List FOUR audit procedures that an
auditor will normally perform prior to attending the client’s premises on the
day of the inventory count. (2
marks)
Audit procedures prior to inventory count
attendance Procedure
– Review prior year working papers
– Contact client to obtain stocktaking
instructions
– Book audit staff to attend the
inventory counts
– Obtain copy of inventory count
instructions from client
– Ascertain whether any inventory is
held by third parties
– Obtain last year’s inventory count
memo
–
Prepare audit programme for the count.
Explain
each of the FIVE fundamental principles of ACCA’s Code of Ethics and Conduct. (5 marks)
Fundamental principles
Integrity. A professional accountant
should be honest and straightforward in performing professional services.
Objectivity. A professional accountant
should be fair and not allow personal bias, conflict of interest or influence
of others to override objectivity.
Professional competence and due care.
When performing professional services, a professional accountant should show competence
and duty of care by keeping up-to-date with developments in practice,
legislation and techniques.
Confidentiality. A professional
accountant should respect the confidentiality of information acquired during
the course of providing professional services and should not use or disclose
such information without obtaining client permission.
Professional behaviour. A professional
accountant should act in a manner consistent with the good reputation of the
profession and refrain from any conduct which might bring discredit to the
profession.
ISA 570 Going Concern provides guidance to auditors in
respect of ensuring that an entity can continue as a going concern.
Required:
Explain the actions that an auditor
should carry out to try and ascertain whether an entity is a going concern.
Audit work – going concern
– Review management’s plans for future
actions based on its going concern assessment.
– Gather additional sufficient and
appropriate audit evidence to confirm or dispel whether or not a material
uncertainty exists regarding the going concern concept.
– Seek written representations from
management regarding its plans for future action.
– Obtain information from company
bankers regarding continuance of loan facilities.
– Review receivables ageing analysis
to determine whether there is an increase in days – which may also indicate
cash flow problems.
Explain the concept of ‘auditing around
the computer’ and discuss why this increases audit risk for the auditor. (3 marks)
Auditing around the computer
This term means that the ‘internal’
software of the computer is not documented or audited by the auditor, but that
the inputs to the computer are agreed to the expected outputs from the
computer.
This method of auditing increases
audit risk because:
– The actual computer files and
programs are not tested; the auditor has no direct evidence that the programs
are working as documented.
– Where errors are found in
reconciling inputs to outputs, it may be difficult or even impossible to
determine why those errors occurred. Constructive amendments to clients’
systems cannot be made and there is an increased likelihood of audit
qualifications.
List and explain FOUR factors that will
influence the auditor’s judgement regarding the sufficiency of the evidence
obtained. (4 marks)
Sufficiency of evidence
– Assessment of risk at the financial
statement level and/or the individual transaction level. As risk increases then
more evidence is required.
– The materiality of the item. More
evidence will normally be collected on material items whereas immaterial items
may simply be reviewed to ensure they appear correct.
– The nature of the accounting and
internal control systems. The auditor will place more reliance on good
accounting and internal control systems limiting the amount of audit evidence
required.
– The auditor’s knowledge and
experience of the business. Where the auditor has good past knowledge of the business
and trusts the integrity of staff then less evidence will be required.
– The findings of audit procedures.
Where findings from related audit procedures are satisfactory (e.g. tests of
controls over receivables) then substantive evidence will be collected.
– The source and reliability of the
information. Where evidence is obtained from reliable sources (e.g. written
evidence) then less evidence is required than if the source was unreliable
(e.g. verbal evidence).
ISA 580 Management Representations provides guidance on the use of
management representations as audit evidence.
Required:
List SIX items that could be included
in a management representation letter. (3 marks)
Management representation letter contents
– No irregularities involving management
or employees that could have a material effect on the financial statements
– All books of account and supporting
documentation have been made available to the auditors
– Information and disclosures with
reference to related parties is complete
– Financial statements are free from
material misstatements including omissions
– No non-compliance with any statute
or regulatory authority
– No plans that will materially alter
the carrying value or classification of assets or liabilities in the financial
statements
– No plans to abandon any product
lines that will result in any excess or obsolete inventory
– No events, unless already disclosed,
after the end of the reporting period that need disclosure in the financial
statements.
After performing tests of controls,
the auditor is of the opinion that audit evidence is not sufficient to support
the audit opinion; in other words many control errors were found.
Required:
Explain THREE actions that the auditor
may now take in response to this problem. (3 marks)
Additional audit procedures
– The auditor could expand the amount
of test of controls in that audit area. This may indicate that the control
weakness was not as bad as initially thought.
– The problem could be raised with the
directors, either verbally or in a management letter, to ensure that they are
aware of the problem.
– The auditor could perform additional
substantive procedures on the audit area. This action will help to quantify the
extent of the error and makes the implicit assumption that the control system
is not operating correctly.
– If the matter is not resolved, then
the auditor will also need to consider a qualification in the audit report; the
exact wording depending on the materiality of the errors found.
With reference to ISA 520 Analytical Procedures explain
(i) what is meant by the term
‘analytical procedures’; (2
marks)
(ii) the different types of analytical
procedures available to the auditor; and (3 marks)
(iii) the situations in the audit when
analytical procedures can be used. (3 marks)
(i) Explanation
of analytical procedures
Analytical procedures are used in
obtaining an understanding of an entity and its environment and in the overall
review at the end of the audit.
‘Analytical procedures’ actually means
the evaluation of financial and other
information, and the review of plausible
relationships in that information. The review also includes identifying
fluctuations and relationships that do not appear consistent with other
relevant information or results.
(ii) Types
of analytical procedures
Analytical procedures can be used as:
– Comparison of comparable information
to prior periods to identify unusual changes or fluctuations in amounts.
– Comparison of actual or anticipated
results of the entity with budgets and/or forecasts, or the expectations of the
auditor in order to determine the potential accuracy of those results.
– Comparison to industry information
either for the industry as a whole or by comparison to entities of similar size
to the client to determine whether
receivable days, for example, are reasonable.
(iii) Use
of analytical procedures
Risk assessment procedures
Analytical procedures are used at the
beginning of the audit to help the auditor obtain an understanding of the
entity and assess the risk of material misstatement. Audit procedures can then
be directed to these ‘risky’ areas.
Analytical procedures as substantive
procedures
Analytical procedures can be used as
substantive procedures in determining the risk of material misstatement at the assertion
level during work on the income statement and statement of financial position
(balance sheet).
Analytical procedures in the overall
review at the end of the audit
Analytical procedures help the auditor
at the end of the audit in forming an overall conclusion as to whether the
financial statements as a whole are consistent with the auditor’s understanding
of the entity.
Discuss the advantages and disadvantages of
outsourcing an internal audit department.
(8 marks)
Outsourcing
internal audit
Advantages
of outsourcing internal audit
Staff
recruitment
There will be no need to recruit staff
for the internal audit department; the outsourcing company will provide all
staff and ensure staff are of the appropriate quality.
Skills
The outsourcing company will have a
large pool of staff available to provide the internal audit service. This will
provide access to specialist skills that the company may not be able to afford
if the internal audit department was run internally.
Set
up time
The department can be set up in a few
weeks rather than taking months to advertise and recruit appropriate staff.
Costs
Costs for the service will be agreed
in advance. This makes budgeting easier for the recipient company as the cost
and standard of service expected are fixed.
Flexibility
(staffing arrangements)
Staff can be hired to suit the
workloads and requirements of the recipient company rather than full-time staff
being idle for some parts of the year.
Disadvantages
of outsourcing internal audit
Staff
turnover
The internal audit staff allocated to
one company may change frequently; this means that company systems may not
always be fully understood, decreasing the quality of the service provided.
External
auditors
Where external auditors provide the internal
audit service there may be a conflict of interest (self-review threat), where
internal audit work is then relied upon by external auditors.
Cost
The cost of the outsourced service may
be too high for the company, which means that an internal audit department is
not established at all. There may be an assumption that internal provision
would be even more expensive.
Confidentiality
Knowledge of company systems and
confidential data will be available to a third party. Although the service
agreement should provide confidentiality clauses, this may not stop breaches of
confidentiality e.g. individuals selling data fraudulently.
Control
Where internal audit is provided
in-house, the company will have more control over the activities of the
department; there is less need to discuss work patterns or suggest areas of
work to the internal audit department.
Define ‘going concern’ and discuss the
auditor’s responsibilities in respect of going concern. (4 marks)
Going concern
Going concern means that the enterprise
will continue in operational existence for the foreseeable future without the
intention or necessity of liquidation or otherwise ceasing trade. It is one of
the fundamental accounting concepts used by auditors and stated in IAS 1 Presentation of Financial
Statements.
The auditor’s responsibility in
respect of going concern is explained in ISA 570 Going Concern. The ISA states ‘when planning and
performing audit procedures and in evaluating the results thereof, the auditor
should consider the appropriateness of management’s use of the going concern
assumption in the preparation of the financial statements’.
The auditor’s responsibility therefore
falls into three areas:
(i) To carry out appropriate audit
procedures that will identify whether or not an organisation can continue as a
going concern.
(ii) To ensure that the organisation’s
management have been realistic in their use of the going concern assumption
when preparing the financial statements.
(iii) To report to the members where
they consider that the going concern assumption has been used inappropriately,
for example, when the financial statements indicate that the organisation is a
going concern, but audit procedures indicate this may not be the case.
In the context of the cash flow
forecast, define the term ‘negative assurance’ and explain how this differs from
the assurance provided by an audit report on statutory financial statements. (4 marks)
Negative assurance
Negative assurance means that nothing
has come to the attention of an auditor which indicates that the cash flow
forecast contains any material errors. The assurance is therefore given on the
absence of any indication to the contrary.
In contrast, the audit report on
statutory financial statements provides positive or reasonable assurance; that
is the financial statements do show a true and fair view.
Using negative assurance, the auditor
is warning users that the cash flow forecast may be inaccurate. Less reliance
can therefore be placed on the forecast than the financial statements, where
the positive assurance was given.
With negative assurance, the auditor
is also warning that there were limited audit procedures that could be used;
the cash flow relates to the future and therefore the auditor cannot obtain all
the evidence to guarantee its accuracy. Financial statements relate to the
past, and so the auditor should be able to obtain the information to confirm
they are correct; hence the use of positive assurance.
List FOUR control objectives of a wages
system. (2 marks)
Control Objectives – wages system
– Employees are only paid for work
that they have done
– Gross pay has been calculated
correctly
– Gross pay has been authorised
– Net pay has been calculated
correctly
– Gross and net pay have been recorded
accurately in the general ledger
– Only genuine employees are paid
– Correct amounts are paid to taxation
authorities.
(a) ISA 620 Using the Work of an Expert explains how an auditor may use an
expert to obtain audit evidence.
Required:
Explain THREE factors that the external
auditor should consider when assessing the competence and objectivity of the
expert. (3 marks)
(b) Auditors have various duties to
perform in their role as auditors, for example, to assess the truth and
fairness of the financial statements.
Required:
Explain THREE rights that enable
auditors to carry out their duties. (3 marks)
(c) List FOUR assertions relevant to
the audit of tangible non-current assets and state one audit procedure which provides
appropriate evidence for each assertion. (4 marks)
(a) Competence
and objectivity of experts
– The expert’s professional
qualification. The expert should ideally be a member of a relevant professional
body or have the necessary licence to perform the work.
– The experience and reputation of the
expert in the area in which the auditor is seeking audit evidence.
– The independence of the expert from
the client company. The expert should not normally be employed by the client.
(b) Auditor
rights
– Right of access to the company’s
books and records at any reasonable time to collect the evidence necessary to
support the audit opinion.
– Right to require from the company’s
officers the information and explanations the auditor considers necessary to
perform their duties as auditors.
– Right to receive notice of and
attend meetings of the company in the same way as any member of the company.
– Right to speak at general meetings
on any matter affecting the auditor or previous auditor.
– Where the company uses written
resolutions, a right to receive a copy of those resolutions.
(c) Tangible
non-current assets – assertions
– Completeness – ensure that all
non-current assets are recorded in the non-current asset register by agreeing a
sample of assets physically verified back to the register.
– Existence – ensure non-current
assets exist by taking a sample of assets from the register and physically
seeing the asset.
– Valuation and allocation – ensure
assets are correctly valued by checking the reasonableness of depreciation
calculations.
– Rights and obligations – ensure the
company owns the asset by seeing appropriate document of ownership for example,
a purchase invoice.
– Presentation and disclosure
assertions – ensure all necessary financial statements disclosures have been
made by reviewing the financial statements and ensure non-current assets are
correctly categorised in those financial statements.
Explain the term ‘audit risk’ and the
three elements of risk that contribute to total audit risk. (4 marks)
Audit risk is the risk that an auditor gives an inappropriate
opinion on the financial statements being audited.
Inherent risk is the susceptibility of an assertion
to a misstatement that could be material individually or when aggregated with
misstatements, assuming that there are no related controls. The risk of such
misstatement is greater for some assertions and related classes of
transactions, account balances, and disclosures than for others.
Control risk is the risk that a material error
could occur in an assertion that could be material, individually or when
aggregated with other misstatements, will not be prevented or detected on a
timely basis by the company’s internal control systems.
Detection risk is the risk that the auditors’
procedures will not detect a misstatement that exists in an assertion that
could be material, individually or when aggregated with other misstatements.
(a) List and explain FOUR methods of
selecting a sample of items to test from a population in accordance with ISA
530 (Redrafted) Audit
Sampling and Other Means of Testing. (4 marks)
(b) List and explain FOUR assertions
from ISA 500 Audit
Evidence that
relate to the recording of classes of transactions. (4 marks)
(c) In terms of audit reports, explain
the term ‘modified’. (2
marks)
(a) Sampling methods
Methods of sampling in accordance with
ISA 530 Audit Sampling and Other Means of Testing:
Random
selection.
Ensures
each item in a population has an equal chance of selection, for example by
using random number tables.
Systematic selection. In which a number of sampling units in
the population is divided by the sample size to give a sampling interval.
Haphazard
selection.
The
auditor selects the sample without following a structured technique – the
auditor would avoid any conscious bias or predictability.
Sequence or block. Involves selecting a block(s) of
continguous items from within a population.
Tutorial note: Other methods of sampling are as
follows:
Monetary
Unit Sampling. This selection method ensures
that each individual $1 in the population has an equal chance of being
selected.
Judgemental
sampling. Selecting items based on the skill and judgement of
the auditor.
(b) Assertions – classes of transactions
Occurrence. The transactions and events that have
been recorded have actually occurred and pertain to the entity.
Completeness. All transactions and events that
should have been recorded have been recorded.
Accuracy. The amounts and other data relating to
recorded transactions and events have been recorded appropriately.
Cut-off. Transactions and events have been
recorded in the correct accounting period.
Classification. Transactions and events have been
recorded in the proper accounts.
(c) Audit report term
Modified. An auditor modifies an audit report in
any situation where it is inappropriate to provide an unmodified report. For example,
the auditor may provide additional information in an emphasis of matter (which
does not affect the auditor’s opinion) or qualify the audit report for
limitation of scope or disagreement.
Contrast the role of internal and
external auditors. (8
marks)
Role of internal and external auditors
– differences
Objectives
The main objective of internal audit
is to improve a company’s operations, primarily in terms of validating the
efficiency and effectiveness of the internal control systems of a company.
The main objective of the external
auditor is to express an opinion on the truth and fairness of the financial
statements, and other jurisdiction specific requirements such as confirming
that the financial statements comply with the reporting requirements included
in legislation.
Reporting
Internal audit reports are normally
addressed to the board of directors, or other people charged with governance
such as the audit committee. Those reports are not publicly available, being
confidential between the internal auditor and the recipient.
External audit reports are provided to
the shareholders of a company. The report is attached to the annual financial
statements of the company and is therefore publicly available to the shareholders
and any reader of the financial statements.
Scope
of work
The work of the internal auditor
normally relates to the operations of the organisation, including the
transaction processing systems and the systems to produce the annual financial
statements. The internal auditor may also provide other reports to management,
such as value for money audits which external auditors rarely become involved
with.
The work of the external auditor
relates only to the financial statements of the organisation. However, the
internal control systems of the organisation will be tested as these provide
evidence on the completeness and accuracy of the financial statements.
Relationship
with company
In most organisations, the internal
auditor is an employee of the organisation, which may have an impact on the
auditor’s independence. However, in some organisations the internal audit
function is outsourced.
The external auditor is appointed by
the shareholders of an organisation, providing some degree of independence from
the
company and management.
(a) ISA 500 Audit Evidence requires audit evidence to be
reliable.
Required:
List FOUR factors that influence the
reliability of audit evidence. (4
marks)
(b) ISA 260 (Revised and Redrafted) Communication with Those Charged
with Governance deals
with the auditor’s responsibility to communicate with those charged with
governance in relation to an audit of financial statements.
Required:
(i) Describe TWO specific
responsibilities of those charged with governance; (2 marks)
(ii) Explain FOUR examples of matters
that might be communicated to them by the auditor. (4 marks)
(a) The following five factors that influence
the reliability of audit evidence are taken from ISA 500 Audit Evidence:
(i) Audit evidence is more reliable
when it is obtained from independent sources outside the entity.
(ii) Audit evidence that is generated
internally is more reliable when the related controls imposed by the entity are
effective.
(iii) Audit evidence obtained directly
by the auditor (for example, observation of the application of a control) is
more reliable than audit evidence obtained indirectly or by inference (for
example, inquiry about the application of a control).
(iv) Audit evidence is more reliable
when it exists in documentary form, whether paper, electronic, or other medium.
(For example, a contemporaneously written record of a meeting is more reliable
than a subsequent oral representation of the matters discussed.)
(v) Audit evidence provided by original
documents is more reliable than audit evidence provided by photocopies or
facsimiles.
Other examples are:
(vi) Evidence created in the normal
course of business is better than evidence specially created to satisfy the
auditor.
(vii) The best-informed source of
audit evidence will normally be management of the company (although
management’s lack
of independence may reduce its value
as a source of such evidence).
(viii) Evidence about the future is
particularly difficult to obtain and is less reliable than evidence about past
events.
(b)
(i) Those charged with governance are
responsible for overseeing:
– the strategic direction of the
entity
– obligations related to the
accountability of the entity. This includes overseeing the financial reporting process.
– promotion of good corporate
governance
– risk assessment processes
– the establishment and monitoring of
internal controls
– compliance with applicable law and
regulations
– implementation of controls to
prevent and detect fraud and errors.
(ii) General audit matters that might be
communicated to those charged with governance are addressed in ISA 260:
(1) The auditor’s responsibilities
in relation to financial statement audit.
This would include:
– A statement that the auditor is
responsible for forming and expressing an opinion on the financial statements.
– That the auditor’s work is carried
out in accordance with ISAs and in accordance with local laws and regulations.
(2) Planned scope and timing of
the audit.
This would include
– The audit approach to assessing the
risk of serious misstatement, whether arising from fraud or error.
– The audit approach to the internal
control system and whether reliance will be placed on it.
– The timing of interim and final
audits, including reporting deadlines.
(3) Significant findings from
the audit.
This heading could include:
– Significant difficulties encountered
during the audit, including delays in obtaining information from
management.
– Material weaknesses in internal
control and recommendations for improvement.
– Audit adjustments, whether or not
recorded by the entity, that have, or could have, a material effect on the
entity’s financial statements. For
example, the bankruptcy of a material receivable shortly after the year-end
that should result in an adjusting
entry.
(4) A statement on independence
issues affecting the audit.
This would include:
– That the audit firm has ensured that
all members of the audit team have complied with the ethical standards
of ACCA.
– That appropriate safeguards are in
place where a potential threat to independence has been identifi ed.
(Tutorial note: The lists of
examples listed under the above headings are not exhaustive and in practice
many more
specific matters would be
communicated to those charged with governance such as:
– Modifications to the audit
report.
– Any management representation
points requested.
– Cases of suspected/actual
fraud.)
Explain the difference between the
interim audit and the final audit. (4 marks)
The interim audit, as its name suggests,
is that part of the whole audit that takes place before the year-end. The
auditor uses the interim audit to carry out procedures that would be difficult
to perform at the year-end because of time pressure. The final audit, on the
other hand, will take place after the year-end and concludes with the auditor
forming and expressing an opinion on the financial statements for the whole
year subject to audit. It is important to note that the final opinion takes
account of conclusions formed at both the interim and final audit.
Typical work carried out at the
interim audit includes:
– consideration of inherent risks
facing the company. (Tutorial
note: risk would be initially considered at the planning stage, but is, in
fact, reassessed at all audit stages.)
– recording the system of internal
control.
– carrying out tests of control on the
company’s internal control system and evaluating its effectiveness to determine
the level of control risk.
– performing sufficient substantive
testing of transactions and balances to be satisfied that the books and records
are a reliable basis for the preparation of financial statements.
– identification of potential problems
that may affect the final audit work. A basic aim is to ensure as far as
possible that there are no undetected problems at the year-end.
Typical work carried out at the final
examination includes:
– Follow up of items noted at the
inventory count.
– Obtaining confirmations from third
parties, such as bankers and lawyers.
– Analytical reviews of figures in the
financial statements.
– Reviews of events after the
reporting period.
– Consideration of the going concern
status of the organisation.
(Tutorial note: At the final
audit the auditor would carry out tests to ensure that the conclusions formed
at the interim audit were still valid.)
Identify and explain FOUR assertions
relevant to accounts payable at the year-end date.
(6 marks)
As regards accounts payable there are
many different assertions that have to be addressed. Some relevant assertions
are set out below:
(i) Rights and obligations – Accounts
payable represent amounts actually due by the company, that is, there is an
obligation taking into account:
– the actual performance of services
for the company; or
– transfer of title in goods
transferred to the company; and
– cash payments or other genuine debit
entry.
(ii) Valuation and allocation –
Accounts payable have been correctly valued taking into account original
transaction amounts and such matters as trade discounts and local sales tax.
(iii) Existence – The original
transaction amounts are valid and the liability exists.
(iv) Completeness – All accounts
payable are recorded in the accounting records.
(Tutorial note: The importance
of assertions lies in the fact that they provide objectives for the auditor and
enable the evidence search to be carried out in a logical fashion. The auditor
will determine the assertions that are made about a particular figure appearing
in the financial statements. This provides a series of objectives about that
audit area and then the auditor searches for evidence to prove that each
objective is met and that the assertion is valid or invalid
(a) Auditors are frequently required to
provide assurance for a range of non-audit engagements.
Required:
List and explain the elements of an
assurance engagement. (5
marks)
(b) ISA 320 Materiality in Planning and
Performing an Audit provides
guidance on the concept of materiality in planning and performing an audit.
Required:
Define materiality and determine how
the level of materiality is assessed. (5 marks)
(a) An
assurance engagement will involve three separate parties;
– The intended user who is the person
who requires the assurance report.
– The responsible party, which is the
organisation responsible for preparing the subject matter to be reviewed.
– The practitioner (i.e. an
accountant) who is the professional who will review the subject matter and
provide the
assurance.
A second element is a suitable subject
matter. The subject matter is the data that the responsible party has prepared
and which requires verification.
Suitable criteria are required in an
assurance engagement. The subject matter is compared to the criteria in order
for it to be assessed and an opinion provided.
Appropriate evidence has to be
obtained by the practitioner in order to give the required level of assurance.
An assurance report is the opinion
that is given by the practitioner to the intended user and the responsible
party.
(b) Materiality
is defined as follows:
‘Misstatements, including omissions,
are considered to be material if they, individually or in the aggregate, could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.’
In assessing the level of materiality
there are a number of areas that should be considered. Firstly the auditor must
consider both the amount (quantity) and the nature (quality) of any
misstatements, or a combination of both. The quantity of the misstatement
refers to the relative size of it and the quality refers to an amount that
might be low in value but due to its prominence could influence the user’s
decision, for example, directors’ transactions.
In assessing materiality the auditor
must consider that a number of errors each with a low value may when aggregated
amount to a material misstatement.
The assessment of what is material is
ultimately a matter of the auditors’ professional judgement, and it is affected
by the auditor’s perception of the financial information needs of users of the
financial statements.
In calculating materiality the auditor
should also consider setting the performance materiality level. This is the
amount set by the auditor, it is below materiality, and is used for particular
transactions, account balances and disclosures.
As per ISA 320 materiality is often
calculated using benchmarks such as 5% of profit before tax or 1% of gross
revenue. These values are useful as a starting point for assessing materiality.
(a) (i) Define a ‘test of control’ and a
‘substantive procedure’; (2
marks)
(ii) State ONE test of control and ONE
substantive procedure in relation to sales invoicing.
(2 marks)
(i) Tests
of control test the operating effectiveness of controls in preventing,
detecting or correcting material misstatements.
Substantive procedures are aimed at
detecting material misstatements at the assertion level. They include tests of
detail of transactions, balances, disclosures and substantive analytical
procedures.
(ii) Example
tests of control over sales invoicing
– Inspect numerical sequence of sales
invoices, if any breaks in the sequence noted, enquire of management as to
missing invoices.
– Review a sample of sales invoices
for evidence of authorisation by a responsible offi cial of any discounts
allowed.
– Inspect customer statements for
evidence of regular preparation.
Example substantive procedures over sales invoicing
– Select a sample of pre and post year
end goods despatch notes and follow through to pre or post year end sales invoices,
to ensure the sales cut-off has been correctly applied.
– Perform an analytical review of
monthly sales, compare any trends to prior years and discuss significant
fluctuations with management.
– Review post year end credit notes to
identify if any pre year end sales should be removed.
State the FIVE threats contained within
ACCA’s Code of Ethics and Conduct
and for each threat list ONE
example of a circumstance that may
create the threat. (5
marks)
(a) Compliance
with ACCA’s Code of Ethics and
Conduct fundamental principles can be threatened
by a number of areas. The five
categories of threats, which may
impact on ethical risk, are:
– Self-interest
– Self-review
– Advocacy
– Familiarity
– Intimidation.
Examples for each category (Only one
example required per threat):
Self-interest
– Undue dependence on fee income from
one client
– Close personal or business
relationships
– Financial interest in a client
– Incentive fee arrangements
– Concern over employment security
– Commercial pressure from outside the
employing organisation
– Inappropriate personal use of
corporate assets.
Self-review
– Member of assurance team being or
recently having been employed by the client in a position to influence the
subject matter being reviewed
– Involvement in implementation of financial
system and subsequently reporting on the operation of said system
– Same person reviewing decisions or
data that prepared them
– An analyst, or member of a board,
audit committee or audit firm being in a position to exert a direct or
significant influence over the financial reports
– The discovery of a significant error
during a re-evaluation of the work undertaken by the member
– Performing a service for a client
that directly affects the subject matter of an assurance engagement.
Advocacy
– Acting as an advocate on behalf of a
client in litigation or disputes
– Promoting shares in a listed audit
client
– Commenting publicly on future events
in particular circumstances
– Where information is incomplete or
advocating an argument which is unlawful.
Familiarity
– Long association with a client
– Acceptance of gifts or preferential
treatment (significant value)
– Over familiarity with management
– Former partner of firm being
employed by client
– A person in a position to influence
financial or non-financial reporting or business decisions having an immediate
or close family member who is in a position to benefit from that influence.
Intimidation
– Threat of litigation
– Threat of removal as assurance firm
– Dominant personality of client
director attempting to influence decisions
– Pressure to reduce inappropriately
the extent of work performed in order to reduce fees.
These are the PYQs ( 2-5 marks ) from
year 2007 to 2010 .
I might have missed out some , so
please do go through the PYQs itself as well ! GOOD LUCK ! ☺
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