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ACCA_F 8 _L4

ACCA_F 8 _L4

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Published by: shazyasghar on Jun 07, 2010
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06/20/2012

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ACCA Paper F 8AUDIT AND ASSURANCE SERVICES (INTERNATIONAL STREAM)
Lecture 4
DATE:Autumn 2008 TUTOR:
Test of Controls
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Control Environment:
12The control environment is design by the senior management3Factors that are included in the control environment are:11.Management's philosophy and operating style1Characteristics that form part of a management's philosophy and operating styleand which have an impact on the control environment include themanagement's:1• approach to the taking and monitoring of business risks;1• reliance on informal face to face contacts with key managers versus aformal system of written policies, performance indicators and exceptionreports;1• attitudes and actions toward financial reporting;1conservative or aggressive selection of accounting principles fromavailable alternatives;1conscientiousness and conservatism in developing accountingestimates;
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• attitudes towards information processing and accounting functions andpersonnel.232. Integrity and ethical values.11In order to emphasise the importance of integrity and ethical values among allpersonnel of an organisation the management should:1Demonstrating integrity and practising ethical behaviour among allemployees of the organisation.2345
3.
Commitment to competence. Personnel at every level in the organisationmust possess the knowledge and skills needed to perform their jobseffectively.
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4. Organisational structure and assignment of authority and responsibility.An organisational structure contributes to an entity's ability to meet its objectivesby providing an overall framework for planning, executing, controlling andmonitoring the entity's activities.Methods of imposing control The board of directors and the audit committee and the manner in which theyexercise their governance and oversight responsibilities have a major impact on thecontrol environment.Factors include the:1Proportion of outside directors and the establishment of an auditcommittee.1• Experience of members in audit committee.
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• Extent of their involvement with and scrutiny of management's activities.2
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* Degree to which they raise and pursue difficult questions withmanagement.
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* Nature and extent of their interaction with internal and external auditors.Internal auditInternal audit function strengthens the control environment. To be effective,internal audit auditor need to:1skilled2integrity;3• Have appropriate access to the board of directors and the audit committee,and to the external auditors.
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