Publishing 2013 ACCA F8 (INT) Audit & Assurance Study Text emilewoolfpublishing.com 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 Sixth 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, January 2013 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: 978-1-84843-294-9 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 © Emile Woolf Publishing Limited 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 101 Chapter 7: Introduction to audit evidence 125 Chapter 8: Internal control: ISA 315 155 Chapter 9: Tests of controls 187 Chapter 10: Introduction to substantive procedures 221 Chapter 11: Substantive procedures: non-current assets 249 Chapter 12: Substantive procedures: inventory 259 Chapter 13: Substantive procedures: other current assets 277 Chapter 14: Substantive procedures: other areas 293 Chapter 15: Audit finalisation 313 Chapter 16: The external audit report 333 Chapter 17: Other audit and assurance situations and reports 359 Practice questions 373 Answers to practice questions 393 Index 453 © Emile Woolf Publishing Limited iii iv © Emile Woolf Publishing Limited 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 © Emile Woolf Publishing Limited 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 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 Audit evidence Objective and general principles Assessing the risks of material misstatement Understanding the entity and its environment Materiality, fraud, laws and regulations Analytical procedures Planning an audit Audit documentation Internal control E Internal audit and corporate governance Differences between the external auditor and the internal audit function The scope of the internal audit function Outsourcing the internal audit function 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 The use of assertions by auditors Audit procedures The audit of specific items © Emile Woolf Publishing Limited Syllabus and study guide F Review G Audit sampling and other means of testing Computer-assisted audit techniques The work of others Not-for-profit organisations Subsequent events Going concern Written 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 © Emile Woolf Publishing Limited Paper F8: Audit and assurance (International) 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 true and fair presentation and reasonable assurance e) Explain reporting as a means of communication to different stakeholders f) Define and provide the objectives of an assurance engagement g) Explain the five elements of an assurance engagement h) Explain the level of assurance provided by an external audit and other review engagements External audits a) Describe the regulatory environment within which external audits take place b) Discuss the reasons and mechanisms for the regulation of auditors c) Explain the statutory regulations governing the appointment, rights, removal and resignation of auditors d) State the objectives and principle activities of external audits and assess its value (e.g in assisting management to reduce risk and improve performance) e) Describe the limitations of external audits The regulatory environment and corporate governance a) Explain the development and status of International Standards on Auditing (ISAs) 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 © Emile Woolf Publishing Limited Paper F8: Audit and assurance (International) If these additional procedures fail to provide adequate evidence then: 37 the audit report should be qualified on the grounds of a scope limitation, and the auditor should consider the reliability of other representations obtained from the directors during the course of the audit Subsequent events Inventory of finished goods Post year end sales can be reviewed to check sales prices and therefore the net realisable value of inventories A lack of post year end sales may indicate that an allowance for obsolescence is needed Correspondence with customers may provide evidence of product faults or other problems which may indicate that an allowance for returns or legal claims is needed Credit notes issued after the year end may provide evidence of product faults which may indicate that an allowance for returns or obsolescence is needed Trade receivables Post year end cash receipts provide evidence as to the recoverability of year end balances Correspondence with customers may provide evidence of disputes which may affect the recoverability of individual year end balances Trade payables Post year end payments to suppliers may provide evidence of unrecorded year end liabilities Correspondence with suppliers may provide evidence of unrecorded year end liabilities Bank overdraft Post year end receipts and payments may provide evidence of the likelihood of the company staying within its overdraft facility (as, if it does not, and the facility is withdrawn or secured on key assets, then the going concern of the company may be in doubt) Correspondence with the bank may indicate whether support is ongoing or likely/about to be withdrawn © Emile Woolf Publishing Limited 447 Paper F8: Audit and assurance (International) 38 Eden Electronics (a) Types of modified opinions ISA 705 Modifications to the opinion in the independent auditor’s report states that modified opinions are issued in the following circumstances: (i) The auditor has been unable to obtain sufficient appropriate audit evidence This is often referred to as a ‘limitation on scope’ modification If the possible effect of a limitation on scope is ‘material and pervasive’, the auditor is unable to express an opinion on the financial statements He will thus express a disclaimer of opinion An example might be where a company’s accounting records have been completely destroyed by fire and therefore the financial statements may include a significant amount of information which has been estimated In such circumstances, the auditor will be unable to form an opinion as to whether the financial statements show a true and fair view, and a disclaimer of opinion must be given If the auditor concludes that the possible effect of the disclaimer is ‘material but not pervasive’, he will give a qualified opinion, using the phrase ‘except for’ An example might be where a material amount of a company’s sales are cash sales over which there was no system of control on which the auditor could rely and there were no other satisfactory audit procedures which are able to confirm that cash sales are correctly recorded (ii) The financial statements are materially misstated Here, the auditor disagrees with the amount, classification, presentation or disclosure of an item in the financial statements If the matter is material and pervasive to the view given by the financial statements, an adverse opinion will be given An example might be where a company has not provided for large losses expected to arise on contracts being worked on In such circumstances the auditor may give an adverse opinion because he concludes that the significance of the matter is pervasive to the view given by the financial statements If the matter is material, but not pervasive, then a qualified opinion will be given using the phrase ‘except for’ An example might be where a company has not made an allowance against a debt outstanding at the year end when the customer has subsequently gone into liquidation In such circumstances, the auditor will give an ‘except for’ opinion disagreeing with the lack of an allowance against the doubtful debt (b) Eden Electronics The situation of Eden Electronics would lead to a qualified opinion on the grounds that the auditor has been unable to obtain sufficient appropriate audit evidence The main elements of the audit report would therefore consist of the following: 448 © Emile Woolf Publishing Limited Paper F8: Audit and assurance (International) (i) Title – indicating that it is the report of an independent auditor (ii) Addressee – report to the shareholders (iii) Introductory paragraph identifying the entity and its financial statements that have been audited (iv) Management’s responsibility section – describing management’s responsibilities for internal controls, accounting policies and accounting estimates (v) Auditor’s responsibility section – describing the process of audit and stating that the audit was conducted in accordance with ISAs The last sentence in this section will refer to the fact that the audit evidence obtained was sufficient and appropriate to provide evidence for this qualified opinion (vi) Basis of opinion paragraph describing the matter which has given rise to the modification and quantifying it if possible It will be possible here to refer to the monetary amount at which inventory is included in the financial statements, over which the auditor has been unable to obtain sufficient evidence (vii) Opinion paragraph stating that in the auditor’s opinion except for the possible effects of the above matter, the financial statements give a true and fair view/have been prepared in accordance with the applicable financial reporting framework (viii) The report would be signed (as registered auditors), the address given, and dated 39 Posh Perfumes (a) Further information Whether the supplier difficulties are temporary or permanent Whether the supplier is taking action to overcome its problems (and whether Posh Perfumes is considering offering financial support to the supplier) Legal advice taken with regards to the possibility of negotiating a break clause in the agreement with the store Any costs/penalties arising from the above Legal advice taken with regards to the possibility of altering the agreement to cover an alternative acceptable product or sub-leasing to a competitor to mitigate costs The nature and extent of Posh Perfumes’ other activities and its ability to expand trade in those areas What the current level of inventories is and whether it is sufficient to tide over the company until supplies are resumed or an alternative product is found Willingness of Posh Perfumes’ bankers to extend/grant any overdraft facility © Emile Woolf Publishing Limited 449 Paper F8: Audit and assurance (International) (b) Possible forms of opinion Where the going concern assumption is appropriate but a material uncertainty exists the auditor must consider whether the financial statements: adequately disclose the principal events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern and management’s plans to deal with those events or conditions, and disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern If there is adequate disclosure then the auditor should express an unmodified opinion but should use an emphasis of matter paragraph to highlight the uncertainty and to draw attention to the relevant note in the financial statements If there is not adequate disclosure then the auditor should express a qualified or adverse opinion Where the going concern assumption is inappropriate the auditor should express: 40 an adverse opinion if the financial statements have been prepared on a going concern basis an unmodified opinion if the financial statements have been prepared on an alternative acceptable basis (e.g break-up basis) and there is adequate disclosure of this basis An emphasis of matter paragraph may be required Creed Computers (1) Inventory records and PCs held by directors Weaknesses The inventory records are not a reliable record of actual inventory held because: customer returns have not been recorded some items recorded as being in inventory are missing Some ‘missing’ items are held at directors’ own homes Implications 450 Year end inventories may be misstated if reliance is placed on year-end inventory records instead of a year-end count Inventory losses may go unnoticed until the next physical count delaying insurance claims and making theft more likely Customers may not be given credit for goods returned such that trade receivables will be overstated and there may be a loss of customer goodwill PCs ‘borrowed’ by the directors are unlikely to still be suitable for resale at their full value and may need to be written down in the financial statements Orders could be accepted which cannot be fulfilled if decisions are taken based on incorrect inventory records © Emile Woolf Publishing Limited Paper F8: Audit and assurance (International) Recommendations (2) All inventory despatches should be recorded on sequentially numbered despatch notes and be subsequently matched with a sales invoice All inventory returns should be recorded on sequentially numbered returns notes and be subsequently matched with a credit note A responsible official (e.g warehouse manager) should authorise any movement out of inventory other than for sales These items should either be removed from the inventory records and transferred to the non-current assets register (e.g PCs used by directors) or retained within the inventory records with a note as to their location Physical security over inventory should be improved Until the accuracy of the inventory records is established, monthly counts should be performed Customer credit limits Weaknesses The system in operation over credit limits has been broken down as: credit limits are being exceeded credit limits are not being allocated to new customers Implications Customers may make purchases for which they are then unable to pay, resulting in bad debts Customers may take advantage of the deterioration in credit control and delay payment Recommendations A credit limit must be set by a responsible official (e.g sales director) before a new customer can be accepted Before an order is accepted from a customer, a check should be made to see if that order, together with the outstanding balance on that customer’s account, exceeds that customer’s credit limit If that is the case then either the order should not be accepted at that time, or an increased limit should be authorised © Emile Woolf Publishing Limited 451 Paper F8: Audit and assurance (International) 452 © Emile Woolf Publishing Limited Paper F8 (INT) Audit and assurance i Index A Assurance provided by audit 19 Assurance provided by review 19 Audit 14 ACCA’s disciplinary regime 47 Audit approach 157 Accepting an audit appointment: ethical matters 73 Audit committees Accountability 14 29 Audit documentation 135 135 Accountability and audit functions 31 Accounting controls 166 Accounting estimates 241 Audit evidence Accounting for purchases 200 ISA 500 126 Accruals 297 reliability 128 Accuracy and valuation 224 Audit file 135 Accuracy controls 167 Audit of accounting estimates ‐ ISA 540 241 Actual litigation 67 Adjusting events 319 Advertising and publicity 72 Advocacy threat 49, 51 Agency Analytical procedures 15 129, 234 Analytical procedures in substantive testing Annual review of the engagement letter Application controls 237 76 ISA 230 31 126, 229 Audit of equity 305 Audit of liabilities 294 Audit of prepayments 287 Audit of smaller entities 370 Audit plan 102, 104 Audit procedures ‐ reserves 305 Audit programmes 105 Audit report Audit risk 15, 334 114, 115 166 approach 110 35 assessment 181 Appropriate audit evidence 127 model 115 Arithmetic controls 166 Audit sampling ‐ ISA 530 140 Assertion level 109 Audit software 226 Assessment of risk 156 Audit strategy 104 Audit trail 184 Appointment of auditors Assurance © Emile Woolf Publishing Limited 18, 26 453 Paper F8: Audit and assurance (International) Audit work after the count: follow up 273 Confirmation exercise 280, 283 Audit work before the count 271 Confirmation of receivables balances Audit work during the count 272 Conflicts of interest Audit working papers 135 Constructive obligation 278 70 299 Auditing standards 39 Content engagement letter Auditing standards: issuing 39 Contingencies 302 300 Auditor’s opinion 339 Contingent assets Authorisation controls 166 Contingent fees 75 57 Contingent liabilities 300 Continuity of operations 166 B Control activities Control environment 163 114, 160 Bad debts 285 Control risk 116 Bank and cash balances 288 Control totals 171 Bank and cash system 208 Corporate governance Bank balances ‐confirmation of balances 289 general principles 28 Bank confirmation letter 289 main issues 23 Batch totals 172 role of the auditor 25 Best value audits Business and materiality Business risks 22, 25 92 systems 27 107 voluntary code 27 Counting procedures 268 Current file 137 Customer ordering 192 22, 108 C Cut‐off 225, 270, 286 CAATs 188 Check digits 171 D Chinese walls 71 Circularisation 278 Debt ratios 239 Classification and Understandability 225 Despatch of goods and invoicing 194 116 Client screening 73 Detection risk Close business relationships 58 Direct confirmation 278 Direct confirmation of balances 278 Closing inventory Code of Ethics and Conduct 260 46 Directional testing 231, 294 Common ratios 239 Directors 28 Comparatives 246 Directors’ emoluments 307 Completeness 223 Documentary evidence 231 Completeness controls 167 Due care 46 47 Compliance risk 84 Due skill and care Comply or explain 27 Duties of the auditor 315 Duties of the directors 314 Computer‐assisted audit techniques (CAATs) 188 Duties of the external auditor 37 Computer‐based audit working papers 138 Duty of confidentiality 69 Conceptual framework Confidentiality 454 49 47, 69 © Emile Woolf Publishing Limited Index E Financial risk Financial statement assertions 83 131, 223 89 Financial statement level 109 Effectiveness 90 Financial statements 332 Efficiency 90 Fraud 121 Efficiency audits 86 Fraud ‐ ISA 240 121 Economy Electronic commerce ‐ IAPS 1013 186 Fraud risk factors 122 Electronic data interchange (EDI) 185 Fraudulent financial reporting 122 Elements of an assurance engagement Embedded audit facilities 20 Fundamental principles 226, 228 Emphasis of matter paragraph 344 Employment assurance clients 60 G Engagement letters (ISA 210) 74 Enquiry Enterprise risks 46 129 22 Gifts 67 Going concern assumption 354 Entity’s risk assessment process 161 Going concern basis 314 Error 121 314 ISA 570 Goodwill 256 Ethics and Conduct 46 Evaluating controls 181 Governance risks 22 Evaluation of controls 181 Guarantees 60 Evaluation process 181 Existence 224 Existence check 172 H Expectation gap 334 Expected misstatement or rate of deviation 144 Haphazard sampling Expert Hospitality 150 Exposure draft 40 External and internal audit 84 External audit requirement External auditor Extrapolating 19, 85 I 34 25 IAASB 146 143 67 40 IAPS 1000 Inter‐bank confirmation procedures 289 IAPS 1013 Electronic Commerce: Effect on the Audit of Financial Statements 186 F IAS 2 Inventories 262 IAS 10 Events after the reporting period 319 IAS 24 Related party disclosures 307 298 Fair presentation 16 Familiarity threat 49, 52, 61 Family and personal relationships 57 IAS 37 Provisions, Contingent Liabilities and Contingent Assets Fees 72 Immediate family member Fees and pricing 56 Inconsistencies Financial audits 92 Independence Financial controls 23 Financial interests 59 © Emile Woolf Publishing Limited auditor 58 356 15, 55 16 Information processing 163 Information system 162 455 Paper F8: Audit and assurance (International) Information technology (IT) audits 93 Inherent risk 115 Initial audit engagements – opening balances 244 Inspection 129 Intangible non‐current assets 256 ntegrated audit module 228 Integrity 46, 55 Interim audit 105 Internal audit 19, 80, 85 ethics 96 planning 124 regulation 96 reports 94 services 65 Internal audit and risk assessment 83 Internal auditor 26 Internal control 156, 160 elements 159 Internal control evaluation questionnaire (ICEQ) 180 Internal control questionnaire (ICQ) 178 Internal control system 159 limitations 175 recording 177 small entities 175 Internal controls evaluation Internal controls for inventory 23 181 260 International Audit and Assurance Standards Board (IAASB) 39 International Federation of Accountants (IFAC) 39 360 International Standard on Assurance Engagements (ISAE) 3000 361 International Standards on Auditing (ISAs) 39 Intimidation threat 41 49, 52 Inventory 260 Inventory count 271 Inventory quantity ‐ the physical inventory count 265 Inventory system 456 240 ISA 40 ISA 200 Overall objectives of the independent auditor and the conduct of an audit in accordance with International Standards on Auditing 42 ISA 210 Agreeing the terms of audit engagements 75 ISA 230 Audit documentation 135 ISA 240 The auditor’s responsibilities relating to fraud in an audit of financial statements 121 ISA 250 Consideration of laws and regulations in an audit of financial statements 112 ISA 260 Communication of audit matters to those charged with governance 25 ISA 265 Communicating deficiencies in internal control to those charged with governance and management 367 ISA 300 Planning an audit of financial statements 103 ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment 107, 160 ISA 320 Materiality in planning and performing an audit 110 ISA 330 The auditor’s responses to assessed risks 114 ISA 402 Audit considerations relating to an entity using a service organisation 152 ISA 450 Evaluation of misstatements identified during the audit 330 ISA 500 Audit evidence International Framework for Assurance Engagements International Standards on Quality Control (ISQCs) Investor ratios ISA 501 Audit evidence – Additional considerations for specific items 126 265, 266 ISA 505 External confirmations 279 ISA 510 Initial audit engagements – opening balances 244 ISA 530 Audit sampling 141 ISA 540 Audit of accounting estimates 241 ISA 560 Subsequent events 320 ISA 570 Going concern ISA 580 Written representations 315, 354 325 ISA 610 Using the work of internal auditors 80, 148 ISA 620 Using the work of an auditor’s expert 150 ISA 700 The auditor’s report on financial statements 334 213 © Emile Woolf Publishing Limited Index ISA 705 Modifications to the opinion in the independent auditor’s report Material risk of misstatement 346 ISA 706 Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report 343 ISA 710 Comparatives 246 ISA 720 The auditor’s responsibility in relation to other information in documents containing audited financial statements 356 ISAE 3000 Assurance engagements other than audits and reviews of historical financial information 361 ISAs 39 IT controls 163 IT systems 183 IT systems services 65 Materiality Materiality concept 110 15 16 Materiality level 111 Measuring a provision 300 Microcomputer systems 183 Misappropriation of assets 122 Misstatement of fact 357 Modified audit report 343 Modified opinions 346 Monitoring Monitoring of controls 26 170 N Narrative notes 177 J Negative assurance Negative confirmation 281 Net realisable value (NRV) 262 Non‐adjusting events 319 Judgemental sampling 141 Non‐assurance services 19 62 L Non‐current assets Non‐current liabilities 303 Non‐sampling risk 120 Non‐statistical sampling 141 Not‐for‐profit organisations (NFPOs) 362 Legal obligation Legal services Letter of representation Level of assurance 299 66 326 18, 360 Levels of materiality 111 Liability 298 O Liquidity ratios 239 Objective engagement letter Litigation support services 66 Loans 60 Objectivity 73 Obligatory disclosure Low‐balling 215, 250 Observation Obtaining audit work 75 46, 55 69 129 72 M Occurrence OECD Principles 28 On line systems 184 On‐screen prompts 173 Management audits 86 224 Management controls 163 Management representations ‐ ISA 580 325 Operational internal audit assignments 86 Master files 168 Operational risk 83 Material inconsistencies 356 Material misstatement of fact 357 Organisation for Economic Co‐operation and Development (OECD) 28 Output controls © Emile Woolf Publishing Limited 168 457 Paper F8: Audit and assurance (International) Outsourcing 152 Q Outsourcing internal audit 98 Overdue fees 56 Questionnaires Ownership, custody and confidentiality 178 139 R P Random sampling 143 Paper audit trail 185 Random selection 141 Payroll system 202 Range check 172 Performance reviews 163 Reasonable assurance Permanent file 136 Receiving goods and invoices 199 Physical controls 163 Recognising a provision 299 Physical count 290 Placing orders 198 Recording and accounting for purchases and expenses 200 Planning an audit ‐ ISA 300 102 Recording methods 177 Recording sales and accounting 196 Positive assurance Positive confirmation Preface to International Standards Prepaid expenses Pricing 19 281 40 287 57 19 Regulation by government 35 Regulatory framework 34 Reliance on the work of others 147 Removal of auditors 36 Principal controls 193 Remuneration 29 Principal risks of misstatement 251 Remuneration of the auditor 36 Prior period comparatives 244 Resident audit software Private reports 94 Resignation of auditors Procedures after accepting an appointment 74 Responses to assessed risks Procedures before accepting an appointment 73 Review Processing controls Review planning Procurement operations Professional behaviour 168 87 47, 72 124 Rights and duties of auditors Rights and obligations 46 Rights of the external auditor Professional ethics 46 Risk and materiality 103, 121 Risk Management Program changes 165 Risk of misstatement Provisions 298 Risk reduction Purchased goodwill 256 Purchases and expenses system 198 Purchases cut‐off Purpose of ISA 720 38 84 104 84 Risk‐based approach to auditing Rotation 224 83, 102 Risk assessment 239 298, 301 37 109 Profitability ratios Provisions and contingencies: IAS 37 36 114 19 Professional competence Professional scepticism 228 114 62 270, 296 356 S Safeguards 458 53 Sales cut‐off 270 Sales system 192, 196 © Emile Woolf Publishing Limited Index Sample design 141 Tax and other deductions 204 Sample selection 283 Taxation services 65 Temporary staff assignments 65 Sampling 119, 140 Tendering 73 Sampling risk 120, 141 Test data 189 Sampling unit 143 Testing the ‘reciprocal population’ 232 Sample selection method 143 Sarbanes‐Oxley Act (2002) Segregation of duties 27 163, 168 Self‐interest threat 49, 50 Self‐regulation 34 Self‐regulation by the audit profession 34 Self‐review threat 49, 51 Tests of control 188, 193, 216 Tests of detail 114 Threatened litigation 67 Threats 50 Threats to the fundamental principles 49 Three Es 90 Service organisations 152 Tolerable misstatement or deviation 144 Share capital 305 Trade payables 294 Small company audit exemption 34 Trade receivables 278 Small entities – internal controls 175 Transaction cycles 190 Smaller entities 371 Transactions‐based approach 158 Specialised IT systems 183 True and fair Specific IT controls 171 True and fair view Statistical sampling 141 Turnbull Report Statutory approach 27 Statutory audits 43 Statutory books 306 17 Stewardship 14 Unmodified audit report ‐ ISA 700 143 Subsequent events ‐ ISA 560 319 Substantive procedures – additions and disposals 253 16 157, 159 U Statutory requirement for audit Stratified sampling 15 336 V Substantive procedures: ‐ trade receivables and prepayments 278 Valuation of inventory Substantive testing procedures Substantive approach Valuation services 64 Substantive procedures 110 158, 222 262 Value for money audits 89 Substantive testing for inventory 260 VFM audits: problems 91 Sufficient 127 Voluntary approach 27 Systematic sampling 143 Voluntary disclosure 70 Systems approach 110 Systems flowcharts 177 Systems‐based approach 158 T Tangible non‐current assets 250 Tangible non‐current assets: Substantive procedures 252 © Emile Woolf Publishing Limited W Wages and salaries 202 Walk‐through testing 160 Walk‐through tests 171 Working capital efficiency ratios 239 459 Paper F8: Audit and assurance (International) 460 © Emile Woolf Publishing Limited 2013 ACCA F8 (INT) Audit & Assurance A well-written and focused text, which will prepare you for the examination and which does not contain unnecessary information • Comprehensive but concise coverage of the examination syllabus • • • • Simple English with clear and attractive layout A large bank of practice questions which test knowledge and application for each chapter A full index The text is written by Emile Woolf International’s Publishing division (EWIP) The only publishing company focused purely on the ACCA examinations • EWIP’s highly experienced tutors / writers produce study materials for the professional examinations of the ACCA • EWIP’s books are reliable and up-to-date with a user-friendly style and focused on what students need to know to pass the ACCA examinations • EWIP’s association with the world renowned Emile Woolf Colleges means it has incorporated student feedback from around the world including China, Russia and the UK emilewoolfpublishing.com ... ACCA Paper F8 (INT) Audit and Assurance (International) Welcome to Emile Woolf‘s study text for Paper F8 (INT) Audit and Assurance (International)... Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road, Crowthorne, Berkshire RG45 6AW Email: info@ewiglobal.com www.emilewoolfpublishing.com © Emile Woolf Publishing Limited, January 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval ... finalisation and the final review a) Discuss the importance of the overall review of evidence obtained b) Describe procedures an auditor should perform in conducting their overall review of financial statements