ATC
INTERNATIONAL
ACCA
PAPER F8
AUDIT AND ASSURANCE (INTERNATIONAL)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, editor or publisher.
This training material has been published and prepared by Accountancy Tuition Centre Limited
16 Elmtree Road Teddington TW11 8ST United Kingdom.
Editorial material Copyright Accountancy Tuition Centre (International Holdings) Limited, 2008.
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Session
Page
1 Audit and other assurance engagements 0101
2 Regulatory environment – statutory audit 0201
3 Regulatory environment – corporate governance 0301
4 Professional codes of ethics and conduct 0401
5 Auditor appointment 0501
6 Documentation 0601
7 Planning 0701
8 Business risk and internal control 0801
9 Understanding the entity, audit risk and engagement risk 0901
10 Audit materiality 1001
11 Fraud & error, laws & regulations 1101
12 Computer information systems (CIS) 1201
13 Reliance on control effectiveness & substantive testing 1301 14 Audit considerations relating to entities using service organisations 1401
15 Audit evidence 1501
16 Analytical procedures 1601
17 Accounting estimates 1701
18 Using the work of an expert 1801
19 Audit sampling 1901
20 Management representations 2001
21 Computer-assisted audit techniques 2101
22 Non-current assets 2201
23 Inventory 2301
24 Trade receivables 2401
25 Loans, bank and cash 2501
26 Trade payables, accrued expenses and provisions 2601
27 Small businesses and not-for-profit organisations 2701 28 Communications with management and those charged with governance 2801
29 Audit finalisation 2901
30 The auditor’s report on financial statements 3001
31 Going concern 3101
32 Review assignments and reports 3201
33 Internal audit 3301
SESSION 00 – CONTENTS
Appendices
35 Appendix 1 – Documentation techniques 3501
36 Appendix 2 – Transaction cycles 3601
37 Appendix 3 – Audit programs 3701
38 Appendix 4 – Review programme 3801
39 Appendix 5 – Data sources and records 3901
40 Appendix 6 – Glossary of terms 4001
Index 4101
UPDATING NOTE
The IASB reissued IAS 1 ‘Presentation of Financial Statements’ in September 2007. Amendments to the old IAS 1 are mainly to presentation and terminology and have been reflected throughout the study system and question banks.
Although IAS 1 does not become effective until periods beginning on or after 1 January 2009, earlier adoption is permitted. ACCA operates a six month rule in its examinations based on issue date, whereby accounting standards will not be examined until six months have passed from their date of issue. Therefore the revised IAS 1 falls to be examined from the June 2008 examinations.
Whilst these changes only refer to IFRS and are not yet reflected within ISA, terminology has been changed for consistency throughout the F8 materials, e.g. when dealing with the “old” IAS 1 terminology used within ISA.
The main changes can be summarised as follows:
¾
Balance sheet Ö Statement of financial position¾
Balance sheet date Ö End of the reporting period (note that end of the reporting period may also be referred to as the “year end” within the study system and question bank)¾
Income statement Ö Statement of comprehensive income (but see below)¾
Cash flow statement Ö Statement of cash flows (IAS 7 is renamed)¾
Events after the balance sheet date Ö Events after the reporting period (IAS 10 is renamed)(v)
Introduction
This Study System has been specifically written for The Association of Chartered Certified Accountants Paper F8 Examination, Audit and Assurance (International).
It provides comprehensive coverage of the core syllabus areas and is designed to be used both as a reference text and interactively with the ATC Learning System to provide you with the knowledge, skill and confidence to succeed in your ACCA studies.
SYLLABUS
Position of the paper in the overall syllabus
Paper F8 assumes knowledge and understanding developed by Papers F3 Financial Accounting (FA) and, to some degree, F4 Corporate and Business Law (CL). In particular, the IFRSs examined by Paper F3 could form the basis for questions on the auditing
procedures in respect of those IFRSs.
Candidates who have studied the papers in order (as recommended by the ACCA) will have recently revised their knowledge of F3 IFRS through Paper F7 Financial Reporting (FR). If F7 has not been recently studied, candidates are advised to review their knowledge of IFRS as examined by F3.
Paper F8 provides the knowledge and understanding of the audit process which is then developed in Paper P7 Advanced Auditing and Assurance (AAA). In addition, they will also understand why an audit is required for Paper P1 Professional Accountant (PA).
Aim
To develop knowledge and understanding of the process of carrying out the assurance engagement and its application in the context of the professional regulatory framework.
Objectives
On completion of this paper, candidates should be able to:
A Explain the nature, purpose and scope of assurance engagements including the role of the external audit and its regulatory and ethical framework
B Explain the nature of internal audit and describe its role as part of overall performance management and its relationship with the external audit
C Demonstrate how the auditor obtains an understanding of the entity and its
environment, assesses the risk of material misstatement (whether arising from fraud or other irregularities) and plans an audit of financial statements
D Describe and evaluate information systems and internal controls to identify and communicate control risks and their potential consequences, making appropriate recommendations
SESSION 00 – SYLLABUS
F Evaluate findings and modify the audit plan as necessary
G Explain how the conclusions from audit work are reflected in different types of audit report, explain the elements of each type of report.
Overview
The Audit and Assurance syllabus is essentially divided into seven areas. The syllabus starts with the nature, purpose and scope of assurance engagements, including the statutory audit, its regulatory environment, and introduces professional ethics relating to audit and
assurance. It then leads into internal audit, including the scope of internal audit as well as the differences between internal audit and external audit. The syllabus then covers a range of areas relating to an audit of financial statements. These include planning and risk assessment, evaluating internal controls, audit evidence, and a review of the financial statements. The final section then deals with reporting, including statutory audit reports, management reports, and internal audit reports.
Audit framework and regulation (A)
Planning and risk assessment (C)
Internal audit (B)
Internal control (D) Audit evidence (E)
Review (F)
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Detailed syllabus
A.
Audit Framework and Regulation
1. The concept of audit and other assurance engagements 2. Statutory audits
3. The regulatory environment and corporate governance 4. Professional ethics and ACCA’s Code of Ethics and Conduct
B.
Internal audit
1. Internal audit and corporate governance
2. Differences between external and internal audit 3. The scope of the internal audit function
4. Outsourcing the internal audit department 5. Internal audit assignments
C.
Planning and risk assessment
1. Objective and general principles
2. Understanding the entity and knowledge of the business 3. Assessing the risks of material misstatement and fraud 4. Analytical procedures
5. Planning an audit 6. Audit documentation 7. The work of others
D.
Internal control
1. Internal control systems
2. The use of internal control systems by auditors 3. Transaction cycles
4. Tests of control
5. The evaluation of internal control components 6. Communication on internal control
E.
Audit evidence
1. The use of assertions by auditors 2. Audit procedures
3. The audit of specific items
4. Audit sampling and other means of testing 5. Computer-assisted audit techniques
SESSION 00 – SYLLABUS
F.
Review
1. Subsequent events 2. Going concern
3. Management representations
4. Audit finalisation and the final review
G.
Reporting
1. Audit reports
2. Reports to management 3. Internal audit reports
Approach to examining the syllabus
The syllabus is assessed by a three-hour paper-based examination, consisting of five compulsory questions (no choice). The bulk of the questions will be discursive but some questions involving computational elements will be set from time to time.
The questions will cover all areas of the syllabus.
Question 1 will be a scenario-based question worth 30 marks. Question 2 will be a knowledge-based question worth 10 marks. Questions 3, 4 and 5 will be worth 20 marks each.
Number of marks Q1: Scenario based, multi-part question on audit procedures. 30 Q2: Short knowledge based multi-part question based on ISA and key areas 10
Q3: } 20
There will be 15 minutes of reading time allowed before starting the examination proper. The advice from the examiner is to use the majority of this time to read through and think about (plan) Question 1.
Additional information
Internal audit can be examined within any of the five questions. There is no set quantitative element for internal audit.
Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued.
(ix) The table below has been adapted from the examiner’s article in Student Accountant March 2007 explaining his approach to examining Paper F8. Candidates are well advised to download this article from the ACCA’s website and carefully study the rest of it’s content.
Objective Examiner’s comment
Explain the nature, purpose, and scope of assurance engagements, including the role of the external audit and its
regulatory and ethical framework. (A)
Questions may focus either on the factual areas of the legal aspects of auditing, or on the application of ethical standards in scenario-based questions.
Explain the nature of internal audit. Describe its role as part of overall performance management, and its relationship with external audit. (B)
The work of internal audit could feature in any question in the exam. However, there may not always be an internal
audit/review question. If internal audit is mentioned, it is most likely to appear in Question 1, as part of a question on audit procedures, or in Question 4 as part of a question on more specialised audit areas. Demonstrate how the auditor obtains an
understanding of the entity and its environment, assesses the risk of material misstatement (whether arising from fraud or other irregularities), and plans an audit of financial statements. (C)
Questions in this area relate to the planning of the audit. They normally feature aspects of engagement risk, or the work of the auditor in establishing the audit plan.
Describe and evaluate information systems and internal controls to identify and communicate control risks and their potential consequences, and make appropriate recommendations. (D)
This objective, and the next, relate to the testing of controls, and the collection of audit evidence using compliance and substantive testing as appropriate. ISAs make a clear distinction between
compliance and substantive procedures, and this split will be followed in exam questions. Reporting of recommendations regarding weaknesses in internal controls, or other issues found in an audit, will be examined in terms of the production of a management letter.
Identify and describe the work and evidence required to meet the objectives of audit engagements and the application of ISAs. (E)
Questions are likely to focus on the application of substantive procedures to either statement of comprehensive income or statement of financial position areas. It is quite likely that both income and
statements of financial position will feature in Question 1 with, for example,
SESSION 00 – SYLLABUS
Objective Examiner’s comment
Evaluate findings and modify the audit
plan as necessary. (F) This is potentially the most difficult area of the syllabus. As many candidates will not have been involved in audits, they will probably be unclear on how to deal with findings or errors which have an impact on the audit plan. The overall approach to questions in this area will therefore be to explain the additional testing required as a result of errors being found during the application of audit procedures
Explain how conclusions from audit work are reflected in different types of audit report, explaining the elements of each type of report. (G)
The emphasis of questions in this area will be on explaining reports rather than having to draft them. Extracts will normally relate either to an explanation of how a standard report can be modified, or (in a limited number of cases) supplying appropriate wording for the modification only. To be clear, candidates will not be expected to provide the wording for an entire audit report (as per ISAs). Knowledge of the content of ISAs in the 700 series will be expected. Questions will potentially provide extracts of audit reports, and require candidates to identify where ISA guidance has not been followed.
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Examinable documents
International Standards on Auditing [ISAs](Note 1)
Number Title Study Session
in which covered Preface to International Standards on Quality Control,
Auditing, Assurance and Related Services 2
Glossary of Terms App 5
International Framework for Assurance Assignments 1 200 Objective and General Principles Governing an Audit of
Financial Statements 1
210 Terms of Audit Engagements 5
230 Audit Documentation (Revised) 6
240 The Auditor’s Responsibilities Relating to Fraud in an
Audit of Financial Statements (Redrafted) 11
250 Consideration of Laws and Regulations in an Audit of
Financial Statements 11
260 Communications of Audit Matters with Those Charged
with Governance 28
300 Planning an Audit of Financial Statements (Redrafted) 7 315 Identifying and Assessing the Risks of Material
Misstatement Through Understanding the Entity and its
Environment (Redrafted) 9
320 Audit Materiality 10
330 The Auditor’s Procedures in Response to Assessed Risks
(Redrafted) 8, 9, 13
402 Audit considerations relating to Entities Using
Service Organizations 14
500 Audit Evidence 15
501 Audit Evidence – Additional Considerations for Specific
Items 23 & 29
505 External Confirmations 24
510 Initial Engagements – Opening Balances 29
520 Analytical Procedures 16
530 Audit Sampling and Other Means of Testing 19
540 Audit of Accounting Estimates 17
560 Subsequent Events 29
570 Going Concern 31
580 Management Representations 20
610 Considering the Work of Internal Auditing 34
620 Using the Work of an Expert 18
700 The Independent Auditor’s Report on a Complete Set of
General Purpose Financial Statements (Note 2) 30 701 Modifications to the Independent Auditor’s Report 30
710 Comparatives 29
720 Other Information in Documents Containing Audited
SESSION 00 – SYLLABUS
International Auditing Practice Statements [IAPSs]
1000 Inter-bank confirmation Procedures (Note 3)
1013 Electronic Commerce: Effect on the Audit of Financial
Statements 13
1014 Reporting by Auditors on Compliance with International
Financial Reporting Standards 30
International Standards on Assurance Engagements [ISAEs]
Number Title Study Session
in which covered 3000 Assurance Engagements other than Audits or Reviews of
Historical Financial Information 2
International Standards on Review Engagements
[ISREs]
Number Title Study Session
in which covered 2400 Engagements to Review Financial Statements (previously
ISA 910) 32
Other guidance
ACCA’s “Professional Codes of Ethics and Conduct”
The UK “Combined Code (of the Committee on Corporate Governance)” as an example of corporate governance best practice – www.frc.org.uk/combined.cfm
Relevant articles, past examinations and examiner’s reports as published in Student
Accountant and on the ACCA’s website – www.accaglobal.com
Notes
(1) Candidates are advised that questions will be based on the principles and good practice set out in the International Standards on Auditing. Most questions will involve some form of application of knowledge to a specific situation or scenario. Candidates will be required to understand auditing techniques and know how these techniques apply to specific situations. Candidates must be able to explain the reasons why the procedures they suggest are carried out and what they achieve.
(2) Candidates should be aware of the nature and meaning of the auditor’s report and should be able to discuss the contents and wording of the auditor’s report. Students would not be asked to reproduce the auditor’s report in full in an exam question, but they may be requested to prepare the explanatory paragraphs for inclusion in the report particularly in situations leading to the issue of a modified report.
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International Accounting Standards
[IASs]
The accounting knowledge that is assumed for Paper F8 is the same as that examined in Paper F3. Therefore students studying for Paper F8 should refer to the IFRSs listed under Paper F3.
Number Title Study Session
in which covered
IAS 1 Presentation of Financial Statements General
IAS 2 Inventories 23
IAS 7 Statement of Cash Flows (excluding group aspects) Note (1) IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors 29
IAS 10 Events after the Reporting Period 29
IAS 16 Property, Plant and Equipment 22
IAS 18 Revenue 23 & 29
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 26 IAS 38 Intangible Assets (insofar as it relates to research and
development) 22
Notes
SESSION 00 – EXAMINATION TECHNIQUE
EXAMINATION TECHNIQUE
Pre-examination preparation
¾
Read the examiner’s report. Apply the advice given within past reports when doing practice questions. Far too many students fail because of poor examination technique.¾
Read the advice given below and apply when attempting questions from the studyquestion bank, revision question bank and any past examination papers you have taken from the ACCA students’ website.
Time allocation
¾
Use the majority of the 15 minutes reading time to read through and think about your answer to Question 1, the scenario based question.¾
Divide your time in proportion to the marks on offer. To allocate your time multiply the marks for each question by 1.8 minutes.A 20 mark question should take you 20 × 1.8 = 36 minutes
¾
Determine how much time to spend on each part of a question. This is particularly important to Paper F8 as each question is likely to have at least 2, but probably 3, or even 4 sub-requirements.¾
Stick strictly to this time allocation.¾
The first marks on each sub-requirement are likely to be the easiest to gain. So don’t be tempted to spend more time on one part (eg because you know more about that topic) instead of getting on with the next part.Instruction
v
content
¾
Before attempting a question, and in order to impress the marker, you need to understand what the examiner requires.Requirements (and parts thereof) specify an “instruction” and the “content” called for.
Instructions
¾
“Describe” = set out the characteristics of¾
“Consider” = examine carefully/give attention to¾
“State” = express in words(xv)
ISA 315 - risk assessment procedures, control environment + control activities Application controls v IT controls
− Completeness
¾
Matters/factors = “things” of relevance that you would take account of when making a decision¾
Specified techniques eg CAATs, analytical procedures¾
Arguments against/limitations/weaknesses – use “negative” words like “no”, “poor”, “difficult”¾
Arguments for/advantages/benefits – use “positive” words like “good”, “easy”¾
Other contents call for specified knowledge eg criteria/circumstanceGeneral question approach
Familiarisation
¾
Read the requirements carefully to identify Instructions e.g. “outline, discuss...” Content e.g. “the audit tests, the advantages ...” Vehicle/format e.g. “report, memo, letter...”.
SESSION 00 – EXAMINATION TECHNIQUE
¾
Do not write everything you know about a topic and hope the examiner will select the points which are relevant to the question. This “scatter gun” tactic is a waste of valuable time and you may receive no marks.¾
Plan your answer – the markers always look for evidence of thought before writing. Make brief notes of your starting point, areas to cover and finish.¾
Read any scenario within a question quickly to identify company name, key dates (eg year end), nature of business, performance.¾
Read through again slowly and actively, ie highlighting key points, or noting implications in the margin, and noting points on a plan of your answer.
¾
Draw together your technical knowledge and the points from the scenario. Do this by thinking and rearranging your plan, before you write up your answer.Plan your answer
¾
Recall the technical knowledge you have learned relating to the content from the requirements and your quick read of the scenario.¾
Identify key headings from the requirement or your plan around which to structure your answer when you write it up.¾
Use the mark allocation to decide how many points you need to address. As a general guide work to 1 mark per relevant point clearly expressed and explained (eg point, explain, example). Remember that you must give reasons why particular actions are taken and not just say “do it”, eg do not say “inspect purchase invoice” without saying exactly what you are inspecting on the invoice and why (always refer to a
particular assertion).
Whilst 1 mark per sentence, is often used by candidates as a guideline, if that sentence is not relevant to the question or does not “add value” no marks will be given.
Ensure that each sentence you write contains a relevant point. Avoid fitting as many points as possible into one sentence!
Present your answer
¾
A structured answer with clearly identifiable and separable points is always preferable to a continuous flow of text. Indicates that you have planned your answer.(xvii)
¾
Write effectively in a style which responds to the examiner’s requirements (eg start withactions for audit work and tests). Maintain a sentence structure and keep sentences
short and succinct.
