ACCA F8 Audit & Assurance [INT]

Sample Study Note

For exams in June2014

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 Lesco Group Limited, April 2015 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Lesco Group Limited.

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Sample Note Content:

Main study note content [Total Pages: 189] ...................................................... 4 Product Summary ........................................................................................ 10 Live online note sample plan ......................................................................... 11 Audit Process: Stage 1.................................................................................. 15 Example of audit working paper:.................................................................... 20 Stage2 Planning the Audit ............................................................................. 22

Please note:
This is just the sample study note extracted from the main study note in your tuition study [This tuition study note is consistent in basic/super/gold package]. There would be more chapters in the main study note covering the whole ACCA syllabus. You can also take a look at the content within the main study note below:

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Main study note content [Total Pages: 189]

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Product Summary

content

Basic package

Super package

Gold Package

Oxford Brookes BSc in Applied Accounting

ACCA HD quality super tuition videos

ACCA HD quality super revision videos

Last minute revision ACCA Live online tuition(4sessions) ACCA Live online revision(14hours) ACCA Mock exams(with tutor mark) ACCA Tutor support ACCA Electronic study note ACCA Student online forum Pass Guarantee ACCA Final revision mock exam paper ACCA Super Live online session (2030hours) ACCA Super Live online revision (Super 3 days) ACCA 1V1 Career Advice ACCA Extra exam techniques demonstration Live online mentoring

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Live online note sample plan

Live online tuition note plan for June2014 F8 Exam [Only for super / gold package (there would be a unique plan for gold package)]

Live sessions: [2 hours/session---live online + recorded after class]:

Live session1: chapter1, chapter2 stage1+2 Live session2:Chapter2 stage 3 [ICS] Live session3: Chpater2 stage4 [substantive testing] Live session4: Chapter2 stage5+6 +chapter3

Live revision note for June2014 F8 exam: [will be available since mid April 2014]: Live revision1+2: [There would be a separate live revision note detailing all past exam questions with answers to go through]

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Live online course timetable:

Live session/revision for F4-P7

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*Please Note: This Timetable may be subjected to future changes. Kindly check regularly for any possible updates.

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Audit Process: Stage 1

1,Ethics 5 principles by ACCA Code of Ethics 1. Professional behavior Accountants must comply with all relevant laws and regulations.

There is also a test whereby actions suggested by a third party which would bring discredit to the profession should also be avoided.

An accountant is required to treat all people contacted in a professional capacity with courtesy and consideration. Similarly, any marketing activities should not bring the profession into disrepute.

2. Integrity Integrity implies fair dealing and truthfulness.

Members cant lie to others by preparing a material misstated statement or mislead others by window dress the financial statement.

3. Competence and due care Pass exams + accumulate experience + stick to standards when doing the work.

4. Confidentiality Accountants cant disclose confidential information of client to 3rd party without approval.

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If client is involved in illegal activities like money laundering then accountant is able to disclose this to 3rd party. 5. Objectivity When preparing the financial statement, accountant should only focus on standards not other factors like personal bias, conflict of interest, or the undue influence of others.

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Ethical threat to objectivity Self interest threat: The threat that a financial or other interest (eg concern about job security) will inappropriately influence the professional accountants judgement or behaviour. In other words, this relates to the threat of a conflict of interest.

Self review threat: The threat that a professional accountant will not appropriately evaluate the results of a previous judgement made by themselves, or by another individual within their organisation, but will rely on that judgement as part of a service they are currently providing.

Advocacy threat: It occurs if a professional accountant is promoting a client or employers position or opinion to the extent that the accountants subsequent objectivity is compromised.

Familiarity threat: If the accountant develops too close a relationship with a client or employer (for example, through length of service) the accountant could become too sympathetic to the interestsof the client or employer such that their professional judgement becomes compromised.

Intimidation threat: When an accountant is deterred from acting objectively by actual or perceived threats, including attempts to exercise undue influence over the accountant.

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Safeguards to ethical threats Safeguards are actions of other measures designed to eliminate threats or reduce them to an acceptable level.

There are two broad categories of safeguard:

(a) Safeguards created by the profession, legislation or regulation:

Education, training and experience requirements for entry into the profession Requirements for continuing professional development Corporate governance regulation Professional standards Professional monitoring and disciplinary procedures External review by a legally empowered third party (eg an auditor) of the reports, returns and information produced by a professional accountant (b) Safeguards in the work environment:

These include complaint systems within employing organisations which enable staff to draw attention to unprofessional or unethical behaviour. For example, whistleblowing procedures to help protect employees against threats.

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DEC2007 Q2(a) [Ethics]:

2 (a) Explain each of the FIVE fundamental principles of ACCAs Code of Ethics and Conduct. (5 marks)

Answer to DEC2007 Q2(a) [Ethics]:

Professional behavior A professional accountant should Should respect laws and regulations and not do anything that could discredit the accountancy profession.

Integrity A professional accountant should be honest in all business and professional relationships.

Competence and due care When performing professional services, a professional accountant should show competence(eg, passing exams and gaining qualifications) and keep up-to-date with developments in related regulations as well as putting diligence into the work.

Confidentiality A professional accountant should not use or disclose confidential information of the client s entity to the 3rd party without obtaining client permission,eg, to competitors.

But if there is a legal or professional obligation to do so, eg, when client is involved in money laundering issues, then the confidential information can be disclosed to the 3rd party, ie, court.

Objectivity A professional accountant should be fair and not allow personal bias, conflict of interest or influence of others to override objectivity.

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Example of audit working paper:

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DEC2010 Q2 audit documentation

(c) ISA 230 Audit Documentation deals with the auditors responsibility to prepare audit documentation for an audit of financial statements.

Required: State FOUR benefits of documenting audit work. (4 marks)

Answer to DEC2010 Q2 audit documentation

It provides evidence of the auditors basis for a conclusion about the achievement of the overall objective of the audit. It provides evidence that the audit was planned and performed in accordance with ISAs. It assists members of the engagement team responsible for supervision to direct, supervise and review the audit work. It can be used to train new coming auditors.

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Stage2 Planning the Audit

Audit strategy: Audit strategy sets out the scope, timing, nature and direction of the audit and it tells auditor which audit approach should be used, ie, system based or full substantive approach and how the recourses would be allocated.

Within direction of audit, it requires auditors firstly understand clients business(ISA315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment) and then deal with preliminary materiality and performance materiality issues.

ISA 315 Aspects that auditors need to understand:

Internal control system Auditors should understand clients internal control system because weaknesses in the internal control system will result in potential material misstatement in the financial statement. For example a failure to reconcile bank statement and cash book regularly will result in bank balances within financial statement being misstated.

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Typical control activities would include:

Comparison Comparing the budgeted company performance with the actual one.

Authorisation There would be authorization of transaction by management to ensure transaction is genuine.

Reconciliations Bank reconciliation should be done to identify any difference and investigate reasons why.

Computer Controls Password should be set to protect the access of the system by others.

Arithmetical There should be controls which check the arithmetical accuracy of accounting records.

Physical There should be restricting access to physical assets such as cash to reduce the risk of theft.
External factors Auditors should understand clients external factors because this would impact on the overall financial statements. For example if a new law and regulation have been passed then clients existing activities may not comply with new laws and regulations and so penalty will need to be paid by client so client might ignore this and as a result a failure to provide for a provision according to IAS37 in its financial statement resulting in understatement of expenses and liability.

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 Company structure and its accounting policy Auditors should understand client companys structure and its accounting policy because if the structure is very complicated then when trying to consolidate the group there would be risks of material misstatement exists, ie, inaccurate calculation of goodwill.

Also auditors should understand its accounting policy and ensure they are consistent with the applicable financial reporting framework

Performance measurement Auditors should understand cleints performance measurement because this would have an impact on the financial statement whether to be misstated. For example if a manager of company is measured based on profit before tax and then manager may have an incentive to overstate this figure in order to get more bonuses and as a result a misstatement exist in this figure.

Business strategy, business plan and its related business risks The business strategy, plan and risk would have an impact on companys financial statement whether or not it will be misstated.

For example there is a business risk that business strategy and plan would fail leading to decrease in shareholders wealth and as a result management may have an incentive to overstate eg, profit within company to make its figure look better and as a result a misstatement in the profit figure.

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Ways that auditors use to understand clients business: [AEIOU] Analytical procedure Auditors should perform analytical procedures to compare financial information with non-financial information to identify any unexpected trend between the two, eg, comparing revenue growth from last year to this year with economic recession to identify any unexpected trend.

Enquiry Auditors should enquire with management about the internal control system comment of the company.

Inspection Auditors should inspect managements business strategy and plan to identify any business risks exist.

Observation Auditors should physically observe the internal control operations to verify they are not just paper work.

Recalculation Auditors should recalculate figures in the financial statement to verify its accuracy.

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Audit Plan: Audit plan sets out the risk assessment, materiality and potential audit procedures to be used in stage4 of audit.

Risk equation: The risk assessment is based on risk equation:

Audit risk=Risks of material misstatement X Detection risk

Inherent risk This is a risk happened in the first place.

Eg: if the balance is very complicated then accountants would easily make a mistake. / change in industry

Control risk This is a risk that errors cant be detected by internal control system.

Eg: no segregation of duties between accountant and cashier leading to cash being stolen.

Detection risk This is a risk that errors cant be detected by auditors.

Eg: auditor lacks of experience to deal with the issue and cant spot the mistake.

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DEC2009 Q3(a) Understand the environment of Client:

ISA 315 (Redrafted) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment requires auditors to obtain an understanding of the entity and its environment, including its internal control.

Required: (a) Explain why obtaining an understanding of the entity and its environment is important for the auditor. (4 marks)

Answer to DEC2009 Q3(a) Understand the environment of Client:

1, By doing that, they can identify and assess the risks of material misstatements within the FS and to decide whether to use a system based approach to audit(control testing +a little substantive testing) or use full substantive testing.

2, By doing that, it can then help auditors design and implement audit procedures to reduce those assessed risks.

3, By doing that, it can help auditors assess the adequacy of the accounting system as a basis for preparing financial statements

4, By doing that, it can help auditors consider whether they are competent to do the audit for the client, eg, if the client is going to go listed then are there enough resources for auditor to conduct the audit service?

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