expenses. InnoBio implements various internal controls to manage these expenses, including: 。 Expense Tracking: Advanced accounting software tracks R＆D expenditures in real time;: Timesheet Records: Hours spent on different projects are monitored through detailed timesheets; 。 Management Review: Senior management regularly reviews financial reports. InnoBio has received numerous government grants in different countries or regions, including direct subsidies, rent-free office space, and salary support for scientists. There are various types of criteria stipulated in different government grants across countries or regions. The majority of government grants in FY2024 were provided by the government of the Hong Kong applicants must (i) have over 70% of laboratory staff in Hong Kong and several regions in mainland independent auditor to verify compliance each fiscal year. If the criteria are not met, the government can "Deferred government grants" in the FY2024 consolidated financial statements. You checked the relevant Hong Kong Accounting Standards and noted: Grants from the government are recognised at fair value where there is reasonable assurance that the grant will be received and the company will comply with all specific conditions. 。 Government grants related costs are deferred and recognised in the consolidated statements of profit or loss over the period necessary to match them with the costs they are intended to compensate. InnoBio established an internal audit department to enhance corporate governance. A recent internal audit review in FY2023 identified the following issues: (i) a high turnover rate in the R＆D department led to inconsistencies in applying capitalisation criteria, resulting in some projects being improperly capitalised; (i) irregularities in timesheet entries; (i) inconsistencies in expense invoices and allocations; and (iv) potential non-compliance with government grant conditions due to improper filing of subsidy agreements and insufficient documentation to prove compliance with criteria. There is significant pressure to meet financial targets in order to continue meeting investors expectations and raise additional fundings. The Chief Executive Officer (CEO) has emphasised the importance of achieving these targets, urging the Chief Financial Officer (CFO) to ensure compliance with government grant criteria in order to avoid any refunds required. During a recent board meeting, a proposal was criteria. InnoBio meticulously maintains its accounting records at local offices, with the Hong Kong headquarters consolidating management accounts and preparing the consolidated financial statements. For the subsidiaries in Germany and Japan, InnoBio engages GY Germany CPA Limited ("GY-DE") and GY JP CPA Limited ("GY-JP"), part of your network firms, to support the respective local statutory audits. As the Group auditor for InnoBio, your audit team plans to engage GY-DE and GY-JP as component are significant components of InnoBio. You know from previous audit team members that in previous years, GY-DE and GY-JP provided their statutory standalone auditor's reports to GY-HK before GY-HK as in previous years, and they will assist in coordinating with the Germany and Japan subsidiaries and discuss with GY-DE and GY-JP when necessary. The CFO would like to engage your firm to perform the following services: (a) Advisory services on transfer pricing issues across different countries in which the Group operates; and (b) Advisory services to remediate the internal audit findings in FY2023. Required: or each non-assurance services above, evaluate if there is any independence threat to your firm d propose safeguards if necessary. (6 marks) 鸣软教音

You have noted that there is an overdue payment for the 2023 audit fee from Guyi, which accounts for 3% of the total audit fee. During the preliminary audit planning call with Guyi, you reminded them about the overdue payment. In response, Guyi stated that they plan to settle the remaining audit fee, together with the 2024 audit fee for administrative convenience, after the completion of the 2024 audit. You believe there is no significant risk of default as the outstanding amount is not substantial, and Kenny Lee, the audit engagement partner, and several audit team members, have maintained a strong maintaining a professional and positive relationship with Guyi, especially since the firm has lost several significant audit clients over the past two years. Currently, Guyi's audit fee represents over 18% of the firm's total fees for the year (2023: 16%). Required: Evaluate if there is any independence threat in the cases and propose safeguards to mitigate these threats (Limit to THREE safeguards for each threat identified). (10 marks)

SECTIONAICASEBACKGROUND Natural Beauty Limited ("Natural Beauty") together with its subsidiaries, trading as "Natural Beauty", set up its first self-owned retail store in Hong Kong 20 years ago and listed on the main board of Hong Kong Stock Exchange four years ago. Natural Beauty's business purpose is to provide their customers with cosmetics and skin products made from natural ingredients. It currently has over 1,o00 products. Natural Beauty's headquarters is in Hong Kong and operates over 3,000 self-owned stores in mainland China, Hong Kong and Japan. It also has mainland China, and warehouses in Guangzhou, Hong Kong and Tokyo. high and there are no aged inventories. Natural Beauty usually offers discount sales once or twice a year during the festive seasons. As business has grown significantly in recent years, Natural Beauty engaged a subcontractor in Japan for some manufacturing processes two years ago. Natural Beauty provides the subcontractor with all raw materials. The subcontractor provides subcontracting services to Natural Beauty and some other customers. Historically, 30% of Natural Beauty's production has been manufactured by this subcontractor. Natural Beauty applies standard costing on production, including labour and manufacturing overhead costs. During the year, Natural Beauty set up another research and development centre in Japan to develop natural skin care products for aged groups and to start capitalising the development costs relating to certain new products to be released. These development costs include material costs, staff cost, depreciation of fixed assets and overhead costs incurred in the research and development centre. Full stock counts are carried out in manufacturing plants and stores at each year end. The finance team performs sample checks after the full counts are completed by production staff and store managers. Based on the prior year's stock count records, no significant stock count discrepancies were noted and variances were adjusted in the stock ledger after management's investigation. The prior year's audit recommendations on control deficiency regarding proper recording of raw materials purchase cost. Reconciliation of raw materials used by and stored with the subcontractor is performed on a monthly basis. Variances, if any, are followed up directly by the general manager of Natural Beauty with the factory manager of the subcontractor. Unexplainable variances in the past were minimal. Subsequent to 31 December 2020, Natural Beauty decided to acquire an 80% equity interest in the subcontractor, aiming to further expand its production capacity after considering the possible future growth of the business. The transaction was considered as a major acquisition under the Hong Kong Listing Rules. Immediately after the completion of the acquisition, Natural Beauty started integrating the management team as well as aligning the processes ＆ controls and IT systems between the subcontractor and Natural Beauty. Wong ＆ Co was the reporting accountant of Natural Beauty, assisting the company in completing the initial public offering ("iPo"). Wilson Wong, a senior partner of Wong ＆ Co, was the engagement partner of Natural Beauty's IPO project. Wong ＆ Co has become the auditor of Natural Beauty since then, with Wilson continuing as the engagement partner. Wong ＆ Co has been providing continuous professional 鸣铁教育 support and advice to Natural Beauty over the years, assisting Natural Beauty in strengthening its internal controls as well as operation effectiveness. Extract of management accounts of the group for the year ended 31 December 2020 are as below: 2020 2019 (Unaudited) (Audited) HK$$'m HK$$'m Revenue 3,030 2,879 (902) Cost of goods sold (834) Gross profit 2.128 2.045 70% 71% (601) Selling, marketing and logistics expenses (582) (322) Administrative and general expenses (302) (65) Researchanddevelopmentexpenses (262) (12) Other operating (expenses)/ income, net (51) Finance expenses,net (50) (1.051) (1.186) 1.077 Profit before tax 36% 30% 6,499 Property, plant and equipment 6,503 Intangible assets Tradereceivables Otherreceivables 1,283 Inventories 1,240 Cash and bank Others 9.533 Total assets 8,274 Trade and other payables Bankborrowingsand other liabilities 3.621 3,504 Total liabilities 4.243 4.088 Total equity 5,290 4.186 With reference to the case background, explain the responsibilities of Natural Beauty's audit committee on corporate governance requirements in the following areas: Required: (b) Notification to shareholders about the acquisition of the subcontractor. (2 marks)

16 marks / 29 min (a) Kin Hong Tong is one of the most well-known retailers of herbal products and soups in Hong Kong. Its principal business is the production and sales of Chinese herbal products and Chinese-style under its self-owned properties. Kin Hong Tong was founded by the Kin family in the 1980s. Over the past 30 years, Kin Hong Tong has been led by the three brothers of the Kin family who are directors of the board: 。 Kin Tai Gor - Chairman of the board and chief executive officer is responsible for business strategy and development 。 Kin Yee Gor - Executive director and chief operation officer is responsible for daily operations and administration Kin Sam Gor - Executive director is responsible for production development and production The Kin family has been planning to further expand Kin Hong Tong's business to Taiwan and Singapore and is considering different sources of financing. Taking Kin Hong Tong to initial public offering is one of the possible options though the corporate governance of Kin Hong Tong will have to be enhanced. Required: Advise Kin Hong Tong what relevant changes to the board composition should be made to comply with the Main Board Listing Rules of Hong Kong Stock Exchange. (6 marks)

SECTIONAICASEBACKGROUND Exchange of Hong Kong Limited. Its principal business is sales of stylish and innovative homag appliances such as air purifiers, vacuum cleaners, electric fans, dehumidifiers, hair dryers and LED lightg Dymi mainly sells its products through its self-operated stores in Hong Kong and over 20 well-known chain distributors in Hong Kong, Taiwan, and Singapore. Dymi targets high-income groups and young very popular. Dymi has a long business relationship with its distributors. Dymi has no self-owned manufacturing facilities. It has a small factory in Hong Kong and an innovation outsourced to third party suppliers who specialise in original equipment manufacturing. Dymi has a team in Shenzhen working closely with the outsourced manufacturers on procurement and quality control. Officer ("CFO") in September 2021 to understand Dymi's latest business development. Below is an extract from the meeting notes: eight. The three newly opened stores are different from the previous stores. Each new concept store is over 10,000 square feet and contains a showroom, cafe, and activity rooms for workshops and events. In addition to demonstrating Dymi's new products, the new concept stores also aim to and provided Dymi with a new revenue stream. The CEO commented that the concept stores have turned from breakeven to profit-making in just 4 months' time and provide Dymi with good cash flow. Most of the transactions in the concept stores are settled by electronic payments, and Dymi usually receives the cash from the payment service providers within a month. Dymi products are automatically registered as Dymi club members and earn points. Every HK$$250 spent earns 1 Dymi point. 2o Dymi points can be used to redeem a cash coupon of face value HK$$20. Dymi club members can use these coupons toward their next purchase, to buy a meal at a Dymi cafe, or to pay for Dymi club activities. Dymi points will expire automatically at the end of each calendar year. The CEO considers the Dymi club customer loyalty programme to be a big success and says that it has helped boost sales during the year. - To facilitate the launch of the Dymi customer loyalty programme and the opening of the concept connects to all of its online and offline stores and stores operated by the chain distributors. Dymi has also upgraded its mobile application ("Dymi APP"), which now shows customers their points earned and cash coupons redeemed, used and expired. The new point-of-sales system and the upgraded location. The new point-of-sales system and the Dymi APP directly interface with Dymi's general ledger, which enhances the preparation of management accounts in terms of revenue and deferred revenue recognition. - Dymi has further strengthened its due diligence procedure on accepting new distributors. There is no new distributor during the year. Dymi's policy allows no return of goods from distributors. During the the prolonged impact of pandemic. For prudence's sake, management has decided to make a full provision against these trade receivables of HK$$30 million in aggregate. The CFO also explained that the trade receivable turnover day will increase for the year as there are delays of settlement from certain distributors in Taiwan and Singapore. Historically, Dymi has experienced no default of payments due from any of its distributors. The CFO expects that no credit loss provision will have to be considered for the trade receivables due from the distributors other than the two distributors which are in financial difficulty. Extract of Dymi Group's consolidated financial statements for the year ended 31 December 2021 Consolidated statement of financial position 2021 2020 Change Change (Unaudited) (Audited) HKS'million HK$$'million HK$$'million Fixed assets 15% Right-of-use assets 733% Inventory 60% Trade receivables 138% Prepayment and other receivables 7% (20) Cash and bank (10%) (3) Other assets (43%) Total assets 32% Lease liabilities 667% Trade payables 32% (2) Accrual and other payables (12%) Other liabilities (17%) Total liabilities 49% Net assets 24% Consolidated statement of profit or loss 2021 2020 Change Change (Unaudited) (Audited) HKS$$'million HKS'million HK$$'million Sales of products - HK self-operated stores 20% - HK distributors 30% - Taiwan distributors 10% - Singapore distributors 30% Sales of services and meals N/A Total revenue 1,178 31% Cost of sales 33% Gross profit 27% agi 2021 2020 Change Change (Unaudited) (Audited) HK$$'million HK$$'million HK$$'million 36% Gross profit margin 37% Selling and distribution expenses 31% General and administrative expenses 20% 27% Profit before tax Profit tax 18% Profit after tax 29% of Dymi Group and determined that the overall materiality amounted to HK$13 million, calculated as 5% of the profit before tax. annual report. Certain disclosures in the corporate governance report are mandatory. Failure to include these mandatory disclosures are regarded by the Stock Exchange of Hong Kong Limited as a breach of the Listing Rules. List FIVE mandatory disclosures relating to the board of directors in a corporate governance report. (5 marks) (b) From a corporate governance perspective, explain the responsibilities of the board of directors in communicating and sharing information with shareholders relating to Dymi's latest business development in the year and advise the expected actions. (5 marks)

(o) With reference fo the responsibilittes of tha Audft Committea as set out in the Corporafe Gevermance Code fo the Nong Kong Lfating Rutes, axptain why the Audit Committee shoufd pilay s Itey roie fn satting up and menitoning the whiste-btower system of a Hong Kong listed eempany.(amarks) sefing up a whistte-bicwer system The Chief Executive Officer ("CEO"), who is also the executive director of ABc Limited. proposes that matters or allegations reported through the whistle-blower sysiem could be directed to him for investigation and follow up. He could report the matters and allegations reported and the investigation findings to the board of directors on a regular basis. Required. Evaluste the effectiveness of the proposal suggested by the CEO and propose recommendations on impreving the CEO's proposal, if any. (7 marks)

Adrian is a non-HK resident and the Chief Executive Officer of Bs Hong Kong Limited ("BSHK"), a Hong Kong private company. Adrian has recently taken up the director position of BSHK. BSHK offers Adrian HK$$100,000 and HK$$3,000 retirement benefits as his director's emoluments. In addition, BS Global Limited ("BS Global"), the ultimate holding company of BSHK, has provided Adrian with certain employee benefits to reward his international secondment, including a HK$1,000,000 interest-free home loan in his home country and share options over Bs Global, subject to certain vesting conditions. Required: (a) Explain the role and responsibilities as director of BsHK, from the perspective of the Hong Kong Companies Ordinance, in relation to the preparation of financial statements. (3 marks) (b) Advise Adrian on the mandatory disclosure requirements related to the benefits and interest of directors in the BSHK's financial statement under the Hong Kong Companies Ordinance. (4 marks) (c) BS Global is preparing its initial public offering (IPO) on the Main Board of Hong Kong Stock Exchange. Explain to Adrian the functions of the audit committee in a listed company. (5 marks)

SECTIONAICASEBACKGROUND You are an audit manager at Chan ＆ Chan CPA Limited. Recentiy, your firm accepted a new audit engagement for the year ending 31 March 2024 for ChatAl Inc (ChatAl") which is a prominent technology company specialising in Al language chatbot services. ChatAl operates in multiple geographical locations, including mainland China, Hong Kong, Korea, and Singapore. The company completed a series of fundraising and Is currently preparing to kick-start its IPO process, with plans to go public and list on the Main Board of the Hong Kong Stock Exchange. ChatAl aims to leverage its strong performance, innovative technology, and globaf presence to attract potential investors and achieve a successful public listing. The company is currently in the development stage and continuously experiencing losses. it does not expect to turn around its financial performance within the next two to three years. However, due to the trendy and promising nature of the Al industry and the company's market position, its valuation has been steadily increasing over the past few years. This trend in valuation is reflective of investor optimism about ChatAl's long-term prospects, despite the current financial challenges. Investors are seemingly confident in the company's innovative capabilities and its potential to capitalize on the expanding applications of Al technology. This confidence sustains the company's market value and attracts further investments, even as it continues to navigate through its early developmental phase and associated financiallosses. ChatAl operates on a membership-based model, offering users various subscription packages with integration between operational activities and the finance system, ensuring accurate financial transactions. ChatAl has implemented automated controls to effectively manage its different subscription plans and maintain proper billing practices. ChatAl also relies on the system to automatically calculate monthly revenue and deferred revenue based on the subscription plans subscribed by users of the application. As part of its expansion, ChatAl has acquired several technology companies over the past years. This expansion strategy has not only broadened ChatAl's technological capabilities and market reach but has Some of the acquired companies have a financial year end of 3 June. Goodwill is attributable to the derived from combining the resources and operations of ChatAl post-acquisition. The management of ChatAl undertook a meticulous process to allocate the acquired goodwill and and operational scopes where the benefits of the acquisitions are expected to manifest. These regions were identified based on the lowest level of cash-generating unit (CGU). This level is critical as it is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. comparing the recoverable amounts of each CGU or group of CGUs to the respective carrying amounts. The recoverable amounts are calculated using a value in use model. The calculation incorporates various financial assumptions, including projected cash flow growth rates, discount rates and risks recorded on the statement of financial position, exceeds its recoverable amount, an impairment loss will be recognised. ChatAl completed several rounds of fundraising in prior years, attracting investors from various countries To support their operations locally, the funds raised were deposited in local banks of the respective countries where the investors are located. This approach ensured that the necessary financlal resources are readily available for local operations and facilitates efficlent management of funds across different geographical locations. The predecessor auditor issued an unqualified oplnion for the FY2023 audited financial statements for ChatAl. Below is a table providing an overview of key financial statement line items for ChatAl as at year 2024 2023 Unaudited Audited HK$$'000 HK$$'000 Cash and cash equivalents 428.000 525.000 Trade receivables 102.510 95.800 Goodwill 300.000 300.000 48.000 Intangible assets 60.000 (38.000) Trade and other payables (21.000) (200.000) Convertible bond (200.000) As ChatAl is preparing for its IPO in Hong Kong, Keith Cheung, the CFO of ChatAl, is considering the establishment of an audit committee and studying the corporate governance requirements in Hong Kong. He seeks advice on the matter. Chairman. Reguired: company listing on its Main Board. (2 marks) (b) Advise and explain to Keith on his proposal on the composition of the audit committee with the requirements of the Corporate Governance Code. (8 marks)

Fa's Spice Co. is a renowned family business based in the Sichuan province of the People's Republic of China. The company specialises in the production and sale of premium spicy sauces and condiments under its own brand. With a strong presence in the local market, Fa's Spice Co. has successfully expanded its operations to other provinces in mainland China. Fa's Spice Co. is considering listing on the Hong Kong Stock Exchange to further expand its business and raise capital for future growth. As part of the listing process, the company needs to enhance its corporate governance practices, including the establishment of a nomination commitee and a relative, Davin, as the director of the company. Davin has just graduated from an overseas university with a bachelor's degree in marketing and lacks professional qualifications and experience. Currently. the board consists of two independent non-executive directors, Tom Wong and Kim Chan. They are independent from the company and have sufficient professional experience as Surveyor and Engineer, respectively. Required: (a) Explain the roles and responsibilities of the nomination committee and the remuneration committee in the context of Fa's Spice Co's proposed listing on the Hong Kong Stock Exchange. (3 marks) (b) Discuss the potential challenges and relevant considerations regarding the proposed hiring of Davin. Provide recommendations on how Fa's Spice Co. can address these challenges while maintaining good corporate governance practices. (5 marks)

10 marks / 18 min The board of directors of Friendiy Bank (the "bank"), comprised three executive directors and two independent directors, has recently been sanctioned with a fine of HK$500,000 due to the bank's breach of directors' duties and responsibility without safeguarding the bank's assets. It was uncovered that the bank has granted significant amounts of loans to three overseas entities during the years between 2022 to 2024 without going through the normal due diligence procedures by branch level. The approval of these loans was approved by one of the directors. Significant amounts of loan defaults were subsequently found which are associated with individual borrowers who were the related parties of one of the directors. The incidents were reported by the bank's internal audit department head to that director, but no course of action has been taken. The regulator has asked the board of directors to review the bank's existing corporate governance Required: Propose actions that the board of directors of the bank should consider in response to the regulator's request. (10 marks)

SECTIONAICASEBACKGROUND Kooma Ski Limited ("Kooma") was founded by a Swiss family and was engaged in the design and manufacturing of ski equipment under the brand "Ace". Kooma has its own factory which is in Switzerland ("Swiss factory"). Some years ago, a Chinese equity fund acquired 70% equity shareholding in Kooma from its founder. Thereafter, the Chinese equity fund became the controlling shareholder of Kooma. In the following year, Kooma identified another ski brand named "Bee", and successfully obtained exclusive distribution rights for manufacturing and selling Bee's products in the Asia Pacific. In the year of 2021, Kooma established a new factory in China ("China factory") solely for Bee's production. Kooma continued to expand its business, and in late 2022, Kooma acquired an international ski equipment distributor, namely Cow Distribution Company ("Cow"). This resulted in Kooma becoming one of the market leaders in this industry. In December 2024, Kooma underwent an IPO and was successfully listed on the Hong Kong Stock Exchange. After listing, Kooma announced a series of plans continuing to expand its business. In the below are the related announcements. Announcement dated 1 February 2025 ".. Our China factory has reached its full capacity, accordingly, we have identified another place to build our second factory in China. In view of the significant growth in our Bee products, we have also bought a total of 101 patents of Bee's ski products from its owner, which is a third party. This plan can align our long-term goals for business growth..." Announcement dated 1 May 2025 "...The board of directors has decided to close its Swiss factory by the end of 2025. All the production lines of Ace will be moved to our new China factory and the production will start from July 2026. After the removal, management will look for interested buyers to purchase the Swiss factory including the plant and machinery from Sub Ace. The new factory in China will be equipped with more advanced needs..... Announcement dated 1 October 2025 "..Our subsidiary Cow Distribution Company has recorded losses in the six months ended 30 June 2025. Management has revisited the current distribution agreements and will consider terminating some of the low margin distributorships..." Kooma currently has three subsidiaries with distinct businesses: (1) Sub Ace, (2) Sub Bee and (3) Sub Cow. (1) Sub Ace produces its own branded ski equipment for professional skiers in international games like the Olympics. Its brand, "Ace", has been established by Kooma for half a century and currently is the No.1 ski brand in the world. Approximately 75% of professional skiers use Ace. Its production lines are in the Swiss factory. (2) Sub Bee produces a wide range of ski products for beginners to advanced skiers. The brand "Bee" manufacturing and sales of Bee products in Asia Pacific. During 2025, Kooma purchased all the related patents of Bee's ski products from Beetle. Thereafter, Sub Bee owned all the patents of "Bee" and was able to distribute its products worldwide.The production of Bee products is in the China factory. (3) Sub Cow is a distributor which distributes various reputable ski and snowboard gear worldwide, However, due to the pandemic flu outbreak in recent years, Sub Cow has encountered liquidity problems. Its then shareholders sold all equity interests in Cow to Kooma to resolve Cow's solvency issues in December 2022. Below is the extracted financial information of Kooma for the year ended 31 December 2025 and as of that date. Subsidiaries Ace Bee Cow (In HK$'million) Total Profit and loss: Revenue Gross profit 23% 42.5% 2.5% Gross margin (%) 26% (2) Operating profit/(loss) 25% 17% -5% Profit margin (%) 16% Non-current assets by subsidiaries: Property, plant, and equipment (*) Goodwill Other intangible assets (^)/(#) recorded by Sub Ace and Sub Bee, respectively. ^ It represents the patents purchased by Sub Bee from Beetle, a third-party company. The patents are amortised over a period of 25 years. # It represents the distribution contracts identified during the acquisition of Sub Cow. In view of the recent incident discovering the lack of legal ownership of its patents for Bee products, Kooma was required by the Audit Committee to evaluate its internal controls relating to this incident and provide any remediation plan. Required: You are the Chief Compliance Officer of Kooma. Advise the roles and responsibilities of the Directors of Kooma in relation to the evaluation of the internal control systems and how the Directors can address the request from the Audit Committee. (10 marks) co

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