2012 Paper P7 QandA Sample Download v1

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ACCA Paper P7: ADVANCED AUDIT AND ASSURANCE (International) Practice Questions and Answers
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ACCA Paper P7 Advanced Audit and Assurance (International) Practice Questions and Answers
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ACCA Paper P7 ADVANCED AUDIT AND ASSURANCE (International) Practice Questions & Answers
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The structure of the syllabus Intellectual levels Learning hours Guide to exam structure Guide to examination assessment Aim Main capabilities Relational diagram of main capabilities Rationale Detailed syllabus Approach to examining the syllabus
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Diagnostic Test: ISA Short Questions and Answers Screen International Standard on Auditing Questions
ISA 200 ISA 210 ISA 220 ISA 230 ISA 240 ISA 250 ISA 260 ISA 265 ISA 300 ISA 315 ISA 320 ISA 330 ISA 402 ISA 450 ISA 500 ISA 501 20 32 40 54 62 82 89 99 106 114 141 148 164 175 183 197 209 219 228 236 250 266 277 285 294 304 316 323 335 346 364 372 378
Answers
24 35 45 57 68 85 93 102 109 122 144 154 168 178 188 202 213 222 231 241 256 270 280 289 298 308 319 327 340 356 368 375 380
No of Q&As
15 9 20 11 14 10 11 7 14 33 7 28 12 11 23 21 19 10 11 15 25 15 11 11 8 15 6 13 13 21 9 7 5 460
This free sample shows the test for ISA 500
ISA 505 ISA 510 ISA 520 ISA 530 ISA 540 ISA 550 ISA 560 ISA 570 ISA 580 ISA 600 ISA 610 ISA 620 ISA 700 ISA 705 ISA 706 ISA 710 ISA 720
Total number of ISA Short Questions and Answers

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International Standards on Auditing
ISA 500
To access the ISA click here Audit Evidence
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Question 1
What is the stated overall objective of ISA 500, Audit Evidence?
Question 2
For purposes of the ISAs, different terms have meanings attributed. In terms of the ISAs define the following: (i) (ii) (iii) (iv) (v) Accounting records Appropriateness (of audit evidence) Audit evidence Managements expert Sufficiency (of audit evidence).
Question 3
Paragraph 7, ISA 500 refers to information to be used as audit evidence and specifies that if information to be used as audit evidence has been prepared using the work of a managements expert, the auditor shall, to the extent necessary, having regard to the significance of that experts work for the auditors purposes, carry out three procedures or tests to consider the relevance and reliability of the information provided by that experts work. Briefly describe these three tests or procedures.
Question 4
What should the actions of the auditor be if there is inconsistency in, or doubts over reliability of, audit evidence?
Question 5
Paragraph A10, ISA 500, deals with audit procedures for obtaining audit evidence and specifies that in order to obtain audit evidence from which to draw reasonable conclusions on which to base the auditors opinion, two main categories of tests and procedures are required. What are they? ISA 500 describes seven audit procedures that may be used as risk assessment tests of controls or substantive procedures depending on the context in which they are applied by the audit. The first procedure described is Inspection. You are required to name the other six procedures.
Question 6
Briefly describe what inspection involves and its value to the auditor when obtaining audit evidence.
Question 7
Briefly describe what observation involves and its value to the auditor when obtaining audit evidence.
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Question 8
Briefly describe what an external confirmation involves and its value to the auditor when obtaining audit evidence.
Question 9
Briefly describe what recalculation involves and its value to the auditor when obtaining audit evidence.
Question 10
Briefly describe what reperformance involves and its value to the auditor when obtaining audit evidence.
Question 11
Briefly describe what analytical procedures involve and their value to the auditor when obtaining audit evidence.
Question 12
Briefly describe what inquiry involves and its value to the auditor when obtaining audit evidence.
Question 13
Paragraph 7, ISA 500 states When designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used as audit evidence. You are required to discuss the following: (a) (b) (c) (d) The meaning and context of relevance generally to information used as audit evidence. The context of relevance to tests of controls. The content of relevance to substantive procedures. The factors that increase or reduce the reliability of information to be used as audit evidence.
Question 14
Paragraph A36, ISA 500 discusses the reliability of information produced by a managements expert and specifies that if information to be used as audit evidence has been prepared using the work of a managements expert, then the nature, timing and extent of audit procedures may be affected by such matters as: .. and then provides ten examples of relevant matters, the first being The nature and complexity of the matter to which the managements expert relates. You are briefly discuss another nine matters which relate to audit procedures when information to be used as audit evidence has been prepared using the work of a managements expert.
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Question 15
Paragraph A37, ISA 500 requires that if information to be used as audit evidence has been prepared using the work of a managements expert, the audit shall, to the extent necessary, having regard to the significance of that experts work for the auditors purposes, evaluate the competence, capabilities and objectivity of that expert. You are required, in context to paragraph A37, ISA 500, to briefly explain the terms: (i) (ii) (iii) competence, capabilities, and objectivity.
Question 16
Paragraph A38, ISA 500 states Information regarding the competence, capabilities and objectivity of a managements expert may come from a variety of sources. One such source may be Personal experience with previous work of that expert. (Note: the print emphasis is not part of the standard.) You are required to identify another five sources of information relevant to the needs of paragraph A38, ISA 500.
Question 17
Paragraph A43, ISA 500 states 'When evaluating the objectivity of an expert engaged by the entity, it may be relevant to discuss with management and that expert any interests and relationships that may create threats to the experts objectivity, and any applicable safeguards, including any professional requirements that apply to the expert; and to evaluate whether the safeguards are adequate. You are required to list three main threats to a managements experts objectivity caused by interests and relationships.
Question 18
Paragraphs A44 - A47 deal with obtaining an understanding of the work of the managements expert. Paragraph A44 states, An understanding of the work of the managements expert includes an understanding of the relevant field of expertise. An understanding of the relevant field of expertise may be obtained in conjunction with the auditors determination of whether the auditor has the expertise to evaluate the work of the managements expert, or whether the auditor needs an auditors expert for this purpose. Briefly discuss four aspects of the managements experts field that may be relevant to the auditors understanding.
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Question 19
In the case of a managements expert engaged by the entity, there will ordinarily be an engagement letter or other written form of agreement between the entity and that expert. Evaluating that agreement when obtaining an understanding of the work of the managements expert may assist the auditor in determining the appropriateness of three important aspects concerning the engagement. What are these three aspects?
Question 20
Discuss three considerations of the auditor when evaluating the appropriateness of the managements experts work as audit evidence.
Question 21
Paragraph 10, ISA 500 deals with selecting items for testing to obtain audit evidence and states When designing tests of controls and tests of details, the auditor shall determine means of selecting items for testing that are effective in meeting the purpose of the audit procedure. You are required to identify the three means available to the auditor for selecting items for testing.
Question 22
Paragraph A53, ISA 500 states The auditor may decide that it will be most appropriate to examine the entire population of items that make up a class of transactions or account balance (or a stratum within that population). 100% examination is unlikely in the case of tests of controls; however, it is more common for tests of details. You are required to state three situations where 100% examination may be appropriate.
Question 23
Paragraph A54, ISA 500 states The auditor may decide to select specific items from a population. In making this decision, factors that may be relevant include the auditors understanding of the entity, the assessed risks of material misstatement, and the characteristics of the population being tested. Describe three bases by which specific items may be selected for testing.
Time is more value than money. You can get more money, but you cannot get more time. Jim Rohn
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International Standards on Auditing
ISA 500
To access the ISA click here Audit Evidence
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Answer to Question 1
Paragraph 4, ISA 500 states The objective of the auditor is to design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditors opinion.
Paragraph 5, ISA 500 states For purposes of the ISAs, the following terms have the meanings attributed below: (a) Accounting records The records of initial accounting entries and supporting records, such as cheques and records of electronic fund transfers; invoices; contracts; the general and subsidiary ledgers, journal entries and other adjustments to the financial statements that are not reflected in journal entries; and records such as work sheets and spreadsheets supporting cost allocations, computations, reconciliations and disclosures. Appropriateness (of audit evidence) The measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditors opinion is based. Audit evidence Information used by the auditor in arriving at the conclusions on which the auditors opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information. Managements expert An individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements. Sufficiency (of audit evidence) The measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditors assessment of the risks of material misstatement and also by the quality of such audit evidence.
(b)
(c)
(d)
(e)
Paragraph 8, ISA 500 states If information to be used as audit evidence has been prepared using the work of a managements expert, the auditor shall, to the extent necessary, having regard to the significance of that experts work for the auditors purposes: (a) (b) (c) Evaluate the competence, capabilities and objectivity of that expert; Obtain an understanding of the work of that expert; and Evaluate the appropriateness of that experts work as audit evidence for the relevant assertion.
Paragraph 11, ISA 500 states If: (a) (b) audit evidence obtained from one source is inconsistent with that obtained from another; or the auditor has doubts over the reliability of information to be used as audit evidence,
the auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect of the matter, if any, on other aspects of the audit.
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Paragraph A10, ISA 500 states .... audit evidence to draw reasonable conclusions on which to base the auditors opinion is obtained by performing: (a) (b) Risk assessment procedures; and Further audit procedures, which comprise: (i) (ii) Tests of controls, when required by the ISAs or when the auditor has chosen to do so; and Substantive procedures, including tests of details and substantive analytical procedures.
Direct tests of financial statement balances (substantive audit procedures) that are not analytical procedures. Definition Tests of details: These are direct tests of financial statement balances (substantive audit procedures) that are not analytical procedures. End of Definition
Paragraphs A14 - A16, ISA 500 deal with Inspection. They state Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset. Inspection of records and documents provides audit evidence of varying degrees of reliability, depending on their nature and source and, in the case of internal records and documents, on the effectiveness of the controls over their production. An example of inspection used as a test of controls is inspection of records for evidence of authorisation. Some documents represent direct audit evidence of the existence of an asset, for example, a document constituting a financial instrument such as a stock or bond. Inspection of such documents may not necessarily provide audit evidence about ownership or value. In addition, inspecting an executed contract may provide audit evidence relevant to the entitys application of accounting policies, such as revenue recognition. Inspection of tangible assets may provide reliable audit evidence with respect to their existence, but not necessarily about the entitys rights and obligations or the valuation of the assets. Inspection of individual inventory items may accompany the observation of inventory counting.
Paragraph 17, ISA 500 states Observation consists of looking at a process or procedure being performed by others, for example, the auditors observation of inventory counting by the entitys personnel, or of the performance of control activities. Observation provides audit evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes place, and by the fact that the act of being observed may affect how the process or procedure is performed. See ISA 501 [Specific Considerations for Selected Items] for further guidance on observation of the counting of inventory.
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Paragraph A18, ISA 500 states An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. External confirmation procedures frequently are relevant when addressing assertions associated with certain account balances and their elements. However, external confirmations need not be restricted to account balances only. For example, the auditor may request confirmation of the terms of agreements or transactions an entity has with third parties; the confirmation request may be designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are. External confirmation procedures also are used to obtain audit evidence about the absence of certain conditions, for example, the absence of a side agreement that may influence revenue recognition. See ISA 505 [External Confirmations] for further guidance.
Paragraph A19, ISA 500 states Recalculation consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically.
Paragraph A20, ISA 500 states Reperformance involves the auditors independent execution of procedures or controls that were originally performed as part of the entitys internal control.
Paragraph A21, ISA 500 states Analytical procedures consist of evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. See ISA 520 [Analytical Procedures] for further guidance.
Paragraphs A22 - A25, ISA 500 deal with Inspection. They state Inquiry consists of seeking information of knowledgeable persons, both financial and non-financial, within the entity or outside the entity. Inquiry is used extensively throughout the audit in addition to other audit procedures. Inquiries may range from formal written inquiries to informal oral inquiries. Evaluating responses to inquiries is an integral part of the inquiry process. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence. Alternatively, responses might provide information that differs significantly from other information that the auditor has obtained, for example, information regarding the possibility of management override of controls. In some cases, responses to inquiries provide a basis for the auditor to modify or perform additional audit procedures. Although corroboration of evidence obtained through inquiry is often of particular importance, in the case of inquiries about management intent, the information available to support managements intent may be limited. In these cases, understanding managements past history of carrying out its stated intentions, managements stated reasons for choosing a particular course of action, and managements ability to pursue a specific course of action may provide relevant information to corroborate the evidence obtained through inquiry. . In respect of some matters, the auditor may consider it necessary to obtain written representations from management and, where appropriate, those charged with governance to confirm responses to oral inquiries. See ISA 580 [Written Representations] for further guidance.
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Paragraphs A27 - A30, ISA 500 deal with relevance. (a) The meaning and context of relevance Relevance deals with the logical connection with, or bearing upon, the purpose of the audit procedure and, where appropriate, the assertion under consideration. The relevance of information to be used as audit evidence may be affected by the direction of testing. For example, if the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure. On the other hand, when testing for understatement in the existence or valuation of accounts payable, testing the recorded accounts payable would not be relevant, but testing such information as subsequent payments, unpaid invoices, suppliers statements, and unmatched receiving reports may be relevant. A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others. For example, inspection of documents related to the collection of receivables after the period end may provide audit evidence regarding existence and valuation, but not necessarily cutoff. Similarly, obtaining audit evidence regarding a particular assertion, for example, the existence of inventory, is not a substitute for obtaining audit evidence regarding another assertion, for example, the valuation of that inventory. On the other hand, audit evidence from different sources or of a different nature may often be relevant to the same assertion. (b) The context of relevance to tests of controls Tests of controls are designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. Designing tests of controls to obtain relevant audit evidence includes identifying conditions (characteristics or attributes) that indicate performance of a control, and deviation conditions which indicate departures from adequate performance. The presence or absence of those conditions can then be tested by the auditor. The context of relevance to substantive procedures Substantive procedures are designed to detect material misstatements at the assertion level. They comprise tests of details and substantive analytical procedures. Designing substantive procedures includes identifying conditions relevant to the purpose of the test that constitute a misstatement in the relevant assertion. The reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature, and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant. Therefore, generalisations about the reliability of various kinds of audit evidence are subject to important exceptions. Even when information to be used as audit evidence is obtained from sources external to the entity, circumstances may exist that could affect its reliability. For example, information obtained from an independent external source may not be reliable if the source is not knowledgeable, or a managements expert may lack objectivity. While recognising that exceptions may exist, the following generalisations about the reliability of audit evidence may be useful: The reliability of audit evidence is increased when it is obtained from independent sources outside the entity. The reliability of audit evidence that is generated internally is increased when the related controls, including those over its preparation and maintenance, imposed by the entity are effective.
(c)
(d)
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To access ISA 500 click here Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control). Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than evidence obtained orally (for example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed). Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles, or documents that have been filmed, digitised or otherwise transformed into electronic form, the reliability of which may depend on the controls over their preparation and maintenance.
Paragraph A36, ISA 500 states The nature, timing and extent of audit procedures may be affected by such matters as: The nature and complexity of the matter to which the managements expert relates. The risks of material misstatement in the matter. The availability of alternative sources of audit evidence. The nature, scope and objectives of the managements experts work. Whether the managements expert is employed by the entity, or is a party engaged by it to provide relevant services. The extent to which management can exercise control or influence over the work of the managements expert. Whether the managements expert is subject to technical performance standards or other professional or industry requirements. The nature and extent of any controls within the entity over the managements experts work. The auditors knowledge and experience of the managements experts field of expertise. The auditors previous experience of the work of that expert.
Paragraph A37, ISA 500 states Competence relates to the nature and level of expertise of the managements expert. Capability relates the ability of the managements expert to exercise that competence in the circumstances. Factors that influence capability may include, for example, geographic location, and the availability of time and resources. Objectivity relates to the possible effects that bias, conflict of interest or the influence of others may have on the professional or business judgment of the managements expert. The competence, capabilities and objectivity of a managements expert, and any controls within the entity over that experts work, are important factors in relation to the reliability of any information produced by a managements expert.
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Paragraph A38, ISA 500 states Information regarding the competence, capabilities and objectivity of a managements expert may come from a variety of sources, such as: Personal experience with previous work of that expert. Discussions with that expert. Discussions with others who are familiar with that experts work. Knowledge of that experts qualifications, membership of a professional body or industry association, license to practice, or other forms of external recognition. Published papers or books written by that expert. An auditors expert, if any, who assists the auditor in obtaining sufficient appropriate audit evidence with respect to information produced by the managements expert.
Paragraph A43, ISA 500 states When evaluating the objectivity of an expert engaged by the entity, it may be relevant to discuss with management and that expert any interests and relationships that may create threats to the experts objectivity, and any applicable safeguards, including any professional requirements that apply to the expert; and to evaluate whether the safeguards are adequate. Interests and relationships creating threats may include: Financial interests. Business and personal relationships. Provision of other services.
Paragraph A45, ISA 500 states Aspects of the managements experts field relevant to the auditors understanding may include: Whether that experts field has areas of specialty within it that are relevant to the audit. Whether any professional or other standards, and regulatory or legal requirements apply. What assumptions and methods are used by the managements expert, and whether they are generally accepted within that experts field and appropriate for financial reporting purposes. The nature of internal and external data or information the auditors expert uses.
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Paragraph A46, ISA 500 states In the case of a managements expert engaged by the entity, there will ordinarily be an engagement letter or other written form of agreement between the entity and that expert. Evaluating that agreement when obtaining an understanding of the work of the managements expert may assist the auditor in determining the appropriateness of the following for the auditors purposes: The nature, scope and objectives of that experts work; The respective roles and responsibilities of management and that expert; and The nature, timing and extent of communication between management and that expert, including the form of any report to be provided by that expert.
Paragraph A48, ISA 500 states Considerations when evaluating the appropriateness of the managements experts work as audit evidence for the relevant assertion may include: The relevance and reasonableness of that experts findings or conclusions, their consistency with other audit evidence, and whether they have been appropriately reflected in the financial statements; If that experts work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods; and If that experts work involves significant use of source data the relevance, completeness, and accuracy of that source data.
Paragraph A52, ISA 500 states An effective test provides appropriate audit evidence to an extent that, taken with other audit evidence obtained or to be obtained, will be sufficient for the auditors purposes. In selecting items for testing, the auditor is required to determine the relevance and reliability of information to be used as audit evidence; the other aspect of effectiveness (sufficiency) is an important consideration in selecting items to test. The means available to the auditor for selecting items for testing are: (a) (b) (c) Selecting all items (100% examination); Selecting specific items; and Audit sampling.
The application of any one or combination of these means may be appropriate depending on the particular circumstances, for example, the risks of material misstatement related to the assertion being tested, and the practicality and efficiency of the different means.
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Paragraph A53, ISA 500 states The auditor may decide that it will be most appropriate to examine the entire population of items that make up a class of transactions or account balance (or a stratum within that population). 100% examination is unlikely in the case of tests of controls; however, it is more common for tests of details. 100% examination may be appropriate when, for example: The population constitutes a small number of large value items; There is a significant risk and other means do not provide sufficient appropriate audit evidence; or The repetitive nature of a calculation or other process performed automatically by an information system makes a 100% examination cost effective.
Paragraph A54, ISA 500 states The auditor may decide to select specific items from a population. In making this decision, factors that may be relevant include the auditors understanding of the entity, the assessed risks of material misstatement, and the characteristics of the population being tested. The judgmental selection of specific items is subject to non-sampling risk. Specific items selected may include: High value or key items. The auditor may decide to select specific items within a population because they are of high value, or exhibit some other characteristic, for example, items that are suspicious, unusual, particularly risk-prone or that have a history of error. All items over a certain amount. The auditor may decide to examine items whose recorded values exceed a certain amount so as to verify a large proportion of the total amount of a class of transactions or account balance. Items to obtain information. The auditor may examine items to obtain information about matters such as the nature of the entity or the nature of transactions.
The mighty oak was once just a small nut who stood his ground. Rianna Nadon
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+AddVance ACCA P7 Questions and Answers
Contents: Exam Status Questions and Answers

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TWENTY bridges from Tower to Kew Wanted to know what the River knew, Twenty Bridges or twenty-two, For they were young, and the Thames was old And this is the tale that River told Rudyard Kipling Joseph Rudyard Kipling (1865 1936) was an English shortstory writer, poet, and novelist chiefly remembered for his tales and poems of British soldiers in India, and his tales for children. He received the Nobel Prize for Literature in 1907. He was born in Bombay, in the Bombay Presidency of British India, and was taken by his family to England when he was five years old. Kipling is best known for his works of fiction, including The Jungle Book (a collection of stories which includes "Rikki-TikkiTavi"),
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Contents: Exam-status Questions 1 of 7

Meadow Company: December 2002 A question covering audit risks, segmental information and international restructuring Imperiol Company: December 2002 A question dealing with the acceptance of an engagement and procedures for providing an income statement forecast Siegler Company: December 2002 A question covering different audit issues and audit evidence Capri Group: December 2002 A question concerning the role of support letters and expressing an opinion on consolidated financial statements Isthmus Company: December 2002 A question covering ethical and professional issues Corporate governance: December 2002 A question covering the appropriateness of global corporate governance standards ABC Company: June 2003 A question covering audit risks, reliance placed on the work of an expert, audit of total costs to completion of a contract Ferry Company: June 2003 A question covering the top down approach in the context of business risk, identifying business risks and risk management Dexy Company: June 2003 A question covering audit issues and audit evidence Icehouse Publisher: June 2003 A question covering the shortcomings of an audit report Duran Company: June 2003 A question covering ethical and professional issues and appropriateness of available audit safeguards Audit failures: June 2003 A question covering the professional implications of possible audit failures Hydrasports Company: December 2003 A question covering business risks, carrying amounts in the statement of financial position, social and environmental responsibilities Pacific Group (PG): December 2003 A question covering audit risks and identity of appropriate internal controls Vema Company: December 2003 A question covering audit issues and audit evidence
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Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Note: the ACCA Official solutions are available free of charge on www.accaglobal.com.
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Frazil Company: December 2003 A question covering compliance with IFRSs and implications of stated situations Sepia: December 2003 A question covering professional issues raised by stated audit situations Developments in the field of audit: December 2003 A question covering developments concerning external audit opinion, effectiveness of internal financial controls and management representation letters Bateleur Zoo Gardens (BZG) Company: June 2004 A question covering internal controls, financial statement risks and factors to be considered when planning the extent of substantive analytical procedures Harrier Motors: June 2004 A question covering audit risks, conduct of a physical inventory count and audit work in respect of the useful life of a brand name Eagle Energy: June 2004 A question covering audit issues and audit evidence concerning stated situations Rook & Co: June 2004 A question requiring the appraisal of the appropriateness of an audit opinion Hawk Associates: June 2004 A question covering ethical and professional issues ISA 240: June 2004 A question covering compliance with IFRSs and implications of stated situations Geno Vesa Farm (GVF) Company: June 2005 A question covering audit risks, and audit work performed on carrying amounts in the statement of financial position Plaza Company: June 2005 A question covering due diligence and related issues Volcan Company: June 2005 A question covering audit issues and audit evidence Hegas Company: June 2005 A question covering implications of matters concerning the auditors report Bartolome Accountants: June 2005 A question covering ethical and other professional issues Money laundering: June 2005 A question covering money laundering and related issues
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Shire Oil Co: December 2005 A question covering audit risks, audit work and auditing social and environmental responsibilities Indigo Co: December 2005 A question covering opening balances, financial statement risks, and determining the extent of fraud Albreda Co: December 2005 A question covering audit issues and audit evidence Jinack Co: December 2005 A question covering audit issues Dedza Accountants: December 2005 A question covering ethical and professional issues This free sample shows the Q&A of Jinack Co.
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Scope of the audit: December 2005 A question covering fair value accounting, continuous auditing and nonconsolidated entities under common control Pavia Co: December 2006 A question covering financial statement risks, analytical procedures and audit work concerning carrying amounts in the statement of financial position Retail and Business Group (RBG): December 2006 A question concerning outsourcing of internal audit services and related issues Seymour Co: December 2006 A question covering audit issues Cleeves Co: December 2006 A question covering the appropriateness of an audit opinion and the implications of the audit opinion Objectivity: December 2006 A question covering threats to objectivity and safeguards Audit practices: December 2006 A question covering lowballing, opinion shopping and insider dealer Murray Co: June 2007 A question covering accepting an audit engagement, planning an audit and the effectiveness of a management letter Cusiter Co: June 2007 A question covering prospective financial information (PFI), and related issues Lamont Co: June 2007 A question covering different audit issues Petrie Company: June 2007 A question covering the audit report and associated issues
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Code of ethics: June 2007 A question covering the term assurance team, threats to objectives and safeguards ISA 600: June 2007 A question covering ISA 600 Island Co: December 2007 A question covering audit risks, audit procedures and quality control procedures Sci-Tech Co: December 2007 A question covering outsourcing, capitalised development costs, validity of an amortisation rate and audit procedures Mulligan Co: December 2007 A question covering the review of a business plan and related aspects and forensic accounting Nate & Co Accountants: December 2007 A question covering money laundering, ethical and professional issues Bertie & Co Accountants: December 2007 A question covering the audit report, benefits of a company having a financial statement audit and the objective of a review engagement Medix Co: June 2008 A question covering business risks, financial statement risks and professional, ethical and other issues Rosie Co: June 2008 A question covering due diligence the audit of a carrying cost and joint audit and issues involved Pulp Co: June 2008 A question covering the audit of receivables and quality control issues Smith & Co Accountants: June 2008 A question covering the ethical and other professional issues raised by an invoice file review and discussion on subsequent action Blod Co: June 2008 A question covering the management letter, ethical issues and the content of a liability disclaimer paragraph and the main arguments for and against the use of the paragraph Bluebell Co: December 2008 A question covering financial statement risks, measurement of a share-based payment expense, the recoverability of a deferred tax asset and assessment of social and environmental performance Crocus Co: December 2008 A question covering forensic accounting and related issues
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Poppy Co: December 2008 A question covering material balances recognised at fair value, reliance on the work of an external expert and associated audit procedures Becker & Co: Accountants: December 2008 A question covering the ethical and practice management implications in respect of three aspects Dexter Co: December 2008 A question covering going concern and related aspects Champers Co: June 2009 A question covering the audit planning meeting, aspects of a clients business which should be considered, evaluation of business risk and two audit procedures Dragon Group: June 2009 A question covering the firms tender document, matters relating to the acceptance of an audit engagement, transnational audit and features of it Robster Co: June 2009 A question covering the review of audit working papers, audit evidence in respect of leases and financial assets, and analytical procedures Headford Co: June 2009 A question covering professional competence and due care, ethical and professional issues raised Pluto Co: June 2009 A question covering the appraisal of a proposed audit report and who should perform an engagement quality control review Papaya Co: December 2009 A question covering analytical procedures, overall audit strategy and audit plan and financial statements risks Banana Co: December 2009 A question covering audit evidence and the management of the audit Apricot Co: December 2009 A question covering procedures performed on the cash flow forecast and a report on prospective financial information Peaches & Co: December 2009 A question requiring comparison between prescriptive and principles-based approaches to auditing, ethical and professional issues raised Lychee Co: December 2009 A question covering subsequent events and given related aspects Grissom Co: June 2010 A question covering audit risks, assessing the work of another auditor and audit procedures
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Mac Co: June 2010 A question covering internal audit and related aspects, fraud and the benefits and drawbacks of establishing an audit committee Juliet Co: June 2010 A question covering failure of audit opinion, audit procedures and ethical and other implications concerning forecasts and projections Carter & Co: June 2010 A question covering ethical and professional issues raised Grimes Co: June 2010 A question covering Emphasis of Matter paragraph, methods used by an audit firm to reduce exposure to litigation claims and the implications of a liability limitation agreement Jolie Co: December 2010 A question covering the audit planning meeting in which a clients business risks are evaluated, financial statements risks and audit procedures in respect of the valuation of a brand name Eastwood Co: December 2010 A question covering an invitation to perform an assurance engagement, procedures to verify KPIs and audit aspects Clooney Co: December 2010 A question covering audit evidence Neeson & Co Accountants: December 2010 A question covering ethical and professional issues Willis Co: December 2010 A question covering the appraisal of a draft audit report, managementimposed limitation on scope and the reporting requirements in respect of internal control deficiencies identified Bill Co: June 2011 A question covering a partly complete contract value, the valuation of an operating division, related parties and related party transactions and audit procedures Butler Co: June 2011 A question covering going concern issues, audit procedures on a cash flow forecast, going concern and forming the audit opinion Wexford Co: June 2011 A question covering professional and ethical matters and opening balances Jacob Co: June 2011 A question covering the potential benefits of an externally provided due diligence review and related information
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Nassau Group: June 2011 A question covering the forming an opinion on the consolidated financial statements of a client and related procedures Oak Co: December 2011 A question covering a preliminary analytical review, audit procedures with regard to a share-based payment plan and the classification of a new lease, practice management and quality control issues Willow Co: December 2011 A question covering the issues of audit work on inventory, provisions and current assets and the other issues of property revaluations, non-current asset register, procurement procedures, and the ethics of the clients financial controller Beech & Co: December 2011 A question covering the decommissioning provision, evaluating the adequacy of the auditors experts work and potential implications of the change in accounting estimates Chestnut Co: December 2011 A question covering alleged fraudulent activity and related issues Yew Co: December 2011 A question covering audit completion, management representation and treatment of prior year modified audit report
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Good, better, best Never let it rest Until the good becomes the better and the better becomes the best. English elementary school rhyme
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Jinack Co: Question

A question covering audit issues
(a) (b)
Explain the auditors responsibilities in respect of subsequent events.
(5 marks)
You are the audit manager of Jinack Co, a private limited liability company. You are currently reviewing two matters that have been left for your attention on the audit working paper file for the year ended 30 September 2012: (i) Jinack holds an extensive range of inventory and keeps perpetual inventory records. There was no full physical inventory count at 30 September 2012 as a system of continuous stock checking is operated by warehouse personnel under the supervision of an internal audit department. A major systems failure in October 2012 caused the perpetual inventory records to be corrupted before the year-end inventory position was determined. As data recovery procedures were found to be inadequate, Jinack is reconstructing the year-end quantities through a physical count and rollback. The reconstruction exercise is expected to be completed in January 2013. (6 marks) (ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior has documented that the finance director explained that Batik commenced trading on 7 October 2012, after being set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained. (4 marks)
Required: Identify and comment on the implications of the above matters for the auditors report on the financial statements of Jinack Co for the year ended 30 September 2012 and, where appropriate, the year ending 30 September 2013. NOTE: The mark allocation is shown against each of the matters. (15 marks)
Only do what your heart tells you. Princess Diana:
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Jinack Co: Answer Plan

The Plan and Answer: part (a)

You are required to identify and comment on the implications of two matters for the auditors report on the financial statements for the year ended 30 Sep 2012 and the year ending 30 Sep 2013
Ask yourself . What is being examined here?
A 5 mark question so raise at least five points.
(a) For full answer click here AUDITORS RESPONSIBILITIES FOR SUBSEQUENT EVENTS Auditors responsibilities for subsequent events Consideration of IAS 10 and ISA 560. Events occurring up to date of auditors report Auditor is responsible for carrying out procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditors report that may require adjustment of, or disclosure in, the financial statements have been identified. These procedures are in addition to those applied to specific transactions occurring after the period end that provide audit evidence of period-end account balances When the auditor becomes aware of events that materially affect the financial statements, the auditor must consider whether they have been properly accounted for and adequately disclosed Facts discovered after the date of the auditors report but before financial statements are issued Actions taken by the auditor when he/she becomes aware of facts which may materially affect the financial statements - ISA 560 If management does not amend the financial statements (where the auditor believes they need to be amended) and the auditors report has not been released to the entity, the auditor should express a qualified opinion or an adverse opinion AUDITORS RESPONSIBILITIES FOR SUBSEQUENT EVENTS continuation Facts discovered after the date of the auditors report but before financial statements are issued continuation If the auditors report has been released to the entity, the auditor must notify those charged with governance not to issue the financial statements (and the auditors report thereon) to third parties. Facts discovered after the financial statements have been issued The auditor has no obligation to make any inquiry regarding financial statements that have been issued. Actions taken if the auditor becomes aware of a fact which existed at the date of the auditors report and which, if known at that date, may have caused the auditors report to be modified - ISA 560
Answer Plan for part (b) is on the next screen
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The Plan and Answer: part (b) (i) and (ii)
Ask yourself . What is being examined here?
You are required to explain the auditors responsibilities in respect of subsequent events.
A 5 mark question so raise at least five points.
(i) For full answer click here Data loss (vs asset loss) limitation of scope Limitation imposed by circumstances Sufficient evidence records vs alternative rollback) Alternative procedures analytical procedures Material not pervasive Material modified opinion (except for) Potential adjustment necessary Immaterial unmodified report Not emphasis of matter CORRUPTION OF PERPETUAL INVENTORY RECORDS
(ii) For full answer click here WHOLLY-OWNED FOREIGN SUBSIDIARY Managements oral representation insufficient evidence Non-adjusting post balance sheet event (?) disclosure? Lack of evidence limitation of scope Limitation imposed by entity?
Non-adjusting post balance sheet event - IAS 10
Material vs material and pervasive
2013 restate opening position/comparatives for error(if any) therefore unmodified - IAS 8
Unmodified vs modified except for limitation vs disclaimer
Organising is what you do before you do something, so that when you do it, it is not all mixed up. A. A. Milne Alan Alexander Milne (1882 1956) was an English author, best known for his books about the teddy bear Winnie-the-Pooh and for various children's poems. Milne was a noted writer, primarily as a playwright, before the huge success of Pooh overshadowed all his previous work.
Winni the Pooh Pooh in his original appearance. First appearance When We Were Very Young (1924)
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Jinack Co: Answer

(a)
Auditors responsibilities for subsequent events Auditors must consider the effect of subsequent events on: the financial statements; the auditors report.
For answer plan of (a) click here
Subsequent events are all events occurring after a period end (i.e. reporting date) i.e.: events after the balance sheet date (as defined in IAS 10 - Events After the Reporting Period); and events after the financial statements have been authorised for issue. Tutorial comment IAS 10.10 defines Events after the reporting period as are those events, favourable and unfavourable, that occur between the statement of financial position date and the date when the financial statements are authorised for issue. Reference could be made here to ISA 560. ISA 560.5 (e) defines subsequent events as Events occurring between the date of the financial statements and the date of the auditors report, and facts that become known to the auditor after the date of the auditors report. There is, of course a difference between the two final dates. End of tutorial comment
Events occurring up to date of auditors report The auditor is responsible for carrying out procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditors report that may require adjustment of, or disclosure in, the financial statements have been identified. These procedures are in addition to those applied to specific transactions occurring after the period end that provide audit evidence of period-end account balances (e.g. inventory cut-off and receipts from trade receivables). Such procedures should ordinarily include: reviewing minutes of board/audit committee meetings; scrutinising latest interim information (financial statements/budgets/cash flows, etc); making/extending inquiries to legal advisors on litigation matters; inquiring of management whether any subsequent events have occurred that might affect the financial statements (e.g. commitments entered into).
When the auditor becomes aware of events that materially affect the financial statements, the auditor must consider whether they have been properly accounted for and adequately disclosed in the financial statements.
Facts discovered after the date of the auditors report but before financial statements are issued Tutorial comment After the date of the auditors report it is managements responsibility to inform the auditor of facts which may affect the financial statements. End of tutorial comment
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If the auditor becomes aware of such facts which may materially affect the financial statements, the auditor: considers whether the financial statements need amendment; discusses the matter with management; and takes appropriate action (e.g. audit any amendments to the financial statements and issue a new auditors report) (ISA 560.10.)
If management does not amend the financial statements (where the auditor believes they need to be amended) and the auditors report has not been released to the entity, the auditor should express a qualified opinion or an adverse opinion (as appropriate). If the auditors report has been released to the entity, the auditor must notify those charged with governance not to issue the financial statements (and the auditors report thereon) to third parties. Tutorial comment ISA 560.13 states .... if management does not amend the financial statements in circumstances where the auditor believes they need to be amended, then: (a) If the auditors report has not yet been provided to the entity, the auditor shall modify the opinion as required by ISA 7055 Modifications to the Opinion in the Independent Auditors Report and then provide the auditors report; or If the auditors report has already been provided to the entity, the auditor shall notify management and, unless all of those charged with governance are involved in managing the entity, those charged with governance, not to issue the financial statements to third parties before the necessary amendments have been made. If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action, to seek to prevent reliance on the auditors report.
(b)
ISA 560.A16 goes on to state Consequently, the auditor may consider it appropriate to seek legal advice. End of tutorial comment Facts discovered after the financial statements have been issued The auditor has no obligation to make any inquiry regarding financial statements that have been issued. However, if the auditor becomes aware of a fact which existed at the date of the auditors report and which, if known at that date, may have caused the auditors report to be modified, the auditor should: consider whether the financial statements need revision; discuss the matter with management; and take appropriate action (e.g. issuing a new report on revised financial statements). For answer plan of (b)(i) click here
[ISA 560.A16] (b) Implications for the auditors report (i) Corruption of perpetual inventory records
The loss of data (of physical inventory quantities at the balance sheet date) gives rise to a limitation on scope. Tutorial comment It is the records of the asset that have been destroyed not the physical asset. End of tutorial comment
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The systems failure in October 2012 is clearly a non-adjusting post financial position (balance sheet) event (IAS 10 - Events After the Reporting Period). If it is material (such that non-disclosure could influence the economic decisions of users) Jinack should disclose: the nature of the event (i.e. systems failure); and an estimate of its financial effect (i.e. the cost of disruption and reconstruction of data to the extent that it is not covered by insurance). [IAS 10 .21]
Tutorial comment The event has no financial effect on the realisability of inventory, only on its measurement for the purpose of reporting it in the financial statements. IAS 10.10 states An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period. End of tutorial comment If material this disclosure could be made in the context of explaining how inventory has been estimated at 30 September 2012 (see later). If such disclosure, that the auditor considers to be necessary, is not made, the audit opinion should be qualified except for disagreement (over lack of disclosure). Tutorial comment Such qualifications are extremely rare since management should be persuaded to make necessary disclosure in the notes to the financial statements rather than have users attention drawn to the matter through a qualification of the audit opinion. End of tutorial comment
The limitation on scope of the auditors work has been imposed by circumstances. Jinacks accounting records (for inventory) are inadequate (non-existent) for the auditor to perform tests on them. An alternative procedure to obtain sufficient appropriate audit evidence of inventory quantities at a year end is subsequent count and rollback. However, the extent of roll back testing is limited as records are still under reconstruction. The auditor may be able to obtain sufficient evidence that there is no material misstatement through a combination of procedures: testing managements controls over counting inventory after the balance sheet date and recording inventory movements (e.g. sales and goods received); reperforming the reconstruction for significant items on a sample basis; analytical procedures such as a review of profit margins by inventory category.
An extensive range of inventory is clearly material. The matter (i.e. systems failure) is not however pervasive, as only inventory is affected.
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Unless the reconstruction is substantially completed (i.e. inventory items not accounted for are insignificant) the auditor cannot determine what adjustment, if any, might be determined to be necessary. The auditors report should then be modified, except for, limitation on scope. (For a reminder of the different audit opinions click here.) However, if sufficient evidence is obtained the auditors report should be unmodified. An emphasis of matter paragraph would not be appropriate because this matter is not one of significant uncertainty. Tutorial comment ISA 706.A1 states Examples of circumstances where the auditor may consider it necessary to include an Emphasis of Matter paragraph are . An uncertainty ..
An uncertainty in this context is any matter whose outcome depends on future actions or events not under the direct control of Jinack, which is not relevant here. End of tutorial comment Concerning 2013 If the 2012 auditors report is qualified except for on grounds of limitation on scope there are two possibilities for the inventory figure as at 30 September 2012 determined on completion of the reconstruction exercise: (1) (2) it is not materially different from the inventory figure reported; or it is materially different.
In (1), with the limitation now removed, the need for qualification is removed and the 2013 auditors report would be unmodified (in respect of this matter). In (2) the opening position should be restated and the comparatives adjusted in accordance with citing IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The 2013 auditors report would again be unmodified. Tutorial comment IAS 8.42 states . an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by: (a) (b) restating the comparative amounts for the prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.
If the error was not corrected in accordance with IAS 8 it would be a different matter and the auditors report would be modified (except for qualification) disagreement on accounting treatment. End of tutorial comment
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(ii)
Wholly-owned foreign subsidiary
For answer plan of (b)(ii) click here
The cash transfer is a non-adjusting post financial position (balance sheet) event. It indicates that Batik was trading after the financial position date. However, that does not preclude Batik having commenced trading before the year end. The finance directors oral representation is wholly insufficient evidence with regard to the existence (or otherwise) of Batik at 30 September 2012. If it existed at the balance sheet date its financial statements should have been consolidated (unless immaterial). The lack of evidence that might reasonably be expected to be available (e.g. legal papers, registration payments, etc) suggests a limitation on the scope of the audit. If such evidence has been sought but not obtained then the limitation is imposed by the entity (rather than by circumstances). Whilst the transaction itself may not be material, the information concerning the existence of Batik may be material to users and should therefore be disclosed (as a non-adjusting event). The absence of such disclosure, if the auditor considered necessary, would result in a qualified except for, opinion. Tutorial comment Any matter that is considered sufficiently material to be worthy of disclosure as a nonadjusting event must result in such a qualified opinion if the disclosure is not made. End of tutorial comment
If Batik existed at the balance sheet date and had material assets and liabilities then its non-consolidation would have a pervasive effect. This would warrant an adverse opinion. Also, the nature of the limitation (being imposed by the entity) could have a pervasive effect if the auditor is suspicious that other audit evidence has been withheld. In this case the auditor should disclaim an opinion.
Strength and growth come only through continuous effort and struggle. Napoleon Hill
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Examiners Report
You might find it useful to know what the Examiner reported about the quality of answers for this scenario. This question has finally attained the popularity of the ethics question (5) - though perhaps only because candidates were not prepared to tackle an unrehearsed current issues question (6). Part (a): Explain the auditor's responsibilities in respect of subsequent events Many candidates made some distinction between adjusting and non-adjusting events though this was not necessary in explaining 'auditor's responsibilities' that are covered by an auditing standard, ISA 560 Subsequent Events (not an accounting standard, IAS 10 Events After the Reporting Period, as asserted by many). Some candidates gave far too much detail on the accounting aspects, which did not answer the question set. As with previous exams this part of this question called for rote-learned knowledge of an auditing standard. Full marks were easily obtained to candidates who went into sufficient detail and distinguished between: events occurring up to the date of the auditor's report facts discovered after the date of the auditor's report but before the financial statements are issued facts discovered after the financial statements have been issued. Answers did not need to be long to score well. Many candidates conveyed some misconceptions about post financial position events in their answers. For example, the following are not true: Adjusting Occur before the statement of financial position (balance sheet) date Occur within 3 months of the statement of financial position date Occur before the auditor's report is signed Are material - therefore adjusted Non-adjusting Occur after the financial position date Occur more than 3 months after the statement of financial position date Occur before the auditor's report is signed Are immaterial - therefore disclosed
Part (b): Implications for the auditor's report. for the current and, where appropriate, next year end Although there were a few answers that got to the core of each matter and offered suitable opinions there were many inadequate answers. Principle weaknesses included: merely copying out much of the information in the question dealing with implications that had no bearing on the auditor's report (e.g. systems considerations) 'rubbishing' answers by taking a 'scattergun' approach (suggesting every possible form of audit opinion) supposing an 'emphasis of matter/explanatory paragraph' to be a universal solution.
Many candidates asserted that it was wrong that there was no full physical count and therefore a disagreement qualification would arise. Others stated (again incorrectly) that (i) could merit a disclaimer of opinion though clearly the matter was not pervasive. Candidates who found themselves considering whether or not a matter was 'fundamental' must invest in a more up-to-date textbook as this terminology has been obsolete for nearly a decade.
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Professional and Ethical Behaviour
IFAs Code of Ethics for Professional Accountants

To access the IFAC Code click here
This free sample shows the full 60 Questions, but only Answers for the first seven questions
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Question 1
100.4 states A professional accountant is required to comply with the following fundamental principles: . What are the fundamental principles?
Question 2
100.7 states A professional accountant should take qualitative as well as quantitative factors into account when considering the significance of a threat. What actions should a professional accountant take when he or she cannot implement appropriate safeguards to prevent circumstances or relationships that may compromise compliance with the fundamental principles?
Question 3
100.10 states Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories: .. The Code then describes five threats. What are they?
Question 4
100.11 states Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories .. What are they?
Question 5
100.12 states Safeguards [to eliminate or reduce professional and ethical threats] created by the profession, legislation or regulation include, but are not restricted to: .. The Code then goes on to list five safeguards. What are they?
Question 6
100.16 states In evaluating compliance with the fundamental principles, a professional accountant may be required to resolve a conflict in the application of fundamental principles. 100.17 states When initiating either a formal or informal conflict resolution process, a professional accountant should consider the following, either individually or together with others, as part of the resolution process: .. The Code then lists five considerations. What are they?
Question 7
What should be the actions of a professional accountant when a significant conflict cannot be resolved?
Question 8
120.1 states that the principle of objectivity imposes an obligation on all professional accountants. What is the obligation?
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Question 9
130.1 states that the principle of professional competence and due care imposes two main obligations on professional accountants. What are they?
Question 10
According to the Code what does the principle of confidentiality refrain the professional accountants from doing?
Question 11
Identify five circumstances or situations (stated by the Code) when the professional accountant should maintain confidentiality.
Question 12
Give examples of circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure may be appropriate.
Question 13
Give six examples of circumstances that may create self-interest threats for a professional accountant in public practice.
Question 14
Give two examples of circumstances that may create advocacy threats for the professional accountant.
Question 15
Give five examples of circumstances that may create familiarity threats for the professional accountant.
Question 16
Give three examples of circumstances that may create intimidation threats for the professional accountant.
Question 17
200.10 states Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories: (a) (b) Safeguards created by the profession, legislation or regulation; and Safeguards in the work environment.
You are required to give examples of (i) (ii) Firm-wide safeguards in the work environment, and Engagement-specific safeguards in the work environment.
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Question 18
What factors should be considered before a professional accountant in public practice accepts a new client?
Question 19
210.7 states A professional accountant in public practice should agree to provide only those services that the professional accountant in public practice is competent to perform. Before accepting a specific client engagement, a professional accountant in public practice should consider whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-interest threat to professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly carry out the engagement. 210.8 states A professional accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level. Give examples of seven such safeguards.
Question 20
Dealing with conflicts of interest 220.1 states A professional accountant in public practice should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles. For example, a threat to objectivity may be created when a professional accountant in public practice competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a professional accountant in public practice performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question. 220.2 goes on to states A professional accountant in public practice should evaluate the significance of any threats. Evaluation includes considering, before accepting or continuing a client relationship or specific engagement, whether the professional accountant in public practice has any business interests, or relationships with the client or a third party that could give rise to threats. If threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily include the professional accountant in public practice doing what?
Question 21
Dealing with second opinions 230.1 states Situations where a professional accountant in public practice is asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf of a company or an entity that is not an existing client may give rise to threats to compliance with the fundamental principles. For example, there may be a threat to professional competence and due care in circumstances where the second opinion is not based on the same set of facts that were made available to the existing accountant, or is based on inadequate evidence. The significance of the threat will depend on the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment. What should a professional accountant do if asked to provide a second opinion?
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Question 22
Is it ethical for a professional accountant in public practice to quote a fee lower than another?
Question 23
240.1 states When entering into negotiations regarding professional services, a professional accountant in public practice may quote whatever fee deemed to be appropriate. The fact that one professional accountant in public practice may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted. For example, a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement in accordance with applicable technical and professional standards for that price. 240.2 states The significance of such threats will depend on factors such as the level of fee quoted and the services to which it applies. In view of these potential threats, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Recommend two safeguards which may be adopted.
Question 24
Contingent fees are widely used for certain types of non-assurance engagements. They may, however, give rise to threats to compliance with the fundamental principles in certain circumstances. They may give rise to a self-interest threat to objectivity. The significance of such threats will depend on certain factors. State four such factors.
Question 25
Dealing with contingent fees 240.4 states The significance of such threats [see Question 24] should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level. Recommend four such safeguards.
Question 26
240.5 states In certain circumstances, a professional accountant in public practice may receive a referral fee or commission relating to a client. For example, where the professional accountant in public practice does not provide the specific service required, a fee may be received for referring a continuing client to another professional accountant in public practice or other expert. A professional accountant in public practice may receive a commission from a third party (e.g., a software vendor) in connection with the sale of goods or services to a client. 240.6 states A professional accountant in public practice may also pay a referral fee to obtain a client, for example, where the client continues as a client of another professional accountant in public practice but requires specialist services not offered by the existing accountant. Should a professional accountant in public practice pay or receive a referral fee or commission, and if so, what are the conditions under which they are acceptable?
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Question 27
Dealing with Marketing professional services 250.1 states When a professional accountant in public practice solicits new work through advertising or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle. 250.2 states A professional accountant in public practice should not bring the profession into disrepute when marketing professional services. The professional accountant in public practice should be honest and truthful .. What should the professional accountant in public practice not do when advertising?
Question 28
Dealing with Gifts and Hospitality 260.1 states A professional accountant in public practice, or an immediate or close family member, may be offered gifts and hospitality from a client. Such an offer ordinarily gives rise to threats to compliance with the fundamental principles. For example, self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public. What does the IFAC Code specify with regard to the acceptance, or otherwise, of gifts and hospitality?
Question 29
Dealing with Custody of Client Assets 270.1 states A professional accountant in public practice should not assume custody of client monies or other assets unless permitted to do so by law and, if so, in compliance with any additional legal duties imposed on a professional accountant in public practice holding such assets. 270.2 states The holding of client assets creates threats to compliance with the fundamental principles; for example, there is a self-interest threat to professional behavior and may be a self interest threat to objectivity arising from holding client assets.. When entrusted with money (or other assets) belonging to others what should a professional accountant in public practice do to safeguard against such threats?
Question 30
Dealing with Objectivity - all services 280.1 states A professional accountant in public practice should consider when providing any professional service whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships with, a client or directors, officers or employees. For example, a familiarity threat to objectivity may be created from a family or close personal or business relationship. 280.4 states A professional accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Recommend five such safeguards.
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Question 31
Dealing with IndependenceAssurance Engagements 290.9 states The use of the word independence on its own may create misunderstandings. Standing alone, the word may lead observers to suppose that a person exercising professional judgment ought to be free from all economic, financial and other relationships. This is impossible, as every member of society has relationships with others.. In light of this statement, explain the attributes of independence.
Question 32
290.13 states The nature of the threats to independence and the applicable safeguards necessary to eliminate the threats or reduce them to an acceptable level differ depending on the characteristics of the individual assurance engagement: whether it is a financial statement audit engagement or another type of assurance engagement; and in the latter case, the purpose, subject matter information and intended users of the report.. What are the implications of this statement to the firm of professional accountants in public practice?
Question 33
Dealing with Independence Multiple responsible parties 290.33 states In some assurance engagements, whether assertion-based or direct reporting, that are not financial statement audit engagements, there might be several responsible parties.. In such case what should the firm take into account with regard to threats to independence?
Question 34
290.46 states If a non-assurance service was provided to the financial statement audit client during or after the period covered by the financial statements but before the commencement of professional services in connection with the financial statement audit . consideration should be given to the threats to independence, if any, arising from the service. If the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Recommend four such safeguards.
Question 35
290.47 states that a non-assurance service provided to a non-listed financial statement audit client will not impair the firms independence under certain provisions. What are the provisions?
Question 36
Dealing with financial interest 290.106 states that if a member of the assurance team, or their immediate family member, has a direct financial interest, or a material indirect financial interest, in the assurance client, the self-interest threat created would be significant and that only safeguards to eliminate the threat or reduce it to an acceptable level would make it permissible. What are the safeguards referred to?
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Question 37
290.107 states If a member of the assurance team, or their immediate family member receives, by way of, for example, an inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat would be created.. What safeguards should be applied to eliminate the threat or reduce it to an acceptable level?
Question 38
290.108 states When a member of the assurance team knows that his or her close family member has a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat may be created. In evaluating the significance of any threat, consideration should be given to the nature of the relationship between the member of the assurance team and the close family member and the materiality of the financial interest. Once the significance of the threat has been evaluated, safeguards should be considered and applied as necessary. Recommend four such safeguards.
Question 39
Is a loan, or a guarantee of a loan, to the firm, or professional accountant in public practice, from an assurance client that is a bank or a similar institution ethically acceptable?
Question 40
Is it ethically acceptable for the firm, or professional accountant in public practice, to make a loan to an assurance client, that is not a bank or similar institution, or to guarantee such an assurance clients borrowing?
Question 41
Is it ethically acceptable for the firm, or professional accountant in public practice, to accept a loan from, or have borrowing guaranteed by, an assurance client that is not a bank or similar institution.
Question 42
290.132 states A close business relationship between a firm or a member of the assurance team and the assurance client or its management, or between the firm, a network firm and a financial statement audit client, will involve a commercial or common financial interest and may create self-interest and intimidation threats. Give three examples of such close business relationships.
Question 43
In the case of a financial statement audit client, unless the financial interest is immaterial and the close business relationship is clearly insignificant to the firm, the network firm and the audit client, no safeguards could reduce the threat to an acceptable level. In the case of an assurance client that is not a financial statement audit client, unless the financial interest is immaterial and the relationship is clearly insignificant to the firm and the assurance client, no safeguards could reduce the threat to an acceptable level. Consequently, in both these circumstances the only possible ethical courses of action are to do what?
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Question 44
Dealing with Family and personal relationships 290.137 states When an immediate family member of a member the assurance team is an employee in a position to exert direct and significant influence over the subject matter of the engagement, threats to independence may be created. What are the ethical implications?
Question 45
290.144 states that if a member of the assurance team, partner or former partner of the firm has joined the assurance client, the significance of the self-interest, familiarity or intimidation threats created will depend upon certain factors. What are these factors?
Question 46
What is the ethical position if a firm has a former officer, director or employee of the assurance client serve as a member of the assurance team?
Question 47
What is the ethical position if, prior to the period covered by the assurance report, a member of the assurance team had served as an officer or director of the assurance client, or had been an employee in a position to exert direct and significant influence over the subject matter information of the assurance engagement?
Question 48
What are the ethical implications and responses to a firm using the same senior personnel on an assurance engagement over a long period of time?
Question 49
Dealing with Provision of non-assurance services to assurance clients 290.158 states Firms have traditionally provided to their assurance clients a range of non-assurance services that are consistent with their skills and expertise. Assurance clients value the benefits that derive from having these firms, which have a good understanding of the business, bring their knowledge and skill to bear in other areas. Furthermore, the provision of such non-assurance services will often result in the assurance team obtaining information regarding the assurance clients business and operations that is helpful in relation to the assurance engagement. The greater the knowledge of the assurance clients business, the better the assurance team will understand the assurance clients procedures and controls, and the business and financial risks that it faces. The provision of non-assurance services may, however, create threats to the independence of the firm, a network firm or the members of the assurance team, particularly with respect to perceived threats to independence. Consequently, it is necessary to evaluate the significance of any threat created by the provision of such services. In some cases it may be possible to eliminate or reduce the threat created by application of safeguards. In other cases no safeguards are available to reduce the threat to an acceptable level. (i) (ii) What activities would generally create self-interest or self-review threats? What safeguards may be put in place to avoid such threats or reduce them to an acceptable level?
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Question 50
Is it ethically acceptable for a firm, or network firm, to provide a financial statement audit client with accounting and bookkeeping services, including payroll services, of a routine or mechanical nature, if (a) (b) the client is not a listed entity, or the client is a listed entity? If your answer is different than for (a) explain why.
Question 51
With reference to your answer to Question 50 (b) do the same ethical rules apply to the divisions or subsidiaries of a financial statement audit client that is a listed entity?
Question 52
Dealing with Valuation Services 290.174 states A valuation comprises the making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole. What are the ethical implications of a firm providing a valuation service, when: (a) (b) the valuation service involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, or the valuation service involves the valuation of matters that are neither separately, nor in the aggregate, material to the financial statements, or that do not involve a significant degree of subjectivity?
Question 53
Dealing with Provision of internal audit services to financial statement audit clients 290.181 states A self-review threat may be created when a firm, or network firm, provides internal audit services to a financial statement audit client. State what the safeguards that should be applied to reduce any threats to an acceptable level should ensure.
Question 54
What are the ethical implications of the provision of services by a firm or network firm to a financial statement audit client that involve the design and implementation of financial information technology systems that are used to generate information forming part of a clients financial statements?
Question 55
What are the ethical implications of a firm being involved in the recruitment of senior management for an assurance client, such as those in a position to affect the subject matter information of the assurance engagement?
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Question 56
Dealing with FeesRelative Size 290.206 states When the total fees generated by an assurance client represent a large proportion of a firms total fees, the dependence on that client or client group and concern about the possibility of losing the client may create a self-interest threat. The significance of the threat will depend upon factors such as: The structure of the firm; and Whether the firm is well established or newly created.
The significance of the threat should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level. Recommend four such safeguards.
Question 57
What are the ethical issues to be addressed if fees due from an assurance client for professional services remain unpaid for a long time, especially if a significant part is not paid before the issue of the assurance report for the following year?
Question 58
You are required to complete the following statement: Dealing with Pricing 290.209 states When a firm obtains an assurance engagement at a significantly lower fee level than that charged by the predecessor firm, or quoted by other firms, the self-interest threat created will not be reduced to an acceptable level unless: .
Question 59
You are required to complete the following statement: Dealing with Contingent fees 290.212 states A contingent fee charged by a firm in respect of a nonassurance service provided to an assurance client may also create self-interest and advocacy threats. If the amount of the fee for a non-assurance engagement was agreed to, or contemplated, during an assurance engagement and was contingent on the result of that assurance engagement, the threats could not be reduced to an acceptable level by the application of any safeguard. Accordingly, the only acceptable action is not to accept such arrangements. For other types of contingent fee arrangements, the significance of the threats created will depend on factors such as: .
Question 60
Dealing with Actual or threatened litigation 290.214 states When litigation takes place, or appears likely, between the firm or a member of the assurance team and the assurance client, a self-interest or intimidation threat may be created. The relationship between client management and the members of the assurance team must be characterized by complete candor and full disclosure regarding all aspects of a clients business operations. The firm and the clients management may be placed in adversarial positions by litigation, affecting managements willingness to make complete disclosures and the firm may face a self-interest threat. The significance of the threat created will depend upon such factors as: The materiality of the litigation; The nature of the assurance engagement; and Whether the litigation relates to a prior assurance engagement..
Once the significance of the threat has been evaluated what safeguards should be applied, if necessary, to reduce the threats to an acceptable level?
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Professional and Ethical Behaviour
IFAs Code of Ethics for Professional Accountants

Note: bold print and underscoring used in answers are not parts of the standard referred to.
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100.4 states A professional accountant is required to comply with the following fundamental principles: (a) Integrity A professional accountant should be straightforward and honest in all professional and business relationships. (b) Objectivity A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments. (c) Professional Competence and Due Care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services. (d) Confidentiality A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties. (e) Professional Behavior A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
100.7 states A professional accountant should take qualitative as well as quantitative factors into account when considering the significance of a threat. If a professional accountant cannot implement appropriate safeguards, the professional accountant should decline or discontinue the specific professional service involved, or where necessary resign from the client (in the case of a professional accountant in public practice) or the employing organization (in the case of a professional accountant in business).
100.10 states Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories: (a) (b) (c) (d) (e) Self-interest threats, which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member; Self-review threats, which may occur when a previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment; Advocacy threats, which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised; Familiarity threats, which may occur when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others; and Intimidation threats, which may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived.
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100.11 states Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories: (a) (b) Safeguards created by the profession, legislation or regulation; and Safeguards in the work environment.
100.12 states Safeguards created by the profession, legislation or regulation include, but are not restricted to: Educational, training and experience requirements for entry into the profession. Continuing professional development requirements. Corporate governance regulations. Professional standards. Professional or regulatory monitoring and disciplinary procedures. External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant.
100.17 states When initiating either a formal or informal conflict resolution process, a professional accountant should consider the following, either individually or together with others, as part of the resolution process: (a) (b) (c) (d) (e) Relevant facts; Ethical issues involved; Fundamental principles related to the matter in question; Established internal procedures; and Alternative courses of action.
Having considered these issues, a professional accountant should determine the appropriate course of action that is consistent with the fundamental principles identified. The professional accountant should also weigh the consequences of each possible course of action. If the matter remains unresolved, the professional accountant should consult with other appropriate persons within the firm or employing organization for help in obtaining resolution.
100.20 states If a significant conflict cannot be resolved, a professional accountant may wish to obtain professional advice from the relevant professional body or legal advisors, and thereby obtain guidance on ethical issues without breaching confidentiality. For example, a professional accountant may have encountered a fraud, the reporting of which could breach the professional accountants responsibility to respect confidentiality. The professional accountant should consider obtaining legal advice to determine whether there is a requirement to report. 100.21 states If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant should, where possible, refuse to remain associated with the matter creating the conflict. The professional accountant may determine that, in the circumstances, it is appropriate to withdraw from the engagement team or specific assignment, or to resign altogether from the engagement, the firm or the employing organization.
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You have now completed the Questions and Answers part of our Paper P7 e-book. The remainder of the e-book screens the following:
Main contents International Standards on Auditing Financial Reporting Standards International Accounting Standards Glossary of Terms Technical Articles Specimen Working Papers
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Study classification Short Questions and Answers: International Standards on Auditing Exam Status Questions and Answers IFAC Code Short Questions and Answers Screen
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Did you know? From 1986 poetry became and remains a familiar sight on London Undergrounds trains and posters. One of the first poems to be published on the Underground was Wordsworths Composed Upon Westminster Bridge which prompted twenty people to gather on the bridge at dawn on 3rd September 1986, the 184th anniversary of the poems composition, to read it aloud. Source: Stephen Halliday, London Underground Facts, D&C.
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International Standards on Auditing: December 2012 1 of 8
The ISA 210 link is enabled for this free sample
The following seven screens itemise the International Audit Standards and other examinable documents for the June and December 2012 examination. Reference is made to them as applicable in the body of this Tony Surridge +AddVance e-publication. Hyperlinks are provided both on the following screens or when referred to in the text.
Lisa Weaver, examiner for Paper P7, looks at the topic of assurance, describing a framework for the classification of assurance and non-assurance engagements, and giving guidance on the practical approach required Continue to be rest assured To access this article click here.
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Knowledge of new examinable regulations issued by 30th September will be examinable in examination sessions being held in the following calendar year. Documents may be examinable even if the effective date is in the future. This means that all regulations issued by 30th September 2011 will be examinable in the June 2012 and December 2012 examinations. The study guide offers more detailed guidance on the depth and level at which the examinable documents should be examined. The study guide should therefore be read in conjunction with the examinable documents list.
Accounting Standards Paper P7 Advanced Audit and Assurance

The accounting knowledge that is assumed for Paper P7 is the same as that examined in Paper P2. Therefore, candidates studying for Paper P7 should refer to the Accounting Standards listed under Paper P2. N.B. P7 will only expect knowledge of accounting standards and financial reporting standards from Paper P2. Knowledge of exposure drafts and discussion papers will not be expected.
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Title International Standards on Auditing (ISAs)
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P7
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Glossary of Terms
http://web.ifac.org/download/2009_Auditing_Handbook_A005_Gl ossary.pdf
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International Framework for Assurance Assignments

http://web.ifac.org/download/2008_Auditing_Handbook_A055_Fr amework.pdf
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Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services
http://web.ifac.org/download/2009_Auditing_Handbook_A004_20 09_Preface-WithConformingAmendments.pdf
ISA 200
Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing
http://web.ifac.org/download/2009_Auditing_Handbook_A008_IS A_200.pdf
ISA 210
Agreeing the Terms of Audit Engagements

ISA 220
Quality Control For An Audit Of Financial Statements

http://www.ifac.org/sites/default/files/downloads/a010-2010iaasb-handbook-isa-220.pdf
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Paper P7 (Int.)

Click here ISA 230 Title (Redrafted) Audit Documentation
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ISA 240
(Redrafted) The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements

ISA 250
(Redrafted) Consideration of Laws and Regulations in an Audit of Financial Statements

ISA 260
(Revised and Redrafted) Communication with Those Charged with Governance

ISA 265
Communicating Deficiencies in Internal Control to those Charged with Governance and Management
ISA 300
(Redrafted) Planning an Audit of Financial Statements

ISA 315
(Redrafted) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment
ISA 320
Materiality in Planning and Performing and Audit

ISA 330
(Redrafted) The Auditors Responses to Assessed Risks

ISA 402
Audit Considerations Relating to an Entity Using a Service Organisation

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Click here ISA 450 Title Evaluation of Misstatements Identified During the Audit
http://web.ifac.org/download/2009_Auditing_Handbook_A021_I SA_450.pdf
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ISA 500
Audit Evidence
ISA 501
Audit Evidence Specific Considerations for Selected Items

ISA 505
External Confirmations
ISA 510
(Redrafted) Initial Audit Engagements Opening Balances

ISA 520
Analytical Procedures
ISA 530
Audit Sampling
ISA 540
(Revised and Redrafted) Auditing Accounting Estimates, Including Fair Value Estimates and Related Disclosures
ISA 550
Related parties
http://www.ifac.org/sites/default/files/downloads/a029-2010iaasb-handbook-isa-550.pdf
ISA 560
(Redrafted) Subsequent Events

ISA 570
(Redrafted) Going Concern

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Click here ISA 580 Title (Revised and Redrafted) Written Representations
http://web.ifac.org/download/2009_Auditing_Handbook_A032_ISA_5 80.pdf
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ISA 600
Special Considerations Audits of Group Financial Statements (including the work of component auditors)
http://www.ifac.org/sites/default/files/downloads/a033-2010-iaasbhandbook-isa-600.pdf
ISA 610
Using the Work of Internal Auditors

ISA 620
Using the Work of an Auditors Expert

ISA 700
Forming an Opinion and Reporting on Financial Statements

ISA 705
Modifications to the Opinion in the Independent Auditors Report

ISA 706
Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditors Report
ISA 710
Comparative Information Corresponding Figures and Comparative Financial Statements

ISA 720
(Redrafted) The Auditors Responsibilities Related to Other Information in Documents Containing Audited Financial Statements
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Click here Title International Auditing Practice Statements (IAPSs) IAPS 1000 Inter-bank Confirmation Procedures
http://web.ifac.org/download/2008_Auditing_Handbook_A220_IAPS_1 000.pdf
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IAPS 1010
The Consideration of Environmental Matters in the Audit of Financial Statements

http://www.ifac.org/sites/default/files/downloads/b007-2010-iaasbhandbook-iaps-1010.pdf
IAPS 1013
Electronic Commerce: Effect on the Audit of Financial Statements

http://web.ifac.org/download/2008_Auditing_Handbook_A250_IAPS_1 013.pdf
International Standards on Assurance Engagements (ISAEs) ISAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information
http://web.ifac.org/download/2008_Auditing_Handbook_A270_ISAE_3 000.pdf
ISAE 3400
The Examination of Prospective Financial Information

http://www.ifac.org/sites/default/files/downloads/b013-2010-iaasbhandbook-isae-3400.pdf
ISAE 3402
Assurance Reports on Controls at a Service Organisation

http://www.ifac.org/sites/default/files/downloads/b014-2010-iaasbhandbook-isae-3402.pdf
International Standards on Quality Control (ISQCs) ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements
http://www.ifac.org/sites/default/files/downloads/a007-2010-iaasbhandbook-isqc-1.pdf
International Standards on Related Services (ISRSs) ISRS 4400 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information
http://www.ifac.org/sites/default/files/downloads/b015-2010-iaasbhandbook-isrs-4400.pdf
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Click here Title International Standards on Review Engagements (ISREs) ISRE 2400 Engagements to Review Financial Statements
http://www.ifac.org/sites/default/files/publications/exposuredrafts/20110113-IAASB-ED_Proposed_ISRE_-2400_(Revised)-V1final.pdf
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ISRE 2410
Review of Interim Financial Information Performed by the Independent Auditor of the Entity
http://www.ifac.org/sites/default/files/downloads/b011-2010-iaasbhandbook-isre-2410.pdf
Exposure Drafts (Eds) Click here Click here Click here Click here Proposed ISA 315 (revised) Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment Proposed ISA 610 (Revised) Using the Work of Internal Auditors Proposed ISRE 2400 (Revised) Engagements to Review Historic Financial Statements ISAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historic Financial Information Other Documents Click here Click here Click here ACCAs Code of Ethics and Conduct
http://rulebook.accaglobal.com/
IFACs Code of Ethics for Professional Accountants

http://web.ifac.org/download/2008_Auditing_Handbook_A025_Code_of_Et hics.pdf
ACCAs Technical Factsheet 94 Anti MoneyLaundering (Proceeds of Crime and Terrorism)

http://www.accaglobal.com/pubs/members/publications/technical_factshee ts/downloads/94.pdf
Click here
The UK Corporate Governance Code - 2010 (As an example of a code of best practice.)
http://www.frc.org.uk/getattachment/b0832de2-5c94-48c0-b771ebb249fe1fec/The-UK-Corporate-Governance-Code.aspx
Click here
The UK Corporate Governance Code - 2010 (As an example of a code of best practice in relation to audit committees.)
http://www.frc.org.uk/getattachment/b0832de2-5c94-48c0-b771ebb249fe1fec/The-UK-Corporate-Governance-Code.aspx
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Click here Title Other Documents continuation Click here Click here Click here Click here Click here IAASB Practice Alert Challenges in Auditing Fair Value Accounting Estimates in the Current Market Environment (October 2008) IAASB Practice Alert Audit Considerations in Respect of Going Concern in the Current Economic Environment (January 2009) IAASB Applying ISAs Proportionately with the Size and Complexity of an Entity (August 2009) IAASB XBRL: The Emerging Landscape (January 2010) F8 P7
IAASB Auditor Considerations Regarding Significant Unusual or Highly Complex Transactions (September 2010)
Note: Topics of exposure drafts are examinable to the extent that relevant articles about them are published in student accountant. For a summary of the ISAs etc. click to the next screen
Simplicity is the ultimate sophistication. Leonardo da Vinci Leonardo di ser Piero da Vinci (1452 1519) was an Italian Renaissance polymath: painter, sculptor, architect, musician, scientist, mathematician, engineer, inventor, anatomist, geologist, cartographer, botanist and writer whose genius, perhaps more than that of any other figure, epitomised the Renaissance humanist ideal.
Self-portrait in red chalk, circa 1512 to 1515 Royal Library of Turin
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Summary of ISAs and services of the professional accountant

The types of accountancy services and levels of assurance given in reports are summarised in the following table:
Auditing
Related services
Assurance services
ASSURANCE ENGAGEMENTS ON MATTERS OTHER THAN HISTORICAL FINANCIAL INFORMATION
Nature of service
AUDIT OF HISTORICAL FINANCIAL INFORMATION
REVIEW OF HISTORICAL FINANCIAL INFORMATION
AGREEDUPON PROCEDURES
COMPILATION
Comparative level of assurance provided by auditor
HIGH, BUT NOT ABSOLUTE ASSURANCE
MODERATE ASSURANCE
MODERATE ASSURANCE
NO ASSURANCE
NO ASSURANCE
ISAs 200 - 810
ISREs 2400 and 2410
ISAEs 3000 and 3400
ISRS 4400
ISRS 4410
Report provided
POSITIVE ASSURANCE ON ASSERTION(S)
NEGATIVE ASSURANCE ON ASSERTION(S)
NEGATIVE ASSURANCE ON ASSERTION(S)
FACTUAL FINDINGS OF PROCEDURES
IDENTIFICATION OF INFORMATION COMPILED
Negative assurance is when an auditor gives an assurance that nothing has come to his attention which indicates that the financial statements have not been prepared according to the framework. In other words, he or she gives their assurance in the absence of any evidence to the contrary.
Notice: with agreed-upon-procedures and compilation engagements the professional accountant does not give assurance.
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International Financial Reporting Standards : December 2012 1 of 2
The IFRS 3 link is enabled for this free sample
The following six screens itemise the International Financial Reporting Standards and other examinable documents for the December 2012 examination. Reference is made to them as applicable in the body of this Tony Surridge +AddVance e-publication. Hyperlinks are provided both on the following screens or when referred to in the text.
Examiner for Paper P7 Lisa Weaver provides guidance on the financial reporting issues that require a detailed level of knowledge, and those for which less detailed knowledge will be expected in her article The importance of financial reporting standards to auditors. To access this article click here.
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International Financial Reporting Standards : December 2012 2 of 2

# IFRS 1 IFRS 2 IFRS 3 IFRS 4 IFRS 5 IFRS 6 IFRS 7 IFRS 8 IFRS 9
Summary
Name First-time Adoption of International Financial Standards Share-based Payment Business Combinations Insurance Contracts (NOT EXAMINED) Non-current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Assets (NOT EXAMINED) Financial Instruments: Disclosures Operating Segments Financial Instruments
(Effective date 1st January 2013)
Issued 2008* 2004 2008* 2004 2004 2004 2005 2006 2010* 2011 2011 2011 2011
IFRS 10
Summary
Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement
IFRS 11
Summary
IFRS 12
Summary
IFRS 13
Summary
You know you are getting old when the candles cost more than the cake. Bob Hope
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International Accounting Standards : December 2012 1 of 4
The IAS 16 link is enabled for this free sample
The following six screens itemise the International Accounting Standards and other examinable documents for the December 2012 examination. Reference is made to them as applicable in the body of this Tony Surridge +AddVance e-publication. Hyperlinks are provided both on the following screens or when referred to in the text.
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# IAS 1 IAS 2 IAS 3 IAS 4 Name Presentation of Financial Statements Inventories Consolidated Financial Statements
Superseded in 1989 by IAS 27 and IAS 28
Issued 2007* 2005* 1976
Depreciation Accounting
Withdrawn in 1999
IAS 5
Information to Be Disclosed in Financial Statements

Superseded by IAS 1 effective 1 July 1998
1976
IAS 6
Accounting Responses to Changing Prices

Superseded by IAS 15, which was withdrawn December 2003
IAS 7 IAS 8
Statement of Cash Flows Accounting Policies, Changes in Accounting Estimates and Errors Accounting for Research and Development Activities
1992 2003
IAS 9
IAS 10 IAS 11 IAS 12
Events After the Reporting Period Construction Contracts Income Taxes Presentation of Current Assets and Current Liabilities
2003 1993 1996*
IAS 13
IAS 14
Segment Reporting
Superseded by IFRS 8 effective 1 January 2009
1997
IAS 15
Information Reflecting the Effects of Changing Prices

Withdrawn December 2003
2003
IAS 16
Property, Plant and Equipment
2003*
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# IAS 17 IAS 18 IAS 19 IAS 19 IAS 20 IAS 21 IAS 22 IAS 23 IAS 24 IAS 25 IAS 26 IAS 27 Name Leases Revenue Employee Benefits
Superseded by IAS 19 (2011) effective 1 January 2013
Issued 2003* 1993* 1998 2011* 1983 2003* 1998* 2007* 2009*
Employee Benefits (2011) Accounting for Government Grants and Disclosure of Government Assistance The Effects of Changes in Foreign Exchange Rates Business Combinations
Superseded by IFRS 3 effective 31 March 2004
Borrowing Costs Related Party Disclosures Accounting for Investments

Superseded by IAS 39 and IAS 40 effective 2001
Accounting and Reporting by Retirement Benefit Plans (NOT EXAMINED) Separate Financial Statements (2011) Consolidated and Separate Financial Statements Superseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1 January 2013 Investments in Associates and Joint Ventures (2011) Investments in Associates Superseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013 Financial Reporting in Hyperinflationary Economies (NOT EXAMINED)
1987 2011
IAS 27
2003
IAS 28
2011
IAS 28
2003
IAS 29
1989
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# Name Disclosures in the Financial Statements of Banks and Similar Financial Institutions
Issued
IAS 30
1990
IAS 31
Interests In Joint Ventures Superseded by IFRS 11 and IFRS 12 effective 1 January 2013 (NOT EXAMINED) Financial Instruments: Presentation Earnings Per Share Interim Financial Reporting Discontinuing Operations
2003*
IAS 32 IAS 33 IAS 34 IAS 35 IAS 36 IAS 37 IAS 38
2003* 2003* 1998 1998 2004* 1998 2004*
Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Financial Instruments: Recognition and Measurement
IAS 39
2003*
IAS 40 IAS 41
Note
Investment Property Agriculture
2003* 2001
The above tables list the most recent version (or versions if a pronouncement has not yet been superseded) of each pronouncement and the date that revisions was originally issued. Where a pronouncement has been reissued with the same or a different name, the date indicated in the above tables is the date the revised pronouncement was reissued (these are indicated with an asterisk (*) in the tables). The majority of the pronouncements have also been amended through IASB or IFRS Interpretations Committee projects, for consequential amendments arising on the issue of other pronouncements, the annual improvements process, and other factors.
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GLOSSARY OF TERMS
(* International Auditing and Assurance Standards Board [IAASB] - February 2009)
A M
B N
C O
D P
E Q
F R
G S
H T
I U
J V
K W
L X
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GLOSSARY OF TERMS
Institutional shareholders
Institutional investors are organisations which pool large sums of money and invest those sums in securities, real property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets. Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds. Their role in the economy is to act as highly specialised investors on behalf of others.
Intangible asset
An identifiable non-monetary asset without physical substance.
Integrity
The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness. (Also see Fundamental Principles.)
Intended users*
The person, persons or class of persons for whom the practitioner prepares the assurance report. The responsible party can be one of the intended users, but not the only one.
Interim audit
An interim audit is undertaken prior to the final audit, often during the period under review. The auditor is likely to carry out tests of control at interim audits. This should be compared with the final audit.
Interim financial information or statements*

Financial information (which may be less than a complete set of financial statements as defined above) issued at interim dates (usually half-yearly or quarterly) in respect of a financial period.
Interim financial report

A financial report that contains either a complete or condensed set of financial statements for an interim period. (Interim period is a financial reporting period shorter than a full financial year [most typically a quarter or half-year]). (Note: for purposes of ISRE 2410.2, interim financial information is financial information that is prepared and presented in accordance with an applicable financial reporting framework and comprises either a complete or a condensed set of financial statements for a period that is shorter than the entitys financial year.)
Interest rate risk

The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Internal audit
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes (The Institute of Internal Auditors).
Internal audit function*

An appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.
Internal auditors*
Those individuals who perform the activities of the internal audit function. Internal auditors may belong to an internal audit department or equivalent function.
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GLOSSARY OF TERMS
Other comprehensive income

Comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs. The components of other comprehensive income include: (i) (ii) (iii) (iv) (v) changes in revaluation surplus (see IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets); actuarial gains and losses on defined benefit plans recognised in accordance with paragraph 93A of IAS 19 Employee Benefits; gains and losses arising from translating the financial statements of a foreign operation. gains and losses on re-measuring available-for-sale financial assets (see IAS 39 Financial Instruments: Recognition and Measurement); the effective portion of gains and losses on hedging instruments in a cash flow hedge (see IAS 39).
Other information*
Financial and non-financial information (other than the financial statements and the auditors report thereon) which is included, either by law, regulation, or custom, in a document containing audited financial statements and the auditors report thereon.
Other Matter paragraph*

A paragraph included in the auditors report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditors judgment, is relevant to users understanding of the audit, the auditors responsibilities or the auditors report.
Other price risk

The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
Outcome of an accounting estimate*

The actual monetary amount which results from the resolution of the underlying transaction(s), event(s) or condition(s) addressed by the accounting estimate.
Outsourcing
Outsourcing is any task, operation, job or process that could be performed by employees within an organisation, but is instead contracted to a third party for a significant period of time. In addition, the functions that are performed by the third party can be performed on-site or off-site. So, for example, Hiring a temporary employee while your secretary is on maternity leave is not outsourcing.
Overall audit strategy*

Sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan.
Oversight
To watch over and direct; supervise.
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Technical Articles ACCA Paper P7
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The following four screens itemise the technical articles which are appropriate for ACCA Paper P7. The articles written by the Examiner, Lisa Weaver are highlighted in green. Other articles are also relevant. The articles can be hyperlinked simply click and go!
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Syllabus and Study Guide update 29 Mar 2012 Lisa Weaver, Paper P7 examiner, outlines changes to the Syllabus and Study Guide that are effective from the June 2012 exam session
Completing the audit 19 Oct 2011 In this article, Paper P7 examiner Lisa Weaver explores some of the key requirements of International Standards on Auditing (ISA) that are relevant at the completion stage, and discusses the practical implications of those requirements
Summary of changes to the ACCA Qualification for all 2012 study guides 03 Oct 2011 This article by ACCA qualifications manager Gareth Owen is the first in a series which explains the changes that have been made to the individual syllabuses, study guides, exams or other components within the ACCA Qualification
Auditor's reports in the UK 19 Sep 2011 Lisa Weaver, Paper P7 examiner, explores the rationale behind the UK retaining its own version of the clarified ISA 700, and highlights the main differences between the UK version and its international equivalent
How to tackle exams - a marker's perspective 06 May 2011 A lack of knowledge is not the only thing that can lead to exam failure - poor technique could also let you down. Sean Purcell, Paper P3 marker, highlights some common errors all ACCA students need to avoid
Clarity auditing standards 05 Apr 2011 Allan Lee overviews the clarity auditing standards, with a focus on the new ISA/HKSA 265 (Clarified), Communicating Deficiencies in Internal Control to those Charged with Governance and Management
Audit and insolvency 05 Apr 2011 Lisa Weaver, examiner for Paper P7, highlights some of the issues that auditors may have to deal with in respect of insolvency
Group auditing 05 Apr 2011 Graham Fairclough reviews the most significant elements of group audits and changes to ISA 600 that were introduced as a result of the recent Clarity project
Acceptance decisions for audit and assurance engagements 23 Mar 2011 Lisa Weaver discusses the learning outcomes of Professional Appointments from Syllabus reference C4 Articles written by the Examiner
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Changes in question style for Paper P7 26 Jan 2011 The Examiner Lisa Weaver provides guidance on the new question style, which will be seen in all adaptations of the paper from June 2011
Specific aspects of auditing in a computer-based environment 12 Jan 2011 Brian Pine provides guidance on various aspects of auditing in a computer-based accounting environment
Change of syllabus 12 Jan 2011 The Examiner Lisa Weaver highlights the nature of the Paper P7 syllabus changes and the impacts on the exams that will be set
Audit of estimates and fair values 04 Nov 2010 Graham Fairclough provides guidance on making estimates, a vital part of preparing financial statements
Analytical procedures 08 Sep 2010 Charles Fung outlines the analytical procedures relevant to the audit papers
A matter of opinion? 06 May 2010 Simon Finley revisits the basic principles of forming an audit opinion and looks at how this knowledge should be applied by considering a past Paper P7 exam question.
Focus on PER - PO 18 22 Mar 2010 Performance objective 18, Evaluate and report on audit
Focus on PER - PO 17 09 Mar 2010 Prepare and collect evidence for audit
Change in question requirements 08 Feb 2010 Lisa Weaver describes the change in Section A questions for Paper P7 from the June 2010 session onwards Going concern 08 Feb 2010 Lisa Weaver describes the additional guidance given for ISA 570, Going Concern
How to tackle audit and assurance case study questions 04 Nov 2009 Lisa Weaver goes through part of a typical Paper P7 Section A case study question, applying the recommended approach
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Audit risk 02 Nov 2009 Martyn Jones outlines and explains the concept of audit risk, making reference to the key auditing standards which give guidance to auditors about risk assessment.
Testing, testing - one, two, three 13 Oct 2009 Gareth Owen explains how the design of the new ACCA Qualification can help students learn more effectively.
The IAASB Clarity Project 25 Aug 2009 Lisa Weaver provides a summary of the reasons for, and effects of, the Clarity Project from an international and a UK and Ireland perspective.
Massaging the figures 07 Apr 2009 Lisa Weaver explains earnings management - what it is, when it becomes fraud, and implications for auditors
Risk and environmental auditing 11 Mar 2009 David Campbell, examiner for Paper P1, looks at Section D1c and Section E7d of the Paper P1 study guide
ISA 240 (redrafted), auditors and fraud 11 Mar 2009 Martyn Jones, assessor for Paper F8, examines the definitions given by International Standard on Auditing (ISA) 240 (Redrafted) of fraud and error, and the historical expectations of the audit role
The importance of financial reporting standards to auditors 18 Nov 2008 Examiner for Paper P7 Lisa Weaver provides guidance on the financial reporting issues that require a detailed level of knowledge, and those for which less detailed knowledge will be expected
Forensic auditing 11 Sep 2008 Examiner for Paper P7 Lisa Weaver explores some of the key issues relevant to forensic investigations
Crucial audit output 10 Apr 2008 Examiner for Paper P7, Lisa Weaver, discusses the important reporting 'output' produced as a result of the audit process, that of the auditor's communication to those charged with governance
Objectives and responsibilities 10 Mar 2008 Examiner for Paper P7, Lisa Weaver, summarises some of the sections of ISA 600 (Revised and Redrafted)
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Continue to be rest assured 15 Oct 2007 Lisa Weaver, examiner for Paper P7, looks at the topic of assurance, describing a framework for the classification of assurance and non-assurance engagements, and giving guidance on the practical approach required
How to tackle audit and assurance case study questions - part 1 01 Aug 2007 Examiner for Paper P7 Lisa Weaver provides an insight into the recommended approach for Section A questions
How to tackle audit and assurance case study questions - part 2 14 Sep 2007 In the second of a two-part series Lisa Weaver, examiner for Paper P7, outlines the recommended approach to answering typical Section A case study questions
Making the right choice 01 Aug 2007 ACCA qualifications development manager Gareth Owen provides guidance on making an informed choice about the Options papers you choose to study for the ACCA Qualification
Experience transfer 27 Feb 2007 Guidance on what you can do in preparation to transfer to the practical experience requirements
Examiner's approach to Paper P7 30 Jan 2007 Lisa Weaver, examiner for Paper P7, provides her approach to the advanced audit and assurance paper
Examining evidence 18 Dec 2006 Connie Richardson explains the importance of understanding audit evidence
Money laundering 04 Feb 2005 Kim Smith outlines the international anti-money laundering standard and illustrates the implementation of its recommendations in the UK and globally.
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APPENDIX
Specimen audit working papers:

The following screens provide specimen audit working papers. They are not exclusive. You do not have to reproduce these forms in the exam. They are included simply to help enlarge your understanding.
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APPENDIX
Specimen Working Papers: Index 1 of 2

Specimen Audit Working Papers are also hyperlinked from relevant screens in the text.
SPECIMEN AUDIT WORKING PAPERS

Click and go Title Title Screen Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Click here Permanent File Current File Account Analysis Schedule Client Risk Evaluation Questionnaire Risk Assessment Internal Control Questionnaire Audit Planning Memorandum Audit Programme Accounts Receivable Organisation Chart of Assignment of Authority and Responsibility Trial Balance Lead Schedule List Schedule Reconciliation: Accounts Receivable Test of Reasonableness Schedule Narrative Description of the Control Environment Internal Control Narrative Table Internal Control Evaluation Questionnaire Internal Control Questionnaire: Accounts Receivable Internal Control Questionnaire: General Accounting System Number of screens 1 1 1 1 7 1 6 1 1 1 1 1 1 1 1 1 2 2 2 F8 P7
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Specimen Working Papers: Index 2 of 2

SPECIMEN AUDIT WORKING PAPERS - 2
Click and go Click here Click here Click here Click here Click here Title Internal Control Questionnaire: Cash Funds Internal Control Questionnaire: Cash Receipts Internal Control Questionnaire: Cash Disbursements Internal Control Questionnaire: Inventory and Cost of Sales Internal Control Questionnaire: Non-Current Assets Internal Control Questionnaire: Accounts Payable Internal Control Questionnaire: Payroll Manual System: Chart of Accounts Computer System: Chart of Accounts Analytical Review: Planning Stage Number of screens 2 2 2 2 2 F8 P7
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Don't play the saxophone. Let it play you. Charlie Bird Parker Charles Parker, Jr. (1920 1955), also known as Yardbird and Bird, was an American jazz saxophonist and composer. Parker acquired the nickname "Yardbird" early in his career and the shortened form, "Bird", which continued to be used for the rest of his life, inspired the titles of a number of Parker compositions, such as "Yardbird Suite", "Ornithology", "Bird Gets the Worm", and "Bird of Paradise. Parker was a highly influential jazz soloist and a leading figure in the development of bebop, a form of jazz characterized by fast tempos, virtuosic technique, and improvisation.
Charlie Parker with Tommy Potter, Max Roach and Miles Davis at Three Deuces, New York, NY
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Specimen Working Papers: Audit Plan (Programme) Accounts Receivable

Substantive procedures Accounts Receivable Client: Goodies Sweet Manufacturing Ltd Date: 31st December 2011 Index: Accounts receivable - 5 Page: 1 of 1 Prepared by: Janie Wong Review by: Description
Objectives: Recorded sales are for dispatches actually made to bona fide customers (existence) Recorded sales are correctly invoiced for the amount of goods ordered (completeness and accuracy) Cut-off is proper (completeness and existence) All revenue from the sale of goods and performance of service are recorded accurately in the journal and ledger based on sales, credit authorization, and sales agreements (completeness, accuracy, measurement, and rights and obligations). 5. Trade account receivable represent uncollected sales or other charges to bona fide customers and are owned by the entity (existence, valuation and, rights and obligations). 6 All disclosures are in compliance with local and international standards (presentation and disclosure). Objective Done Reference Audit event # By Page # Vouch sales from dispatch records to sales journal, authorisation, and sales invoices, including relevant data (e.g. party, price, description, quantity, and dates). Sample 100 throughout year. Trace journals to the general ledger and master file printout. Obtain a sample of dispatch documents and compare dates on dispatch documents to dates recorded in the journal. Sample 100 throughout year. Select a sample of general ledger sales entries and trace them to the sales journals. Sample 200 throughout the year. Observe if authorised price list is used to price the product. Sample sales invoices for agreement with the price list. Sample 100 throughout year. Confirm a sample of receivables and perform alternative procedures for non-responses. Sample 100. Vouch (match) a sample of recorded receivables to sales agreements. Sample 50. Trace a sample of credit sales invoices to accounts receivable invoices. Sample 50 throughout year. Compare a sample of dispatch documents to related sales invoices. Sample 200 throughout year. Investigate the credit ratings for delinquent and large receivables accounts. Obtain an aged trial balance of receivables, test its clerical accuracy and reconcile to the ledgers, Perform procedures to identify receivables from related parties. 1. 2. 3. 4.
Note: This is an extract from a typical audit plan for the final audit (in other words, after the interim audit [tests of controls] has been performed). It is incomplete.
82
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Contents: Exam Status Questions and Answers

Organised logically by Subject
Section
Screen 1574 1575 1576 1577 1581 1582 1583
Syllabus section A B C D E F G Regulatory Environment Professional and Ethical Considerations Practice Management Audit of Historical Financial Information Other Assignments Reporting Current Issues and Developments
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TWENTY bridges from Tower to Kew Wanted to know what the River knew, Twenty Bridges or twenty-two, For they were young, and the Thames was old And this is the tale that River told Rudyard Kipling Joseph Rudyard Kipling (1865 1936) was an English shortstory writer, poet, and novelist chiefly remembered for his tales and poems of British soldiers in India, and his tales for children. He received the Nobel Prize for Literature in 1907. He was born in Bombay, in the Bombay Presidency of British India, and was taken by his family to England when he was five years old. Kipling is best known for his works of fiction, including The Jungle Book (a collection of stories which includes "Rikki-TikkiTavi"),
83
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Contents 1 of 1
A Regulatory Environment
1. International regulatory frameworks for audit and assurance services. 2. Money laundering. 3. Laws and regulations.
Pages Exam Question Question Frazil Company: December 2003 A question covering compliance with IFRSs and implications of stated situations ISA 240: June 2004 A question covering compliance with IFRSs and implications of stated situations Money laundering: June 2005 A question covering money laundering and related issues ISA 600: June 2007 A question covering ISA 600 Nate & Co Accountants: December 2007 A question covering money laundering, ethical and professional issues Peaches & Co: December 2009 A question requiring comparison between prescriptive and principles-based approaches to auditing, ethical and professional issues raised Answer
524
525
583
584
629 802
630 803
849
850
1062
1063
The future has a way of arriving unannounced. George Will
84
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Contents 1 of 1
B Professional and Ethical Considerations
1. Code of Ethics for Professional Accountants. 2. Fraud and error. 3. Professional liability.
Pages Exam Question Question Indigo Co: December 2005 A question covering opening balances, financial statement risks, and determining the extent of fraud Objectivity: December 2006 A question covering threats to objectivity and safeguards Code of ethics: June 2007 A question covering the term assurance team, threats to objectives and safeguards Smith & Co Accountants: June 2008 A question covering the ethical and other professional issues raised by an invoice file review and discussion on subsequent action Blod Co: June 2008 A question covering the management letter, ethical issues and the content of a liability disclaimer paragraph and the main arguments for and against the use of the paragraph Becker & Co: Accountants: December 2008 A question covering the ethical and practice management implications in respect of three aspects Headford Co: June 2009 A question covering professional competence and due care, ethical and professional issues raised Mac Co: June 2010 A question covering internal audit and related aspects, fraud and the benefits and drawbacks of establishing an audit committee Wexford Co: June 2011 A question covering professional and ethical matters and opening balances Chestnut Co: December 2011 A question covering alleged fraudulent activity and related issues Answer
650
652
745
746
796
797
904
905
912
913
953
954
1010
1011
1097
1099
1214
1215
1282
1283
85
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Contents 1 of 1
C. Practice Management
1. Quality control 2. Advertising, publicity, obtaining professional work and fees. 3. Tendering. 4. Professional appointments.
Pages Exam Question Question Imperiol Company: December 2002 A question dealing with the acceptance of an engagement and procedures for providing an income statement forecast Audit practices: December 2006 A question covering lowballing, opinion shopping and insider dealer Murray Co: June 2007 A question covering accepting an audit engagement, planning an audit and the effectiveness of a management letter Dragon Group: June 2009 A question covering the firms tender document, matters relating to the acceptance of an audit engagement, transnational audit and features of it Pluto Co: June 2009 A question covering the appraisal of a proposed audit report and who should perform an engagement quality control review Eastwood Co: December 2010 A question covering an invitation to perform an assurance engagement, procedures to verify KPIs and audit aspects Answer
404
406
752
753
760
762
985
987
1018
1019
1146
1148
A budget tells us what we can't afford, but it doesn't keep us from buying it. William Feather
86
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Contents 1 of 4
D Audit of historical financial information
1. The audit of historical financial information including: i) ii) iii) Planning, materiality and assessing the risk of misstatement, Evidence. Evaluation and review
2. Group audits.
Pages Exam Question Question Meadow Company: December 2002 A question covering audit risks, segmental information and international restructuring Siegler Company: December 2002 A question covering different audit issues and audit evidence ABC Company: June 2003 A question covering audit risks, reliance placed on the work of an expert, audit of total costs to completion of a contract Ferry Company: June 2003 A question covering the top down approach in the context of business risk, identifying business risks and risk management Dexy Company: June 2003 A question covering audit issues and audit evidence Hydrasports Company: December 2003 A question covering business risks, carrying amounts in the statement of financial position, social and environmental responsibilities Pacific Group (PG): December 2003 A question covering audit risks and identity of appropriate internal controls Vema Company: December 2003 A question covering audit issues and audit evidence Bateleur Zoo Gardens (BZG) Company: June 2004 A question covering internal controls, financial statement risks and factors to be considered when planning the extent of substantive analytical procedures Harrier Motors: June 2004 A question covering audit risks, conduct of a physical inventory count and audit work in respect of the useful life of a brand name Answer
391
393
414
415
444
445
457
458
466
467
496
498
509
511
515
516
547
548
557
558
87
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Contents 2 of 4
Pages Exam Question Question Eagle Energy: June 2004 A question covering audit issues and audit evidence concerning stated situations Geno Vesa Farm (GVF) Company: June 2005 A question covering audit risks, and audit work performed on carrying amounts in the statement of financial position Volcan Company: June 2005 A question covering audit issues and audit evidence Shire Oil Co: December 2005 A question covering audit risks, audit work and auditing social and environmental responsibilities Albreda Co: December 2005 A question covering audit issues and audit evidence Jinack Co: December 2005 A question covering audit issues This free sample shows the Q&A of Jinack Co. Answer
565
566
588
589
605
606
637
639
662 674
663 675
Scope of the audit: December 2005 A question covering fair value accounting, continuous auditing and non-consolidated entities under common control Pavia Co: December 2006 A question covering financial statement risks, analytical procedures and audit work concerning carrying amounts in the statement of financial position Seymour Co: December 2006 A question covering audit issues Lamont Co: June 2007 A question covering different audit issues Petrie Company: June 2007 A question covering the audit report and associated issues Island Co: December 2007 A question covering audit risks, audit procedures and quality control procedures
689
690
696
700
723 779 788
724 780 789
811
813
Sci-Tech Co: December 2007 A question covering outsourcing, capitalised development costs, validity of an amortisation rate and audit procedures Medix Co: June 2008 A question covering business risks, financial statement risks and professional, ethical and other issues
826
828
867
869
88
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Contents 3 of 4
Pages Exam Question Question Pulp Co: June 2008 A question covering the audit of receivables and quality control issues Bluebell Co: December 2008 A question covering financial statement risks, measurement of a share-based payment expense, the recoverability of a deferred tax asset and assessment of social and environmental performance Poppy Co: December 2008 A question covering material balances recognised at fair value, reliance on the work of an external expert and associated audit procedures Dexter Co: December 2008 A question covering going concern and related aspects Champers Co: June 2009 A question covering the audit planning meeting, aspects of a clients business which should be considered, evaluation of business risk and two audit procedures Robster Co: June 2009 A question covering the review of audit working papers, audit evidence in respect of leases and financial assets, and analytical procedures Papaya Co: December 2009 A question covering analytical procedures, overall audit strategy and audit plan and financial statements risks Banana Co: December 2009 A question covering audit evidence and the management of the audit Apricot Co: December 2009 A question covering procedures performed on the cash flow forecast and a report on prospective financial information Lychee Co: December 2009 A question covering subsequent events and given related aspects Grissom Co: June 2010 A question covering audit risks, assessing the work of another auditor and audit procedures Jolie Co: December 2010 A question covering the audit planning meeting in which a clients business risks are evaluated, financial statements risks and audit procedures in respect of the valuation of a brand name Answer
894
895
921
923
945
946
963
964
971
973
999
1000
1027
1029
1040
1042
1054
1056
1069
1070
1078
1080
1132
1134
89
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Contents 4 of 4
Pages Exam Question Question Clooney Co: December 2010 A question covering audit evidence Willis Co: December 2010 A question covering the appraisal of a draft audit report, management-imposed limitation on scope and the reporting requirements in respect of internal control deficiencies identified Bill Co: June 2011 A question covering a partly complete contract value, the valuation of an operating division, related parties and related party transactions and audit procedures Butler Co: June 2011 A question covering going concern issues, audit procedures on a cash flow forecast, going concern and forming the audit opinion Nassau Group: June 2011 A question covering the forming an opinion on the consolidated financial statements of a client and related procedures Oak Co: December 2011 A question covering a preliminary analytical review, audit procedures with regard to a share-based payment plan and the classification of a new lease, practice management and quality control issues Willow Co: December 2011 A question covering the issues of audit work on inventory, provisions and current assets and the other issues of property revaluations, non-current asset register, procurement procedures, and the ethics of the clients financial controller Beech & Co: December 2011 A question covering the decommissioning provision, evaluating the adequacy of the auditors experts work and potential implications of the change in accounting estimates Yew Co: December 2011 A question covering audit completion, management representation and treatment of prior year modified audit report Answer
1158
1159
1177
1178
1185
1188
1201
1205
1229
1231
1239
1242
1258
1260
1270
1271
1292
1293
Business, that's easily defined - it's other people's money. Peter Drucker
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Contents 1 of 1
E Other assignments
1. Audit-related services. 2. Assurance services. 3. Prospective financial information. 4. Forensic audits. 5. Internal audit. 6. Outsourcing.
Pages Exam Question Question Plaza Company: June 2005 A question covering due diligence and related issues Retail and Business Group (RBG): December 2006 A question concerning outsourcing of internal audit services and related issues Cusiter Co: June 2007 A question covering prospective financial information (PFI), and related issues Mulligan Co: December 2007 A question covering the review of a business plan and related aspects and forensic accounting Rosie Co: June 2008 A question covering due diligence the audit of a carrying cost and joint audit and issues involved Crocus Co: December 2008 A question covering forensic accounting and related issues Jacob Co: June 2011 A question covering the potential benefits of an externally provided due diligence review and related information Answer
597
598
715
716
770
772
840
841
881
883
936
937
1222
1223
91
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Contents 1 of 1
F Reporting
1. Auditors reports. 2. Reports to those charged with governance and management. 3. Other reports.
Pages Exam Question Question Icehouse Publisher: June 2003 A question covering the shortcomings of an audit report Rook & Co: June 2004 A question requiring the appraisal of the appropriateness of an audit opinion Hegas Company: June 2005 A question covering implications of matters concerning the auditors report Cleeves Co: December 2006 A question covering the appropriateness of an audit opinion and the implications of the audit opinion Bertie & Co Accountants: December 2007 A question covering the audit report, benefits of a company having a financial statement audit and the objective of a review engagement Grimes Co: June 2010 A question covering Emphasis of Matter paragraph, methods used by an audit firm to reduce exposure to litigation claims and the implications of a liability limitation agreement Answer
477
478
572
573
616
617
736
737
857
858
1125
1126
An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. Laurence J. Peter
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Contents 1 of 2
G Current Issues and Developments
1. Professional and ethical. 2. Information technology. 3. Transnational audits. 4. Social and environmental auditing. 5. Other current issues.
Pages Exam Question Question Isthmus Company: December 2002 A question covering ethical and professional issues Corporate governance: December 2002 A question covering the appropriateness of global corporate governance standards Capri Group: December 2002 A question concerning the role of support letters and expressing an opinion on consolidated financial statements Duran Company: June 2003 A question covering ethical and professional issues and appropriateness of available audit safeguards Audit failures: June 2003 A question covering the professional implications of possible audit failures Sepia: December 2003 A question covering professional issues raised by stated audit situations Developments in the field of audit: December 2003 A question covering developments concerning external audit opinion, effectiveness of internal financial controls and management representation letters Hawk Associates: June 2004 A question covering ethical and professional issues Bartolome Accountants: June 2005 A question covering ethical and other professional issues Answer
431
432
438
439
423
424
484
485
491
492
531
532
537
538
578 624
579 625
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Contents 2 of 2
Pages Exam Question Question Dedza Accountants: December 2005 A question covering ethical and professional issues Juliet Co: June 2010 A question covering failure of audit opinion, audit procedures and ethical and other implications concerning forecasts and projections Carter & Co: June 2010 A question covering ethical and professional issues raised Neeson & Co Accountants: December 2010 A question covering ethical and professional issues Answer
683
684
1109
1110
1118 1168
1119 1169
The superior man understands what is right; the inferior man understands what will sell. Confucius
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Jinack Co: Question

Explain the auditors responsibilities in respect of subsequent events.

Only do what your heart tells you. Princess Diana:

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