University of Greenwich

Outline answers and marking schedule Auditing ACCO 1089 CRN 10243 2006-7 FIRST DRAFT

HONG KONG
Objectives: To establish the extent of the students learning achieved throughout the year; to allow students to exhibit how this learning can be transferred and used in similar situations; to give scope for students to use their own researches, abilities and imagination to enhance taught matter. Syllabus: The reason and place of auditing as a social science; theoretical bases of auditing; the statutory regulation of the auditing profession - GAAS (UK/RoI and International); review of GAAP and structure of FRC and IFAC; auditor appointment and removal; client acceptance; professionalism and ethics; auditors legal liability; the overall audit process; the nature and types of IC systems (by function); risk (BR, AR, CR, IR and DR); recording of IC systems (incl. ICQs, ICEs and flowcharting); planning; working papers; evidence; IC and substantive testing; basic analytical procedure; fraud and error; income cycle and balance sheet auditing; sampling risk and sampling methods; directional testing; analytical procedures developed; the audit report and its nature; current developments and audit theory (for example research into the audit risk model and an introduction to the business risk model); avenues of the wider application of auditing are explored (examples being VFM, environmental, circulation, education and clinical audit); audit and the computer environment; internal audit; Accountants Reports and the problems of auditing small clients are also covered. Examination questions: Generally the questions consist of elements of (a) a descriptive and or explanatory nature; (b) an analytical aspect and (c) an element to allow scope for creative and appropriate discussion of related matter. There is one compulsory question which will assess the students grasp of one or both of the key aspects: the basic audit process and the concept of internal control. Marking: In such a subject as auditing, where of necessity only elements of whole systems can be considered, a certain amount of latitude has to be allowed for alternative but acceptable interpretations of examination question material by the student.

J. E. SPENCER-WOOD

University of Greenwich

Outline marking scheme and suggested answers:

Marking range

Q1(a)

Watch, read, observe, prior year papers Narrative, ICE/Q, flowcharting Risk assessment stage; AIS and ICs stage 10 Not an audit test to check WPs are accurate The stages (Ascertain/record/plan/IC test/SW/Review /Report some stages may be expanded and similar) 5 The details, the links/flow between stages 10 5

Q1(b) Q1(c)

5 25

Q2(a)

Q2(b)

Aid to planning and performance Aid to work allocation and supervision Records accountability of staff Records matters useful for subsequent audits Facilitates QC Facilitates external inspections 6 Content Purpose Description and discussion: essentially mechanical v completeness/ control 5 6

Q2(c)

11 8 25

J. E. SPENCER-WOOD

University of Greenwich

Q3(a) Twofold: IC operation (IC testing, examples) What to do if non-compliance SW undertaken (examples) Q3(b)

4 3

Six marks each (max) if identified whats wrong; Considered materiality; action consult management; 18 25

Q4(a)

Main rights: Access to records at all times; information & explanations as needed; notice of, & attendance at, gms; to speak at gms Student may add lesser rights and those on Resignation/removal Reasons (in the main the statutory duties) 15

6 3 6

Q4(b) Outline of theory, applied to audit 4 Legislation is not needed because If the audit is (or deemed to be) poor then: Safeguards are reduced, Investment risk increases, higher returns are required, the cost of capital rises, managers seek providers of a quality audit (and report) required to reduce c of c. 3 Discussion 3 Q5(a) Mandatory; limitations of IC (detailed) Q5(b) Credit source to assertion concept Specific procedures recommended 4 5

10 25 8 9

Q5(ci) Explanation how materiality justified or not 4 Q5(cii) If material consult management; if not note in WPs and probably in Man letter 4

8 25

Q6(a)
J. E. SPENCER-WOOD 3

University of Greenwich

BR=threats that make prevent corporate objectives being fulfilled. ERM systems/controls = dirs responsibility Auditor needs to assess how ICs reduce BR(IR) to Prevent MM in FSs

3 3

Q6(b) Discussion (4) and one mark for each example (5) Plenty there! Q6(c) 1 mark for each IC + 1 mark each for how it reduces IR 10

25

J. E. SPENCER-WOOD