Download ACCA - F8 Audit and Assurance (INT): Study Text PDF

TitleACCA - F8 Audit and Assurance (INT): Study Text
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LanguageEnglish
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Table of Contents
                            Book Cover
Title
Copyright
Contents
A note about copyright
How the BPP ACCA-approved Study Text can help you pass your exams – AND help you with your Practical Experience Requirement!
	NEW FEATURE – the PER alert!
	Tackling studying
	Developing exam awareness
	Using the Syllabus and Study Guide
	Testing what you can do
Chapter features
Studying F8
1 What F8 is about
2 What skills are required?
3 How to improve your chances of passing
4 Brought forward knowledge
The exam paper
	Format of the paper
	Guidance
	Analysis of past papers – F8 Audit and Assurance
PART A Audit framework and regulation
	1 Audit and other assurance engagements
		Introduction
		Study guide
		Exam guide
		1 The purpose of external audit engagements
		2 Accountability, stewardship and agency
		3 Types of assurance services
		4 Assurance and reports
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	2 Statutory audit and regulation
		Introduction
		Study guide FORWARD
		Exam guide
		1 Objective of statutory audits and the audit opinion
		2 Appointment, removal and resignation of auditors
		3 Regulation of auditors
		4 International Standards on Auditing
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	3 Corporate governance
		Introduction
		Study guide
		Exam guide
		1 Codes of corporate governance
		2 Audit committees
		3 Internal control effectiveness
		4 Communication with those charged with governance
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	4 Professional ethics
		Introduction
		Study guide
		Exam guide
		1 Fundamental principles of professional ethics
		2 Accepting audit appointments
		3 Agreeing the terms of the engagement
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART B Internal audit
	5 Internal audit
		Introduction
		Study guide
		Exam guide
		1 Internal audit and corporate governance
		2 Distinction between internal and external audit
		3 Scope of the internal audit function
		4 Internal audit assignments
		5 Internal audit reports
		6 Outsourcing the internal audit function
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART C Planning and risk assessment
	6 Risk assessment
		Introduction
		Study guide
		Exam guide
		1 Introduction to risk
		2 Materiality
		3 Understanding the entity and its environment
		4 Assessing the risks of material misstatement
		5 Responding to the risk assessment
		6 Fraud, law and regulations
		7 Documentation of risk assessment
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	7 Audit planning and documentation
		Introduction
		Study guide
		Exam guide
		1 Audit planning
		2 Audit documentation
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	8 Introduction to audit evidence
		Introduction
		Study guide
		Exam guide
		1 Audit evidence
		2 Financial statement assertions
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART D Internal control
	9 Internal control
		Introduction
		Study guide
		Exam guide
		1 Internal control systems
		2 The use of internal control systems by auditors
		3 The evaluation of internal control components
		4 Internal controls in a computerised environment
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	10 Tests of controls
		Introduction
		Study guide
		Exam guide
		1 The sales system
		2 The purchases system
		3 The inventory system
		4 The cash system
		5 The payroll system
		6 Revenue and capital expenditure
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART E Audit evidence
	11 Audit procedures and sampling
		Introduction
		Study guide
		Exam guide
		1 Substantive procedures
		2 Accounting estimates
		3 Audit sampling
		4 Computer-assisted audit techniques
		5 Using the work of others
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	12 Non-current assets
		Introduction
		Study guide
		Exam guide
		1 Tangible non-current assets
		2 Intangible non-current assets
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	13 Inventory
		Introduction
		Study guide
		Exam guide
		1 Introduction to auditing inventory
		2 Accounting for inventory
		3 Audit procedures for inventory
		4 The physical inventory count
		5 Cut-off
		6 Valuation
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	14 Receivables
		Introduction
		Study guide
		Exam guide
		1 Introduction
		2 Audit procedures for receivables
		3 The receivables' confirmation
		4 Sales
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	15 Cash and bank
		Introduction
		Study guide
		Exam guide
		1 Introduction
		2 Bank
		3 Cash
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	16 Liabilities and capital
		Introduction
		Study guide
		Exam guide
		1 Introduction
		2 Audit procedures for trade payables and accruals
		3 Non-current liabilities
		4 Provisions and contingencies
		5 Capital and other issues
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
	17 Not-for-profit organisations
		Introduction
		Study guide
		Exam guide
		1 Objectives of not-for-profit organisations
		2 Audit planning
		3 Audit evidence
		4 Audit reporting
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART F Review
	18 Audit review and finalisation
		Introduction
		Study guide
		Exam guide
		1 Subsequent events
		2 Going concern
		3 Written representations
		4 Overall review of financial statements
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
PART G Reporting
	19 Reports
		Introduction
		Study guide
		Exam guide
		1 The auditor’s report on financial statements
		2 Reports to management
		Chapter Roundup
		Quick Quiz
		Answers to Quick Quiz
Exam question and answer bank
	Exam question bank
		1 Objectives, characteristics and responsibilities
		2 Audit and assurance engagements
		3 Standards
		4 Corporate governance
		5 Independence
		6 Objectivity
		7 Role of internal audit
		8 Glo
		9 Audit planning and documentation
		10 Audit evidence considerations
		11 Knits
		12 Fenton Distributors
		13 Cheque payments and petty cash
		14 Using the work of a management’s expert
		15 Elsams
		16 Boston Manufacturing
		17 Wandsworth Wholesalers
		18 Sitting Pretty
		19 Bright Sparks
		20 Audit of cash and bank
		21 Understatement
		22 'Tap!'
		23 Going concern
		24 Audit review and finalisation
		25 Wiseguys National Bakeries
		26 Builders Merchants
	Exam answer bank
		1 Objectives, characteristics and responsibilities
		2 Audit and assurance engagements
		3 Standards
		4 Corporate governance
		5 Independence
		6 Objectivity
		7 Role of internal audit
		8 Glo
		9 Audit planning and documentation
		10 Audit evidence considerations
		11 Knits
		12 Fenton Distributors
		13 Cheque payments and petty cash
		14 Using the work of a management’s expert
		15 Elsams
		16 Boston Manufacturing
		17 Wandsworth Wholesalers
		18 Sitting Pretty
		19 Bright Sparks
		20 Audit of cash and bank
		21 Understatement
		22 'Tap!'
		23 Going concern
		24 Audit review and finalisation
		25 Wiseguys National Bakeries
		26 Builders Merchants
Index
Review Form & Free Prize Draw
                        
Document Text Contents
Page 2

S
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AUDIT AND ASSURANCE
(INTERNATIONAL)

In this edition approved by ACCA

We ddiscuss the bbest strategies for studying for ACCA exams

We hhighlight the mmost important elements in the syllabus and the kkey skills you will need

We ssignpost how each chapter links to the syllabus and the study guide

We pprovide lots of eexam focus points demonstrating what the examiner will want you to do

We eemphasise key points in regular ffast forward summaries

We ttest your knowledge of what you've studied in qquick quizzes

We eexamine your understanding in our eexam question bank

We rreference all the important topics in our ffull index

BPP's i-Learn and i-Pass products also support this paper.

FOR EXAMS IN 2010

Page 208

Part E Audit evidence 11: Audit procedures and sampling 195

Tests are therefore designed in the following way.

Test item Example

Test debit items (expenditure or
assets) for overstatement by
selecting debit entries recorded in
the nominal ledger and checking
value, existence and ownership

If a non-current asset entry in the nominal ledger of $1,000 is
selected, it would be overstated if it should have been recorded at
anything less than $1,000 or if the company did not own it, or
indeed if it did not exist (eg it had been sold or the amount of
$1,000 in fact represented a revenue expense).

Test credit items (income or
liabilities) for understatement by
selecting items from appropriate
sources independent of the nominal
ledger and ensuring that they result
in the correct nominal ledger entry

Select a goods dispatched note and agree that the resultant sale
has been recorded in the nominal ledger sales account. Sales
would be understated if the nominal ledger did not reflect the
transaction at all (completeness) or reflected it at less than full
value (say if goods valued at $1,000 were recorded in the sales
account at $900, there would be an understatement of $100).

A test for the overstatement of an asset simultaneously gives comfort on understatement of other assets,
overstatement of liabilities, overstatement of income and understatement of expenses.

So, by performing the primary tests, the auditors obtain audit assurance in other audit areas. Successful
completion of the primary tests will therefore result in them having tested all account areas both for
overstatement and understatement.

1.3 Analytical procedures

Analytical procedures are used at all stages of the audit, including as substantive procedures. When using
analytical procedures as substantive tests, auditors must consider the information available, assessing its
availability, relevance and comparability.

We introduced analytical procedures in Chapter 6 where they were used at the planning stage of an audit.
They can also be used as substantive procedures to obtain audit evidence directly.

ISA 520 Analytical procedures provides guidance to auditors on the use of analytical procedures as
substantive procedures. Remember from chapter 6 that analytical procedures include:

(a) The consideration of comparisons with:

Comparable information for prior periods
Anticipated results of the entity, from budgets or forecasts
Expectations prepared by the auditors (e.g. estimation of depreciation)
Industry information

(b) Those between elements of financial information that are expected to conform to a predicted
pattern based on the entity's experience, such as the relationship of gross profit to sales

(c) Those between financial information and relevant non-financial information, such as the
relationship of payroll costs to number of employees

ISA 520 states that when using analytical procedures as substantive tests, the auditor must:

Determine the suitability of particular analytical procedures for given assertions.
Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios

is developed.
Develop an expectation of recorded amounts or ratios and evaluate whether this is sufficiently
precise to identify a misstatement that may cause the financial statements to be materially
misstated.

Determine the amount of any difference that is acceptable without further investigation.

FAST FORWARD

Page 209

196 11: Audit procedures and sampling Part E Audit evidence

1.3.1 Suitability of analytical procedures

Substantive analytical procedures are usually more applicable to large volumes of transactions that tend to
be predictable over time. The suitability of a particular analytical procedure will depend on the auditor’s
assessment of how effective it will be in detecting material misstatements. Determining the suitability will
be influenced by the nature of the assertion and the auditor’s assessment of the risk of material
misstatement.

1.3.2 Reliability of data

The ISA sets out factors which influence the reliability of data which are set out in the following table, with
examples.

Reliability factors Example

Source of the information Information may be more reliable when obtained from independent
sources outside the entity.

Comparability of information
available

Broad industry data may need to be supplemented so it is comparable
to that of an entity that produces and sells specialised products.

Nature and relevance of the
information available

Whether budgets have been set up as results to be expected rather
than goals to be achieved

Controls over the preparation of
the information to ensure its
completeness, accuracy and
validity

Controls over the preparation, review and maintenance of budgets

The auditor will need to consider testing the controls, if any, over the preparation of information used in
applying analytical procedures. When such controls are effective, the auditor will have greater confidence
in the reliability of the information, and therefore in the results of analytical procedures.

The controls over non-financial information can often be tested in conjunction with tests of accounting-
related controls. For example, in establishing controls over the processing of sales invoices, a business
may include controls over unit sales recording. The auditor could therefore test the controls over the
recording of unit sales in conjunction with tests of controls over the processing of sales invoices.

Alternatively the auditor may consider whether the information was subjected to audit testing. ISA 500
contains guidance in determining the audit procedures to be performed on information to be used for
substantive analytical procedures.

1.3.3 Evaluation of whether the expectation is sufficiently precise

The factors to consider when evaluating whether the expectation can be developed sufficiently precisely to
identify a misstatement that may cause the financial statements to be materially misstated are set out in
the following table.

Factors to consider Example

The accuracy with which the
expected results of analytical
procedures can be predicted

The auditor may expect greater consistency in comparing the
relationship of gross profit to sales from one period to another than in
comparing discretionary expenses, such as research or advertising.

The degree to which
information can be
disaggregated

Analytical procedures may be more effective when applied to financial
information on individual sections of an operation or to the financial
statements of components of a diversified entity than when applied to
the financial statements as a whole.

The availability of the
information

The auditor may consider whether financial information (e.g. budgets
or forecasts) and non-financial information (e.g. number of units
produced or sold) is available.

Page 416

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