ADVANCED ADVANCED AUDITING AUDITING

ICAP Module F Exam specific session Summer 2010

Presenter: Zaryab Hyder ACA, ACA APA

INTRODUCTION
Advanced Auditing of Module F is the practical expansion Audit exam of Module D i.e. i e more of real situations in profession. Topics and matters covered in Module D exam may not be subject to questions straightforwardly, nevertheless it has to be considered as it take in the essential concepts which is extremely vital for the examination in Module F. It is advisable to the students to revise the concepts they have studied in Module D and how they have actually applied them all the way through their practical experience. At this stage they have at least 2.5 years of practical audit experience, which is also a key to grip the practical situations. In open book I b k exams, students t d t are expected t d to t have h grip i on auditing diti standards t d d to t effectively utilize the handbook i.e. which requirement is written where. Further, answers require knowledge from other areas which are not covered in ISA handbook. Open book section is discussed separately. Avoid being a Doctor without studying MBBS

EXAMINER CONCERNS
1. Lacking of professionalism in approaching the answers and selection of words. 2. No use of appropriate words and terms specifically that relates to the given topic. 3. Answers too vague by not grasping the requirements. 4. No understanding of the core points in a particular question thereby losing the crust of the question. 5. Relying heavily on open book and rote things. 6. Lack of linkage of audit with other areas i.e. IFRS / Local Laws. 7. Candidates should demonstrate that they have the ability to practice as a Chartered Accountant. Accountant

KEY TIPS
If If you fail to plan, plan you are planning to fail fail 1. Linking g auditing g standards with relevant reporting p g framework IFRS and Corporate Laws. 2 Taking 2. T ki mock k exams - best b t way to t simulate i l t exam situation / pressure. 3. Frequent revisions and use of pass-cards.

UNDERSTANDING REQUIREMENTS Q
Requirement Identify Comment on Explain Evaluate/assess Meaning Pick out a relevant issue / point from the scenario. Offer an opinion, debate a topic, express a reaction. Clarify and provide extra details on a subject matter. Weigh up advantages and disadvantages and make a judgment. Consider a subject in depth and come to an opinion. Come to a conclusion and provide a strong argument for a decision.

Critically discuss Justify

UNDERSTANDING REQUIREMENTS Q

cont.

Selection of words should reflect p professionalism. Example p is to use the work extra care which is not appropriate and proper word should be use professional skepticism. Understanding the crust of the question. question Q # 1 Summer 2008. 2008 Understanding the requirement of a question upfront before reading the question. No reading time so important to grab core points in first reading. Q # 1 Winter 2009. All ends well which starts well. Answer those questions, you feel you have well prepared. Every question is not difficult nor lengthy. Try to get atleast 50% marks in difficult questions and 80% marks in easy question to secure a pass.

DRAFTING THE ANSWERS

Drafting bears extreme importance Lets analyze a situation where candidates are required to verify warranty provision and were required to write audit procedures. Too vague Discuss with management Specific Compare the current year provision with prior year and discuss any fluctuation with the person responsible for preparing the estimated provision. Review board minutes for managements discussion of ongoing warranty claims, and for approval of the amount provided. Review contracts or orders for the terms of the warranty to gain an understanding of the obligation of the company. Compare prior year provision with actual expenditure on warranty claims in the accounting period.

Get a representation

Check if the accounting treatment is correct

Compare to last years figure

OPEN BOOK STRATEGY

Plan from day one. Prepare briefing notes and link other areas of syllabus. There is a common perception that in open book exams, candidate will be able to perform easily in exam. Open book can be handful for reproducing rote things i.e. wordings for reports under ISAs, ISREs etc. BE CAREFUL !!!! S t of Set f rules l nevertheless th l needs d t to b be memorized. i d A good example is the Q # 3 (i) of Winter 2009 attempt which asked whether spouse of a p partner in firm p providing g tax services to one of the audit client p poses threat to independence?. The set of rules under ICAP code of ethics describes that overall tax services are allowable. It required application of knowledge as those candidates who understood the reasons for allowing tax services to audit clients were able to produce the correct answer.

OPEN BOOK STRATEGY cont.

Lets consider ISA 550 Related Parties and analyze what difference can open book make in preparations: Understand the objectives underlying this ISA. Only paragraph 8 can be capitalized in case of open book, which require listing of audit procedures to identify completeness of related parties. Other requirements require practical application. Example is paragraph 11 which discusses indications of existences of previously unidentified related parties. E.g. would be transactions processed in unusual manner. Now what is unusual dependent p p on a p particular case in exam, which candidates need to identify and answer. Requirements of IAS 24. Most important is the definition and disclosures. Link with fraud. CCG clauses including the recent changes on which there is ICAP circular 9/2009 dated Aug 11, 2009 to change the review report of CCG. p Ordinance, 1984 including g section 3, 195 and 208. Further there Relevant sections of Companies th th are disclosure requirements in 4 and 5 schedule relating to related parties which candidates must consider.

STUDY MATERIAL
International Standards on Auditing (ISAs) IAASB. Audit TRs issued by ICAP. Members handbook containing CA Ordinance and Bye-Laws. p by y ICAP. Selected Opinions Circulars relevant to the audit. Members Information and Education Series (MIES). Relevant articles from Student Accountant (ICAP) (ICAP). Accounting TRs issued by ICAP. Relevant requirements of Corporate and Local Laws. Relevant requirements of IFRS. Current issues and articles. (From IAASB, ACCA or ICAEW).

PRACTICE MATERIAL
Past ICAP papers. Last 4 to 5 attempts atleast. ACCA P7 ethical and quality control / professional matters. ICAEW for specific practice i.e. going concern etc. Practical issues i.e. Satyam / Enron for weaknesses. Matters raised at ICAP for discrepancies in the audit / matters raised by SECP.

KEY AREAS
Marks asked in past papers Key areas Win09 June09 Win08 June08

S.N O

#1

Ethical requirements including quality control considerations.

22 marks

22 marks

22 marks

25 marks

#2

Requirements of all the ISAs other than reporting. Reporting requirements for audits and special audits.

53 marks

30 marks

58 marks

32 marks

#3

12 marks

10 marks

10 marks

14 marks

#4

Other areas including: ISRE, ISRS, ISAE, IAPS and reports relating g to them. C Corporate p Laws and TRs.

12 marks

38 marks

10 marks

29 marks

# 1. ETHICAL REQUIREMENTS INCLUDING QUALITY CONTROL CONSIDERATIONS

i) Important areas of code of ethics: Independence (Link with ISQC requirements on ethics) Confidentiality Fees and related matters Professional appointments (Link with ISQC client acceptance) Ethical conflicts ii) Major areas of quality control are: Client acceptance and continuance requirements Engagement performance iii) Study the above topics from: a) Code of ethics b) ISQC-1 + ISA 220 c) Companies Ordinance 1984, CA bye-laws and CCG + ICAP QCR related circulars. d) Selected Opinions and audit TRs relevant to above topics. iv) Practice them from: a) ICAP past papers b) ACCA P7 questions c) ICAEW part A questions d) Ethical lapses in Satyam or Enron scandals etc.

# 2. Requirements of ISAs
i. ii. iii iii. iv. v. vi vi. Specific requirements of a particular ISA i.e. going concern or management representations. p The manner in which a particular ISA can be tested. Practical issues regarding particular ISA and implications. implications In case of open book, prepare summaries of core requirements of ISAs and link with the related matters given in IFRS or local laws + SO / TRs of ICAP. Correlation is extremely important here, which can never be achieved by merely studying the ISAs. Remember the matters right from planning till the conclusion, conclusion including issues encountered and its resolution throughout practical exposure with the firm.

# 3. Reporting under ISAs

i. a) Reporting can be asked in three manners: One requires reports to be drafted. (Easy marks. Q # 7 (b) of Summer 2008 required to write report on projection. Many candidates wrote report on forecast and lost simple 04 marks). Others which Oth hi h requires i opinion i i on specific ifi matters tt and d it its i impact t on th the audit dit report. (Use materiality of the matter, rules of IFRS and able to draft qualification. For modifications it is extremely important to quantify the matter, in which candidates struggle. Q # 7 of Winter 2009). Reporting to management. (Management letter or letter to Audit Committee). ISA 700 to 720 and ISA 800. Other reporting responsibilities are mentioned in Corporate Laws, Laws which may or may not be asked. asked Example would be auditor certificates on free reserves or dividend remittance. Students should be good at drafting. Watch your grammar, punctuation, g and spelling. p g handwriting

b)

c) ii.

iii.

# 4. ISRE, ISRS, ISAE, IAPS AND REPORTS. CORPORATE / LOCAL LAWS

i. ii. Specific standards and question can be set on specific requirements. Not knowing a particular standard can cause a whole question loss in the exam. Important to understand the scope of questions. Example would be a particular scenario requiring procedures and subsequently report. Students need to understand whether assurance is required? If yes at which level. Example is the Q # 5 of Summer 2009 in which report can be produced from ISAE 3000 or ISRS 4400. IAPS general understanding is required. No need to make synopsis of IAPS. Knowing the core requirements will be enough except IAPS relating to small companies and compliance with IFRS, which have very few requirements. Example would be in case of IAPS relating to bank audits, knowledge of risks p p procedures will ensure p passing g marks in the exam. relevant to banks or specific Example of local law question is Q # 9 of Summer 2009 requiring to prepare Audit Program on dividend, in which students also required to mention local laws requirements.

iii. iv.

v. vi.

ANALYSIS OF JUNE 2009 EXAM

Q# 1 Level of difficulty Average 10 marks Average 10 marks Difficult 15 marks k Easy 9 marks Average 15 marks Easy 10 marks Easy 7 marks Average 12 marks Difficult 12 marks Key areas #2&#3 Answer considerations
i) Allocate marks to four parts. ii) Consider materiality upfront. iii) Consider individual part & based on materiality describe course of action. iv) Consider the application of IFRS. v) In part four ICAP TR was tested. vi) ) Format of answer should be considered. i) Requirement of IAS 1 and ISA 570. ii) Knowledge of liquidation basis of accounting. iii) Reproduce adverse opinion from ISA 570. i) Warrant is an accounting estimate. ii) Consideration of ISA 540. iii) Part A required inquiries to be made and B audit procedures procedures. i) Format of the answer. ii) Risk indicators given, therefore only comment on implications. iii) Knowledge of group audit considerations including foreign operations. i) Knowledge of ICAP accounting TR TR. ii) Reproduce report from open book. iii) Scope of the report is very imp as students can answer it from ISAE or ISRS. i) Simple marks from confidentiality. ii) Application of rules tested.

2 3 4

#2#3 Open Book #2 #2

#2#4 Open Book #1 #4 Open Book #1 #4

6 7 8 9

i) Compilation report. Ii) Reproduce report from ISRS 4410.

i) ISQC considerations. ii) Code of ethics independence. iii) ICAP Ordinance and bylaws bylaws. i) Knowledge of local laws. ii) Audit experience to prepare Audit Program considering all relevant assertions.

ANALYSIS OF WINTER 2009 EXAM

Q# 1 Level of difficulty Average 25 Marks Average 12 Marks Easy y 04 Marks Easy 11 Marks Difficult Diffi lt 12 Marks Easy 11 marks Average 12 marks Difficult 11 marks Key areas #2 Answer considerations
i) knowledge of ISA 315 with knowledge of implication of matters. ii) Consider application of IFRS i.e. IAS 21. iii) Consider fraud risk factors. iv) Opening balances. v) Group audit risk factors. vi) For verification of foreign loan and capex requirements of local laws and relevant IAS. i) Audit procedures regarding a contingent amount. ii) Implications i.e. provisions of contract, subsequent events, confirmations. iii) Implication on audit report. i) As per IAS 37 disclosure is required. ii) Emphasis of matter due to material uncertainty. i) Application of rules from ICAP code of ethics. ii) CCG requirements.

2 (a)

#2&#3

2( (b) ) 3 4

#2&#3 #1 #1&#2

i) Practical sit situation ation req required ired kno knowledge ledge of steps to be taken taken. ii) Can not be answered from specific ISA. iii) Application of experience iv) Code of ethics conflict of rules. i) ISQC requirements. ii) Audit documentation.

5 6

#1 Open book #4

i) Knowledge of CCG. ii) Must understand the mandatory and preferable clauses. iii) Review report so opinion wording from ISRE. i) ) Qualification wording g from open p book. ii) ) Knowledge g of consolidation. iii) ) Ability to quantify the effects.

#3 Open Book

CONCLUSION

Q Questions ti are appreciated i t d !!!

Thank you. Best of luck for your exams !!!