Paper f8 Mnemonics Sample Download v1

Mnemonics and Charts
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Paper F8: Audit and Assurance
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ISBN and Copyright statement For the ladies only Why study from a computer screen? Memorising: Tips and techniques Writing or saying things over and over again . Vocalising Initial letters and making phrases The use of mnemonics The use of jingles Word association Visualising Link/story technique Do I need to memorise all your mnemonics? Disguise your use of mnemonics in the exam Charts Colour codes Electronic links within the database
ACCA Paper F8 AUDIT AND ASSURANCE Mnemonics and Charts
Syllabus
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
Study Guide
A B C D E F G Audit framework and regulation Internal audit Planning and risk assessment Internal control Audit evidence Review Reporting
Contents
An overview of what is involved in Paper F8 Overview of the structure of e-book Map of the mnemonics and charts
Contents Appendix A Appendix B Appendix C Appendix D Appendix E Mnemonics and Charts International Auditing Standards Extracts of UK Company Act, 2006 Professional Codes Specimen Audit Working Papers Glossary of Terms
You have two choices: 1. Either scroll through the book - screen by screen (like in a manual book), or 2. Hyperlink directly to the screen you want
Where shall I begin, please your majesty? he asked. Begin at the beginning, the king said gravely, and go on till you come to the end: then stop. Lewis Carroll Through the Looking-Glass
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An overview of what is involved in Paper F8 (1 of 4)
Start here and get an overview of what Paper F8 entails ..
You are a partner at Green, Green and Associates, a medium to large accounting firm. One Thursday morning a letter is received from Goodies Sweet Manufacturing (GSM) Company, a local unlisted UK company which requests your company to submit a proposal for its current audit. You understand, from the letter, that GSM is of a size considered small by UK legislation but that its principal shareholder, who is not employed by the company, using a legal entitlement has insisted on an audit by an independent auditor. This will be GSMs first independent audit. The senior partner in your firm has assigned you to be GSMs engagement partner. The following overview takes us through the stages, procedures and documents involved in such an audit engagement (and also gives you quite a good idea of what is involved in the ACCA Paper F8 syllabus).
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BEFORE YOU START What you need to know Before you get involved in the audit work itself, you must be aware of the background requirements. In essence, you must know and act according to: the objectives of the audit the legal requirements the auditing standards that you will use (your firm has adopted the International Auditing Standards issued by the IAASB) the code of ethical behaviour of your professional body (you are an accredited member of the ACCA) the procedures and rules of your accounting firm.
This is no problem for you. You are a professional accountant accredited by ACCA.
Obtaining the engagement PHASE 1
Acceptance OF the client .. Acceptance BY the client

This is the first step on your journey through the audit. In this phase of the audit you will have two objectives: (i) To examine GSM (the client - who the International Auditing Standards refer to as entity) to determine whether there is any reason to reject the engagement. In others words, do we want the audit engagement? On the basis that you do want to obtain the audit engagement to convince GSM to employ your firm.
(ii)
This first step involves six procedures: 1. Determine whether your accounting firm is able to meet the ethical requirements regarding the client. Determine whether your firm will need to employ the work of other specialists or experts as part of the audit. Communicate with predecessor auditor. (Not in this case because it is a first audit.) Select the staff who will form the audit team and consider the audit costs and budget. Prepare a client proposal. Prepare and obtain an engagement letter which will only be issued when the client agrees to your proposal.
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2.
3.
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5. 6.

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Planning the audit PHASE 2
So you have obtained the audit .. Now you need to plan it!
One day, soon after submitting your proposal a telephone call from GSM finance director confirms that your accounting firm has been awarded the engagement contract. You have sent your new client the engagement letter and all is satisfactory. So now you need to plan the audit not an easy task! Your audit will be made of two main parts: (i) Tests of controls. This is sometimes referred to as the interim audit and involves mainly testing the entitys internal control structure to establish how much reliance can be placed on it. The final audit. This involves detailed substantive procedures such as gathering and assessing evidence.
(ii)
The aim of the audit is to give assurance to the users of the financial statements (mainly the shareholders of GSM) that there is no material misstatement of the financial statements. The procedures involved in planning the two parts of your audit will be: (i) To collect and analyse more information about GSM. This will help you understand the entity and its environment, including its internal controls. Assess the risks of material misstatements of GSMs financial statements. Determine the level of materiality you consider acceptable.
(i)
(ii)
(iii) Use the information and your analysis to prepare a planning memorandum for the audit. (v) Prepare an audit plan (or programme) which will contain the procedures you plan in response to the risks you have identified.
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Testing and evidence PHASE 3
Down to work gathering data and carrying out audit tests

The audit team have been assigned. Your plan is established . after discussion with the members of the audit team Now the audit work begins. Your aims in this, the main part of the audit, are to test for evidence of the strengths or weakness of GSMs internal control structure (interim) and then test for evidence of the fairness of the financial statements (final). This phase of your audit will involve five main procedures: 1. 2. 3. 4. 5. Tests of GSMs internal control Substantive tests of transactions. Analytical procedures. Tests of details of balances. Search for unrecorded liabilities.
Everything that is done and all the evidence gathered will be documented in the audits working papers.
Evaluation and reporting PHASE 4
You will now need to wrap up the audit and of course produce reports
Your objective in this final phase of the audit is to complete the audit procedures, form an audit opinion and issue audit reports. There are at least seven procedures involved: 1. 2. 3. 4. 5. 6. 7. Evaluate evidence of governance in GSM. Perform procedures to identify subsequent events. Review financial statements and other relevant materials to assess the going concern assumption for GSM. Perform wrap-up procedures. Prepare Matters for Attention of Partners. Report to the board of directors. This is called a Management Letter. Prepare Audit report.
Now you can relax a job well done!

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The Tony Surridge +AddVance e-book
Overview of structure of the e-book

The Tony Surridge +AddVance ACCA Paper F8 e-book consists of the following main parts: CHARTS, TEXT AND MNEMONICS Click here
Main part
Appendix A
INTERNATIONAL STANDARDS (covered on the syllabus)
We provide a facility whereby you can link electronically: (a) to each of the IAASBs International Standards on Auditing (ISAs) covered on the syllabus you must be online to the Internet; and (b) our overview of each standard which provides the essential points, practices and principles covered by the standard (you do not need to be online to the Internet). You can access these electronically by simply clicking: (i) (ii) on Appendix A (click here), or at relevant click points indicated in the body of our e-book.
Appendix B
Relevant company legislation (UK legislation used as an EXAMPLE)
We recognise that ACCA is a global qualification and that company legislation differs nation by nation. However, in essence, most legislations are similar. For example, the UK Companies Act, 2006 conforms, in the main, to European directives. We therefore use the UK Companies Act, 2006 to provide EXAMPLES of relevant legislation. You do not have to learn this legislation, just appreciate that countries have such legislation and that the practices and principles of audit are governed and influenced by the legislation. The UK Companies Act, 2006 is made up of Sections, each of which is numbered.
You can access these electronically by simply clicking: (i) (ii) on Appendix B (click here), or at relevant click points indicated in the body of our e-book.
You do not need to be online to the Internet in both situations.

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Overview - 2
Appendix C CODES (covered on the syllabus) You can access relevant codes covered on the syllasus electronically by simply clicking: (i) (ii) on Appendix C (click here), or at relevant click points indicated in the body of our e-book.
You need to be online to the Internet in both situations.
Appendix D SPECIMEN WORKING PAPERS
Audit working papers are covered on the syllabus and you may find it useful to view specimens of working papers to get an idea of what is involved. You will NOT have to reproduce them in the exam.
You can access these electronically by simply clicking: (i) (ii) on Appendix D (click here), or at relevant click points indicated in the body of our e-book.
Appendix E
GLOSSARY OF TERMS
You can access definitions or clarify uncertainties by simply clicking: (i) (ii) on Appendix E (click here), or at relevant click points (indicated by words underlined in blue) in the body of our e-book.
CONTENTS
The Contents section of this e-book which is positioned at the back of the e-book. 1. 2. To provide page numbers for hard-copy reference if printed. To provide the basis for individual mnemonics, charts or text sections to be hyperlinked directly.
You do not need to be online to the Internet in both situations. To access the Contents click here .
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Overview - 3
To communicate your: YOUR INPUT delights moans advice to other students desperate need for subject help
Please click Forum (communication to all students) Tony Surridge (confidential communication) Testimonials (if you want to comment on our e-book)
GOOD LUCK WITH YOUR STUDIES, FROM ALL OF US AT www.tonysurridge.co.uk
FINAL PAGE
Pictures, quotations and audit stories are included in our e-book simply to improve your learning experience and to ease the pressure of sustained study.
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ACCA Paper F8 syllabus: Map of the mnemonics and charts

The Audit and Assurance syllabus is essentially divided into seven areas. The Tony Surridge +AddVance ebook is based on the ACCA syllabus and contains the following seven sections: AUDIT FRAMEWORK AND REGULATION 1. 2. 3. 4. 1. 2. 3. 4. 5. 1. 2. 3. 4. 5. 6. 7. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 1. 2. 3. The concept of audit and other assurance engagements Statutory audits The regulatory environment and corporate governance Professional ethics and ACCAs Code of Ethics and Conduct Internal audit and corporate governance Differences between external and internal audit The scope of the internal audit function Outsourcing the internal audit department Internal audit assignments Objective and general principles Understanding the entity and knowledge of the business Assessing the risks of material misstatement and fraud Analytical procedures Planning an audit Audit documentation The work of others Internal control systems The use of internal control systems by auditors Transaction cycles Tests of control The evaluation of internal control components Communication on internal control The use of assertions by auditors Audit procedures The audit of specific items Audit sampling and other means of testing Computer-assisted audit techniques Not-for-profit organisations Subsequent events Going concern Management representations Audit finalisation and the final review Audit reports Reports to management Internal audit reports
Section A
Section B
INTERNAL AUDIT
Section C
PLANNING AND RISK ASSESSMENT
Section D
INTERNAL CONTROL
Section E
AUDIT EVIDENCE
REVIEW Section F
REPORTING Section G
Click on blue-underlines and go, or scroll through the e-book page-by-page.

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Section E:
AUDIT EVIDENCE
1. 2. 3. 4. 5. 6.
The use of assertions by auditors Audit procedures The audit of specific items Audit sampling and other means of testing Computer-assisted audit techniques Not-for-profit organisations
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Substantive procedures
Relevant standard: ISA 500
Substantive procedures are tests performed to obtain audit evidence to detect material misstatements in the financial statements, are of two types: (a) tests of detailed transactions; and (b) analytical procedures. We should remember what was discussed earlier: Para 2, ISA 500 Audit evidence requires auditors to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. Sufficiency and appropriateness are interrelated and apply to both tests of controls and substantive procedures.
Sufficiency
Sufficiency is the measure of the QUANTITY of audit evidence. (Sufficient evidence has been gathered when AUDIT RISK is considered to be at an acceptable level. Auditors use professional judgement to determine the extend of tests necessary to obtain sufficient evidence. In exercising this professional judgement, auditors consider both the materiality of the item in question (e.g. monetary size) as well as the inherent risk of the item (e.g. cash, due to its liquidity, may have a higher inherent risk than do certain property, plant and equipment items).
Appropriateness Appropiateness is the measure of the QUALITY or RELIABILITY of the audit evidence. The quantity of audit evidence required is affected by the level of risk in the area being audited. The quality and reliability of audit evidence is influenced by its source and by its nature. The following generalisations may help in assessing the quality and reliability of audit evidence. Whenever an individual or a business decides that success has been attained, progress stops. Thomas J. Watson Jr
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Substantive procedures: What you need to know ..

We start here
Sufficient and appropriate evidence
Assertions Substantive tests: Shareholders equity
Substantive tests: Long-term debt
Gathering evidence
Substantive tests: Property, plant and equipment PP&E)
Confirmation
Sampling Substantive tests: Accounts payable
Substantive tests: Inventory
Accounting estimates
Substantive tests: Bank and cash Substantive tests: Accounts receivable Substantive tests: Bank and cash
Opening balances
Substantive procedures form the main part of the audit
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Gathering evidence: Financial statements assertions

Audit tests are designed and conducted to obtain evidence about the financial statement assertions. Financial statement assertions are the representations of the directors that are contained in the financial statements. By authorising the financial statements, the directors are making representations about the information therein. In planning and performing the audit, an auditor considers these assertions for the various financial statements and accounts. When all of these assertions have been met for an account, the account is confirmed with the accepted accounting principle. Thus, errors or fraud may be viewed as having the effect of misstating one or more of the assertions. These representations or assertions may be described in general terms in a number of ways, for example:
C O M P A R E
Completeness. The assertion is that all transactions and accounts are included, and there are no liabilities, transactions, events, unrecorded assets or undisclosed items. Occurrence. The assertion is that the transaction or event took place during the relevant period. Measurement. The assertion is that the transaction or event is recorded in the proper amount. Presentation and disclosure. The assertion is that the item is disclosed, classified and described in accordance with the applicable reporting framework (relevant legislation and applicable accounting standards). Appropriate valuation. The assertion is that the asset or liability is recorded at the appropriate carrying value (e.g. inventories are stated at lower of cost or market value). Rights and obligations. The assertion is that assets or rights of the entity are liabilities or obligations at a given date (e.g. that the firm has legal right to the inventory). Existence. The assertion is that the asset or liability exists at a given date.
Memory jog: in order to obtain evidence about the financial statement assertions the auditor needs to COMPARE many things against the financial statements.
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Gathering evidence: Assertions tested by the auditor

Management assertions used by the auditor about About CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER REVIEW
OCCURRENCE
that transactions and events that have been
recorded have occurred and pertain to the organisation. that all transactions and events that should have been recorded have been recorded. that amounts and other data relating to recorded transactions and events have been recorded appropriately. that transactions and events have been recorded in the correct accounting period. that transactions and events have been recorded in proper accounts.
COMPLETENESS
ACCURACY
CUTOFF
CLASSIFICATION
About
EXISTENCE
that assets, liabilities and equity interests exist. that the organisation holds or controls the rights to assets, and liabilities are the obligations of the organisation. that all assets, liabilities and equity interests that should have been recorded have been recorded. that assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
BALANCES AT THE PERIOD END
RIGHTS AND OBLIGATIONS
COMPLETENESS
VALUATION AND ALLOCATION
About
OCCURRENCE AND RIGHTS AND OBLIGATIONS COMPLETENESS
that disclosed events, transactions and other matters have occurred and pertain to the organisation. that all disclosures that should have been included in the financial statements have been included. that financial information is appropriately presented and described, and disclosures are clearly expressed. that financial and other information are disclosed fairly and at appropriate amounts.
PRESENTATION AND DISCLOSURE
CLASSIFICATION AND UNDERSTANDABILITY ACCURACY AND VALUATION
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Procedures and approach: Substantive audit tests: terms

Note: Some of the more frequent terms you will find in written audit programmes include the following: Agree Analyse To confirm that balances in the general ledger are correct. Separation of account balances into separate parts and the ascertainment of those parts. To set one group of figures with another set so as to ascertain how far they agree or disagree, such as to compare the beginning balances with last years audited figures. To sum the value of (volume, monetary value, etc), such as reckoning the value of cash, inventory, etc. To enquire into evidence, such as to enquire into authoritative documents. Add figures, such as to add the figures in a column of monetary values. To test the genuineness of, such as to re-calculate totals to ascertain their correctness. To interpret facts, such as to read minutes of directors meetings, etc. To prove consistency, such as to test that cash balances, or accounts receivables balances are consistent with the facts. An inspection of, such as the inspection of disclosures, legal documents, etc. To examine critically, for example to study a set of data to specifically identify unusual items.
Compare
Count
Examine Foot Prove
Read Reconcile
Review
Scan
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Gathering evidence: Sufficient and appropriate audit evidence

Audit objective We must remember that the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework.
Which requires
the auditor to obtain SUFFICIENT and APPROPRIATE audit evidence.
Audit evidence
Audit evidence is the information that auditors obtain in arriving at the conclusions on which their report is based. Audit evidence includes all the information contained within the accounting records and accounting system underlying the financial statements, and other information gathered by the auditors, such as confirmations from third parties. They are not expected to look at all the information and will usually select samples.
Definition
Evidence is obtained from
Audit tests
Test of controls
Tests of controls are conducted to obtain audit evidence about the effectiveness of the: design of the accounting and internal control systems to establish whether they are suitably designed to prevent or detect and correct material misstatements; and operation of the internal controls throughout the period being audited. Substantive procedures are tests to obtain audit evidence to detect material misstatements in the financial statements. There are generally of two types: Analytical procedures Other substantive procedures such as tests of detail of transactions and balances, review of minutes of directors meetings and enquiry.
To reach a position in which to express a professional opinion, the auditor needs to gather evidence from various sources. There are two types of test which the auditor will carry out.
Substantive procedures
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Gathering evidence: Quality of evidence
ISA 500 Audit evidence requires auditors to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. Sufficiency and appropriateness are interrelated and apply to both tests of controls and substantive procedures.
Sufficiency
Sufficiency is the measure of the QUANTITY of audit evidence. (Sufficient evidence has been gathered when AUDIT RISK is considered to be at an acceptable level. Auditors use professional judgement to determine the extend of tests necessary to obtain sufficient evidence. In exercising this professional judgement, auditors consider both the materiality of the item in question (e.g. monetary size) as well as the inherent risk of the item (e.g. cash, due to its liquidity, may have a higher inherent risk than do certain property, plant and equipment items). Appropiateness is the measure of the QUALITY or RELIABILITY of the audit evidence. The quantity of audit evidence required is affected by the level of risk in the area being audited. The quality and reliability of audit evidence is influenced by its source and by its nature. The following generalisations may help in assessing the quality and reliability of audit evidence.
Appropriateness
W O R D S
Written. Evidence in the form of documents (paper or electronic) or written representations are more reliable than spoken words or representations. Originals. Original documents are more reliable than photocopies, or facsimiles. Records with strong controls. Evidence obtained from the organisations records is more reliable when the system that produces them uses strong and effective controls. Directly by the auditor. Evidence obtained directly by the auditor is more reliable than that obtained indirectly or by inference. Sources that are external. Audit evidence from external sources is more reliable than that obtained from the organisations records.
Memory jog: WORDS are more reliable when they come from external sources, and are obtained directly by the auditor, and written (not just spoken), are from originals and are produced by systems using strong and effective controls.
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Gathering evidence: Audit procedures for obtaining audit information

Audit evidence can be obtained by one or more of the following procedures:
C A R R I E S
Confirmation. Seeking confirmation from another source concerning details in the organisations accounting records, e.g. confirmation from customers of debtor balances. Assets inspection. Inspection of assets that are recorded in the accounting records to confirm existence, to give evidence of valuation, but without confirming rights and obligations. Recalculation. Checking arithmetic of organisations records, e.g. totalling a ledger account. Re-performance. Independently executing procedures or controls, either through the use of computer assisted audit techniques (CAATs) or manually. Inquiry. Seeking information from the organisations staff or external sources. Strength of evidence depends on the knowledge and the integrity of the source of information. Evaluation by analytical procedures. Evaluating and comparing financial and/or non-financial data for plausible relationships. Sight (observation). Involves watching a procedure being performed, e.g. cash and cheques being banked. This has limited value, as it only confirms the procedure took place when the auditor was present.
Im telling you.. This is an important page
Memory jog: the auditor CARRIES out these procedures in order to obtain the necessary audit evidence.
Note: Some sources add TWO more procedures to this list 1. Vouching - checking from recorded entry to supporting document. 2. Tracing - checking from supporting document to recorded entry.
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Gathering evidence: Audit procedures for obtaining audit information 1 of 2
CONFIRMATION
Used to corroborate information contained in the accounting records
INSPECTION
Consists of examining records, documents, or tangible assets Examples Used to review: sales orders sales invoices purchase invoices shipping documents bank statements customer return documents customer complaint letters etc.
Examples Used to confirm: accounts receivable accounts payable balances held with banks cash surrender value of life insurance notes payable (with lenders or bond holders) etc.
RECALCULATION
Consists of checking the arithmetical accuracy of source documents and accounting records or performing independent calculations.
RE- PERFORMANCE
Consists of independent execution of procedures or controls that were originally performed as part of the entitys internal control.
Examples Extending sales invoices and inventory.. Adding journal and subsidiary records. Checking the calculation of prepaid expenses. Calculation of depreciation expense. etc.
Examples Re-perform aging of accounts receivable. Use of CAATs* to check controls recorded in the database.
* CAATs are Computer aided auditing techniques (which we cover later.)
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Gathering evidence: Audit procedures for obtaining audit information 2 of 2

ANALYTICAL PROCEDURES INQUIRY
Consists of seeking information of knowledgeable persons inside or outside the entity Examples Obtaining written or oral information from the client in response to specific questions during the audit Consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or that deviate from predictable amounts. Examples Calculation trends in sales over the past few years. Comparing net profit as a percentage of sales in current year with the percentage of the preceding year. Comparing client current ratio to the industry current ratio. Comparing budgets to actual results. Etc.
OBSERVATION
Consists of looking at a process or procedure being performed by others.
Examples Observation by the auditor of the counting of inventories by entitys personnel. Site visit at the clients facilities. Etc.
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When asked a general question about how to design audit procedures you should remember the auditors need to: 1. Concentrate on managements financial statements assertions. 2. Link them to the three main aspects that concern the audit. 3. Use appropriate procedures to seek assurance about the three main aspects.
What are managements assertions? Financial statements assertions: C O M P A R E Completeness Occurrence Measurement Presentation and disclosure Appropriate valuation Rights and obligations Existence How does the auditor do it?
Audit procedures: C A R R I E S Confirmation Assets inspections Re-calculations Re-performance Inquiry Evaluation by analytical techniques Sight (observation)
Click here for the mnemonic COMPARE
What is the auditor doing?
Click here for the mnemonic CARRIES
Seeking assurance about the assertions in terms of the three main aspects of: 1. 2. 3. Classes of transactions and events for the period under review. Balances at the period end. Presentation and disclosure
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Gathering evidence: Substantive audit tests

Corroborating evidence is the supporting documentation that is the basis for a transaction recorded in the journals and ledgers, and assertions represented in the financial statements. While there may be many types of corroborating evidence, the following list are the ones mainly used by auditors carrying out substantive procedures. Remember them as the mnemonic: IS A CAP.
I S
Interrelationships. Interrelationships within the data such as interest expense and accrued interest payable, unusual items, etc. provide assurance as to the reasonableness of items and the absence of material misstatements due to errors. Subsequent events. Subsequent events confirm the status of estimates and assertions at the financial date. For example, subsequent collection of receivables gives evidence as to their valuation and collectibility.
Authoritative statements. Authoritative statements by a client provide support for a treatment of certain items in the recording and aggregation of transaction data. Authoritative statements by third parties such as confirmations provide evidence concerning the existence of transactions with third parties.
C A P
Calculations. Calculations by auditors such as the calculation of depreciation expense, tax liabilities, etc. support the application of IASs. Authoritative documents. Authoritative documents such as property deeds, suppliers invoices. Physical existence. Physical existence is determined by observation and count.
Memory jog: just remember it as IS
A CAP.
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Gathering evidence: Confirmation What you need to know

We start here
Gathering evidence: Confirmation method
Problems associated with confirmation Confirmation
Negative confirmation may be appropriate
Situations where confirmation may not be appropriate
Risks where confirmation may be appropriate
In the main confirmation means writing a letter to a third party
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Gathering evidence: Confirmation method 1 of 5

Confirmation consists of the response to an enquiry of a third party to collaborate information contained in the accounting records. The procedure is the process of asking third parties to confirm information known to them, such as asking receivables (debtors) to confirm amounts due to them. Confirmation is the auditors receipt of a request from an independent third party verifying the accuracy of the information requested. It is the act of obtaining audit evidence from a third party.
Confirmation
Confirmation is an example of a substantive test
Confirmation, say confirmation of balances of accounts receivable, will provide a test of the ending account balance and is therefore a detailed test of a balance a type of substantive test.
Confirmation is a generally accepted auditing procedure
But take note of the Mnemonic: ACCA.
Key procedures necessary to obtain a confirmation
1.
Auditor reviews the need to obtain a confirmation using the information obtained from the preliminary risk assessment of the client. Auditor prepares the confirmation letter as appropriate for the particular request, for example in the case of a bank confirmation the letter is in the format agreed with banks in the clients jurisdiction. The client authorises (signs) the letter thus giving the third party (e.g. the debtor) permission to divulge confidential details. Where the client has provided the third party with a standing authority to disclose information to the auditor, the authorising reference is quoted on the confirmation request letter. The auditor, not the client, mails these letters. The auditor should check randomly to ensure that letters are addressed to the respondents that the auditor chose, and for the amounts shown in the books of account. The third party is requested to respond in writing directly to the auditor.
2.
3.
4.
5.
Confirmation may be used for specific risks
An auditor may use confirmation in response to a specific risk of misstatement. Examples of likely risks are shown in the Mnemonic: A CA IS BLIND.
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Advantages of using confirmation
Confirmation provides highly persuasive evidence, because audit evidence is more reliable when it is obtained from independent sources, para 12, ISA 500 Audit Evidence states: The auditor ordinarily obtains more assurance from consistent audit evidence obtained from different sources or of a different nature than from items of audit evidence considered individually. In addition, obtaining audit evidence from different sources or of a different nature may indicate that an individual item of audit evidence is not reliable. For example, corroborating information obtained from a source independent of the entity may increase the assurance the auditor obtains from a management representation. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the auditor determines what additional audit procedures are necessary to resolve the inconsistency. There is, however, a distinction between evidence provided by independent third parties acting in a professional capacity, e.g. a bank manager, lawyer, other qualified accountants, and evidence from the third parties such as customers and suppliers in the business contact group.
A letter from, say a debtor, confirming that the amount due from him/her is correctly recorded in the books of the client, is useful to the auditor, but generally, non-professional business contacts such as debtors may have a closer, more dependent relationship to the client. Neither can the auditor be certain that the debtors accounting and control systems are reliable.
Problems associated with confirmation
For possible disadvantages of using confirmation refer to Mnemonic: CINT
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Positive and negative confirmation ISA 505 External Confirmations identifies two forms of confirmation: (i) Positive confirmation (ii) Negative confirmation Positive confirmation
The positive form/letter requests a reply from the recipient by either confirming agreement with stated information or by asking the respondent to fill in information (a blank confirmation). By using the blank confirmation approach the auditor may reduce the risk that a respondent replies to a request without verifying the information. With a blank confirmation the recipient must enter the value from their own records. However, the blank confirmation letter requires more work from the recipient and this may result in lower response rates. When no reply is received to a positive confirmation request, a second letter is normally mailed to the third party. If a reply is still not received, or the first confirmation request is returned undelivered, the auditor normally performs alternative procedures. Paras 31 and 32, ISA 505 state: The auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide. Where no response is received, the auditor ordinarily contacts the recipient of the request to elicit a response. Where the auditor is unable to obtain a response, the auditor uses alternative audit procedures. The nature of alternative audit procedures varies according to the account and assertion in question In the examination of accounts receivable, alternative audit procedures may include examination of subsequent cash receipts, examination of shipping documentation or other client documentation to provide audit evidence for the existence assertion, and examination of sales near the period-end to provide audit evidence for the cut-off assertion. In the examination of accounts payable, alternative audit procedures may include examination of subsequent cash disbursements or correspondence from third parties to provide audit evidence of the existence assertion, and examination of other records, such as goods received notes, to provide audit evidence of the completeness assertion. MAP
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Gathering evidence: Confirmation method- 4 of 5

Positive and negative confirmation (continued)
Positive confirmation requests are normally appropriate when inherent and/or control risk is assessed as high (in other words a low level of detection risk is to be achieved).
Negative confirmation The negative confirmation form/letter confirmation requests the recipient to respond only if he/she disagrees with the information stated on the request. Para 22, ISA 505 External Confirmations states as follows: A negative external confirmation request asks the respondent to reply only in the event of disagreement with the information provided in the request. However, when no response has been received to a negative confirmation request, the auditor remains aware that there will be no explicit audit evidence that intended third parties have received the confirmation requests and verified that the information contained therein is correct. Accordingly, the use of negative confirmation requests ordinarily provides less reliable audit evidence than the use of positive confirmation requests, and the auditor considers performing other substantive procedures to supplement the use of negative confirmations. Negative confirmations provide less persuasive audit evidence than positive confirmations. Accordingly the auditor would not use negative confirmation requests as the sole substantive audit procedure to address an assessed risk of material misstatement at the assertion level unless all of the following are present: (a) The auditor has assessed the risk of material misstatement as low and has obtained sufficient appropriate audit evidence regarding the operating effectiveness of controls relevant to the assertion; (b) The population of items subject to negative confirmation procedures comprises a large number of small, homogeneous, account balances, transactions or conditions; (See Mnemonic: LANE and para 23, ISA 505) (c) A very low exception rate is expected; and (d) The auditor is not aware of circumstances or conditions that would cause recipients of negative confirmation requests to disregard such requests.
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When client does not authorise confirmation (continued) If the auditor concludes that managements refusal to allow the auditor to send a confirmation request is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor would communicate with those charged with governance in accordance with ISA 260 (Revised and Redrafted) Communication with Those Charged with Governance. . The auditor also would determine the implications for the audit and the auditors opinion in accordance with ISA 701 Modifications to the Independent Auditors Report.
The implications of ISA 505 External Confirmations are: (i) When the auditor seeks an external confirmation and management refuses to grant permission for him/her to do so, the auditor should carefully balance the validity of the clients request and the validity of the third-party confirmation. (ii) If the auditor agrees with the reasonableness of managements request not to seek third-party confirmation regarding a particular matter, the auditor should apply alternative procedures to obtain sufficient and adequate evidence regarding that matter.
(iii) If the auditor does not accept the validity of managements refusal and is prevented from carrying out the confirmation, there has been a limitation on the scope of the auditors work and he/she should consider the impact of this limitation on the auditors opinion and report.
Situations where negative confirmation may be appropriate

Negative confirmation requests may be appropriate where:
L A N E
Large numbers of small homogeneous, account balances, transactions or conditions is involved in the test. Assessed level of inherent risk and control risk is low, and therefore there is a low risk of material misstatement. No obvious reason exists why respondents will disregard the confirmation requests. The auditor is not aware of circumstances or conditions that would cause recipients of negative confirmation requests to disregard such requests. Errors of a substantial number are not anticipated. A very low exception rate is expected.
Memory jog: in such cases the negative confirmation request is a
LANE
the auditor can use.

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Gathering evidence: Specific risks for which confirmation may be relevant

A
Accounts receivable balance with debtors. - the auditor may take a random sample, or - may list customers with very large balances or very small balances, customers that are slow in paying, and/or that buy and pay erratically - the auditor then gives this list to the client to prepare a confirmation letters (format already agreed) requesting that customers reply direct to the auditor - the auditor, not the client, mails these letters.
Contract terms with customers, creditors or suppliers. Auditors are interested in all contracts and in particular long-term notes and bonds payable, stock options, pension agreements, contracts with vendors for future delivery of supplies, government contracts for completion, royalty agreements, trade-union contracts, and leases. Contracts may affect the assessed inherent risk. Accounts payable balance. Similar approach is taken to that adopted for accounts receivable (see above).
A I
Inventory quantity and value held by third parties. For example, if the client is involved with timber importation and the timber is held in bonded warehouses until required by the entity for manufacture and sale, the auditor would normally regard a letter from the bonded warehouse company that they hold stocks of timber (of a stated quantity/value/date) on behalf of the client as good evidence, provided that the warehouse company is of good reputation. Shares outstanding with stock transfer agents. A stock transfer agent is a company (broker), usually a third party unrelated to stock transactions, which cancels the name and certificate of the former stockholder who 'sold' the stock, and substitutes the 'new' owner's name on the Official Master Shareholder listing.
Bank balances with banks As part of their verification procedures, auditors obtain confirmation from bank managers of bank balances and other matters at the year-end. The letter requests the bank to give details of bank accounts, of customers assets held, either as a security or for safe custody, of contingent liabilities and certain other information. (A contingent liability is a potential future obligation to an outside party for an unknown amount resulting from the outcome of a past event). Life insurance cash surrender value with insurer. Insurance cover with insurer. Notes payable with lender such as promissory notes held by suppliers. Debenture or bond holders to determine indenture conditions.
L I N D
Memory jog: A certified auditor (CA) IS often BLIND concerning existence, quantity and condition of assets and liabilities relating to a third party without obtaining independent confirmation from that third party.
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Gathering evidence: Situations where confirmation may not be appropriate

Confirmation of accounts or balances is a generally accepted auditing procedure, unless:
A C C A
Account or balance is immaterial. Confirmation would be ineffective as an audit procedure possibly due to the inability of the confirmations to adequately address the completeness assertion. Combined assessment of inherent and control risk is low e.g. in situations where the auditor feels that there is low risk of material misstatement. Assessment using other substantive evidence is sufficient to reduce the audit risk to an acceptable level e.g. confirmation procedures may be omitted due to the availability of externally generated evidence (e.g. both purchase agreements and suppliers invoices)
Memory jog: blame the ACCA for having to learn all this.
Gathering evidence: Problems associated with confirmation

Possible disadvantages of confirmations are:
C I N T
Costly way of gathering evidence. Inconvenient to those asked to supply the information. Non-compliance by recipients of confirmation letters. Time-consuming for the auditor.
Memory jog: CINT is a word that has no meaning (but thats the case with Kit-Kat, Kodak, Twix and many other brand names which are used specifically for quick memory recall!)
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Gathering evidence by sampling: What you need to know

Relevant standard:
ISA 530
We start here
Main aspects
Disadvantages
of statistical sampling
Three steps
Advantages of sampling
Where sampling is not appropriate
Sampling Statistical sampling techniques

Design of the sample
Evaluation of tests
Deciding sample size
Testing the sample
Sample selection methods
Many students find sampling a difficult concept. ISA 530 might help!
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Gathering evidence by sampling

Relevant standard:
Objectives Sample population Sample size Selection method
Testing by sample
ISA 530
Design of sample
Random selection Haphazard selection
Test of controls Substantive procedures
Testing by sample
Judgemental selection Block sampling Systematic sampling
Evaluation of test results
Analysis of errors Inferences

Statistical v non-statistical
Risk assessment
Statistical sampling techniques
Risk-based auditing Attribute sampling Variables sampling Monetary-unit sampling Audit risk
Inherent risk Control risk Detection risk
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Appendix A:
International Standards: December 2009
The following six three screens itemise the International Audit Standards and other examinable documents for the December 2009 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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EXAMINABLE DOCUMENTS DECEMBER 2009 AUDIT INTERNATIONAL

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 2008 will be examinable in the December 2009 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 F8 Audit and Assurance
The linkages are disabled for the purpose of this free download
The accounting knowledge that is assumed for Paper F8 is the same as that examined in Paper F3. Therefore, candidates studying for Paper F8 should refer to the Accounting Standards listed under Paper F3. 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. Title International Standards on Auditing (ISAs) Click here Click here Click here ISA 200 ISA 210 ISA 220 ISA 230 IA 24S0 Glossary of Terms International Framework for Assurance Assignments Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services Objective and General Principles Governing an Audit of Financial Statements Terms of Audit Engagements Quality Control for Audits of Historical Financial Information (Redrafted) Audit Documentation (Redrafted) The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements (Redrafted) Consideration of Laws and Regulations in an Audit of Financial Statements (Revised and Redrafted) Communication with Those Charged with Governance F8 P7
ISA 250 ISA 260

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Title ISA 300 ISA 315 (Redrafted) Planning and Audit of Financial Statements (Redrafted) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment Audit Materiality (Redrafted) The Auditors Responses to Assessed Risks Audit Considerations Relating to Entities Using Service Organisations Audit Evidence Audit Evidence Additional Considerations for Specific Items External Confirmations (Redrafted) Initial Audit Engagements Opening Balances Analytical Procedures Audit Sampling and Other Means of Testing (Revised and Redrafted) Auditing Accounting Estimates, Including Fair Value Estimates and Related Disclosures Auditing Fair Value Measurements and Disclosures (Revised and Redrafted) Related Parties (Redrafted) Subsequent Events (Redrafted) Going Concern (Revised and Redrafted) Management Representations (Revised and Redrafted) Special Considerations - Audits of Group Financial Statement (Including the Work of Component Auditors) Considering the Work of Internal Auditing Using the Work of an Expert The Independent Auditors Report on a Complete Set of General Purpose Financial Statements Modifications to the Independent Auditors Report F8 P7
ISA 320 ISA 330 ISA 402 ISA 500 ISA 501 ISA 505 ISA 510 ISA 520 ISA 530 ISA 540 ISA 545 ISA 550 ISA 560 ISA 570 ISA 580 ISA 600 ISA 610 ISA 620 ISA 700 ISA 701
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Title ISA 710 ISA 720 Comparatives (Redrafted) The Auditors Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements The Auditors Report on Special Purpose Audit Engagements Inter-bank Confirmation Procedures The Consideration of Environmental Matters in the Audit of Financial Statements Electronic Commerce: Effect on the Audit of Financial Statements Reporting by Auditors on Compliance with International Financial Reporting Standards International Standards on Assurance Engagements (ISAEs) ISAE 3000 ISAE 3400 Assurance Engagements other than Audits or Reviews of Historical Financial Information The Examination of Prospective Financial Information International Standards on Quality Control (ISQCs) ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information and Other Assurance and Related Services Engagements International Standards on Related Services (ISRSs) ISR 4400 ISR 4410 Engagements to Perform Agreed-Upon Procedures Regarding Financial Information Engagements to Compile Financial Information International Standards on Review Engagements (ISREs) ISRE 2400 ISRE 2410 Engagements to Review Financial Statements Review of Interim Financial Information Performed by the Independent Auditor of the Entity Exposure Drafts (EDs) Other documents
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F8
P7
ISA 800 IAPS 1000 IAPS 1010 IAPS 1013 IAPS 1014
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Appendix B
Extracts of UK Companies Act, 2006

(Used only as an illustration of typical legislation in different countries)
We recognise that ACCA is a global qualification and that company legislation differs nation by nation. However, in essence, most legislations are similar. For example, the UK Companies Act, 2006 conforms, in the main, to European directives. We therefore use the UK Companies Act, 2006 to provide EXAMPLES of relevant legislation. You do not have to learn this legislation, just appreciate that countries have such legislation and that the practices and principles of audit are governed and influenced by the legislation. The UK Companies Act, 2006 is made up of Sections, each of which is numbered.
You can access these electronically by simply (i) (ii) scrolling through the extracts screen by screen, or clicking at relevant click points indicated in the body of our e-book.
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Appendix B

Examples below are taken from UK legislation (Companies Act, 2006). (Note: It is a lengthy Act and if you want to see it in its complete form will take time to download. Each separate Section [indicated below] is hyperlinked almost instantly.) Sec. 248 Sec. 382 Sec. 415 Sec. 418 Sec. 419 Sec. 437 Sec. 475 Sec. 476 Sec. 477 Sec. 478 Sec. 489 Sec. 490 Sec. 491 Sec. 492 Sec. 495 Sec. 496 Sec. 497 Sec. 498 Sec. 499 Sec. 501 Sec. 502 Sec. 503 Sec. 507 Sec. 510 Sec. 511 Sec. 516 Sec. 517 Sec. 518 Sec. 519 Sec. 520 Sec. 521 Sec. 1212 Sec. 1213 Sec. 1214 Sec. 1215 Sec. 1217 Only the first two are active Minutes of directors' meetings for demonstration Companies qualifying as small: general Duty to prepare directors' report Contents of directors' report: statement as to disclosure to auditors Approval and signing of directors' report Public companies: laying of accounts and reports before general meeting Requirement for audited accounts Right of members to require audit Small companies: conditions for exemption from audit Companies excluded from small companies exemption Appointment of auditors of public company: general Appointment of auditors of public company: default power of Secretary of State Term of office of auditors of public company Fixing of auditor's remuneration Auditor's report on company's annual accounts Auditor's report on directors' report Auditor's report on auditable part of directors' remuneration report Duties of auditor Auditor's general right to information Auditor's rights to information: offences Auditor's rights in relation to resolutions and meetings Signature of auditor's report Offences in connection with auditor's report Resolution removing auditor from office Special notice required for resolution removing auditor from office Resignation of auditor Notice to registrar of resignation of auditor Rights of resigning auditor Statement by auditor to be deposited with company Company's duties in relation to statement Copy of statement to be sent to registrar Individuals and firms: eligibility for appointment as a statutory auditor Effect of ineligibility Independence requirement Effect of lack of independence Supervisory bodies
Note: the term public company as used in the Act refers to a plc (i.e. public limited company).
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Appendix B

248 Minutes of directors' meetings (1) Every company must cause minutes of all proceedings at meetings of its directors to be recorded. (2) (3) The records must be kept for at least ten years from the date of the meeting. If a company fails to comply with this section, an offence is committed by every officer of the company who is in default. A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
(4)
382 Companies qualifying as small: general (1) A company qualifies as small in relation to its first financial year if the qualifying conditions are met in that year. (2) A company qualifies as small in relation to a subsequent financial year (a) (b) (c) if the qualifying conditions are met in that year and the preceding financial year; if the qualifying conditions are met in that year and the company qualified as small in relation to the preceding financial year; if the qualifying conditions were met in the preceding financial year and the company qualified as small in relation to that year.
(3)
The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements 1. 2. 3. Turnover Not more than 5.6 million Balance sheet total Not more than 2.8 million Number of employees Not more than 50
(4)
For a period that is a company's financial year but not in fact a year the maximum figures for turnover must be proportionately adjusted. The balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet. The number of employees means the average number of persons employed by the company in the year, determined as follows (a) (b) (c) find for each month in the financial year the number of persons employed under contracts of service by the company in that month (whether throughout the month or not), add together the monthly totals, and divide by the number of months in the financial year.
(5)
(6)
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Appendix C:
Codes: December 2009

Title Click here Click here Click here Click here Click here Click here ACCAs Code of Ethics and Conduct IFACs Code of Ethics for Professional Accountants ACCAs Technical Factsheet 94 Anti Money-Laundering (Proceeds of Crime and Terrorism) The Combined Code (of the Committee on Corporate Governance) as an example of a code of best practice Background Information on the Clarity Project of the International Auditing and Assurance Standards Board Status of the IAASBs Work to Clarify the Status of its Standards (IAASB document) F8 P7
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Note: Topics of exposure drafts are examinable to the extent that relevant articles about them are published in student accountant.
OTHER USEFUL LINKS

Title Click here Click here Click here Turnbulls Report (Internal control) Guidance on Audit Committees The Smith Guidance) Review on the role and effectiveness of non-executive directors (Higgs Report) Tony Surridge Online Glossary of Terms F8 P7
Click here
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The linkages are disabled for the purpose of this free download
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APPENDIX D
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 D
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 Click here
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Number of screens 1 1 1 1 7 1 6 1 1 1 1 1 1 1 1 1 2 2 2 2
F8
P7
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 Questionnaire: Accounts Receivable Internal Control Questionnaire: General Accounting System Internal Control Questionnaire: Cash Funds Internal Control Questionnaire: Cash Receipts
Please go to the next screen to continue Specimen Audit Working Papers

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APPENDIX D
Specimen Working Papers: Index 2 of 2

SPECIMEN AUDIT WORKING PAPERS - 2
Click and go Click here Click here Click here Title Internal Control Questionnaire: Cash Disbursements Internal Control Questionnaire: Inventory and Cost of Sales Internal Control Questionnaire: Fixed Assets Internal Control Questionnaire: Accounts Payable Internal Control Questionnaire: Payroll Manual System: Chart of Accounts Computer System: Chart of Accounts Analytical Review: Planning Stage Computer Input Control Forms: Title Screen Sales Invoices Sales Credit Notes Sales Receipts Purchase Invoices Purchase Payments Bank Receipts Bank Payments Petty Cash Receipts Petty Cash Payments Journal Number of screens 2 2 2 F8 P7
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
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1 1 3 1 1 1 1 1 1 1 1 1 1 1
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Specimen Working Papers: Permanent File

PERMANENT FILE Index I 1 2 3 II 1 2 3 4 # Pages Engagement Code: Client: Description General Client and Engagement Information Client information form Engagement proposal Engagement letter Statutory and Legal Information Articles of Association, Memorandum of Association Special legal, statutory or contractual definitions Members register Extracts of continuing importance: Legal documents Contracts Loan agreements Other funding agreements Pension plans Others Copies: Title deeds Borrowing agreements, lease agreements Lease agreements Details of other important agreements Accounting System and Internal Control Organisation Chart of assignment of authority and responsibility Documentation of accounting system and internal control structure Chart of accounts Authorisation limits, initials and signature list Accounting policy documents and procedure instructions Continuing Audit Minutes of continuing relevance Correspondence of continuing relevance Documentation: computer applications Configuration and registration codes: hardware and software Financial Statement Information Financial statement analysis/previous years summary Details: intangible on-current assets Details: property, and other single assets with value exceeding $1m Details: other tangible non-current assets Details: holding, subsidiary, associates and other participants Personnel, employment conditions Previous years summary: personnel establishment Collective bargaining agreements, standard employee contracts, salary scales and individual employee contracts Composition of board of directors Names of directors, roles and contacts Pension arrangements/early retirement rules and regulations Expense allowance rules and regulations Other employment conditions Taxation
5 6 7 8 III 1 2 3 4 5 IV 1 2 3 4 V 1 2 3 4 5 VI 1 2 3 4 5 6 7 VII
Just cast your eyes over the separate constituent parts of the typical Permanent Audit File. They are self-explanatory.
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APPENDIX E:
GLOSSARY OF TERMS
(* International Auditing and Assurance Standards Board [IAASB] - February 2009)
A L
B M
C N
D O
E P
F Q
G R
H S
I T
J U
K V W
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GLOSSARY OF TERMS
(* International Auditing and Assurance Standards Board [IAASB] - February 2009) 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. Archived files An archive is a collection of records, and the location in which the collection is kept. Archives contain records which have accumulated over the course of time. The archives of an organisation tend to contain administrative files, business records, memos, official correspondence and meeting minutes. In general, archives consist of records which have been selected for permanent or long-term preservation, Arms length transaction* A transaction conducted on such terms and conditions as between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursuing their own best interests. Arrestment An arrestment is a notice which prohibits a debtor from handing over to his creditor money or property until a debt due by that creditor to a third party, the arrester, is paid or secured. Assertions* Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur. Assertions (and the assertion level, i.e. the assertion for which audit procedures are used) used by the auditor fall into the following categories: (a) Assertions about classes of transactions and events for the period under audit: (i) Occurrencetransactions and events that have been recorded have occurred and pertain to the entity. (ii) Completenessall transactions and events that should have been recorded have been recorded. (iii) Accuracyamounts and other data relating to recorded transactions and events have been recorded appropriately. (iv) Cutofftransactions and events have been recorded in the correct accounting period. (v) Classificationtransactions and events have been recorded in the proper accounts. (b) Assertions about account balances at the period end: (i) Existenceassets, liabilities, and equity interests exist. (ii) Rights and obligationsthe entity holds or controls the rights to assets, and liabilities are the obligations of the entity. (iii) Completenessall assets, liabilities and equity interests that should have been recorded have been recorded. (iv) Valuation and allocationassets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
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GLOSSARY OF TERMS
(* International Auditing and Assurance Standards Board [IAASB] - February 2009) Carrying value Is the value of an asset or liability in a companys books or balance sheet. Casual vacancy Is an unforeseen vacancy Check-point restart Checkpoint restart is a facility offered by some database management systems (DBMSs) and backup-restore software. Checkpoints are taken in anticipation of the potential need to restart a software process. Many ordinary batch processes on impersonal computers are time-consuming, as are backup and restore operations. They consist of many units of work. If checkpointing is enabled, checkpoints are initiated at specified intervals, in terms of units of work or of processing time. At each checkpoint the process's progress is saved to back-up storage. The contents of the program's memory area may also be saved. The purpose of checkpointing is to minimise the amount of time and effort wasted when a long software process is interrupted by a hardware failure, a software failure, or resource unavailability. With checkpointing, the process can be restarted from the latest checkpoint rather than from the beginning. Compare To set one group of figures with another set so as to ascertain how far they agree or disagree, such as to compare the beginning balances with last years audited figures. Comparative financial statements* Comparative information where amounts and other disclosures for the prior period are included for comparison with the financial statements of the current period but, if audited, are referred to in the auditors opinion. The level of information included in those comparative financial statements is comparable with that of the financial statements of the current period. Comparative information* The amounts and disclosures included in the financial statements in respect of one or more prior periods in accordance with the applicable financial reporting framework. Compare To set one group of figures with another set so as to ascertain how far they agree or disagree, such as to compare the beginning balances with last years audited figures. Compensating cash balance A compensating cash balance is an account with a bank in which a company has agreed to maintain a specified minimum amount; compensating balances are typically required under the terms of bank loan agreements. Such restrictions on cash, when material, should be disclosed in financial statements. Compliance Agreement with, such as agreement that there has been correct application of International Financial Reporting Standards.
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Contents
Tony Surridge Online + AddVance Mnemonics and Charts e-book for ACCA Paper F8 The Contents section of this e-book which can be accessed on the following screens is designed for two purposes: 1. To provide page numbers for hard-copy reference if printed. 2. To provide the basis for individual mnemonics, charts or text sections to be hyperlinked directly.
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Contents- 1 of 22
Tony Surridge Online + +AddVance Mnemonics and Charts e-book for ACCA Paper F8
Type Title Start screen no No. of screens
SECTION A: AUDIT FRAMEWORK AND REGULATION

Chart Chart An overview of what is involved The concept of audit and other assurance engagements. What you need to know . What is an audit? What is an auditor? Audit staff The need for auditing The audit link and terminology Assurance engagements Services of the professional accountant Characteristics of an assurance engagement or a review engagement Examples of suitable criteria used in an assurance review Characteristics for assessing suitable criteria in assurance reviews Subject matter of an assurance engagement Engagements to review financial statements Example of an Engagement Letter for a Review of Financial Statements Example of an unqualified report for a Review of Financial Statements Example of a report other than unqualified for a Review of Financial Statements Assurance engagements on subject matters other than historical financial information Factors to consider when providing assurance services on matters other than historical financial information The 5 elements of ALL assurance engagements Levels of assurance
28 37 38 44 45 46 47 48 49 50 51 52 53 60 61 61 62 63
4 1
Chart Chart Chart Chart Mnemonic Chart Mnemonic
6 1 1 1 1 1 1
Mnemonic
Mnemonic
Mnemonic Chart Chart
1 7 1
Chart
Chart
Mnemonic
Mnemonic
Chart Chart
64 66
2 1
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Contents 2 of 22

Chart Chart Mnemonic Mnemonic Chart Mnemonic Mnemonic Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Mnemonic Chart Mnemonic Chart Services performed by professional accountants a summary What is a financial audit? Purposes and advantages of an audit Disclosures are audited as well as historical financial statements Limitations of auditing The limitations of modern auditing Concept of Principal-Agency Theory (PAT) applied to shareholders and directors Protecting the interests of shareholders and other stakeholders Differences between internal and external audit Our first look at Internal Audit and review Interim and final audits The audit report The meaning of true and fair Materiality of misstatement Statutory audit. What you need to know. Audit regulation International Federation of Accountants (IFAC) Relationship between International Standards on Auditing and national standards The UKs APB Statutory framework of auditing Auditing and company legislation Eligibility to conduct a statutory audit (external audit) ACCA is a Recognised Supervisory Body (Sec. 1217 of UK Companies Act, 2006)
67 68 69 70 71 72 73 74 75 76 77 78 79 80 82 83 84 87 89 90 91 92
1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 3 2 1 1 1 1
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Contents 3 of 22

Mnemonic Mnemonic Mnemonic Mnemonic Chart Chart Chart Mnemonic Mnemonic Mnemonic Chart Chart Mnemonic Chart Chart Chart Chart Chart Mnemonic Mnemonic Mnemonic Audit exemption The audit requirement: Small entity The benefits of the statutory audit to small companies The arguments against the statutory audit of small companies Appointments of auditors
(Reference made to UK legislation by way of example.)
93 94 95 96 97 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114
1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Removal of auditors
Resignation of auditors Auditors rights and duties: DUTIES The auditors duties Auditors rights and duties: RIGHTS Reports of listed companies: Directors report
Reports of listed companies: Auditors report

The statutory audit opinion Public sector auditing

(Reference made to UK by way of example.)
The regulatory environment and corporate governance. What you need to know. The rights and privileges of the STAKEHOLDER Typical stakeholder groups The relationships companies have with their stakeholders OECD Principles of Corporate Governance General principles of governance Features of poor governance
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Contents 4 of 22

Mnemonic Chart Corporate governance: Best Practice The FRCs Combined Code (UK) (FRC is the Financial Reporting Council, UK) The FRCs Combined Code: Directors Role of the Chairman Role of the Board of Directors Role of Non-Executive Directors Problems with non-executive directors Independence of non-executive directors Corporate Governance reports which make up the FRCs Combined Code (UK) Committees recommended by Cadbury The Audit Committee. What you need to know. The FRCs: Accountability band audit Aims of the Audit Committee Duties of the Audit Committee Benefits of the Audit Committee Problems associated with having an Audit Committee The Audit Committee and internal audit Review of Internal Audit by the Audit Committee Review of the remuneration of directors policy The FRCs Combined Code: Directors remuneration The role of the Nomination Committee
115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135
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Contents 5 of 22

Chart Chart Mnemonic Mnemonic Mnemonic Chart Mnemonic Mnemonic Mnemonic Mnemonic Chart Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Chart Mnemonic Chart Mnemonic Chart The FRCs Combined Code: Relations with shareholders Professional ethics and the ACCAs Code of Ethics and Conduct. What you need to know. ACCAs Fundamental Principles Summary: Integrity, objectivity and independence Potential threats to an auditors independence Potential threats to an auditors independence Threats to independence and objectivity Examples of conflict of self-interest Family and other personal relationships Factors which have an impact on the auditors ability to withstand pressure on his/her independence Safeguards to protect audit independence Safeguards to protect audit independence created by the accounting profession, legislation or regulation Safeguards to protect audit independence within the client firm Safeguards to protect audit independence within the audit firm Preserving independence and objectivity Rotation of auditor appointments Statement 3.5: The professional duty of confidence Statement 3.5: The professional duty of confidence The use of confidential information Due skill and care Enforcement mechanisms associated with ACCAs Code of Ethics and Conduct
136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2
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Contents 6 of 22

Chart Mnemonic Mnemonic Chart Chart Chart Mnemonic Mnemonic Mnemonic Chart Mnemonic Mnemonic Mnemonic Areas of controversy Range of business services which an audit firms portfolio could include Whistleblowing Do we want the audit? The procedure for tendering and accepting a new audit assignment Sources of information for client evaluation Source of information about new clients Client acceptance: Topics for discussion with prospective client to help evaluate their background The clients regulatory framework Client screening Low risk clients High risk clients Client acceptance: Determine whether the audit firm is able to meet ethical requirements regarding the engagement review of existing auditor and auditteam competence Client acceptance: Determine whether the audit firm is able to meet ethical requirements regarding the engagement Changes in professional appointments Matters which may warrant the existing auditor bringing to the attention of the prospective auditor Issues to be considered before submitting a proposal (tender) for the engagement Tendering and obtaining audit work Client acceptance: Prepare the Client Proposal Contents of an audit engagement letter Example: Audit Engagement Letter
158 159 160 161 162 163 164 165 166 167 168 169 170
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Contents 7 of 22

Mnemonic Other matters that could be included in an engagement letter
180
SECTION B: INTERNAL AUDIT

Chart Mnemonic Chart Chart Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Chart Chart Mnemonic Chart Chart Mnemonic Mnemonic Internal audit: Things you need to know. The scope of the internal audit function The role of internal audit Internal audit and risk Means of identifying risk Main types of risk faced by business entities Factors contributing to business risk Considerations concerning entity objectives, strategies and related business risks External risks Internal risks Factors contributing to financial risk Ways of identifying risk A risk management policy Dealing with risk (risk response) Benefits of a risk policy The main process of Internal Audit when auditing internal controls Internal audit assignments Computer systems audits Fraud risk factors
182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
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Contents 8 of 22
SECTION B: INTERNAL AUDIT

Chart Chart Mnemonic Mnemonic Chart Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Chart Mnemonic Mnemonic Internal audit assignments Operational audits Value for Money Value for Money audit coverage The problems with Value for Money (VFM) audits Best Value Benefits of internal audit Potential limitations associated with internal audit Minimising the limitations of internal audit Reasons why management might be against establishing an internal audit department Increasing the effectiveness of internal auditors The advantages of outsourcing the internal audit function The disadvantages of outsourcing the internal audit function Differences between internal and external audit (a second look just to remind us!) External auditors using the work of internal auditors The responsibility of the external (independent) auditor when relying upon the work on internal auditors
201 204 205 206 207 208 209 210 211 212 213 214 215 216 217
3 1 1 1 1 1 1 1 1 1 1 1 1 1 1
SECTION C: PLANNING AND RISK ASSESSMENT

Chart Chart Mnemonic Chart Mnemonic Mnemonic Audit process model So we have the audit Objectives of planning audit work Typical audit planning procedures Planning the audit: Perform audit tasks to understand the entity and its environment Planning the audit: Perform audit tasks to understand the entity and its environment The business operations of the client
219 220 221 222 224 225
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Contents 9 of 22

Mnemonic Planning the audit: Perform audit tasks to understand the entity and its environment Investments of the client Planning the audit: Perform audit tasks to understand the entity and its environment Financing and capital structure Planning the audit: Perform audit tasks to understand the entity and its environment Financial reporting Planning the audit: Perform audit tasks to understand the entity and its environment Classification of individual business risk Planning the audit: Evaluation of the clients internal control Assessing the risks of material misstatement. What you need to know Audit planning The role of Risk Assessment Audit risk: inherent risk, control risk and detection risk Components of audit risk Components of audit risk (another look!) Components of audit risk (a deeper look!) Components of audit risk example The risk approach to auditing Structure of the audit: 3 possible routes A business risk approach to auditing: Assessing inherent risk Inherent risk: Risks that require special audit consideration Deciding materiality Tolerable error: reliability, precision and amount of evidence Analytical procedures. What you need to know
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230 231 232 233 234 235 237 238 239 240 241 242 243 246 247
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Chart Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Chart Chart Chart Mnemonic Chart Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Mnemonic Chart Chart Chart Mnemonic Mnemonic Appropriateness of analytical procedures Analytical procedures Analytical procedures: developing an expectation Analytical procedures: plausible relationships Analytical procedures: customary ratios Analytical procedures: limitations Analytical procedures - Question Analytical procedures Answer to the question Analytical procedures: used at the planning stage Analytical procedures: used at the planning stage Audit documentation. What you need to know Audit working papers: ACCA Code of Ethics and Conduct Audit documentation and working papers Significant findings or issues documented The ways that documentation is useful for auditors Audit working papers: Form and content of working papers: The permanent audit file Audit working papers: Form and content of working papers: The current audit file Audit working papers: Preparation of working papers Audit working papers: Automated working papers Audit working papers: Schedules Summary of Audit Process Documents and the people responsible for the documentation Using the work of other. What you need to know Client acceptance: Determine the need for other specialists Client acceptance: Using the work of experts
248 249 251 252 253 254 255 257 262 263 264 265 266 270 271 272 273 274 275 276 277 278 279 280
1 2 1 1 1 1 2 5 1 1 1 1 4 1 1 1 1 1 1 1 1 1 1 1
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Contents 11 of 22

Chart Chart Using the work of an expert: Communicating, evaluating and reporting Rules for using the work of an expert
281 282
1 1
SECTION D: INTERNAL CONTROL

Chart Chart Chart Internal control: The two dimensions The Up and Down effect Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: What you need to know Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control structure Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal controls used to reduce risk Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Administration controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Social controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Self imposed control Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Control environment Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Requirement for a strong control environment Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Risk assessment Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Employment of accounting information system and communication Planning the audit: Internal control
284 285 286
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Contents- 12 of 22

Mnemonic Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Activities designed for control purposes Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Physical controls over assets Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Authorisation and approval controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Segregation of duties controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Segregation - authorisation Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Segmentation - custody Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Segregation - recording Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Supervision controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Arithmetic and accounting controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Management controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Organisational controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Personnel controls
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Contents- 13 of 22

Chart Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Human resources management Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Recruitment and selection (problems) Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Recruitment and selection Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Causes of high labour turnover in the financial accounting system Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Performance reviews Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: General controls used in IT systems Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Software controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Continuity of operations Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Main threats to data security Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Back up Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems - Access controls
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Contents- 14 of 22

Mnemonic Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Contingency arrangements Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Concept of disaster pack General IT controls: Problems associated with webbased technology: protecting against virus General IT controls: Problems associated with webbased technology: safety measures General IT controls: Security and its management IT Application controls: Input controls IT Application controls: Output controls Planning the audit: Assessing the risks of material misstatements of the financial statements. Internal control: Computer-based systems Audit trail The next step: Tests of control Down to work .! The process of auditing based on internal controls Understanding the system of internal controls Transaction cycles: Audit documentation of controls Flowcharting - Dont panic! Transaction cycles: Flowcharts Transaction cycles: Organisation chart: Assignment of Authority and Responsibility Transaction cycles: Flowcharts Sales Orders Processing (manual system) Transaction cycles: Flowcharts Sales Order Processing (computer system)
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323 324 325 326 327 328
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329 330 331 332 337 338 339 340 341 346
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Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Transaction cycles: Flowcharts - Cash Receipts (manual system) Transaction cycles: Flowcharts - Accounts Payable Disbursements (manual system) Transaction cycles: Flowcharts Accounts Payable Disbursements (computer system) Transaction cycles: Flowcharts Payroll (manual system) Transaction cycles: Flowcharts Payroll (computer system) Other transaction types Internal Control Questionnaire forms Tests of controls Tests of control: Sales system Tests of control: Purchasing system Tests of control: Payroll Cash system Inventory Capital expenditure Summary of the main areas of controls testing
349 354 361 365 372 375 377 379 380 386 392 398 405 408 410
5 7 4 7 3 2 2 1 6 6 6 7 3 2 1
SECTION E: AUDIT EVIDENCE

Chart Chart Chart Chart Chart Chart Substantive procedures Substantive procedures. What you need to know Gathering evidence: Financial statements assertions Gathering evidence: Assertions tested by the auditor Procedures and approach: Substantive audit tests terms Gathering evidence: Sufficient and appropriate audit evidence
412 413 414 415 416 417
1 1 1 1 1 1
Only the hyperlinks shaded in pink are active for this sample download
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Contents 16 of 22

Mnemonic Mnemonic Chart Mnemonic Mnemonic Chart Chart Mnemonic Mnemonic Mnemonic Mnemonic Chart Chart Chart Mnemonic Chart Chart Chart Chart Mnemonic Gathering evidence: Quality of evidence Gathering evidence: Audit procedures for obtaining audit information Gathering evidence: Audit procedures for obtaining audit evidence Exam tip Gathering evidence: Substantive audit tests Gathering evidence: Confirmation. What you need to know Gathering evidence: Confirmation method Situations where negative confirmation may be appropriate Gathering evidence: Specific risks for which confirmation may be relevant Gathering evidence: Situations where confirmation may not be appropriate Gathering evidence: Problems associated with confirmation Gathering evidence by sampling. What you need to know Gathering evidence by sampling Gathering evidence by sampling: Three steps for testing by using statistical sampling Gathering evidence by sampling: Cases where audit sampling is not appropriate Gathering evidence by sampling: Design of the sample Gathering evidence by sampling: Selection of the sample and using the sample Gathering evidence by sampling: Evaluation of tests obtained Gathering evidence by sampling: Statistical sampling techniques Audit sampling: Advantages of statistical sampling
418 419 420 422 423 424 425 429 430 431 431 432 433 434 435 436 442 443 444 446
1 1 2 1 1 1 5 1 1 1 1 1 1 1 1 6 1 1 2 1
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Contents 17 of 22

Mnemonic Chart Chart Chart Chart Chart Mnemonic Mnemonic Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Disadvantages of statistical sampling Gathering evidence by sampling: A summary Managements accounting estimates Opening balances Audit objectives and substantive audit tests (in more detail) Substantive audit tests: Bank and cash Typical substantive audit procedures for bank and cash Main substantive audit procedures for bank and cash Substantive audit tests: Bank and cash (topics) Substantive audit tests: the Bank confirmation procedure Substantive audit tests: typical bank confirmation letter Substantive audit tests: the Cash count Substantive audit tests: Receivables Substantive audit tests: Confirmation of Receivables Substantive audit tests: Accounts receivable confirmation letter Substantive audit tests: Reconciliation of Accounts Receivable Substantive audit tests: Provision for bad debts Substantive audit tests: Inventory Substantive audit tests: Inventory (observation) Substantive audit tests: inventory count Substantive audit tests: inventory count after the count
447 448 449 454 458 459 460 461 462 464 465 467 469 470 472 473 474 475 476 477 478
1 1 5 4 1 1 1 1 2 1 2 2 1 2 1 1 1 1 1 1 1
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Contents 18 of 22

Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Mnemonic Mnemonic Mnemonic Substantive audit tests: inventory the importance of cut-off Substantive audit tests: inventory cost versus net realisable value Substantive audit tests: Accounts payable Substantive audit tests: Confirmation of Payables Substantive audit tests: Payroll Substantive audit tests: Property, plant and equipment (PP&E) Substantive audit tests: PP&E Substantive audit tests: Long-term debt Substantive audit tests: Long-term debt Substantive audit tests: Long-term debt: Test of reasonableness schedule - debt Substantive audit tests: Shareholders equity Computer-assisted audit techniques (CAATs). What you need to know Computer-assisted audit techniques (CAATs): Computers used for different aspects of audit work Computer-assisted audit techniques (CAATs): The use of computers in auditing Computer-assisted audit techniques (CAATs): The use of computers in auditing (2) Computer-assisted audit techniques (CAATs): Special features of computer-based systems
478 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Mnemonic
Computer-assisted audit techniques (CAATs): Auditing in a computer environment
493
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Contents 19 of 22

Mnemonic Computer-assisted audit techniques (CAATs): Using the computer to gather evidence Use of audit software Computer-assisted audit techniques (CAATs): The three main focus areas
494
Chart
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Chart Chart Mnemonic Mnemonic Mnemonic Chart Mnemonic
Computer-assisted audit techniques (CAATs): Main types of CAATs Computer-assisted audit techniques (CAATs): Other types of CAATs Computer-assisted audit techniques (CAATs): The advantages of CAATs to the auditor Computer-assisted audit techniques (CAATs): Difficulties of using CAATs Computer-assisted audit techniques (CAATs): Problems associated with small computer systems Computer-assisted audit techniques (CAATs): Computer software used by auditors Computer-assisted audit techniques (CAATs): The auditors consideration of internal control when a computer is present in the audit area Computer-assisted audit techniques (CAATs): Information and communications technology (ICT) provide advantages for the accounting function Not-for-Profit organisations. What you need to know Not-for-profit organisations Audit report in accordance with a compliance framework Audit problems associated with charities and other small entities Internal Control Questionnaire: Small Entity
496 497 498 499 500 501 502
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Contents 20 of 22
SECTION F: REVIEW
Chart Chart Chart Chart Mnemonic Mnemonic The Final Review Stage At last . The reports! Subsequent events. What you need to know Subsequent events Events occurring between the date of the financial statements and the date of the auditors report Enquiries of management and, where appropriate those charged with governance, as to whether any subsequent events have occurred that might affect the financial statements Review for discovery of Subsequent Events Going concern. What you need to know Going concern: Indications that the Going Concern assumption might be questioned The Going concern assumption Implications that the going concern assumption might be questioned: Financial implications Implications that the going concern assumption might be questioned: Operating implications Implications that the going concern assumption might be questioned: Other implications Going concern assumption The auditors responsibilities Going concern assumption Procedures to gather sufficient appropriate audit evidence Management representations. What you need to know Management representations Management Representations Letter Example: Management Representations Letter
517 518 519 520 526 527
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528 529 530 535 536 537 538 539 540 541 542 547 548
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Contents 21 of 22
SECTION F: REVIEW
Chart Chart Audit finalisation and the final review Matters for the Attention of Partners (MAPs)
551 552
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SECTION G: REPORTING
Chart Chart Chart Chart Chart Mnemonic Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Now we are able to produce appropriate audit reports Audit reports. What you need to know Audit reports Audit reports Unqualified Report Audit reporting The statutory audit opinion Modifications to the audit report. What you need to know Modifications to the audit report The audit report: Unqualified Opinion with Going Concern emphasis of matter paragraph The audit report: Unqualified opinion with legal uncertainty emphasis of matter paragraph The audit report: Limitation on Scope Qualified opinion The audit report: Disagreement on accounting policies inappropriate accounting method qualified opinion The audit report: Limitation on Scope Disclaimer of opinion The audit report: Disagreement on accounting policies inadequate disclosure adverse opinion Circumstance that may result in other than an unqualified opinion: Limitation on scope Circumstance that may result in other than an unqualified opinion: Disagreement with management
554 555 556 563 565 566 567 568 570 572 575 577 579 581 583 586
1 1 7 2 1 1 1 3 2 2 2 2 2
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Contents 22 of 22
SECTION G: REPORTING
Chart Chart Chart Chart Chart Chart Chart Summary of the different forms of Auditors Report Audit reporting - overview Private reporting to the clients management. What you need to know. Private reporting: to the clients management Reports to the management by the external auditor: The Management Letter Example: Management Letter Well done!
588 591 592 593 595 597 603
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72

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Mnemonics and Charts

Paper F8: Audit and Assurance

Good luck with your studies.

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

ACCA Paper F8 AUDIT AND ASSURANCE Mnemonics and Charts

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

OUR RESULTS... SPEAK FOR THEMSELVES!

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

An overview of what is involved in Paper F8 (1 of 4)

Start here and get an overview of what Paper F8 entails ..

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

An overview of what is involved in Paper F8 (2 of 4)

Obtaining the engagement PHASE 1

Acceptance OF the client .. Acceptance BY the client

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

An overview of what is involved in Paper F8 (3 of 4)

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

An overview of what is involved in Paper F8 (4 of 4)

Down to work gathering data and carrying out audit tests

Evaluation and reporting PHASE 4

Now you can relax a job well done!

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

The Tony Surridge +AddVance e-book

Overview of structure of the e-book

INTERNATIONAL STANDARDS (covered on the syllabus)

Relevant company legislation (UK legislation used as an EXAMPLE)

You do not need to be online to the Internet in both situations.

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

The Tony Surridge +AddVance e-book

You need to be online to the Internet in both situations.

Appendix D SPECIMEN WORKING PAPERS

You do not need to be online to the Internet in both situations.

You do not need to be online to the Internet in both situations.

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

The Tony Surridge +AddVance e-book

GOOD LUCK WITH YOUR STUDIES, FROM ALL OF US AT www.tonysurridge.co.uk

Tony Surridge Online Limited, 2009

Mnemonics and Charts

Paper F8: Audit and Assurance

ACCA Paper F8 syllabus: Map of the mnemonics and charts

PLANNING AND RISK ASSESSMENT