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ACCA F8 Audit & Assurance [INT]

Sample Study Note

For exams in DEC2014










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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 .............................................. Error! Bookmark not defined.
Live online note sample plan ............................... Error! Bookmark not defined.
Audit Process: Stage 1 .................................................................................. 13
Example of audit working paper: .................................................................... 18
Stage2 Planning the Audit ............................................................................. 20






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














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Live online course timetable


Timetable: [Super+Gold package-additional revision would
be agreed between tutor and student]
Live Online Revision
Live revision1 Live revision2
F5 Performance management 25
th
Oct 7:00a.m.-14:00 22
nd
Nov 6:00a.m.-13:00
F7 Financial Reporting (INT) 2
nd
Nov 6:00a.m.-13:00 29
th
Nov 6:00a.m.-13:00
F8 Audit and Assurance (INT) 18
th
Oct 7:00a.m.-14:00 19
th
Oct 7:00a.m.-14:00
F9 Financial Management 4
th
Oct 7:00a.m.-14:00 5
th
Oct 7:00a.m.-14:00
P1 Governance, Risk and
Ethics
1
st
Nov 6:00a.m.-13:00 30
th
Nov 6:00a.m.-13:00
P2 Corporate Reporting (INT) 26
th
Oct 7:00a.m.-14:00 9
th
Nov 6:00a.m.-13:00
P3 Business Analysis 11
th
Oct 7:00a.m.-14:00 12
th
Oct 7:00a.m.-14:00
P4 Advanced Financial
Management
8
th
Nov 6:00a.m.-13:00 23
rd
Nov 6:00a.m.-13:00
P5 Advanced Performance
management
15
th
Nov 6:00a.m.-13:00 16
th
Nov 6:00a.m.-13:00
P7 Advanced Audit and
Assurance (INT)
27
th
Sept 7:00a.m.-14:00 28
th
Sept 7:00a.m.-14:00
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Last minute revision
Last minute revision Tutor
F5 Performance management 28
th
Nov 12:00-14:00 Ian
F7 Financial Reporting (INT) 1
st
Dec 12:00-14:00 Steve
F8 Audit and Assurance (INT) 22
nd
Nov 14:30-16:30 Alan
F9 Financial Management 22
nd
Oct 12:00-14:00 Steve
P1 Governance, Risk and Ethics 30
th
Nov 13:30-15:30 Alan
P2 Corporate Reporting (INT) 16
th
Nov 14:00-18:00(4hrs) Kieran
P3 Business Analysis 18
th
Oct 14:30-16:30 Alan
P4 Advanced Financial Management 19
th
Nov 12:00-14:00 Steve
P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Janes
P7 Advanced Audit and Assurance (INT) 23
rd
Nov 13:30-15:30 Alan





*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 3
rd
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 3
rd
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 clients
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.

Potential audit procedures: [Actions+ Doc+ Assertions]
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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?