Publishing F8 INT Study Text Audit and Assurance ACCA Publishing ACCA Distance Learning Courses Learn quickly and efficiently Using a blended learning approach, our distance learning package will steer you towards exam success Our aim is to teach you all you need to know and give you plenty of practice, without bombarding you with excessive detail We therefore offer you the following tailored package: • Access to our dedicated distance learning website – where you’ll find a regular blog from the distance learning department – reminders, hints and tips, study advice and other ideas from tutors, writers and markers – as well as access to your course material • • Tutor support – by phone or by email, answered within 48 hours The handbook – outlining distance learning with us and helping you understand the ACCA course Study phase Revision phase • The key study text – covering the syllabus without excessive detail and containing a bank of practice questions for plenty of reinforcement of key topics • A key study guide – guiding you through the study text and helping you revise • An online question bank for additional reinforcement of knowledge • An exam kit – essential for exam preparation and packed with examstandard practice questions • tutor-marked mock exams to be sat during your studies • Key notes - highlighting the key topics in an easy-to-use format Total price: £160.95 Visit us at www.emilewoolfpublishing.com distancelearning@emilewoolfpublishing.com tel: +44(0) 1483 225746 ACCA ACCA Paper F8 (INT) Audit and Assurance (International) Welcome to Emile Woolf‘s study text for Paper F8 (INT) Audit and assurance (International) which is: Written by tutors Comprehensive but concise In simple English Used around the world by Emile Woolf Colleges including China, Russia and the UK Publishing Third edition published by Emile Woolf Publishing Limited Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road, Crowthorne, Berkshire RG45 6AW Email: info@ewiglobal.com www.emilewoolfpublishing.com © Emile Woolf Publishing Limited, September 2010 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, scanning or otherwise, without the prior permission in writing of Emile Woolf Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation. You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer. Notice Emile Woolf Publishing Limited has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf Publishing Limited nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain. British Library Cataloguing in Publications Data A catalogue record for this book is available from the British Library. ISBN 978‐1‐84843‐068‐6 Printed and bound in Great Britain. Acknowledgements The syllabus and study guide are reproduced by kind permission of the Association of Chartered Certified Accountants. All IASB material is adapted and reproduced with the kind permission of the International Accounting Committee Foundation. © International Accounting Standards Committee Foundation (IASB). All rights reserved ii Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (INT) Audit and assurance c Contents Page Syllabus and study guide Chapter 1: The meaning of audit and assurance 13 Chapter 2: Corporate governance and auditing 21 Chapter 3: The statutory audit 33 Chapter 4: Professional ethics and codes of conduct 45 Chapter 5: Internal audit 79 Chapter 6: Planning and risk assessment 105 Chapter 7: Introduction to audit evidence 129 Chapter 8: Internal control: ISA 315 159 Chapter 9: Tests of controls 191 Chapter 10: Introduction to substantive procedures 225 Chapter 11: Substantive procedures: non-current assets 253 Chapter 12: Substantive procedures: inventory 263 Chapter 13: Substantive procedures: other current assets 281 Chapter 14: Substantive procedures: other areas 297 Chapter 15: Audit finalisation 315 Chapter 16: The external audit report 335 Chapter 17: Other audit and assurance situations and reports 361 Practice questions 377 Answers to practice questions 397 Index 457 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides iii iv Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (INT) Audit and assurance S Syllabus and study guide This syllabus and study guide is designed to help with planning study and to provide detailed information on what could be assessed in any examination session AIM 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 MAIN CAPABILITIES On successful completion of this paper, candidates should be able to: A Explain the nature, purpose and scope of assurance engagements including the role of the external audit and its regulatory and ethical framework B Explain the nature of internal audit and describe its role as part of overall performance management and its relationship with the external audit C Demonstrate how the auditor obtains an understanding of the entity and its environment, assesses the risk of material misstatement (whether arising from fraud or other irregularities) and plans an audit of financial statements D Describe and evaluate information systems and internal controls to identify and communicate control risks and their potential consequences, making appropriate recommendations E Identify and describe the work and evidence required to meet the objectives of audit engagements and the application of the International Standards on Auditing F Evaluate findings and modify the audit plan as necessary G Explain how the conclusions from audit work are reflected in different types of audit report, explain the elements of each type of report © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides Paper F8: Audit and assurance (International) RATIONALE The Audit and Assurance syllabus is essentially divided into seven areas The syllabus starts with the nature, purpose and scope of assurance engagements, including the statutory audit, its regulatory environment, and introduces professional ethics relating to audit and assurance It then leads into internal audit, including the scope of internal audit as well as the differences between internal audit and external audit The syllabus then covers a range of areas relating to an audit of financial statements These include planning and risk assessment, evaluating internal controls, audit evidence, and a review of the financial statements The final section then deals with reporting, including statutory audit reports, management reports, and internal audit reports DETAILED SYLLABUS A Audit Framework and Regulation B Internal audit C Objective and general principles Understanding the entity and knowledge of the business Assessing the risks of material misstatement and fraud Analytical procedures Planning an audit Audit documentation The work of others Internal control Internal audit and corporate governance Differences between external and internal audit The scope of the internal audit function Outsourcing the internal audit department Internal audit assignments Planning and risk assessment D The concept of audit and other assurance engagements Statutory audits The regulatory environment and corporate governance Professional ethics and ACCA’s Code of Ethics and Conduct Internal control systems The use of internal control systems by auditors Transaction cycles Tests of control The evaluation of internal control components Communication on internal control Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Syllabus and study guide E Audit evidence F Review G The use of assertions by auditors Audit procedures The audit of specific items Audit sampling and other means of testing Computer-assisted audit techniques Not-for-profit organisations Subsequent events Going concern Management representations Audit finalisation and the final review Reporting Audit reports Reports to management Internal audit reports APPROACH TO EXAMINING THE SYLLABUS The syllabus is assessed by a three-hour paper-based examination, consisting of five compulsory questions The bulk of the questions will be discursive but some questions involving computational elements will be set from time to time The questions will cover all areas of the syllabus Question will be a scenario-based question worth 30 marks Question will be a knowledge-based question worth 10 marks Questions 3, and will be worth 20 marks each Study Guide A AUDIT FRAMEWORK AND REGULATION The concept of audit and other assurance engagements (a) Identify and describe the objective and general principles of external audit engagements (b) Explain the nature and development of audit and other assurance engagements (c) Discuss the concepts of accountability, stewardship and agency (d) Discuss the concepts of materiality, true and fair presentation and reasonable assurance (e) Explain reporting as a means of communication to different stakeholders (f) Explain the level of assurance provided by audit and other review assignments © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides Paper F8: Audit and assurance (International) 4 Statutory audits (a) Describe the regulatory environment within which statutory audits take place (b) Discuss the reasons and mechanisms for the regulation of auditors (c) Explain the statutory regulations governing the appointment, removal and resignation of auditors (d) Discuss the types of opinion provided in statutory audits (e) State the objectives and principle activities of statutory audit and assess its value (e.g in assisting management to reduce risk and improve performance) (f) Describe the limitations of statutory audits The regulatory environment and corporate governance (a) Explain the development and status of International Standards on Auditing (b) Explain the relationship between International Standards on Auditing and national standards (c) Discuss the objective, relevance and importance of corporate governance (d) Discuss the need for auditors to communicate with those charged with governance (e) Discuss the provisions of international codes of corporate governance (such as OECD) that are most relevant to auditors (f) Describe good corporate governance requirements relating to directors’ responsibilities (e.g for risk management and internal control) and the reporting responsibilities of auditors (g) Analyse the structure and roles of audit committees and discuss their drawbacks and limitations (h) Explain the importance of internal control and risk management (i) Compare the responsibilities of management and auditors for the design and operation of systems and controls Professional ethics and ACCA’s Code of Ethics and Conduct (a) Define and apply the fundamental principles of professional ethics of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (b) Define and apply the conceptual framework (c) Discuss the sources of, and enforcement mechanisms associated with, ACCA’s Code of Ethics and Conduct (d) Discuss the requirements of professional ethics and other requirements in relation to the acceptance of new audit engagements (e) Discuss the process by which an auditor obtains an audit engagement Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP ... format Total price: £160.95 Visit us at www.emilewoolfpublishing.com distancelearning@emilewoolfpublishing.com tel: +44(0) 1483 225746 ACCA ACCA Paper F8 (INT) Audit and Assurance (International)... questions 397 Index 457 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides iii iv Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (INT) Audit and... EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 19 Paper F8: Audit and assurance (International) 20 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP