ACCA Paper F8Audit and assurance

Pocket notes

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Audit and assurance paper F8

British library cataloguing-in-publication dataA catalogue record for this book is available from the British Library.

Published by:Kaplan Publishing UKUnit 2 The Business CentreMolly Millars LaneWokinghamBerkshireRG41 2QZ

ISBN: 978-1-78415-244-4

© Kaplan Financial Limited, 2015

Printed and bound in Great Britain.

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

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 Kaplan Publishing.

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Audit and assurance paper F8

ContentsChapter 1: Introduction to assurance ..............................................................................................1

Chapter 2: Rules and regulation ......................................................................................................7

Chapter 3: Ethics and acceptance.................................................................................................13

Chapter 4: Risk ..............................................................................................................................25

Chapter 5: Planning .......................................................................................................................35

Chapter 6: Evidence ......................................................................................................................45

Chapter 7: Systems and controls ..................................................................................................57

Chapter 8: Procedures...................................................................................................................69

Chapter 9: Completion and review ................................................................................................81

Chapter 10: Reporting .....................................................................................................................91

Chapter 11: Corporate governance .................................................................................................99

Chapter 12: Internal audit ..............................................................................................................105

Index ..................................................................................................................................... I.1

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Audit and assurance paper F8

Exam format Number of marks

Section A: 8 x 2 mark objective test questions

4 x 1 mark objective test questions 20

Section B: 4 x 10 mark questions (mainly scenario based) 40

2 x 20 mark questions (mainly scenario based) 40 –––––– 100 ––––––

Any part of the syllabus can be tested in any section.

The 20 mark questions will focus on planning and risk assessment, internal controls and substantive procedures.

Total time allowed: 3 hours plus 15 minutes reading and planning time

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Audit and assurance paper F8

Aim of the paperTo develop knowledge and understanding of the process of carrying out the assurance engagement and its application in the context of the professional regulatory framework.

The keys to success in Paper F8Answer the question

Read the question extremely carefully, paying attention to the verbs telling you what to do, and to the mark allocation. You must make (at least) one point in your answer for every mark available.

Audit and assurance paper F8

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Don’t overrun your time allocation

You must be absolutely strict with yourself with your time allocation for each question. 180 minutes for 100 marks means 1.8 minutes per mark. You must not spend more than 36 minutes on a 20 mark question, simply because it is much easier to pick up the first 10 marks available on a new question than the remaining 10 marks of the existing one. In the exam room, write down the times for each question, and force yourself to finish your attempt within the time available. Such discipline may not be fun, but it is the approach that will earn you most marks in the exam.

Think before you start writing

Take time to understand what the question is really asking. Certain words read in isolation may lead you to misinterpret the requirement.

You also need to make sure that you identify the whole requirement. Some questions are actually more than one requirement. For example:

“Identify and explain the control deficiencies in the question and recommend solutions to overcome them.”

Audit and assurance paper F8

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Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, or follow the link to the feedback form in MyKaplan.

Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions.

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Audit and assurance

1

Introduction to assurance

In this chapter

• Assurance services.• The elements of an assurance engagement.• Accountability, stewardship and agency.

chapter

1

Introduction to assurance Chapter 1

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Assurance services

Thepurposeofassuranceservicesisto:

• increasetheconfidence;and• reducetheriskoftheusers

ofthoseservices.

TheInternational Framework for Assurance Engagementsgivestheoverallguidancefor

carryingoutassuranceengagements.

3partiesinvolved

User

Responsible party Practitioner

Responsibleforthesubjectmatter

Evaluatesormeasuresasubject matter

againstidentifiedsuitablecriteria

Expressesaconclusionthatprovidestheuserwithalevel of assuranceaboutthat

subjectmatter

Thepractitioner:

isofferingaprofessionalserviceandexpectstobepaid

Mustbecompetent,objectiveandindependent

Workmustbecarriedouttoexpectedstandards.

Introduction to assurance Chapter 1

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EXaMplEs

• Reviewoffinancialstatements(internationalstandardonReviewEngagements2400).

• Riskassessmentreports.• performancemeasurementreports.• systemsreliabilityreports.• Reportsonsocialandenvironmentalissues

reviewsofinternalcontrol.

The Framework permits only two types of assurance engagement to be performed:

EXaMplE

• statutoryaudit.

ReasonableassuranceengagementsThepractitioner:• gatherssufficientappropriateevidence• doesenoughworktobeableto

drawreasonable,butnotabsolute,conclusions

• concludesthatthesubjectmatterconformsinallmaterialrespectswithidentifiedsuitablecriteria

• givesareportintheformofa positive statement of opinion

Limitedassuranceengagement

Thepractitioner:

• gatherssufficientappropriateevidencetobesatisfiedthatthesubjectmatterisplausibleinthecircumstances

• givesareportintheformofa negative statement of opinion(“nothinghascometoourattention”)

Introduction to assurance Chapter 1

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Example

Directorsareaccountabletotheshareholdersandtosociety

atlargeformakingdecisionsonbehalfofthecompany’s

ownersandusingtheassetsofthecompanyefficientlyand

effectively.

Accountability, stewardship and agency

Accountabilitymeansthatpeopleinpositionsof

powercanbeheldtoaccountfortheiractions.

The elements of an assurance engagementThere are 5 elements of an assurance engagement:• the three parties involved:

– the practitioner (i.e. the reviewer of the information);

– the intended users (of the information); and

– the responsible party (i.e. the preparer of the information).

• the subject matter under scrutiny;• suitable criteria against which to judge

the reliability and accuracy of the subject matter (e.g. IFRS);

• sufficient appropriate evidence to substantiate an opinion; and

• a written report in an appropriate form.

Introduction to assurance Chapter 1

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ExampleDirectorshaveadutyofstewardshipofthe

company’sassets.

Stewardshipistheresponsibilitytotakegood

careofresources.Thisrelationship,whereoneperson

hasadutyofcaretowardssomeoneelse,isknownasa

‘fiduciaryrelationship’.

ExampleDirectorscanbeseenasthe

agentsofshareholders,employ-eesastheagentsofdirectors

andexternalauditorsasagentsofshareholders.

Agency relationshipsoccurwhenoneparty,theprincipal,employsanother

party,theagent,toperformataskontheirbehalf.

Company management are required to produce financial statements giving an account of their stewardship of the company at regular intervals, but there was a need for some kind of independent validation of the financial statements – the independent audit.

Introduction to assurance

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Benefits of audit• Helps improve quality of information.• Independent scrutiny.• Reduces risk of management bias, fraud

and error.• Enhances credibility of FS.• Deficiencies in internal controls

highlighted.

Limitations of audit• FS include subjective estimates and

judgments.• Inherent limitations of internal controls.• Representations from management not

reliable.• Evidence is persuasive not conclusive.• Do not test all transactions, only a

sample.

Expectations Gap• Auditor tests everything.• Auditor detects all fraud and error.• Auditor confirms the company is a going

concern.• Auditor prepares the FS.

Exam focus

To practise the basics use the following test your understandings (TYUs) Complete text:• Chapter 1, TYU 1• Chapter 1, TYU 2• Chapter 1, TYU MCQ’s