ACCA Paper P7 INT & UK Advanced audit and assurance Pocket notes Advanced audit and assurance British library cataloguing-in-publication data A catalogue record for this book is available from the British Library Published by: Kaplan Publishing UK Unit The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ISBN 978-1-78415-252-9 © Kaplan Financial Limited, 2015 Printed and bound in Great Britain ii 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 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 kaplan publishing paper P7 INT & UK Contents Chapter 1: Regulation in a global economy Chapter 2: Code of ethics and conduct Chapter 3: Professional appointments 15 Chapter 4: Quality control 21 Chapter 5: Obtaining professional work 25 Chapter 6: Tendering 29 Chapter 7: Money laundering 33 Chapter 8: Professional responsibilities and liabilities 37 Chapter 9: Planning, materiality and assessing the risk of misstatement 49 Chapter 10: Group and transnational audits 57 Chapter 11: Evidence .67 Chapter 12: Completion 79 Chapter 13: Auditors’ reports 85 Chapter 14: Reports to those charged with governance 91 kaplan publishing iii Advanced audit and assurance Chapter 15: Other assignments 95 Chapter 16: Prospective financial information 101 Chapter 17: Audit of social, environmental and integrated reporting 105 Chapter 18: Forensic audits 111 Chapter 19: Outsourcing and internal audit 115 Chapter 20: Auditing aspects of insolvency (UK syllabus only) 121 Chapter 21: Audit of performance information in the public sector (INT syllabus only) 127 Index iv I.1 kaplan publishing paper P7 INT & UK The content and style of the exam You will be given 15 minutes reading and planning time before this hour exam Section A (60%) – compulsory questions • This section is compulsory and contains mainly 'case study' type scenarios • Q1 is worth 35 marks Q2 is worth 25 marks • professional marks will be available in one of the questions • A range of topics, issues and requirements can be addressed here (e.g what are business risks, steps to be taken at the planning stage, and ethical considerations) • It is vital that your answers address the specifics of the case scenario kaplan publishing Section B (40%) – choice of questions out of • These questions will have more focus on specific topics (e.g 'auditor's reports', 'professional ethics') • There will be less scenario content than in Section A Aim of the paper To ensure that candidates can exercise judgement and apply techniques in the analysis of matters relating to the provision of audit and assurance services and can evaluate and comment on current practices and developments v Advanced audit and assurance The keys to success in Paper vi • Answer all requirements to each question attempted • Be strict with your time REMEMBER: 1.8 minutes per mark (after reading time) • There is very little scope for note learned knowledge: you MUST appy your knowledge to the specific circumstances of the scenario • Take your time to read and understand the full question requirement before reading the scenario Quality and accuracy are of the utmost 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 Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions kaplan publishing chapter Regulation in a global economy In this chapter • Main sources of regulation • Public oversight and corporate governance • Board structures • Audit committees Regulation in a global economy The main sources of regulation International Standards on Auditing (ISAs) are issued by the International Federation of Accountants (IFAC) – these provide the basic principles and essential procedures in most audit areas ACCA’s Code of Ethics and Conduct IFAC’s Code of Professional Ethics IFAC issues auditing standards through its standing committee, the International Auditing and Assurance Standards Board (IAASB), whose mission is to establish high quality, assurance, quality control and related services standards to develop the harmonisation process worldwide kaplan publishing Chapter Public oversight and corporate governance Corporate governance is about ensuring that public companies are: • managed effectively • for the benefit of the company and its shareholders Fair appraisal of performance Fair remuneration and benefits Support/oversight of management by non-executive directors (NEDs) with sufficient experience and ‘clout’ Good corporate governance requires Fair financial reporting Constructive relationship with shareholders Effective management Sound systems of internal control Good corporate governance can be enforced: • by law – e.g The Sarbanes-Oxley Act, USA • by agreement through codes of best practice – e.g UK Corporate Governance Code, or • through a combination of the two kaplan publishing Regulation in a global economy Board structures Unitary board structure UK & Ireland + jurisdictions with comparable systems of company law • collective board responsibility • no distinction in law between responsibilities of executive and NEDs • need to distinguish between functions of executive and NEDs • need to establish board committees to monitor and act on different functions Supervisory board structure US + similar jurisdictions • e xecutive management with operational responsibility for running the business – CEO, CFO, vice presidents, etc., and • the board which has purely an oversight role kaplan publishing Chapter Audit committees The UK Corporate Governance Code requires companies to have an Audit Committee consisting of at least three non-executive members with clearly written terms of reference Key revision points: Advantages: • Improve quality of management accounting • Improved communication between directors, external auditors and management • Avoids conflicts between auditors and management kaplan publishing Objectives • Increase public confidence in credibility and objectivity of published financial info • Assist directors in meeting their responsibilities in respect of financial reporting • Strengthen the independence of the external auditor Main functions include: • R eview of company internal control procedures • Review of internal audit function • Review of external auditors results to ensure audit has been carried out efficiently, effectively and independently • Recommending remuneration and nomination of auditors • Reviewing requirements satisfied under UK Corporate Governance Code Disadvantages: • F ear purpose to “catch out” management • Overburdening of non-executive directors • May lead to “twotier” board • Costly Regulation in a global economy Exam focus To practise the basics use the following test your understandings (TYU’s) Complete Text: Chapter 1: • TYU ‘Becher’ • June 2010 – Question kaplan publishing ... to the provision of audit and assurance services and can evaluate and comment on current practices and developments v Advanced audit and assurance The keys to success in Paper vi • Answer all... basic principles and essential procedures in most audit areas ACCA s Code of Ethics and Conduct IFAC’s Code of Professional Ethics IFAC issues auditing standards through its standing committee,... committee, the International Auditing and Assurance Standards Board (IAASB), whose mission is to establish high quality, assurance, quality control and related services standards to develop the harmonisation