AUDIT & ASSURANCE REVISION CLASSES

AUDIT & ASSURANCE (CAF)
‐ CAF REVISION CLASSES BY ICAP
‐ Identification of the issues
‐ Analysis of the Past Papers
‐ Tips & Techniques
‐ Knowledge Base vs Application Base chaos
(Chapter by Chapter Approach)
‐ How to handle case studies
‐ Special instructions for E‐Marking (by ICAP)
Main Issues with Audit & Assurance
Chapter by Chapter Approach
Ch # Knowledge Based Application Based Mix
1 Complete Chapter (except unit 3) Unit 3 (Company Law)
2 Complete Chapter
3 Unit 1 (Planning) & Unit 5 (NPO) Unit 2 & 3 (Risk Assessment) Unit 4 (Fraud)
4 Complete Chapter (except unit 3) Unit 3 (Sampling – ISA 530)
5 Complete Chapter
6 Complete Chapter
7 Complete Chapter except ratios Ratio Analysis
8 Complete Chapter
9 Complete Chapter except ISA 505 ISA 505(External Confirmation)
10 Complete Chapter
11 Complete Chapter
12 Complete Chapter
13 Unit 1 (Fundamental Principals) Unit 2 (Conceptual Framework)
14 ISA 700, 701 & Co.Law Report ISA 705, 706 ISA 560, 570 & 580
15 Complete Chapter
GENERAL TIPS & SUGGESTION
How to Cope with Audit & Assurance ! ! !
• Attending Classes
Understanding • Reading ICAP book
• Books by different teachers
Mind Maps • Building Own notes
Revising • From your mind maps
• Past Papers (2/3rd Questions)
• Reading Question
Basic Assessment • Understanding
• Develop an answer
• Match the answer
• Past Papers (1/3rd Questions)
Final Assessment • Write it down
• Give your solution to a colleague for marking
Super Final Assessment • Final Mock
HOW TO DEAL WITH

APPLICATION BASED CASE STUDIES
CASE STUDY QUESTIONS
Companies Act 2017 ! ! !
Step 1 • Provisions of the Law
• Discussion of the scenario
Step 2 • Identification of the relationship
between entities
Step 3 • Recommendations
CASE STUDY QUESTIONS – COMPANIES ACT 2017
Worked Example
Spring 2015 – Q # 2

Comment on each of the following situations with reference to the appointment
of external auditors in accordance with the requirements of the Companies Act,
2017.

a) ABC Limited and DEF Limited are associated companies on account of
common directorship. Salman and Company, Chartered Accountants (SCC) have
received an offer for appointment as the auditor in ABC. Salman, a partner in
SCC is the spouse of Naveen, who is an employee in DEF. (02)

b) All the partners of Kashif Associates are Cost and Management Accountants.
The firm has received an offer for appointment as the auditor of Nihal (Private)
Limited (NPL). NPL has a paid‐up capital of Rs. 500,000 and 30% of its shares are
held by Siyal Limited which is a public company. (03)
Worked Example – Solved (a)
As per the requirements of the Companies Act 2017, if an
auditor is disqualified for any company he is also disqualified Law
for the holding and subsidiary company of that company
In the given situation, ABC and DEF are associated companies
(not holding and subsidiary). Additionally the auditor is also not Scenario
disqualified in DEF as well
Therefore the auditor is not disqualified for ABC company.
Recommendation

Worked Example – Solved (b)
As per the requirements of the Companies Act 2017, auditor must
be a Chartered Accountant for the audit of
‐ Public companies; or Law
‐ Private companies that are subsidiaries of public companies; or
‐ Private company having paid up capital of at least 3 million

For other cases auditor can either be a CA or a CMA
In the given situation, NPL is a private company having paid up
capital of Rs 500,000 and is not a subsidiary of any public Scenario
company because the shareholding of public company (Siyal Ltd)
is only 30%
Therefore the auditor being a CMA firm are not disqualified for Recommendation
appointment.
Code of Ethics ! ! !
• Identify Threat (Only list down)
• (Examples given in book are really important)

Step 1 • Give description of threat if
• Question says ‘discuss categories of threats’
• Marks are more than 4
• Evaluate the significance of threat
Step 2 • (only if required)
• Normally its not required at CAF level
Step 3 • Give safeguards (see next slide)
Code of Ethics ! ! !
Typical safeguards normally used in answering the questions in ICAP Exams

(Related to identification of threats and application of Safeguards)

Tutor 1) Discontinue the relationship / interest / extra favor received by the client.
Note
2) Remove the individual, involved in that relationship/interest, from the team.

3) Involve an independent Chartered Accountant to review the work done by the team

4) If these safeguards cannot mitigate the risk, withdraw from the engagement.

Other Safeguards (if question contain good marks)
 Discuss (Inform) those charged with governance of the entity
 Discuss at appropriate level in your firm
CASE STUDY QUESTIONS – CODE OF ETHICS
Worked Example
Autumn 2016 – Q # 8

Identify the threats which may be involved and suggest appropriate safeguards,
if any, in each of the following scenarios:

(a) The planning phase of the annual audit of ABC (Private) Limited for the year
ended 30 June 2016 is in progress. The engagement partner intends to include
Kamran as a member of audit team who joined the firm last month. Before
joining the firm Kamran was employed in the finance department of ABC. (05)

(b) Nasir is the audit manager on the audit of Diamond Limited (DL) for the year
ended 30 June 2016. Nasir has informed that his father owns 10,000 shares in
DL. (04)
Self‐review and familiarity threats will be created, as Kamran
has served as an employee in ABC Identification
Safeguards:
Safeguards
1) Remove Mr Kamran from the team.
2) Involve an independent Chartered Accountant to review
the work done by Mr Kamran
3) If these safeguards cannot mitigate the risk, withdraw from
the engagement.
As the father of Nasir is a close family member, having a direct
financial interest in DL, a self‐interest threat is created Identification
Safeguards:
1) Disposal of shares by the father of Mr Nasir.
Safeguards
2) Remove Mr Nasir from the team.
3) Involve an independent Chartered Accountant to review
the work done by Mr Nasir
4) If these safeguards cannot mitigate the risk, withdraw from
the engagement.
ISA 705/706 ! ! !
• Identification of Materiality (if any
benchmarks are given in question)
Step 1 • Divide the amount involved with all
benchmarks (except loss before tax)
• Discuss the issue and correct accounting
Step 2 treatment
• Discuss auditor’s action in case of scope
Step 3 limitation or material misstatement
• Management Response and Effect on
Step 4 Opinion (see next slide)
ISA 705/706 ! ! ! Audit Report
Modified Unmodified
Modification Other Key Audit

of Opinion Modification Matter (701)
Matters Matters not
Material Scope
disclosed in disclosed in
Misstatement Limitation
F/S F/S
Relates to Relates to
Material Pervasive Material Pervasive
Accounts Audit
Qualified Adverse Qualified Withdrawal Emphasis of

Other Matter
(Except for) (Do not) (Except for) or Disclaimer Matter
CASE STUDY QUESTIONS – ISA 705 / 706
Worked Example
Autumn 2017 – Q # 9

You are audit partner of the firm and your manager has highlighted the following matters:

a) The profit before tax of Tariq Limited (TL) for the year ended 30 June 2017 is
Rs. 790 million. TL provides three year warranty to its customers and has made provision
of Rs. 80 million in this regard. The management carries out the computation internally.
The process is complex and based on various assumptions. Therefore, your firm has
appointed an expert after following all the necessary procedures for assessing the
competence, capability and objectivity of the expert. (08)

b) Your firm has been appointed as the auditor of Yaqoob Limited for the audit of the
year ended 30 June 2017. The audit team was not able to perform the inventory count at
year end because the appointment was made on 15 July 2017. (07)

Required:
Describe the steps that will be performed in each of the above situation and discuss the
possible implications of the above on the audit report. (Drafting of opinion not required)
Provision of warranty is 10% of the PBT and therefore it is material to the
financial statements Materiality
Since expert has been appointed and matters related to his appointment have already
been considered, we may need to perform following:
Evaluate the reasonableness of significant assumptions and methods used
Evaluate the relevance, completeness and accuracy of source data
Evaluate the reasonableness of the expert’s conclusions Issue
Carry out analytical procedures to assess the reasonableness of the provision as & Actions
compared to other relevant items
Confirm that the accounting provisions of IAS 37 have been complied with, in making
the provision
In case there is a difference between the valuation of the auditor’s expert and the
valuation of the management, discuss the difference with the management.
Reporting implication
In case the difference between the valuation of the auditor’s expert and the
valuation of the management is material and cannot be resolved, we will have to
give a qualified opinion. Implications

However, if we have obtained sufficient appropriate evidence regarding the
valuation and presentation of the warranty provision, then we will have to
include relevant details under the heading of key audit matters in our audit
report, because it is an area of higher assessed risk of material misstatement due
to involvement of high degree of uncertainty and significant auditor judgment.
Our firm was not appointed as auditors of the YL until 30 June 2017 and Issue &
thus did not observe the counting of physical inventories as the end of Accounting
year 30 June 2017. In this situation, we may perform the following
procedures:
Conduct physical inventory count after the date of the financial
statements.
Check whether the changes in inventory between the count date and
the date of the financial statements are properly recorded.
Investigate the reason for significant differences between the
information obtained during the physical count and the inventory
records.
Assess the reliability of inventory records.
Reporting implication
If the auditor concludes that it would be impracticable or not possible to
work back the inventory then this would be a scope limitation and
depending upon the material and pervasiveness of the amount of
Implications
inventory, the auditor should qualify or disclaim his opinion.

Furthermore, the auditor should include other matter paragraph and
mention that the prior period financial statements were audited by
another auditor.
ISA 560 ! ! !
• Identification of Subsequent Event and the
relevant phase (i.e. before report, before
Step 1 issuance or after issuance)
• Accordingly explain auditor’s responsibility
• Give the accounting treatment as per IAS 10
Step 2 (whether its an adjusting event or not)
• Discuss auditor’s action in case of
Step 3 different responses from management
• Give the implications on Report (see
Step 4 next slide)
ISA 560 ! ! ! Ask the
management to
adjust/disclose
Management Management
agree to not agree to
adjust/disclose adjust/disclose
Check the
adjustment / Material Pervasive
disclosure
Qualified
Properly Not properly Adverse Opinion
Opinion (ISA
Recorded recorded (ISA 705)
705)
No need to
Need to highlight Material Pervasive
highlight
Emphasis of Qulaified
Unmodified Adverse Opinion
Matter Para (ISA Opinion (ISA
opinion (ISA 700) (ISA 705)
706) 705)
CASE STUDY QUESTIONS – ISA 560
Worked Example
Self developed Question (for proper understanding)

You have recently completed the audit of an entity AHCPL. After receiving the final
authentic copy of the financial statements from the Board of Directors and finalizing the
audit report for AHCPL, you watched in a local news channel that the main building of the
company where the registered office have been situated has been burned adversely.
Unfortunately company had not made any arrangements regarding its insurance etc.

You immediately decided to communicate with your client. When you informed your audit
manager about the situation, he simply asked you ‘not to do anything as the report have
been finalized. Ignoring the response of your manager, you decided to go with the
requirements of the ISA‐560.

Required
In the current situation
What exactly is your responsibility regarding this subsequent event. (02)
What are the actions that you are planning to take (05)
What are the all possible implications on the audit report under different circumstances (05)
(You may assume any details necessary)
Worked Example – Solved
As the audit report has been finalized, we don’t have an active Identify the
responsibility to consider and look for the subsequent events. But If after
the date of auditor’s report and before the issuance of financial
Phase &
statements, we come to know a fact requiring amendment of our report, Responsibility
we shall:
 Discuss the matter with management and where appropriate those
charged with governance
 Determine whether the financial statements need amendment; if so
 Inquire how they intends to address the matter in financial statements.
As the given event is a non‐adjusting event as per the requirements of IAS
10, we shall be asking the management to add a disclosure in the financial IAS 10
statements

Worked Example – Solved (cont)
If management makes the required disclosure, we shall be:
 Carrying out relevant procedures to verify that the effect of the Auditor’s
event has been properly recorded in the financial statements Actions
 Extending our review of subsequent events to the date of new
report

If management does not make the required disclosure:
 If our report has not been provided to the entity, we shall modify
the opinion before providing report
 If our report has already been provided to the entity, we shall notify
management and those charged with governance, not to issue the
financial statements to third parties before necessary amendments.
 If they issue the same without necessary amendments, we shall
take appropriate action to seek to prevent reliance on our report
(after seeking legal advice).

Worked Example – Solved (cont)
As the event is non adjusting, we would be requesting the management to
disclose that in the financial statements Report
Implications
If management do not agree to disclose that
 We shall be giving a qualified opinion as per ISA 705 if the issue is
material
 We shall be giving an adverse opinion as per ISA 705 if the issue is
material and pervasive

If the management agree to disclose that, we shall be checking that
whether the disclosure have been made as per the financial reporting
framework
 If the disclosure has been properly given as per the framework, we
would be issuing an unmodified opinion as per ISA 700
 If the disclosure has not been properly given as per the framework, we
would be issuing a qualified opinion (in case of material issue) or an
adverse opinion (in case of material and pervasive issue)
 If the disclosure has been properly given as per the framework and we
need to highlight that to gather the user’s attention, we can also add an
emphasis of matter paragraph in the report
E‐ MARKING OF CAF07 & CAF09

IMPORTANT INSTRUCTIONS
TO REMEMBER
INSTRUCTIONS BY ICAP FOR E‐MARKING
Use only Black
Ballpoint Pen
Don’t write on
the bar codes
Tick the total
number of
supplementary
sheets
attached
Write your name
and subject in
BLOCK letters and
Neat and Clean
Handwriting
Place your signature at the designated place
only and not in any other cell
Enter your CRN in
this format
In supplementary sheets,
mention the extra sheet
number

Other entries like CRN and
Signature are exactly same
as per main sheet
There are 32 pages in Main answer Sheet
There are 12 pages in supplementary answer sheet

Don’t write any answer on
• Main Page
• Backside of Main Page; and
• The Last Page

You can utilise 29 pages in Main answer Sheet
You can utilise 9 pages in supplementary answer sheet

Answer sheet
would look like
this.

Again avoid
writing on the bar
codes

Also don’t write
outside margins
Write every new question and part from new page

If a part is being continued on next page do also write the question and part
number again on next page
QUESTION
ANSWER
SESSION ! ! !

Thanks a Lot for Your Patience…..

Talib e Dua
Atif Abidi (ACA)

AUDIT & ASSURANCE REVISION CLASSES

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