F8 AA REVISION NOTES OF ISA'S FOR EXAM IN 2012-13

ISA Guide 2012-13

International standard on auditing ( ISA ) ISA 100 Assurance Engagement ISA 200 Overall objectives of an independent
auditor and Conduct of an audit in accordance with international standard on auditing.

Application and Mnemonic

3 (three) party relation, matter, criteria, evidence and report. (CREST) Enhances credibility, reliability, risk identification, independence and agency problem solution. (ERRIA) Objective of audit of FS. Mgmt and auditors responsibilities. Scope of audit with legislation. Basic fee and billings. Agreement on mgmt to provide representation letter. Access of auditor to books and records. Signatures of auditor and CEO. Other imp. Info {Extras} (FARSES) To reduce audit risk, maintain high standards of audit work, measure the quality of audit work, ensure the standard of work is acceptable to the firm, and reduce the risk of negligence claims and disciplinary actions. Directions { correct audit team} Supervision{communication and monitoring} Review { Hot, Cold, Peer and Monitoring unit} Objective set out the overall objective of the audit procedure(s) to be performed. Work performed document the work that was actually undertaken. Results and evaluation document the results of the work performed above. Conclusion whether the objective at the start of the procedure was met. Not responsibility of auditor but important in opinion on FS. Report to following: Shareholders {if impact on FS} Management{unless involved} Third party{legal duty or right} Not responsibility of auditor but important in opinion on FS. Report to following: Shareholders{if impact on FS} Management{unless involved} Third party{if legal duty or right} Independence issues, auditor responsibilities, scope and timing, significant findings, modification in reports, suspected fraud and any management representation. (IAS'S MMS)

ISA 210 Agreeing the terms of Audit

Engagements

ISA 220 Quality control for audit of financial

statements

ISA 230 Audit documentation/Working Paper

ISA 240 The auditor's responsibilities relating

to Fraud in an audit of financial statement.

ISA 250 Consideration of laws and

Regulations in audit of financial statements.

ISA 260 Communicating With those charged

with governance

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ISA 265 Communicating deficiencies in

internal control with those charge With governance

Management letter, Covering letter and appendix. Weaknesses, Consequences and recommendations. Areas, timing and budget. Efficient and effectiveness. Risk, expertise and supervision. Engagement team. Entity [plan or future], environment [stakeholders and performance] and controls [CRIME]. Control procedures, Risk assessment, Information, Monitoring and Environment. Quantitative [ threshold] ISA states 1% of Sales turnover 5% of Profit before Tax Qualitative [performance or nature of item e.g. directors remuneration] Size of risk, need of expertise, audit approach, audit strategy and communication. Independence, work report and test of control of service industry. Reliable, Relevant and sufficient [PROVE {P&D, rights and obligation, occurrence, valuation, existence.} (SOFP), COM {ACC} P {completeness, occurrence, accuracy, cut-off, classification, P&D} (IS) and P&D (COCA)]. Information collection; AEIOU [Analytical review, enquiries, inspection, observation and re-calculation or re performance.] Not applicable for F8

ISA 300 Planning an audit of financial

statements

ISA 315 Identifying and assessing the risk of

material misstatement through understanding the entity and its environment.

ISA 320 Materiality in planning and

performing an audit

ISA 330 Auditor response to assessed risk ISA 402 Audit consideration relating to an
entity using a service organization. ISA 500 Audit Evidence Inspection= non-moveable things {documents} Observation= moveable { people or system }

ISA 501, Audit Evidence-Specific

Considerations for Selected Items

ISA 505, External Confirmations ISA 510 Initial audit engagements- Opening
Balances

Not applicable for F8

Previous yr work reviewed, any errors must be rectified and reported. Current year's auditor responsibility.

ISA 520, Analytical Procedures

Throughout audit but compulsory during planning. Do the following: Take knowledge of nature of client business. Compare predicted FS with Draft FS. Analyze and select procedure.

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ISA 530, Audit Sampling

ISA 540, Auditing Accounting Estimates,

Including Fair Value Accounting Estimates, and Related Disclosures

ISA 550, Related Parties ISA 560, Subsequent Events

Difficult to do so more concern is needed. Extra amount of professional skeptics. Check prior year's estimates were they correct. Help from solicitors, breach sections of contracts. Not applicable for F8 Events occurring between clients Y/E and reporting date. Auditor's responsibility to review SE before signing audit report. Actions if necessary. Management representation if important. Modification in reports { ISA 705,706} Adequately disclosed. Indications: net liabilities, operating losses, major debt repayment is due, loss of vital customer or supplier, loss of key staff, cash flow, tech. advancement causing obsolete, major litigation. (Q) are there any going concern no (unmodIssues? ified report ) {ISA 700} yes Are these problems properly disclosed? yes Modified+ Unqualified material disagreement { ISA 705} {ISA 706} No

ISA 570, Going Concern {very important}

Audit Qualification Disagreement Scope limitation

Material

"except for disagreement"

"except for scope limitation."

Pervasive

"Adverse opinion"

"Disclaimer"

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Statistical (use of probability theory) Random sampling {for items} for test of controls Monetary unit sampling.{on $} for $P Risk: Sampling {item sampled doesn't carry risk} Non-sampling{item selected but undetected} Terms : Stratification{break down into pieces} Extrapolation (projection){est. using sample} Tolerable rate/deviation rate {maximum number of time control could fail} Other sampling methods: Haphazard: No predictability, Non-structured Block/Sequence: Block of contiguous. Systematic: Sampling unit = Sample intervals Sample size

F8 AA REVISION NOTES OF ISA'S FOR EXAM IN 2012-13

ISA Guide 2012-13

ISA 580, Written Representations

ISA 600, Special Considerations-Audits of

Group Financial Statements (Including the Work of Component Auditors) ISA 610 Using the work of Internal Auditor

General matters: Directors confirms that they: are responsible for FS, gave access of all relevant info, all transactions are recorded in FS, are responsible for internal control and fraud, going concern is appropriate, disclosed related parties. Any subsequent events. Specific matters: certain debt is recoverable or all bank accounts are disclosed. Not applicable for F8

ISA 620 Using the work of an auditor's Expert Qualified, Experienced, Independence,
Professional Dealings. ISA 700 Forming an Opinion and Reporting on Financial Statements Title, addressee, introduction, responsibilities of auditors and directors, basis of opinion, opinion and signature and date. {BROAST} Qualified due to: Misstatement in FS{Disagreement} Insufficient evidence on the audit. {Scope limit} Opinion: If persuasive Adverse {Disagreement} Disclaimer {Scope limitation} Fs are true and fair but attention must be drawn to some aspects. Important disclosure needed to be read by shareholders. Not applicable for F8

ISA 705, Modifications to the Opinion in the

Independent Auditor's Report

ISA 706, Emphasis of Matter Paragraphs and

Other Matter Paragraphs in the Independent Auditor's Report ISA 710, Comparative InformationCorresponding Figures and Comparative Financial Statements ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements ISA 800, Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks ISA 805, Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement ISA 810, Engagements to Report on Summary Financial Statements

Not applicable for F8

Not applicable for F8

Not applicable for F8

Not applicable for F8

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RELIED {response from management, experienced and qualified chief internal auditor, limitless scope, expert in firm [IA], and documentation is done.}

F8 AA REVISION NOTES OF ISA'S FOR EXAM IN 2012-13

ISA Guide 2012-13

International standard on auditing ISA 315 Identifying and assessing the risk of
material misstatement through understanding the entity and its environment.

Assertion (A) or Procedures (P)

Requirements:

1) Risk assessment: P {AEIOU}

A analytical review E enquiries I inspection O observation U re-computation

2) Understand Entities and its environment: P {IMOAN}

Industry { market, demand, seasons, cost} Measurement and review financial performance { KPIs; key ratios, forecasts, credit ratings, complete analysis} Objectives and strategies risk: new brands, IT, expansion, prospective etc. Accounting policies: significant or unusual transactions, new FRS/laws and regulations. Nature: business operations {joint ventures, R&D sectors etc}, investment activities {Acq/disposals, non-consolidated entities}, financing activities {gearing}, financial reporting {FV models, foreign transactions}.

3) Understand internal controls {CRIME} as above in ISA 315. Pg 2.

Control Procedures SPAMSOAP>PAIDSAP>CARCAP Segregation of duties Physical control Authorization Management control Supervisory control Organization control Arithmetical control Personnel control Documentation Independent checks control Analysis and Performance review control Pre-numbering of documents Reliable: What is acceptable? Written over Oral Auditor over others External over internal Internal if independent. Original over photocopied. Sufficient: Assertions Income Statements (IS) {COM(ACC)P} as above pg 2 Statement Of Financial Position(SOFP) {PROVE} as above pg 2.

ISA 500 Audit Evidence

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F8 AA REVISION NOTES OF ISA'S FOR EXAM IN 2012-13

ISA Guide 2012-13

Presentation and Disclosures (P&D) {COCA} Completeness Occurrence Classification and understandability Accuracy and valuation ISA 330 Evaluating/understanding internal control ISA 330 + 500 Test of Control (TOC) {On the system} IIO {inquiries, inspection and observation} AEIOU Procedure : FIVE CARROTS CRAM READ Foot & cross footing Inquiry Vouching Examination, inspection & review Confirmation Analytical procedures Re-computation & Re- calculation Reconciliations Observation Tracing Subsequent events review Cutoff review Auditing Related Accounts Management representation Read pertinent {meetings minutes} information Completed

$ubstantive Procedures ($P) { on the figures

so remember that substantive procedures S is replaced by $ }

Completed

You must learn that an auditor will test the system first that means applies AEIOU on PROVE+COM (ACC) P+COCA and if finds system working then will reduce $ubstantive testing that is FIVE CARROTS CRAM READ. In the case if system is not working as it should be then auditors would do $ubstantive testing in much detail. In that case please remember to apply the $ubstantive procedures on assertions of FS. Which will means applying FIVE CARROTS CRAM READ on PROVE etc to gain evidence. $ubstantive testing is same as AEIOU but some more detailed test included you could easily see this. ACCA PASSION has matched the $ubstantive procedures you would apply on assertions on the next page. We hope you would find them helpful.

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F8 AA REVISION NOTES OF ISA'S FOR EXAM IN 2012-13

ISA Guide 2012-13

ASSERTION
Presentation and Disclosures (COCA)

AUDIT PROCEDURES ($P)

(I+E) Examination, Inspection & Review (E) of all related disclosures for compliance with IFRS/IAS. Inquiry of management regarding disclosures for the account and for related accounts. (C+O+V+E+R) Confirmation of accounts with third parties. Observation, Examination, Inspection and review of assets, processes, and procedures. (This is one of the most persuasive forms of evidence.) Vouching of transactions from the financial statements back to supporting documents {Trace Back} Reconciliations Cutoff Review procedures analyzing end of year transactions of the account and related accounts to ascertain proper accounting period recognition. For example, in testing inventory, the auditor would test year end purchases, purchase returns and allowances, sales and sales returns and allowances. (T+A) Tracing of transactions forward, starting from source documents through their accounting recognition and ultimately to the financial statements. Notice that this directional testing is the opposite of the directional testing for the existence and occurrence assertion. Analytical Procedures: The auditor should consider how certain items might be omitted from the account balances, such as unrecorded liabilities or omissions of pledged assets. (R+R+F+S) Re-calculation & Re-computation. Examples would be aging of account receivables to substantive the value of the allowances account or the recalculation of depreciation charges. A prime are of re-calculation is estimates made by the client. Reconciliation of supporting schedules to general ledger line items. Footing & Cross-footing of schedules. Subsequent events review

Existence/ Occurrence (E+O)

Rights & Obligations (Ownership)

Completeness

Valuation & Allocation/ Measurement { Accuracy, Cutoff, Classification}

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DEFFICIENCIES/WEAKNESSES
Most of the work is done by one person. Could lead to fraud and misuse. Cash in open places/Boxes. Theft or pilferage. Self Review of controls. Easily amendable documents. Pencil, handwritten etc. Could easily be amended or misused. Authorization limits not set or breached. No supervisory controls or are inefficient could easily lead to fraud. Documents not signed. Pre-numberings are missing. Independence issues in control environment Cash couriers could result in theft of cash. One person issuing temporary pay slips, employee codes could lead to fake payments. Computerized entries could sometime lead to errors which aren't detectable.

CONTROL/RECOMMENDATIONS
Segregations of duties, authorization recording and custody to separate persons. Lockers/Safe with senior rooms. Someone else must perform the test on them. Ink, printed documents or some kind of original documents.

Monitoring must be strong.

Signatures of parties must be taken. Must be pre-numbered to confirm the completeness. Must appoint someone independent. Bank transfers are safe mode of transaction. Check employee against personnel records, list of employees reviewed for accuracy. Reconciliations done or physical assessment could be made.

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Must be clear and implemented.