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ACCAspace
Provided by ACCA Research Institute
ACCA P7
Advanced Audit and Assurance (AAA)
高级审计与鉴证业务
ACCA Lecturer: Iris Nie
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1
2
A Brief Introduction to P7
Review Session for F8
P7 Chapter 1 Contents
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Contents of P7 Paper
Part A Regulatory environment
Part B Professional and ethical considerations
Part C Practice management
Part D Audit of historical financial information
Part E Other Assignments
Part F Reporting
Part G Current issues and developments
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Main capabilities
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Syllabus
P2
(CR)
P7
(AAA)
F8
(AA)
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Review of Fundamental Concepts
What is assurance?
Increase
confidence
Reduce
risk
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What is Assurance?
The International Framework for Assurance
Engagements states that the objective of an
assurance engagement is:
for a practitioner to evaluate or measure subject
matter against identified suitable criteria that is the
responsibility of another party, so that they can
express an opinion that provides the intended user
with a level of assurance about that subject matter.
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The Five Elements
The Three Parties:
Practitioner / Intended Users / Responsible Party
The Subject Matter ----- Subject Matter Information
Suitable Criteria
Sufficient Appropriate Evidence
A Written Report
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What is Assurance?
Subject matter
or
Subject matter
information
Responsible
party
Suitable
Criteria
Practitioner
Intended users
Examines
(Evidence)
Report to
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Assurance Engagement
Assurance
engagement Reviews (审阅)
Other assurance
engagements
Audit
Internal Audit
External Audit
Other
Related services Compilation(代编报表)
Agree-upon procedures (商定程序)
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Audit engagement
The objective of an external audit engagement is to
enable the auditor to express an opinion on whether the
financial statement
give a true and fair view (or present fairly in all
material respects) .
are prepared, in all material respects, in accordance
with an applicable financial reporting framework.
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Materiality
Misstatement, including omissions, are
considered to be material if they, individually or in
the aggregate, could reasonably be expected to
influence the economic decisions of users taken
on the basis of the financial statements.
--- ISA320 materiality in planning and performing
an audit
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Materiality
½~1% of revenue
5~10% of profit before tax
1~2% of gross assets
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Audit Risk
Audit risk
Detection risk Inherent risk Control risk × ×
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Audit Risk
Audit risk——the risk that the auditor expresses an
inappropriate opinion when the financial statements
are materially misstated.
Inherent risk——This is the susceptibility of an
assertion to a misstatement that could be material,
either individually or when aggregated with other
misstatements, assuming that there are no related
internal controls.
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Audit Risk
Control risk——This is the risk that a misstatement that
could occur in an assertion, and that could be material,
either individually or when aggregated with other
misstatements, will not be prevented, or detected and
corrected, on a timely basis by the entity’s internal
control.
Detection risk——This is the risk that the auditor will
not detect a misstatement that exists in an assertion that
could be material, either individually or when aggregated
with other misstatements.
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Past Exam Paper
Jun 2013 Q1(a)
(a) Perform preliminary analytical procedures and
evaluate the audit risks to be considered in planning the
audit of the financial statements, and identify and
explain any additional information that would be
relevant to your evaluation; and (24 marks)
(b) Discuss any ethical issues raised and recommend
the relevant actions to be taken by our firm. (7 marks)
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Past Exam Paper
Dec 2013 Q1 (a)
(i) Explain the risks of material misstatement to be
considered in planning the Group audit, commenting
on their materiality to the Group financial statements;
and (12 marks)
(ii) Identify any further information that may be
needed. (4 marks)
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Professional Skepticism
A questioning attitude
Being alert to conditions which may indicate
possible misstatement due to fraud and error
A critical assessment of audit evidence
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Going Concern
The assumption that the enterprise will continue in
operational existence for the foreseeable future.
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Sep & Dec 2015 Q2 Kandinsky Co
Kandinsky Co is a manufacturer of luxury food items including
chocolate and other confectionery which are often sold as gift
items individually or in hampers containing a selection of
expensive items from the range of products. Due to an economic
recession sales of products have fallen sharply this year, and
measures have been implemented to support the company’s cash
flow. You are aware that the company only has $150,000 in cash
at the year end.
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Sep & Dec 2015 Q2 Kandinsky Co
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Sep & Dec 2015 Q2 Kandinsky Co
Revenue and profitability
The extract financial statements show that revenue has fallen by
38.2%. Based on the information provided, operating profit was
$1,150,000 in 2014 but is only $340,000 in 2015. Operating
margins have fallen from 29.1% to 13.9% during the year and the
fall in revenue and margin has caused the company to become
loss-making this year.
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Sep & Dec 2015 Q2 Kandinsky Co
These changes are highly significant and most likely due to the
economic recession which will impact particularly on the sale of
luxury, non-essential products such as those sold by Kandinsky
Co. The loss-making position does not in itself mean that the
company is not a going concern, however, the trend is extremely
worrying and if the company does not return to profit in the 2016
financial year, then this would be a major concern. Few
companies can sustain many consecutive loss-making periods.
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