ACCA f8 EW 2013

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