Table Of ContentACCA Paper F8
Audit and Assurance
Class Notes
June 2011
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© The Accountancy College Ltd January 2011
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written
permission of The Accountancy College Ltd.
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Contents
PAGE
INTRODUCTION TO THE PAPER 5
CHAPTER 1: ASSURANCE 7
CHAPTER 2: AUDIT ETHICS AND REGULATIONS 19
CHAPTER 3: PLANNING 43
CHAPTER 4: AUDIT EVIDENCE 57
CHAPTER 5: SYSTEMS ASSESSMENT 73
CHAPTER 6: AUDIT SAMPLING 83
CHAPTER 7: INTERNAL CONTROLS 89
CHAPTER 8: SUBSTANTIVE TESTING 117
CHAPTER 9: COMPUTER AUDITING 139
CHAPTER 10: THE AUDIT REPORT 145
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Introduction to the
paper
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INTRODUCTION TO THE PAPER
AIM OF THE PAPER
The aim of the paper is to develop knowledge and understanding of the process of
carrying out the assurance engagement, and its application in the context of the
professional regulatory framework.
OUTLINE OF THE SYLLABUS
1. Audit framework and regulation
2. Internal audit
3. Planning and risk assessment
4. Internal control
5. Audit evidence
6. Review
7. Reporting.
FORMAT OF THE EXAM PAPER
The syllabus is assessed by a three hour paper-based examination consisting of five
compulsory questions. The bulk of the questions will be discursive but some
questions involving computational elements will be set from time to time.
The questions will cover all areas of the syllabus.
● Question 1 will be a scenario-based question worth 30 marks.
● Question 2 will be a knowledge-based question worth 10 marks.
● Questions 3, 4 and 5 will be worth 20 marks each.
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Chapter 1
Assurance
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CHAPTER 1 – ASSURANCE
Exam question: Audi
You are involved in the audit of a car manufacturer.
Required:
(a) Briefly explain the external audit process, including a definition of
test of control and substantive procedure and a flow diagram of the
audit process. (4 marks)
(b) Explain the difference between a controls approach and a substantive
approach to audit. (3 marks)
(c) Explain the difference between an interim audit and a final audit.
(3 marks)
(10 marks)
Exam question: Liverpool FC
The following is the audit report attached to recent financial statements:
Auditors’ Report
Independent auditors’ report to the members of The Liverpool Football
Club and Athletic Grounds for the year ended 31 July {Year}.
We have audited the financial statements of The Liverpool Football Club and
Athletic Grounds for the year ended 31 July {Year} which comprise the Income
statement (profit and loss account), the statement of financial position (the balance
sheet), the cash flow statement and the related notes. The financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with section X of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company's
members those matters we are required to state to them in an auditors' report and
for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the annual report and the financial
statements in accordance with applicable law and United Kingdom accounting
standards ('United Kingdom Generally Accepted Accounting Practice') are set out in
the statement of directors' responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant
legal and regulatory requirements and International Standards on Auditing (UK and
Ireland).
We report to you our opinion as to whether the financial statements give a true and
fair view and have been properly prepared in accordance with the Companies Act
2006. We also report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations we
require for our audit, or if information specified by law regarding directors'
remuneration and other transactions is not disclosed.
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CHAPTER 1 – ASSURANCE
We read other information contained in the annual report and consider whether it is
consistent with the audited financial statements. The other information comprises
only the chairman’s statement, the directors’ report, the business review and the
financial highlights. We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with the financial
statements. Our responsibilities do not extend to any other information. We report
to you whether in our opinion the information given in the directors' report is
consistent with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK
and Ireland) issued by the Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In
forming our opinion we also evaluated the overall adequacy of the presentation of
information in the financial statements.
The information in the directors’ report includes that specific information presented
in the business review and financial highlights that is cross-referenced from the
‘review of the business’ section of the directors’ report.
Opinion
In our opinion:
● the financial statements give a true and fair view, in accordance with United
Kingdom Generally Accepted Accounting Practice, of the state of the
company's affairs as at 31 July {Year} and of its loss for the year then ended;
● the financial statements have been properly prepared in accordance with the
Companies Act 2006.
PKF (UK) Limited Liability Partnership
Registered auditors
Liverpool, UK
3rd November {Year}
Required:
Explain the terms International standards on auditing, estimates and
judgments, reasonable assurance, true and fair view, and materiality.
(2 marks each)
(10 marks)
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CHAPTER 1 – ASSURANCE
Question: Tranmere Rovers
The following is the external audit report attached to recent financial statements:
Independent auditors’ report to the members of Tranmere Rovers Football
Club for the year ended 31 July {Year}.
We have audited the financial statements of Tranmere Rovers Football Club for the
year ended 31 July {Year} which comprise the Income statement (profit and loss
account), the statement of financial position (the balance sheet), the cash flow
statement and the related notes.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the annual report and the financial
statements are set out in the statement of directors' responsibilities. Our
responsibility is to audit the financial statements in accordance with relevant legal
requirements and International Standards on Auditing. We report to you our
opinion as to whether the financial statements give a true and fair view.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing,
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In
forming our opinion we also evaluated the overall adequacy of the presentation of
information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of the
company's affairs as at 31 July {Year} and of its loss for the year then ended.
Audit Firm Limited Liability Partnership
Registered auditors, Liverpool, UK
3rd November {Year}
Required:
Explain the following terms referred to in the above audit report:
(a) International standards on auditing; (2 marks)
(b) estimates and judgments; (2 marks)
(c) reasonable assurance; (2 marks)
(d) true and fair view; (2 marks)
(e) materiality. (2 marks)
(10 marks)
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Description:ACCA Paper F8 The syllabus is assessed by a three hour paper-based examination consisting The questions will cover all areas of the syllabus.
