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https://www.facebook.com/chiasetailieuACCA/ACCA APPROVED CONTENT PROVIDER ACCA Approved Practice & Revision Kit Paper F8 Audit and Assurance Practice & Revision Kit for exams from September 2015 to 31 August 2016 Free access to our Exam Success site Look inside https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ ACCA APPROVED CONTENT PROVIDER As the irst accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for ACCA F1/FIA FAB, ACCA F2/FIA FMA, ACCA F3/ FIA FFA and ACCA F4) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F7 Study Text) for your access code Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the conirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code you received when prompted You will only have to this once for each paper you are studying https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ P R A C T I C E PAPER F8 AUDIT AND ASSURANCE BPP Learning Media is an ACCA Approved Content Provider for the ACCA qualification This means we work closely with ACCA to ensure our products fully prepare you for your ACCA exams In this Practice & Revision Kit, which has been reviewed by the ACCA examination team, we: Discuss the Ensure you are well Provide you with Provide you with Provide for revising and taking your ACCA exams for your exam on tackling questions & R E V I S I O N mock exams as well as our own for selected questions Our Passcard product also supports this paper FOR EXAMS FROM SEPTEMBER 2015 TO 31 AUGUST 2016 https://www.facebook.com/chiasetailieuACCA/ K I T https://www.facebook.com/chiasetailieuACCA/ First edition 2007 Eighth edition April 2015 ISBN 9781 4727 2690 (previous ISBN 9781 4727 1105 2) e-ISBN 9781 4727 2742 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Ricoh UK Ltd Unit Wells Place Merstham RH1 3LG 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 BPP Learning Media Ltd We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated © BPP Learning Media Ltd 2015 Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable, sustainable sources ii https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Contents Page Finding questions Question index v Topic index x Helping you with your revision xi Revising F8 Topics to revise xii Question practice xii Passing the F8 exam xiii Exam information xvii Useful websites xviii Questions and answers Questions Answers 101 Exam practice Mock exam Questions 367 Plan of attack .375 Answers .376 Mock exam Questions 393 Plan of attack .403 Answers .404 Mock exam (December 2014 exam) Questions 421 Plan of attack .431 Answers .432 ACCA examiner's answers June 2014 449 December 2014 464 Review form https://www.facebook.com/chiasetailieuACCA/ iii https://www.facebook.com/chiasetailieuACCA/ A note about copyright Dear Customer What does the little © mean and why does it matter? 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Please note the e-products are sold on a single user licence basis: we not supply 'unlock' codes to people who have bought them secondhand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Question index The headings in this checklist/index indicate the main topics of questions, but questions are expected to cover several different topics Questions set under the old syllabus Audit and Internal Review (AIR) paper are included because their style and content are similar to those which appear in the F8 exam The questions have been amended to reflect the current exam format Time Marks Page number allocation Mins Question Answer 85 101 Part A: Audit framework and regulation MCQs Audit regulation 10 18 102 Regulation and ethics 10 18 103 Assurance and regulation 10 18 104 Corporate governance 10 18 105 Ethical issues 10 18 106 True and fair, and ISAs (6/10) (amended) 10 18 10 107 NorthCee (Pilot Paper) (amended) 10 18 10 109 International Standards on Auditing (AIR 6/06)(amended) 10 18 10 110 10 Jumper (AIR 6/06) (amended) 10 18 11 111 11 Conoy (6/09) (amended) 10 18 11 112 12 Goofy (6/11) (amended) 10 18 12 114 13 LV Fones (6/10) (amended) 10 18 12 116 14 Ethics 10 18 13 118 15 Code of Ethics and Conduct 10 18 13 120 16 Stark (12/08) 10 18 13 121 17 Governance 10 18 14 123 18 Serena (12/11) (amended) 10 18 14 125 19 Orange (6/12) (amended) 10 18 14 126 20 Internal audit function 10 18 15 128 21 Internal audit responsibilities 10 18 15 129 22 MonteHodge (6/08) (amended) 10 18 15 130 23 Avocado (6/12) (amended) 10 18 16 132 24 Wood Industries (AIR 6/05) (amended) 10 18 16 134 25 Regulation and limitations (12/12) (amended) 10 18 17 136 26 Brampton (12/09) 10 18 17 138 27 Timpani (6/14) 10 18 17 140 https://www.facebook.com/chiasetailieuACCA/ Finding questions v https://www.facebook.com/chiasetailieuACCA/ Time Page number Marks allocation Mins Question Answer 28 Saxophone (6/14) 10 18 18 142 29 Harp (6/14) 10 18 18 145 30 Hazard (Specimen Paper) 10 18 19 146 74 20 149 Part B: Planning and risk assessment 31 MCQs 32 Audit risk and planning 10 18 24 150 33 Interim audit 10 18 24 151 34 Audit planning 10 18 25 152 35 Mason Air Services 10 18 25 153 36 Bingsby 10 18 26 154 37 Risks and professional scepticism 10 18 26 156 38 Sleeptight 10 18 27 157 39 Materiality and documentation (12/10) (amended) 10 18 27 159 40 Interim v final audit (AIR 12/04) (amended) 10 18 27 160 41 Donald (6/11) (amended) 10 18 28 161 42 Bridgford Products 10 18 28 163 43 Cinnamon 10 18 29 165 44 Cardamom 10 18 29 167 45 South 10 18 29 169 46 Planning, analytical procedures and interim audit 10 18 30 171 47 Specs4You (AIR 6/07) 20 36 30 171 48 Tempest (AIR 12/05) 20 36 31 174 49 EuKaRe (12/08) 20 36 32 178 50 Serenity (AIR 12/06) (amended) 20 36 32 180 51 Redsmith (12/10) 20 36 33 182 52 Abrahams (12/11) 20 36 34 186 53 Sunflower (12/12) 20 36 35 190 54 Recorder (6/14) 20 36 36 194 55 Walters (Specimen Paper) 20 36 36 197 vi Finding questions https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Time Marks Page number allocation Mins Question Answer 65 38 201 Part C: Internal control 56 MCQs 57 Documenting internal controls (6/11) (amended) 10 18 42 202 58 Flowers Anytime (AIR 12/02) (amended) 10 18 42 204 59 North 10 18 43 206 60 Value for money audit (AIR 12/06) (amended) 10 18 43 206 61 ICQs and ICEQs 10 18 44 207 62 Smoothbrush (6/10) (amended) 10 18 44 208 63 Lily (12/12) (amended) 10 18 45 210 64 Rhapsody (AIR 6/07) (amended) 20 36 46 212 65 Shiny Happy Windows (6/10) 10 18 46 215 66 SouthLea (Pilot Paper) (amended) 10 18 47 217 67 Burton Housing 10 18 47 218 68 Matalas (12/07) (amended) 10 18 48 219 69 Bluesberry (12/10) (amended) 10 18 49 221 70 Chuck (12/11) (amended) 10 18 49 222 71 Fitta 20 36 50 224 72 Greystone (12/10) (amended) 20 36 51 226 73 Blake (12/08) (amended) 20 36 52 230 74 Tinkerbell (6/11) (amended) 20 36 53 232 75 Pear (6/12) (amended) 20 36 54 237 76 DinZee (12/07) (amended) 20 36 54 241 77 Trombone (6/14) (amended) 20 36 55 244 78 Garcia (Specimen Paper) 20 36 56 248 83 57 253 Part D: Audit evidence 79 MCQs 80 Expert (12/08) (amended) 10 18 62 254 81 Audit techniques 10 18 63 255 82 Evidence and assertions (12/09) (amended) 10 18 63 256 83 External confirmations 10 18 63 258 84 Accounting estimates 10 18 63 258 85 Porthos (AIR 12/05) (amended) 10 18 64 259 86 Newthorpe 10 18 64 261 https://www.facebook.com/chiasetailieuACCA/ Finding questions vii https://www.facebook.com/chiasetailieuACCA/ Time Page number Marks allocation Mins Question Answer 87 Analytical procedures and bank confirmations (6/08) (amended) 10 18 65 262 88 Zak (6/08) (amended) 10 18 65 264 89 Perpetual inventory system 10 18 66 265 90 Rocks Forever (AIR 12/05) (amended) 10 18 66 266 91 Whizee (12/07) (amended) 10 18 67 268 92 CAATs (12/12) (amended) 10 18 67 269 93 Redburn (12/09) (amended) 10 18 67 271 94 Tirrol (6/09) (amended) 10 18 68 272 95 Obtaining evidence 10 18 68 274 96 Letham (12/09) (amended) 10 18 69 275 97 Springfield Nurseries (AIR Pilot Paper) (amended) 10 18 69 277 98 Duck (12/11 amended) 10 18 70 278 99 Audit procedures 10 18 70 280 100 MistiRead (AIR 6/07) (amended) 10 18 70 281 101 First Light 10 18 71 283 102 Mickey 10 18 71 284 103 Panda (6/13) 10 18 71 286 104 Cor Anglais (6/14) (amended) 10 18 72 287 105 Balotelli Beach Hotel (Specimen Paper) 10 18 72 289 106 Torres Leisure Club (Specimen Paper) 10 18 73 291 107 Duckworth Computers 10 18 73 292 108 Delphic (12/07) 20 36 74 293 109 Tam (AIR 12/06) (amended) 20 36 75 296 110 BearsWorld (AIR 6/05) 20 36 75 299 111 Wear Wraith (AIR 6/06) 20 36 76 301 112 Tracey Transporters (AIR 6/05) 20 36 77 304 113 Metcalf (AIR 6/07) (amended) 20 36 77 307 114 Have A Bite (12/09) (amended) 20 36 78 310 115 FireFly Tennis Club (AIR 12/06) (amended) 20 36 79 313 116 Walsh (AIR 12/06) (amended) 20 36 79 315 117 Pineapple (6/12) 20 36 80 317 118 Rose (12/12) 20 36 81 320 119 Textile Wholesalers 20 36 81 323 viii Finding questions https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ The valuation should then be evaluated The assumptions used should be carefully reviewed and compared to previous revaluations at Jackdaw These assumptions should be discussed with both management and the valuer to understand the basis of any valuations (b) (i) (ii) (c) Substantive procedures for land and buildings – Obtain a schedule of land and buildings revalued this year and cast to confirm completeness and accuracy of the revaluation adjustment – On a sample basis agree the revalued amounts to the valuation statement provided by the valuer – Agree the revalued amounts for these assets are included correctly in the non-current assets register – Recalculate the total revaluation adjustment and agree correctly recorded in the revaluation surplus – Agree the initial cost for the warehouse addition to supporting documentation such as invoices to confirm cost – Confirm through a review of the title deeds that the warehouse is owned by Jackdaw – Recalculate the depreciation charge for the year to ensure that for assets revalued during the year, the depreciation was based on the correct valuation and for the warehouse addition that the charge was for nine months only – Review the financial statements disclosures of the revaluation to ensure they comply with IAS 16 Property, Plant and Equipment Substantive procedures for work in progress (WIP) – Prior to attending the inventory count, discuss with management how the percentage completions are attributed to the WIP, for example, is this based on motor cars passing certain points in the production process – During the count, observe the procedures carried out by Jackdaw staff in assessing the level of WIP and consider the reasonableness of the assumptions used – Agree for a sample that the percentage completions assessed during the count are in accordance with Jackdaw's policies communicated prior to the count – Discuss with management the basis of the standard costs applied to the percentage completion of WIP, and how often these are reviewed and updated – Review the level of variances between standard and actual costs and discuss with management how these are treated – Obtain a breakdown of the standard costs and agree a sample of these costs to actual invoices or payroll records to assess their reasonableness – Cast the schedule of total WIP and agree to the trial balance and financial statements – Agree sample of WIP assessed during the count to the WIP schedule, agree percentage completion is correct and recalculate the inventory valuation Audit report Discuss with the management of Jackdaw why they are refusing to make the amendment to WIP Assess the materiality of the error; if immaterial, it should be added to the schedule of unadjusted differences The auditor should then assess whether this error results in the total of unadjusted differences becoming material; if so, this should be discussed with management; if not, there would be no impact on the audit report If the error is material and management refuses to amend the financial statements, then the audit report will need to be modified It is unlikely that any error would be pervasive as 472 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ although WIP in total is material, it would not have a pervasive effect on the financial statements as a whole As management has not complied with IAS Inventory and if the error is material but not pervasive, then a qualified opinion would be necessary A basis for qualified opinion paragraph would need to be included before the opinion paragraph This would explain the material misstatement in relation to the valuation of WIP and the effect on the financial statements The opinion paragraph would be qualified 'except for' ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ 473 https://www.facebook.com/chiasetailieuACCA/ Fundamentals Level – Skills Module, Paper F8 Audit and Assurance December 2014 Marking Scheme Marking scheme Marks Section A Questions 1–12 multiple choice 20 Section B (a) Up to mark per well explained point – – – – – – (b) Important areas of the audit Potential problems Effective and efficient audit Selection of engagement team members and assignment of work Direction, supervision and review Coordination of work Up to mark per well described procedure – – – – – – – Discuss with management as to whether they are aware of any additional payroll frauds Review board minutes Discuss with the payroll manager the nature of the payroll fraud, how it occurred and the impact Review supporting documentation to confirm the total of the fraudulent payments made Review and test the internal controls surrounding setting up of and the payments to new joiners Consider if other information obtained indicates risks of material misstatement due to payroll fraud Obtain a written representation from management 10 Up to mark per well explained risk and up to mark for each well explained response Overall max of marks for risks and marks for responses – – – – – – – Inventory valuation Receivable valuation Going concern Unfair dismissal of financial controller Increased inherent risk of errors in finance department due to loss of financial controller Under or overstated trade payables Completeness of administration expenses 474 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ 10 10 https://www.facebook.com/chiasetailieuACCA/ Marks (a) Up to mark per well explained point – – – – – – – (b) Non-executives will bring outside experience to the board The finance director will be able to raise concerns with the audit committee Improve the quality of the financial reporting Improve the internal control environment of the company Establishing an audit committee will improve the independence of internal audit Provide advice on risk management to the executive directors Responsibility for appointing and liaising with external auditors; reducing the work load of the finance director Up to mark per well explained point, max of marks for advantages and max of marks for disadvantages Max of marks for each director, overall max of marks in total Advantages – Antony Goldfinch has experience as a NED and of audit committee role – Antony Goldfinch has agreed to a non-profit related fee – Jacob Mallard has relevant and recent financial experience as he is a finance director – Jacob Mallard operates in the retail industry Disadvantages – Antony Goldfinch could lack critical skills and relevant experience of the retail industry – Antony Goldfinch may not have sufficient time as he has a number of roles already – Jacob Mallard is the brother of the chief executive and so is not independent – Jacob Mallard wants a seven-year fixed contract which is contrary to corporate governance principles 10 (a) Up to mark per well described element and explanation of why included – – – – – – – – – – (b) Title Addressee Introductory paragraph Management responsibility Auditor's responsibility Opinion paragraph Other reporting responsibilities Signature of the auditor Date of the auditor's report Auditor's address Up to mark per valid point, max of marks for whether financial statements require amendment and max of marks for procedures – – – – – – – Provides evidence of conditions at the year end Adjusting event Calculation of materiality Receivable to be written down or an allowance for receivable used Customer correspondence reviewed Discuss with management why no adjustment in 2014 financial statements Review the post year-end period for payments 10 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ 475 https://www.facebook.com/chiasetailieuACCA/ Marks (a) Up to mark each per well explained deficiency and recommendation If not well explained, then just give ½ marks for each Overall maximum of marks each for deficiencies and recommendations marks for presentation: mark for address and intro and mark for conclusion – – – – – – – – – (b) Lack of segregation of duties for sales ledger clerk processing hotel customer transactions Manual override of sales invoices for hotel customers Credit limits set up when trade customer established, limits not regularly reviewed Sales orders and goods despatch notes not sequentially numbered Change to a cheaper courier company to despatch goods increases risk of customer complaints Trade customers' sales invoices generated on order date, goods may not have been despatched at this stage Senior sales clerk amends master data file for special offers and discount sales Monthly statements not sent to trade customers Sales ledger control account only reconciled at the year end 16 Up to mark per well explained procedure – – – – – – – Analytical review over revenue compared to budget and prior year Analytical review of two categories of sales compared to prior year Gross margin review Agree sales prices for hotel customers to contracted rates Review credit notes Follow trade online orders to goods despatched note to sales invoice to sales ledger Sales cut-off 20 (a) Up to mark per valid point – – – – – (b) ISA 500 requires consideration of competence and capabilities of expert Consider if member of professional body or industry association Assess independence Assess whether relevant expertise of type of properties as Jackdaw Motor Cars Co Evaluate assumptions Up to mark per well explained procedure, overall max marks for land and buildings and max of marks for work in progress (i) Land and buildings – – – – – – – – Cast schedule of land and buildings revalued this year Agree the revalued amounts to the valuation statement provided by the valuer Agree the revalued amounts included correctly in the non-current assets register Recalculate the total revaluation adjustment and agree recorded in the revaluation surplus Agree the initial cost for the warehouse to invoices to confirm cost Confirm through title deeds that the warehouse is owned by Jackdaw Recalculate the depreciation charge for the year Review the financial statements disclosures for compliance with IAS 16 Property, Plant and Equipment 476 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Marks (ii) Work in progress – – – – – – – – (c) Discuss with management how the percentage completions are attributed to WIP Observe the procedures carried out in the count in assessing the level of WIP; consider the reasonableness of the assumptions used During the count, agree a sample of percentage completions are in accordance with Jackdaw's policies Discuss with management the basis of the standard costs Review the level of variances between standard and actual costs Obtain a breakdown of the standard costs and agree a sample of these costs to actual invoices Cast the schedule of total WIP and agree to the trial balance and financial statements Agree sample of WIP assessed during the count to the WIP schedule, agree percentage completion is correct and recalculate the inventory valuation Up to mark per well explained valid point – – – – – – Discuss with management why they are refusing to make the amendment Assess the materiality of the error If immaterial, add to the schedule of unadjusted differences and assess if total errors material If material but not pervasive, modified audit report, material misstatement, qualified opinion Basis for qualified opinion paragraph required Opinion paragraph – except for 20 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ 477 https://www.facebook.com/chiasetailieuACCA/ 478 ACCA's exam answers: December 2014 https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ Notes https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Review Form – Paper F8 Audit and Assurance (04/15) Name: Address: How have you used this Kit? 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Good Adequate Yes No Poor The BPP author of this edition can be emailed at: accaqueries@bpp.com Please return this form to: Head of ACCA & FIA Programmes, BPP Learning Media Ltd, FREEPOST, London, W12 8AA https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Review Form (continued) TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below https://www.facebook.com/chiasetailieuACCA/ ... students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for ACCA F1/FIA FAB, ACCA F2/FIA FMA, ACCA F3/ FIA FFA and ACCA F4) are reviewed by the ACCA examining team and are... team's comments and suggestions regarding syllabus coverage, the BPP Learning Media Practice & Revision Kit provides excellent, ACCA-approved support for your revision Tackling revision and the exam... revise The F8 paper assumes knowledge of Paper F3 Financial Accounting It is important, therefore, that candidates can apply the knowledge they have gained in this paper to the audit and assurance