http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Maximise Your Exam Success with BPP Learning Media’s Platinum Approved Materials LEARN Our Study Texts are the only Texts that have been reviewed by the examiner This ensures that our coverage of the syllabus is appropriate for your exam By choosing our Platinum Approved Study Text you are one step nearer to achieving the exam success you deserve PRACTISE AND APPLY Our Practice & Revision Kits are the only Kits that have been reviewed by the examiner Use our Kits and our i-Pass CD-ROMs to reinforce and apply your knowledge Kits are packed with past ACCA exam questions together with full solutions and handy tutor’s hints i-Pass contains approximately 300 questions, covering all important syllabus areas REVISE AND RETAIN Revise using our pocket-sized Passcards and then listen to our audio Success CD to give your revision a boost Our Interactive Passcards product takes the Passcards, adds additional tutorials, comments and lots of testing and links them to the Study Text The result is a truly interactive revision experience Revise using the on-screen Passcards and dip into the on-screen Study Text for more detail BPP LEARNING MEDIA CUSTOMER SERVICES Tel: 0845 075 1100 (UK) Email: learningmedia@bpp.com Tel: +44 (0)20 8740 2211 (Overseas) Website: www.bpp.com/learningmedia To help maximise your chances of passing, we’ve put together some exclusive additional ACCA resources To access the BPP ACCA online additional resources for this material please go to: http://accaresources.bpp.com/student n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code below when prompted You will only have to this once for each paper you are studying http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com S T U D Y PAPER F8 AUDIT AND ASSURANCE (INTERNATIONAL) BPP Learning Media is the sole ACCA Platinum Approved Learning Partner – content for the ACCA qualification In this, the only Paper F8 study text to be reviewed by the examiner: We discuss the best strategies for studying for ACCA exams We highlight the most important elements in the syllabus and the key skills you will need We signpost how each chapter links to the syllabus and the study guide We provide lots of exam focus points demonstrating what the examiner will want you to We emphasise key points in regular fast forward summaries We test your knowledge of what you've studied in quick quizzes We examine your understanding in our exam question bank We reference all the important topics in our full index BPP's Practice & Revision Kit, i-Pass and Interactive Passcard products also support this paper FOR EXAMS UP TO JUNE 2014 http://daniali-tech.blogspot.com T E X T http://daniali-tech.blogspot.com First edition 2007 Sixth edition October 2012 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 BPP Learning Media Ltd ISBN 9781 4453 9651 (Previous ISBN 9781 4453 7765 0) e-ISBN 9781 4453 9211 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Printed in the United Kingdom by Polestar Wheatons Hennock Road Marsh Barton Exeter EX2 8RP Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources © BPP Learning Media Ltd 2012 ii http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Contents Page Introduction Helping you to pass – the ONLY F8 Study Text reviewed by the examiner! Studying F8 Syllabus and study guide The exam paper v vii x xix Part A Audit framework and regulation Audit and other assurance engagements Statutory audit and regulation Corporate governance Professional ethics 17 33 49 Part B Internal audit Internal audit 81 Part C Planning and risk assessment Risk assessment Audit planning and documentation Introduction to audit evidence 103 133 145 Part D Internal control 10 Internal control Tests of controls 157 179 Part E Audit evidence 11 12 13 14 15 16 17 Audit procedures and sampling Non-current assets Inventory Receivables Cash and bank Liabilities, capital and directors’ emoluments Not-for-profit organisations 209 237 247 263 277 287 303 Part F Review 18 Audit review and finalisation 319 Part G Reporting 19 Reports 339 Exam question bank Exam answer bank Index Review form 363 389 445 Contents http://daniali-tech.blogspot.com iii http://daniali-tech.blogspot.com A note about copyright Dear Customer What does the little © mean and why does it matter? Your market-leading BPP books, course materials and e-learning materials not write and update themselves People write them: on their own behalf or as employees of an organisation that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: Photocopying our materials is a breach of copyright Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or emailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? We update for a reason.) But the e-products are sold on a single user licence basis: we not supply ‘unlock’ codes to people who have bought them second-hand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Helping you to pass – the ONLY F8 Study Text reviewed by the examiner! BPP Learning Media – the sole Platinum Approved Learning Partner - content As ACCA’s sole Platinum Approved Learning Partner – content, BPP Learning Media gives you the unique opportunity to use examiner-reviewed study materials for the 2013 and June 2014 exams By incorporating the examiner’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Developing exam awareness Our Texts are completely focused on helping you pass your exam Our advice on Studying F8 outlines the content of the paper, the necessary skills the examiner expects you to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide You can find the syllabus and Study Guide on pages x to xviii of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them - both within chapters and in the Exam Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction http://daniali-tech.blogspot.com v http://daniali-tech.blogspot.com Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together the ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup Quick Quiz A quick test of your knowledge of the main topics in the chapter Exam Question Bank vi A full list of the Fast Forwards included in the chapter, providing an easy source of review Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Introduction http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Studying F8 The F8 Audit and Assurance exam tests students' knowledge of auditing and assurance theory but also, very importantly, their ability to apply that knowledge to scenarios that they might well come across in their auditing careers The F8 examiner The examiner for F8 is Pami Bahl, who issued her examiner's approach article to F8 in 2010 You must make sure you read this article on the ACCA's website as it provides useful information about the F8 exam from her perspective It includes a description of the format and style of each question in the exam, along with some indication of how different areas might be examined An examiner’s approach interview is also available on the F8 area of the ACCA website along with an examiner’s analysis interview looking at student performance in various exam sittings, which highlights how students can improve their performance All questions on this paper are compulsory so any topic from across the syllabus could be examined As stated above, it is essential that students possess both knowledge of auditing and assurance and the ability to apply that knowledge to situations that could arise in real life What F8 is about The purpose of the F8 syllabus is to 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 syllabus is divided into seven main sections: (a) Audit framework and regulation The syllabus introduces the concept of assurance engagements such as the external audit and the different levels of assurance that can be provided You need to understand the purpose of an external audit and the respective roles of auditors and management This part of the syllabus also explains the importance of good corporate governance within an entity The regulatory framework is also explained, as well as the key area of professional ethics (b) Internal audit In this part of the syllabus we explain the nature of internal audit and describe its role as part of overall performance management and good corporate governance within an entity It is essential that you understand the differences between internal and external audit at this stage (c) Planning and risk assessment Planning and risk assessment are key stages of the external audit because it is the information and knowledge gained at this time that determine the audit approach to take We also develop further the concept of materiality which was introduced briefly in the first part of the syllabus (d) Internal control In this part of the syllabus you need to be able to describe and evaluate information systems and internal controls to identify and communicate control risks and their potential consequences to the entity's management, making appropriate recommendations to mitigate those risks We cover key areas of purchases, sales, payroll, inventory, cash and non-current assets (e) Audit evidence Audit conclusions need to be supported by sufficient and appropriate audit evidence This area of the syllabus assesses the reliability of various types and sources of audit evidence and also examines in detail the audit of specific items (non-current assets, inventory, receivables, bank and cash and payables) We also look at the special considerations for the audit of not-for-profit organisations such as charities, which could come up in a scenario-based question Introduction http://daniali-tech.blogspot.com vii http://daniali-tech.blogspot.com ISA 705 Modifications to the opinion in the independent auditor’s report, 344 ISA 706 Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report, 350 ISA 710 Comparative information – corresponding figures and comparative financial statements, 354 ISA 720 The auditor’s responsibility in relation to other information in documents containing audited financial statements, 352 ISAE 3000 Assurance engagements other than audits or reviews of historical information, 9, 30 ISRE 2400 Engagements to review financial statements, 10 Key audit partner, 57 Laws and regulations, 127 Legal obligation, 296 Liability, 296 Limitations of accounting and control systems, 164 Loans and guarantees, 58 Lowballing, 60 Management’s expert, 147, 227 Management's point estimate, 218 Material inconsistencies, 352 Material misstatements of fact, 352 Materiality, 13, 111 Misappropriation of assets, 125 Misstatement, 332 Misstatement of fact, 352 Modified opinions, 344 Monetary Unit Sampling, 272 Monitoring of controls, 162 Narrative notes, 166 Negative assurance, 14 Negative confirmation request, 268 Net realisable value, 249 Non-adjusting events, 321 Non-current asset register, 239 Non-current liabilities, 295 Non-executive directors, 40 Non-response, 270 Non-sampling risk, 221 Non-statistical sampling, 220 Non-statutory audits, Not-for-profit organisations, 304 Objectivity, 51, 53 Obligating event, 296 Observation, 117, 150 Opening balances, 353 Operational audits, 91 Opinion, Organisation for Economic Co-operation and Development (OECD), 35 Other information, 352 Other matter paragraph, 351 Outsourcing, 96 Overall responses, 120 Overall review, 331 Overdue fees, 58 Payroll system, 196 Performance materiality, 113 Permanent audit files, 141 Perpetual inventory, 252 Pervasiveness, 344 Population, 220 Positive confirmation request, 268 Practitioner, Preconditions for an audit, 73 Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services, 27 Procurement, 92 Professional behaviour, 51 Professional competence and due care, 51 Professional judgement, 106 Professional scepticism, 106 Provision, 296 Public interest entities, 54 Purchases system, 185 Qualified opinion, 344 Random selection, 222 Ratio analysis, 116, 215 Reasonable assurance, 12 Reasonableness test, 215 Recalculation, 150 Receivables, 265 Recognised Qualifying Bodies, 24 Recognised Supervisory Body, 24 Recording accounting and control systems, 166 Recurring audits, 74 Regulation of auditors, 23 Removal of auditors, 22 Remuneration, 21 Reperformance, 150 Report to management, 355 Index http://daniali-tech.blogspot.com 447 http://daniali-tech.blogspot.com Reserves, 299 Resignation of auditors, 22 Responses to risks, 121, 122 Responsible party, Retention of working papers, 142 Revenue and capital expenditure, 200 Review engagement, 10, 14 Rights and duties, 20 Risk assessment, 105, 119 Risk management, 43 Risk-based approach, 107 Sales, 271 Sales system, 180 Sampling, 220 Sampling risk, 221 Sampling unit, 221 Segregation of duties, 162 Self-interest, 54 Self-review, 61 Service auditor, 231 Service organisation, 231 Share capital, 299 Significant deficiency in internal control, 172 Significant risks, 119 Small company audit exemption, 19 Small entity, 19 Stakeholders, Statements of recommended practice, 305 Statistical sampling, 220 Statutory audit, 4, 18 Stewardship, 5, 6, Stratification, 221 Subsequent events, 321 448 Substantive procedures, 121, 137, 150 Sufficiency, 147 Suppliers’ statements, 292 Systematic selection, 222 Tangible non-current assets, 238 Tendering, 68 Test data, 226 Tests of controls, 121, 137, 150 Tests of detail, 122 Tolerable misstatement, 223 Tolerable rate of deviation, 223 Trade payables, 289 Trend analysis, 215 True, 12 Truth and fairness, 12 Turnbull, 36, 40 U K Corporate Governance Code, 36 Uncorrected misstatement, 332 Understanding the entity, 114 Unmodified opinion, 341 User auditor, 231 User entity, 231 Valuation, 62 Value for money, 88 Wages costs, 291 Working papers, 139 Written representations, 329 Index http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Notes http://daniali-tech.blogspot.com http://daniali-tech.blogspot.com Review Form – Paper F8 Audit and Assurance (International) (10/12) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: During the past six months you recall seeing/receiving any of the following? 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Introduction http://daniali -tech. blogspot.com xv http://daniali -tech. blogspot.com xvi Introduction http://daniali -tech. blogspot.com http://daniali -tech. blogspot.com Introduction http://daniali -tech. blogspot.com... http://daniali -tech. blogspot.com Introduction http://daniali -tech. blogspot.com xiii http://daniali -tech. blogspot.com xiv Introduction http://daniali -tech. blogspot.com http://daniali -tech. blogspot.com