Publishing F8 UK Study Text Audit and Assurance ACCA Publishing ACCA Distance Learning Courses Learn quickly and efficiently Using a blended learning approach, our distance learning package will steer you towards exam success Our aim is to teach you all you need to know and give you plenty of practice, without bombarding you with excessive detail We therefore offer you the following tailored package: • • • Access to our dedicated distance learning website – where you’ll find a regular blog from the distance learning department – reminders, hints and tips, study advice and other ideas from tutors, writers and markers – as well as access to your course material Tutor support – by phone or by email, answered within 48 hours The handbook – outlining distance learning with us and helping you understand the ACCA course Revision phase Study phase • The key study text – covering the syllabus without excessive detail and containing a bank of practice questions for plenty of reinforcement of key topics • A key study guide – guiding you through the study text and helping you revise • An online question bank for additional reinforcement of knowledge • An exam kit – essential for exam preparation and packed with examstandard practice questions • tutor-marked mock exams to be sat during your studies • Key notes - highlighting the key topics in an easy-to-use format Total price: £160.95 Visit us at www.emilewoolfpublishing.com distancelearning@emilewoolfpublishing.com tel: +44(0) 1483 225746 ACCA ACCA Paper F8 (UK) Audit and assurance (UK stream) Welcome to Emile Woolf‘s study text for Paper F8 (UK) Audit and assurance (UK stream) which is: Written by tutors Comprehensive but concise In simple English Used around the world by Emile Woolf Colleges including China, Russia and the UK Publishing Third edition published by Emile Woolf Publishing Limited Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road, Crowthorne, Berkshire RG45 6AW Email: info@ewiglobal.com www.emilewoolfpublishing.com © Emile Woolf Publishing Limited, September 2010 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior permission in writing of Emile Woolf Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer Notice Emile Woolf Publishing Limited has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf Publishing Limited nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain British Library Cataloguing in Publications Data A catalogue record for this book is available from the British Library ISBN 978 84843 033 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 APB material is adapted and reproduced with the kind permission of the Financial Reporting Council and is © Auditing Practices Board Ltd (APB) All rights reserved All ASB material is adapted and reproduced with the kind permission of the Financial Reporting Council © Accounting Standards Board Ltd (ASB) All rights reserved ii Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (UK) Audit and assurance c Contents Page Syllabus and study guide Chapter 1: The meaning of audit and assurance 11 Chapter 2: Corporate governance and auditing 19 Chapter 3: The statutory audit 33 Chapter 4: Professional ethics and codes of conduct 45 Chapter 5: Internal audit 81 Chapter 6: Planning and risk assessment 107 Chapter 7: Introduction to audit evidence 131 Chapter 8: Internal control: ISA 315 161 Chapter 9: Tests of controls 195 Chapter 10: Introduction to substantive procedures 229 Chapter 11: Substantive procedures: fixed assets 255 Chapter 12: Substantive procedures: stock 265 Chapter 13: Substantive procedures: other current assets 283 Chapter 14: Substantive procedures other areas 299 Chapter 15: Audit finalisation 317 Chapter 16: The external audit report 339 Chapter 17: Other audit and assurance situations and reports 365 Practice questions 379 Answers 399 Index 459 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides iii iv Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (UK) Audit and assurance S Syllabus and study guide 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 describing 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 (UK and Ireland) 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, explaining the elements of each type of report © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides Paper F8: Audit and assurance (UK) Rationale The syllabus for Paper F8, Audit and Assurance, is 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 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 Understanding the entity and knowledge of the business Assessing the risks of material misstatement and fraud Analytical procedures Planning an audit Audit documentation The work of others Internal control E Internal audit and corporate governance Differences between external and internal audit The scope of the internal audit function Outsourcing the internal audit department Internal audit assignments Planning and risk assessment D The concept of audit and other assurance engagements Statutory audits The regulatory environment and corporate governance APB ethical standards and ACCA’s Code of Ethics and Conduct The use of assertions by auditors Audit procedures The audit of specific items Audit sampling and other means of testing Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Syllabus and study guide F Review G Computer-assisted audit techniques Not-for-profit organisations Subsequent events Going concern Management representations Audit finalisation and the final review Reporting Audit reports Reports to management Internal audit reports Approach to examining the syllabus The syllabus is assessed by a three-hour paper-based examination, consisting of five compulsory questions The bulk of the questions will be discursive but some questions involving computational elements will be set from time to time The questions will cover all areas of the syllabus Question will be a scenario-based question worth 30 marks Question will be a knowledge-based question worth 10 marks Questions 3, and will be worth 20 marks each Study Guide This syllabus and study provides more detailed guidance on the syllabus You should use this as the basis of your studies 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 Discuss the concepts of accountability, stewardship and agency Discuss the concepts of materiality, true and fair presentation and reasonable assurance Explain reporting as a means of communication to different stakeholders Explain the level of assurance provided by audit and other review assignments (c) (d) (e) (f) © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides Paper F8: Audit and assurance (UK) Statutory audits (a) Describe the regulatory environment within which statutory audits take place (b) Discuss the reasons and mechanisms for the regulation of auditors (c) Explain the statutory regulations governing the appointment, removal and resignation of auditors (d) Discuss the types of opinion provided in statutory audits (e) State the objectives and principle activities of statutory audit and assess its value (e.g in assisting management to reduce risk and improve performance) (f) Describe the limitations of statutory audits The regulatory environment and corporate governance (a) Explain the development and status of International Standards on Auditing (UK and Ireland) (b) Explain the relationship between International Standards on Auditing and the work of the Auditing Practices Board (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 the Combined Code on Corporate Governance) that are most relevant to auditors (f) Describe good corporate governance requirements relating to directors’ responsibilities (e.g for risk management and internal control) and the reporting responsibilities of auditors (g) Analyse the structure and roles of audit committees and discuss their drawbacks and limitations (h) Explain the importance of internal control and risk management (i) Compare the responsibilities of management and auditors for the design and operation of systems and controls APB ethical standards and ACCA’s Code of Ethics and Conduct (a) Define and apply the fundamental principles of professional ethics of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (b) Define and apply the conceptual framework (c) Discuss the sources of, and enforcement mechanisms associated with, ACCA’s Code of Ethics and Conduct Discuss the preconditions, requirements of professional ethics and other requirements in relation to the acceptance of new audit engagements a) Discuss the process by which an auditor obtains an audit engagement Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Answers Trade creditors 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 38 Eden Electronics (a) Types of modified opinions ISA 705 Modifications to the opinion in the independent auditor’s report 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 auditor 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 pervasive to the view given by the financial statements, an adverse opinion will be given © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 453 Paper F8: Audit and assurance (UK) 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 provided 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 non-provision 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: (i) Title – indicating that it is the report of an independent auditor (ii) Addressee – report to the members (iii) Introductory paragraph – identifying the financial statements that have been audited (iv) Respective responsibilities paragraph – stating that management are responsible for the financial statements and that the auditor is responsible for auditing and expressing an opinion on the financial statements in accordance with legal requirements and ISAs and that those ISAs require the auditor to comply with the APB’s Ethical Standards (v) Scope paragraph – describing the process of audit or cross referring to such a description on the APB’s website or elsewhere in the financial statements (vi) Opinion on the financial statements – stating that in the auditor’s opinion except for the financial effects of any adjustments that might have been necessary if the auditor had been able to obtain sufficient evidence concerning stock, the financial statements give a true and fair view, have been properly prepared in accordance with UK GAAP and have been prepared in accordance with the Companies Act 2006 (vii) Opinion on other matter prescribed by the Companies Act 2006 – stating that in the auditor’s opinion the information given in the directors’ report is consistent with the financial statements (viii) Matters on which the auditor is required to report by exception – stating that, solely in respect of the limitation on work relating to stock, the auditor has not obtained all the necessary information and explanations and has not been able to determine whether adequate accounting records have been kept The auditor would list out the other matters on which he is required to report by exception (adequate returns from branches, financial statements agree with accounting records, 454 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Answers disclosure of directors’ remuneration) , stating that he has nothing to report in respect of those matters (ix) 39 Location, date and signature – the report would be signed by the senior statutory auditor on behalf of the firm, the address given, and dated 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 stock 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 (b) Possible forms of report 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: an adverse opinion if the financial statements have been prepared on a going concern basis © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 455 Paper F8: Audit and assurance (UK) 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 40 Creed Computers (1) Stock records and PCs held by directors Weaknesses The stock records are not a reliable record of actual stocks held because: customer returns have not been recorded some items recorded as being in stock are missing Some ‘missing’ items are held at directors’ own homes Implications Year end stocks may be misstated if reliance is placed on year end stock records instead of a year end count Stock 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 debtors 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 stock records Recommendations All stock despatches should be recorded on sequentially numbered despatch notes and be subsequently matched with a sales invoice All stock 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 stock other than for sales These items should either be removed from the stock records and transferred to the fixed assets register (e.g PCs used by directors) or retained within the stock records with a note as to their location Physical security over stock should be improved Until the accuracy of the stock records is established, monthly counts should be performed (2) 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 456 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Answers 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 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 457 Paper F8: Audit and assurance (UK) 458 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Paper F8 (UK) Audit and assurance i Index 3Es, 92, 93, 96, 97 A ACCA’s disciplinary regime 48 Accepting an audit appointment - ethical matters 76 Accountability 12, 41 Accounting controls 172 Accounting estimates 248 Accruals 303 Accuracy and Valuation 232 Actual and threatened litigation 69 Adjusting events 325 Adjusting post-balance sheet events 325 Advertising and publicity 75 Advocacy threat 49, 51 Agency 12 Analytical procedures 135, 237 Analytical procedures: ISA 520 242 Annual review of the engagement letter 79 APB pronouncements 40 Application controls 172 Appointment of auditors 35 Arithmetic controls 172 Assertion level 121 Assessment of risk 162 Asset turnover ratio 247 Association 42 Assurance 16 Audit Audit appointment Audit approach Audit committees Audit documentation: ISA 230 Audit documentation: reasons for Audit evidence: ISA 500 Audit evidence: quality Audit of equity Audit of prepayments Audit of smaller entities Audit of statutory books Audit plan: purpose Audit programmes Audit report Audit risk approach Audit risk assessment Audit risk model Audit sampling: ISA 530 Audit software Audit strategy Audit trail Audit work after the count Audit working papers (audit file) Auditing standards Auditor’s opinion Auditors’ Code Authorisation controls Authority to disclose © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 12 76 163 31 140 141 132 134 311 293 374 312 108 111 13, 340 115 187 121 145 234 110 190 279 140 39 344 41 172 295 459 Paper F8: Audit and assurance (UK) B Bad debts Balance agreed Balance not agreed Bank and cash system Bank confirmation letter Batch totals Best value audits Bulletin 2008/1 Bulletin 2008/10 Bulletins Business risks 204, 291 290 290 216 295 178 99 322 323 41 20, 113 C CAATs Cash balances Check digits Classification and Understandability Close business relationships Closing stock Code of Ethics and Conduct Combined Code on Corporate Governance Common ratios Communication Comparatives Comparisons Competence Completeness Completeness controls Compliance risk Computer-assisted audit techniques Computer-based audit working papers Concept and role internal audit Conceptual framework Confidentiality Confirmation Confirmation exercise Confirmation of balances Conflicts of interest Content engagement letter Contingent assets Contingent fees Contingent liabilities Continuous counting 460 196 296 177 233 60 266 46 25, 26 246 42 253 243 42 231 173 86 196 143 82 49 47, 72 135 286 295 73 78 306 58 306 273 Control account reconciliations Control activities Control environment Control objectives Control risk Control totals Corporate finance Corporate governance general principles systems Cost or net realisable value Counting procedures Credit notes Current file Customer ordering Cut-off 204, 209 168 166 224 122 177 69 20 26 25 269 273 203 142 200 233, 276, 292 D Debit note Debt ratios Debtors balances Debtors circularisation Delivery note Despatch notes Despatch of goods and invoicing Detection risk Direct confirmation of balances Directional testing Documentary evidence Due care Due skill and care Duties of the external auditor Duty of confidentiality 209 247 284 284 202, 208 202 202 122 284 239 238 47 47 37 72 E Earnings per share E-business: Bulletin 2001/3 Economy Effectiveness Efficiency Efficiency audits Electronic data interchange (EDI) systems Eligibility to act Embedded audit facilities Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 247 192 96 97 97 88 191 34 236 © EWP Index Emphasis of matter paragraph 349 Employment with assurance clients 61 Engagement letters (ISA 210) 77 Engagement standards 41 Enquiry 135, 237 Equity 311 Error 127 ES Provisions available for small entities 70 Ethical Standards (ESs) 46 Ethics of internal audit 103 Evaluation of controls 187 Evaluation process 187 Events after the balance sheet date 325 Existence 232 Existence checks 178 Expectation gap 341 Expected misstatement or rate of deviation 150 Expert 155 External and internal audit 86 External audit 17 External auditor 23, 34 Extrapolating 151 G F I Familiarity threat 49, 52 Family and personal relationships 58 Fast Track Request 295 Fees 75 Fees and pricing 57 Financial audits 99 Financial interests 61 Financial risk 85 Financial statement assertions 137, 231 Financial statement level 114, 120 Five fundamental principles 47 Fixed assets 222 Fluctuations 245 Four Ps 91 Fraud risk factors 128 Fraud: ISA 240 127 Fraudulent financial reporting 128 FRS 12: Provisions and contingencies 304 FRS 21: Events after the balance sheet date 325 Functions audit committee 31 Fundamental principles 46 Importance of internal control Incomplete Information Request Independence Independence of the auditor Information processing Information system Information technology (IT) audits Informed management Inherent risk Initial audit engagements – opening balances Inspection Inspection of an item Institute of Internal Auditors (IIA) Intangible fixed assets Integrity Internal audit Internal audit and risk assessment Internal audit planning Internal audit reports Internal audit services Internal audit: ethics Gearing General IT controls Going concern duties of the auditor duties of the directors Going concern review - ISA 570 Goods and invoicing Goods purchased for resale Goods received notes Governance risks Gross wages and salaries Guarantees 247 169 360 319 319 318 202 268 208 20 210 61 H Haphazard sampling Hospitality Human resources management 149 69 94 162 295 13, 56 14 169 168 100 67 121 251 237 135 103 262 41, 47, 56 17, 82 85 130 101 66 103 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 461 Paper F8: Audit and assurance (UK) Internal audit: regulation 103 Internal auditor 24 Internal control 162, 163 Internal control evaluation questionnaire (ICEQ) 186 Internal control questionnaire (ICQ) 184 Internal control systems: limitations 181 Internal control: elements 165 International Standards on Auditing (ISAs) 39 Intimidation threat 49, 52 Introductions 76 Investor ratios 247 ISA 210: Agreeing the terms of audit engagements 78 ISA 230 140 ISA 240 The auditor’s responsibilities relating to fraud in an audit of financial statements 127 ISA 250 A Consideration of laws and regulations in an audit of financial statements 117 ISA 260 Communication with those charged with governance 23, 369 ISA 300 Planning an audit of financial statements 109 ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment 112 ISA 320 Materiality in planning and performing an audit 115 ISA 330 The auditor’s responses to assessed risks 120 ISA 402 Audit considerations relating to an entity using a service organisation 157 ISA 500 Audit evidence 132 ISA 501 Audit evidence – Additional considerations for specific items 272 ISA 505 External confirmations 285 ISA 510 Initial audit engagements – opening balances 251 ISA 520 Analytical procedures 113 ISA 530 Audit sampling 146 ISA 540 Audit of accounting estimates 248 ISA 570 Going concern 319 ISA 580 331 ISA 610 Using the work of internal auditors 153 ISA 620 Using the work of an auditor’s expert 155 ISA 710: Comparatives 253 ISA 720 362 IT systems services 67 462 J Judgement 42 L Legal services Letter of representation Levels assurance Liquidity ratios Litigation support services Loans Long-term liabilities 68 332 16 247 68 61 309 M Main issues corporate governance Major transaction cycles Management audits Management of risk Management threat Manufactured goods Marketing operations Material inconsistencies Material misstatement Material misstatement of fact Material risk of misstatement Materiality Materiality concept Materiality level Meaning of internal control Measuring a provision Microcomputer systems Misappropriation of assets Modified audit report Modified opinions Monitoring of controls 21 198 88 20, 86 49, 53 269 90 362 114 363 115 13 14 116 162 306 189 128 348 351 176 N Narrative notes Nature of sampling Negative assurance Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 183 145 17 © EWP Index Negative confirmation Net realisable value (NRV) New audit engagement Non-adjusting events Non-adjusting post-balance sheet events Non-assurance services Not-for-profit organisations 287 268 75 325 326 64 366 O Objective engagement letter 78 Objectivity 47, 56 Objectivity and independence 42 Obligatory disclosure 72 Observation 237 Observation of a procedure 135 Obtaining audit evidence 237 Obtaining audit work 75 Occurrence 232 OECD Principles 26 Online systems 190 On-screen prompts 179 Operational internal audit assignments 88 Operational risk 85 Other matter paragraph 350 Outsourcing 105, 157 Outsourcing internal audit 105 Overdue fees 57 Ownership, custody and confidentiality 144 P Payroll system Performance reviews Permanent file Physical controls Physical stock counts Placing orders Planning an audit: ISA 300 Positive assurance Positive confirmation Practice Notes (PNs) Prepayments Price quotations Principal controls Principal risks of misstatement 210 169 141 169 271 206 108 17 287 41 293 206 201 257 Processing controls Procurement operations Professional behaviour Professional competence Professional ethics Professional scepticism Profitability ratios Provisions Purchase invoices Purchase orders Purchased goodwill Purchases and expenses system Purchases cut-off Purpose of FRS 21 174 89 47 47 46 109 246 304 209 206 262 206 276, 302 325 Q Questionnaires 184 R Random sampling 149 Range checks 178 Ratios 242, 246 Raw materials 268 Receiving goods and invoices 207 Recording and accounting for purchases and expenses 208 Recording internal control systems 183 Recording methods 183 Recording sales and accounting 204 Recording wages and salaries payable in the accounts 213 Regulatory framework 34 Relationships 245 Reliable is audit evidence 238 Reliance on the work of others 152 Removal of auditors 37 Remuneration of the auditor 36 Reserves 311 Resignation of auditors 36 Review 17 Review of the financial statements 338 Review planning 130 Rights and duties of auditors 37 Rights and obligations 232 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 463 Paper F8: Audit and assurance (UK) Rights of the external auditor Rigour Risk and materiality Risk assessment and the audit plan Risk assessment process Risk management Risk of misstatement Risk-based approach to auditing Role of the auditor corporate governance Role of the auditor: ISA 560 38 42 114 108 167 86 111 120 23 326 trade creditors trade debtors Substantive testing procedures Substantive testing: analytical procedures Supplementary audit evidence Systematic sampling Systems approach Systems flowcharts Systems-based approach 300 284 268 245 245 149 115 184 164 T S Safeguards 53 Sales cut-off 276 Sales system 200 Sample design 146 Sample selection 289 Sample selection method 148 Sampling risk 146 Sarbanes-Oxley Act (2002) 25 Scope paragraph 344 Segregation of duties 169, 174 Self-interest threat 49 Self-regulation 34 Self-review threat 49, 51 Share capital 311 Small company audit exemption 34 Smaller entities 375 Specialised IT systems 189 Specific IT controls 177 SSAP 9: valuation of stock 268 Standard Request template 295 Statistical sampling 146 Statutory approach 25 Statutory audits 44 Statutory books 312 Statutory requirement for audit 15 Stewardship 12 Stock 266 Stock quantity 271 Stock system 221 Subsequent events: ISA 560 325 Substantive approach 115 Substantive procedures 164, 230, 259 bank and cash balances 294 for stock 266 464 Tangible fixed assets 256 Tax and other deductions 212 Taxation services 66 Temporary staff assignments 67 Tendering 76 Test data 197 Testing trade creditors balances 240 Testing trade debtors balances 240 Tests of control 163, 196, 201, 224 Tests to detect overstatement 240 Tests to detect understatement 240 Threats 50 Timing of the count 272 Tolerable misstatement or deviation 149 Tort 47 Trade creditors 301 Transaction cycles 196 Transactions-based approach 164 Treasury operations 92 True and fair 13 True and fair view 14 Turnbull Report on Internal Control 165 U Unmodified audit report: ISA 700 Using the work of internal auditors: ISA 610 Using the work of an expert: ISA 620 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 342 153 155 © EWP Index V Valuation of stock Valuation services Value for money audits VFM audits: problems Voluntary approach Voluntary code W 268 66 96 98 25 25 Wages and salaries Walk-through tests Work in progress Working capital efficiency ratios Working capital ratios Written representations: ISA 580 © EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 210 176 269 247 245 331 465 Paper F8: Audit and assurance (UK) 466 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP Publishing F8 UK Study Text - Audit and 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 • A focus on key topic areas identified by specialist tutors • 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 For Distance Learning Programmes please visit our website at: www.ewipublishing.com ACCA ... distancelearning@emilewoolfpublishing.com tel: +44(0) 1483 225746 ACCA ACCA Paper F8 (UK) Audit and assurance (UK stream) Welcome to Emile Woolf‘s study text for Paper F8 (UK) Audit and assurance (UK stream) which is: Written by... Notes & Study Guides © EWP Paper F8 (UK) Audit and assurance c Contents Page Syllabus and study guide Chapter 1: The meaning of audit and assurance 11 Chapter 2: Corporate governance and auditing... & Study Guides 17 Paper F8: Audit and assurance (UK) 18 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP CHAPTER Paper F8 (UK) Audit and assurance Corporate governance and