m freeaccastudymaterial.blogspot.com co ot l.b log ACCA sp Paper P7 (INT/UK) ria ate Advanced Audit and Assurance ym Essential Text fre ea cc as tud freeaccastudymaterial.blogspot.com sp ot co m freeaccastudymaterial.blogspot.com l.b log British library cataloguinginpublication data Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ym © Kaplan Financial Limited, 2014 ate ria A catalogue record for this book is available from the British Library. as tud 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. Printed and bound in Great Britain. Acknowledgements cc We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants for permission to reproduce past examination questions. The answers have been prepared by Kaplan Publishing. fre ea 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. ii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Contents Page Regulation in a global economy Chapter Code of ethics and conduct Chapter Professional appointments Chapter Quality control Chapter Advertising, publicity, obtaining professional work and fees 73 Chapter Tendering 87 Chapter Money laundering Chapter Professional responsibilities and liabilities 105 Chapter Planning, materiality and assessing the risk of misstatement 139 Chapter 10 Group and transnational audits 179 Chapter 11 Evidence 213 Chapter 12 Completion Chapter 13 Auditors’ reports 269 Chapter 14 Reports to those charged with governance 297 Chapter 15 Other assignments 307 Chapter 16 Prospective financial information 327 Chapter 17 Audit of social, environmental and integrated reporting 343 Chapter 18 Forensic audits 363 Chapter 19 Outsourcing and internal audit 375 Chapter 20 UK syllabus only: Auditing aspects of insolvency 385 Chapter 21 INT syllabus only: Audit of performance information in the public sector sp 15 43 ym ate ria l.b log 51 as tud cc ea fre ot Chapter co m freeaccastudymaterial.blogspot.com 95 233 403 iii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Chapter 23 Additional practice questions 413 co Financial reporting revision 417 fre ea cc as tud ym ate ria l.b log sp ot Chapter 22 m freeaccastudymaterial.blogspot.com iv KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com chapter m Introduction fre ea cc as tud ym ate ria l.b log sp Paper Introduction ot co v freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com How to Use the Materials ot co m Introduction sp These Kaplan Publishing learning materials have been carefully designed to make your learning experience as easy as possible and to give you the best chances of success in your examinations. l.b log The product range contains a number of features to help you in the study process. They include: (1) Detailed study guide and syllabus objectives (2) Description of the examination (3) Study skills and revision guidance (5) Question practice ria (4) Complete text or essential text ate The sections on the study guide, the syllabus objectives, the examination and study skills should all be read before you commence your studies. They are designed to familiarise you with the nature and content of the examination and give you tips on how to best to approach your learning. fre ea cc as tud ym The complete text or essential text comprises the main learning materials and gives guidance as to the importance of topics and where other related resources can be found. Each chapter includes: • The learning objectives contained in each chapter, which have been carefully mapped to the examining body's own syllabus learning objectives or outcomes. You should use these to check you have a clear understanding of all the topics on which you might be assessed in the examination • The chapter diagram provides a visual reference for the content in the chapter, giving an overview of the topics and how they link together • The content for each topic area commences with a brief explanation or definition to put the topic into context before covering the topic in detail. You should follow your studying of the content with a review of the illustration/s. These are worked examples which will help you to understand better how to apply the content for the topic vi KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com m freeaccastudymaterial.blogspot.com Test your understanding sections provide an opportunity to assess your understanding of the key topics by applying what you have learned to short questions. Answers can be found at the back of each chapter • Summary diagrams complete each chapter to show the important links between topics and the overall content of the paper. These diagrams should be used to check that you have covered and understood the core topics before moving on • Question practice is provided at the back of each text l.b log sp ot co • Quality and accuracy are of the upmost 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. ate Icon Explanations ria Our Quality Coordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. Definition – Key definitions that you will need to learn from the core content. ym Key Point – Identifies topics that are key to success and are often examined. as tud New – Identifies topics that are brand new in papers that build on, and therefore also contain, learning covered in earlier papers. cc Expandable Text – Expandable text provides you with additional information about a topic area and may help you gain a better understanding of the core content. Essential text users can access this additional content online (read it where you need further guidance or skip over when you are happy with the topic) ea Test Your Understanding – Exercises for you to complete to ensure that you have understood the topics just learned. fre Illustration – Worked examples help you understand the core content better. vii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Introduction co Tricky topic – When reviewing these areas care should be taken and all illustrations and test your understanding exercises should be completed to ensure that the topic is understood. ot Tutorial note – Included to explain some of the technical points in more detail. sp Footsteps – Helpful tutor tips. Online subscribers Paper background Objectives of the syllabus ria Core areas of the syllabus l.b log For more details about the syllabus and the format of your exam, please see your Complete Text or go online. Syllabus objectives and chapter references ate The examination Paperbased examination tips ym Study skills and revision guidance Preparing to study as tud Effective studying Three ways of taking notes Revision You can find further reading and technical articles under the student section of ACCA's website. fre ea cc Further reading viii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter ot co l.b log sp Regulation in a global economy Chapter learning objectives When you have completed this chapter you will be able to: Explain the need for laws, regulations, standards and other guidance relating to audit, assurance and related services • Outline and explain the need for the legal and professional framework including: (i) public oversight and principles of corporate governance ate ria • (ii) the role of audit committees and impact on audit and assurance practice Explain current developments in auditing standards including the need for new and revised standards and evaluate their impact on the conduct of audits as tud • ym (iii) UK syllabus only: Discuss the provision of the UK Corporate Governance Code and its impact on audit and assurance practice • Discuss other current legal, ethical other professional and practical matters that affect accountants, auditors, their employers and the profession fre ea cc freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Regulation in a global economy co Exam focus sp ot This chapter considers the reasons behind the mechanisms for regulating assurance services and how standards of corporate governance are maintained, including much of the background to developments in the profession. You need to have an awareness of recent developments in the profession, which will require you to read around the topic to develop your understanding and develop an ability to form your own opinion and reach your own conclusions. l.b log 1 Introduction Why clients pay for assurance services? To reduce their exposure to risk. ria Assurance professionals provide reports that give an independent opinion as to whether subject matter complies with predetermined criteria. This enables the end user of that information to place more or less reliance on that information when making decisions. ym ate Decision makers within financial markets need to have the confidence to make informed decisions. In order to make these decisions they need information that they can trust. The main investment decisions that take place concern the buying and selling of shares. Without credible, reliable information at their disposal investors cannot make those decisions. as tud It is not just shareholders that rely on this information, there are a range of other stakeholders who also rely on assurance services. For example, it is common for banks to seek audited financial statements and independently examined forecasts before making lending decisions. Many companies request audited financial statements before buying from or supplying a particular company, in case that company is nearing insolvency. As well as investments in businesses other stakeholders must make decisions about how to deploy resources: suppliers, customers, employees and prospective lenders all need information before making significant decisions that could have damaging financial repercussions. fre ea cc Confidence in the reliability of financial information is essential to the functioning of these markets. Whilst it is not the only factor in helping to achieve that confidence, good quality, independent audit and assurance has a key role to play. A series of recent and high profile corporate failures has eroded trust in the assurance market and as a result mechanisms for increased regulation of the auditing profession have been introduced. KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com ... freeaccastudymaterial.blogspot.com iv KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com chapter m Introduction fre ea cc as tud ym ate ria l.b log sp Paper Introduction ... increased regulation of the auditing profession have been introduced. KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter co 2 The need for regulation ot Introduction sp Business failures, particularly large, highprofile businesses, cause loss of ... Factors affecting the significance of the threat include: 20 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com ria l.b log sp ot co m chapter ate The ACCA Code of Ethics divides safeguards into two broad categories: