Questions and Answers

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ISAs

ACCA Paper F8 (International)

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Questions and Answers

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ISAs

ACCA Paper F8 (International)

ACCA Paper F8: AUDIT AND ASSURANCE Questions and Answers
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Questions and Answers

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ACCA Paper F8 (International)

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ACCA Paper F8 – Audit and Assurance – Questions and Answers
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co. Voltaire ©Tony Surridge Online Limited.uk 4 . 2013 www.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) No snowflake in an avalanche ever feels responsible.

2013 www.co.” Lewis Carroll Through the Looking-Glass ©Tony Surridge Online Limited.uk 5 .” the king said gravely. “and go on till you come to the end: then stop.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance Study Material Main Page Copyright statement Environmental notice For the ladies only Test your knowledge now! ACCA Paper F8 AUDIT AND ASSURANCE (International) Questions & Answers 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 Main Contents Contents: Contents: Contents: Contents: Contents: Appendix A: Appendix B: Multiple Choice Questions and Answers ISA Short Questions and Answers Diagnostic Questions and Answers Exam Status Questions and Answers Past Exam Questions and Answers International Standards on Auditing Glossary Note: Means that the link has been made active for the free sample. “Begin at the beginning. “Where shall I begin. please your majesty?” he asked.

and any other dramatis personae of the text. answers and tutorial notes to be patient with my occasional use of the masculine pronoun in referring to the ‘manager’. such as ‘man in the street’. the ‘member of staff’. ‘man-made’ and so on should be de-masculinised as much as possible. the ‘planner’. which I have used simply for grammatical convenience. ‘manning the office’.tonysurridge.uk 6 . I have a personal view that all general terms used in life. 2013 www. Thank you.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) I ask any lady reading these questions. This is not always easy when one is writing free-flowing text. Tony Surridge ©Tony Surridge Online Limited.co. ‘manpower’.

Get the BIG PICTURE without spending hours pouring over lengthy study text and manuals. 2. INFORMATION you need to know in a handy and succinct form "Just look down the road and tell me if you can see either of them." I see nobody on the road. 3. ZOOM IN just before your exam.tonysurridge. If you don’t have a lot of study time (you may be studying other subjects as well) but want to excel in the exams. Find ANSWERS QUICKLY.co. 2. Practice short questions to build up your knowledge base. 5. "the King remarked in a fretful tone. REVISE QUICKLY and more efficiently. the DIAGNOSTIC TEST designed for PAPER F8 helps you to: 1. 2013 www. "To be able to see Nobody! And at such a distance too!" Lewis Carroll Alice in Wonderland John Tenniel's illustration of the King and Queen of Hearts at the trial of the Knave of Hearts. ©Tony Surridge Online Limited. Within this set of DIAGNOSTIC TESTS you will find: 1. 3. I only wish I had such eyes. Test yourself. Exam questions consist of a number of short questions. BRUSH UP your knowledge. HUNDREDS of additional problems with answers provided. 4.uk 7 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) TEST YOUR KNOWLEDGE NOW! Take a few minutes to see if you have remembered important points from the syllabus." said Alice. STEP-BY-STEP SOLUTIONS for questions involving calculations. Aim to reach a high score.

5. 3. 2. 4. 3. 1. 4. The concept of audit and other assurance engagements Statutory audits The regulatory environment and corporate governance Professional ethics and ACCA’s 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 AUDIT FRAMEWORK AND REGULATION INTERNAL AUDIT PLANNING AND RISK ASSESSMENT INTERNAL CONTROL 1. 7. 1.uk 8 .co. 4.tonysurridge. 1. 2. 3. 5. 2. 4. The Tony Surridge +AddVance ebook of Diagnostic Questions and Answers is based on the ACCA syllabus and contains the following seven sections: 1. 3. 5.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) ACCA Paper F8 syllabus: Map of the Diagnostic Tests The Audit and Assurance syllabus is essentially divided into seven areas. 3. 6. 2. 6. Audit reports Reports to management Internal audit reports ©Tony Surridge Online Limited. 2013 www. 3. 4. 3. 5. 6. 2. 1. 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 EVIDENCE REVIEW REPORTING 1. 4. 2. 2.

Professional ethics and ACCA’s Code of Ethics and Conduct ©Tony Surridge Online Limited.tonysurridge. 2013 www. The concept of audit and other assurance engagements 2. Statutory audits 3. The regulatory environment and corporate governance 4.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section A: AUDIT FRAMEWORK AND REGULATION 1.uk 9 .co.

co. Paragraph A56. Question 2 Which is not correct concerning the word “will” in the ISA 200 guidance? A B Paragraph A44.tonysurridge. A system of peer review. some detection risk will always exist’. ISA 200 states ‘The auditor will also conduct the audit in accordance with both ISAs and auditing standards of a specific jurisdiction or country’. The ISAs do not override law or regulation that governs an audit of financial statements.uk 10 . Accordingly.. . (Note: the print emphasis is not part of the standard. ISA 200 states ‘…. an audit conducted only in accordance with law or regulation will not automatically comply with ISAs’. A Consistent with achieving the fundamental principles is for a Chartered Certified Accountancy firm to set its objective on providing professional services that conform with professional standards. Professional competence and due care. and Professional behaviour’.) A C D Note: The first 10 Questions and Answers have been made active for the free sample. Paragraph A55. Objectivity. ©Tony Surridge Online Limited. Paragraph A39. ISA 200 states ‘…. A system of quality control. Accordingly. Confidentiality. ISA 200 states ‘In performing an audit.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 1 Paragraph A15. 2013 www. some control risk will always exist’. In the event that such law or regulation differs from the ISAs. the auditor may be required to comply with legal or regulatory requirements in addition to the ISAs. Reasonable assurance of achieving this basic objective is provided through A B C D Compliance with International Financial Reporting Standards (IFRSs) Continuing professional education. The fundamental principles with which the auditor is required to comply by the IFAC Code are: (a) (b) (c) (d) (e) Integrity. ISA 200 states ’Part A of the IFAC Code establishes the fundamental principles of professional ethics relevant to the auditor when conducting an audit of financial statements and provides a conceptual framework for applying those principles.

Judgmental.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 3 Prior to. or in conjunction with. A Question 6 An independent audit aids in the communication of economic data because the audit A B C D Lends credibility to the financial statements.tonysurridge. 2013 www. A Question 5 An independent chartered certified accountant auditor must have which of the following? A. Presumptive. Criticising. Experience in taxation that is sufficient to comply with International Standards on Auditing (ISAs). Professional skepticism. the information-gathering procedures for an audit. Which of the following best characterises the mind-set that the audit team should maintain during this discussion? A B C D Questioning. A pre-existing and well-informed point of view with respect to the audit.uk 11 . the auditor should conduct the examination with an attitude of A B C D Professional responsiveness. Assures the reader of financial statements that any fraudulent activity has been corrected. D. Technical training that is adequate to meet the requirements of a professional. Objective judgment. A background in many different disciplines. Conservative advocacy. Guarantees that financial data are fairly presented. C. A ©Tony Surridge Online Limited. B. A Question 4 Because an examination of evidence is influenced by the possibility of material errors.co. audit team members should discuss the potential for material misstatement due to fraud. Confirms the accuracy of management's financial representations.

A C D Question 8 Which of the following best describes the reason why an independent auditor reports on financial statements? A B A management fraud may exist and is more likely to be detected by auditors. A professional activity that measures and communicates financial and business data. Poorly designed internal control may exist. 2013 www.co. Without exception. Except in examinations of interim financial statements. Different interests may exist between the company preparing the statements and the persons using the statements.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 7 An chartered certified accountant auditor should comply with applicable IASs on every engagement A B Except in examinations that result in a qualified report. A ©Tony Surridge Online Limited.tonysurridge. Except in engagements where the chartered certified accountant auditor is associated with unaudited financial statements. A regulatory function that prevents the issuance of improper financial information. A discipline that attests to the results of accounting and other functional operations and data. A misstatement of account balances may exist and is generally corrected as the result of the auditor's work. A Question 10 What actions should the auditor take when the two-way communication between the auditor and those charged with governance is not adequate and the situation cannot be resolved.uk 12 . A C D Question 9 Independent auditing can best be described as A B C D A branch of accounting.

The auditor's consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets.uk 13 . A B C D Question 13 Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance? A B C D Disagreements regarding management's judgment about accounting estimates for goodwill. The auditor notified the client's board of directors. Issue an "except for" qualified opinion or an adverse opinion with a separate paragraph that explains the circumstances. but the board decided to take no action because the amounts involved were immaterial to the financial statements. while not affecting the unqualified opinion. A ©Tony Surridge Online Limited. A B C D Question 12 During the audit of a new client. require disclosure. The results of the auditor's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts. the auditor should: A Add an explanatory paragraph emphasizing that certain matters. Changes in the auditor's preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions. 2013 www. Consider withdrawing from the audit engagement and disassociating from future relationships with the client. the chartered certified accountant auditor determined that management had given illegal bribes to local-government officials during the year under audit and for several prior years. Disagreements in the application of accounting principles relating to software development costs. Disagreements of the amount of the inventory level based on preliminary information. Report the illegal bribes to the local-government official at least one level above those persons who received the bribes.co.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 11 Which of the following matters is an auditor required to communicate to those charged with governance? A Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process. Under these circumstances. Disagreements about the scope of the audit.

in part." "I suggest you get the client's permission for us to discuss all matters freely.co.tonysurridge. How should the chartered certified accountant auditor respond if asked by the successor auditor why the relationship was terminated? A B C D "It was a misunderstanding. a chartered certified accountant auditor withdraws from the engagement." "I found irregularities in the tax return which the client would not correct. Considered discreditable to the profession.. A violation of International Standards on Auditing (IASs).Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 14 Which of the following statements best describes why the ACCA has deemed it essential to promulgate a ‘Code of Ethics and Conduct’ and to establish a mechanism for enforcing observance of the code? A B A distinguishing mark of a profession is to advance the public interest. that an ACCA member should maintain integrity and objectivity. A requirement of most jurisdictions’ laws calls for the profession to establish a code of ethics. A prerequisite to success is the establishment of an ethical code that stresses primarily the professional's responsibility to clients and colleagues. A C D Question 16 Upon discovering irregularities in a client's tax return that the client would not correct. To independently choose between alternate accounting principles and auditing standards. An essential means of self-protection for the profession is the establishment of flexible ethical standards. Objectivity in the code refers to an ACCA member’s ability A B To maintain an impartial attitude on all matters which come under the ACCA member’s review. A ©Tony Surridge Online Limited.uk 14 ." "I suggest you ask the client. Ill-advised since it would impair the ACCA auditor’s independence with respect to the client. 2013 www. To be unyielding in all matters dealing with auditing procedures." A Question 17 An ACCA member’s retention of client records as a means of enforcing payment of an overdue audit fee is an action that is A B C D Considered acceptable by the ACCA’s ‘Code of Ethics and Conduct’. A C D Question 15 The ACCA’s ‘Code of Ethics and Conduct’ states. To independently distinguish between accounting practices that are acceptable and those that are not.

The ACCA’s ‘Code of Ethics and Conduct’ would be violated if the ACCA member allowed the article to state that the ACCA member was A B C D A member of the ACCA. The ACCA member has a home mortgage from CAS. The ACCA member and CAS’s chairman each owns 25% of PQR Company. 2013 field work is started. A B C D Question 21 An ACCA member wrote an article for publication in a professional journal.co.5 goes on to state ‘There are.uk A ©Tony Surridge Online Limited. the 2011 audit’s fees must be paid before the A B C D 2011 report is issued. 2012 field work is started. administrative receiver or administrator of a client. To disclose certain information to the liquidator. A professor at a school of professional accountancy. circumstances where members may disclose information to third parties without first obtaining permission’.5 of the ACCA’s ‘‘Code of Ethics and Conduct’ states that ACCA ‘Members acquiring information in the course of their professional work should not disclose any such information to third parties without first obtaining permission from their clients’. Section 3. To disclose information required by the client’s principal shareholder. a ‘close’ company. A Question 19 A client company has not paid its 2011 audit fees. To whistleblow to regulators. A Question 20 Section 3.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 18 In which of the following circumstances would an ACCA member who audits CAS Company lack independence? A B C D The ACCA member and CAS’s chairman are both on the board of directors of DEF Company. None of these. www. 2012 report is issued. 2013 15 . According to the ACCA’s ‘‘Code of Ethics and Conduct’. which is a savings and loan organisation. This rule precludes (prevents) the ACCA member responding in the following situation: A Where a member is served with a court order under which they are obliged to disclose information.tonysurridge. The ACCA member reduced CAS’s usual audit fee by 40% because CAS’s financial condition was unfavorable. for the auditor to be considered independent with respect to the 2012 audit. however. A partner in a national ACCA firm.

Become independent in fact. Explain that under the ACCA’s ‘Code of Ethics and Conduct’ that this type of activity is prohibited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 22 During the course of an audit in the United Kingdom. and board approval is required for said financing to occur. 2013 www. The exercise of error free judgment. A Question 24 Professional competence and due care requires A B C D A critical review of the audit work done at every level of supervision. The chartered certified accountant auditor is asked by the company to test the internal controls of the company and offers compensation to the ACCA member for said services. A study and review of the internal control’s that include tests of controls.co.uk 16 . How should you respond? A B Go and enjoy yourself. Explain that under the ACCA’s ‘Code of Ethics and Conduct’ you cannot accept anything of significant value from a client. The chartered certified accountant auditor does not audit the company and has no other business connection with the company. Maintain public confidence in the profession. A B C D ©Tony Surridge Online Limited. A Question 25 According to the ACCA’s ‘‘Code of Ethics and Conduct’ in which of the following circumstances may an chartered certified accountant auditor serve on a company's board of directors? A The chartered certified accountant audits a bank to which the company has applied for financing. The chartered certified accountant auditor performs auditing services for a nonpublic company. while performing an audit. Comply with the ISAs of audit work. The examination of all corroborating evidence available. Explain to the client that under the ACCA’s ‘Code of Ethics and Conduct’ you must maintain your independence so it will be necessary to schedule some appropriate business activities.tonysurridge. strives to achieve independence in appearance in order to A B C D Reduce risk and liability. the client's controller asks you if you would like to spend the weekend in New York (USA) as the company's guest. A C D Question 23 An ACCA member.

an ACCA member. and so on.' the Gryphon remarked: 'because they lessen from day to day.' What a curious plan!' exclaimed Alice. 2013 www. A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim against the member." Lewis Carroll Alice's Adventures in Wonderland and Through the LookingGlass Original illustrations from Alice's Adventures in Wonderland. A member uses a records retention agency to store clients' records that contain confidential client information.co. Jones has a collateralised car loan with Northtown Bank. is a partner of Green & Jones Accounting Firm. Jones and a Northtown Bank board member belong to the same church. A B C D Question 27 Debbie Jones. Jone’s independence would be impaired under which of the following circumstances? A B C D Jones is a director of Northtown Bank. A "And how many hours a day did you do lessons?' said Alice.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 26 In which of the following situations is there a violation of client confidentiality under the ACCA’s ‘‘Code of Ethics and Conduct’ ? A A member discloses confidential client information to a court in connection with arbitration proceedings relating to the client.uk 17 .' said the Mock Turtle: 'nine the next. drawn by John Tenniel Alice in Wonderland Alice dancing with Mock Turtle and Gryphon ©Tony Surridge Online Limited. Ten hours the first day. in a hurry to change the subject. Green audited the books of Northtown Bank. That's the reason they're called lessons. A member whose practice is primarily bankruptcy discloses a client's name. Jones had an account with Northtown Bank two years ago.

Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section A: AUDIT FRAMEWORK AND REGULATION 1.uk 18 .tonysurridge. The concept of audit and other assurance engagements 2. Professional ethics and ACCA’s Code of Ethics and Conduct ©Tony Surridge Online Limited. 2013 www.co. The regulatory environment and corporate governance 4. Statutory audits 3.

Distractor A is incorrect because complying with International Financial Reporting Standards (IFRSs) is only one part of the basic objective of providing professional services that conform with professional standards. Distractor A. or may choose to. some control risk will always exist. Distractors A.uk 19 . ISA 200 states ‘The auditor may also conduct the audit in accordance with both ISAs and auditing standards of a specific jurisdiction or country. These include. the possibility of human errors or mistakes. can only reduce. Answer C is correct because a system of quality control is designed to provide a chartered certified accountancy firm with reasonable assurance of meeting its responsibility to provide professional services that conform with professional standards. Distractor D. because of the inherent limitations of an audit. in addition to complying with each of the ISAs relevant to the audit. implementation and maintenance of internal control by management to address identified risks that threaten the achievement of the entity’s objectives relevant to preparation of the entity’s financial statements. Detection risk. ©Tony Surridge Online Limited.tonysurridge. ISA 200 states ‘In performing an audit. The implication of the statement that it may not be necessary for the auditor to perform the additional audit procedures. ISA 200 states ‘Control risk is a function of the effectiveness of the design.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 1 C The question is about how a chartered certified accountancy firm obtains a reasonable assurance of providing professional services that conform with professional standards. test the operating effectiveness of controls in determining the nature. it may be necessary for the auditor to perform additional audit procedures in order to comply with the relevant standards of that jurisdiction or country’. The ISAs do not override law or regulation that governs an audit of financial statements. Paragraph A39. 2013 www. some detection risk will always exist’. ISA 200 states ‘ISA 300 and ISA 330 establish requirements and provide guidance on planning an audit of financial statements and the auditor’s responses to assessed risks. internal control. Distractor C.co. can only be reduced. Paragraph A55. Answer B is correct because paragraph A56. the auditor may be required to comply with legal or regulatory requirements in addition to the ISAs. risks of material misstatement in the financial statements. no matter how well designed and operated. or of controls being circumvented by collusion or inappropriate management override. However. Q Answer to Question 2 B Q To access ISA 200 click here The question is about identifying the incorrect statement of the word “will” concerning the ISA 200 guidelines. however. because of the inherent limitations of internal control. The ISAs provide the conditions under which the auditor is required to. Distractor D is incorrect because a peer review provides feedback on whether a chartered certified accountancy firm is following an appropriate system of quality control. not eliminated. Paragraph A44. C and D are incorrect because the word “will” is used correctly in each paragraph of ISA 200 referred to. timing and extent of substantive procedures to be performed’. Accordingly. but not eliminate. Accordingly. In such cases. an audit conducted only in accordance with law or regulation will not automatically comply with ISAs’. In the event that such law or regulation differs from the ISAs. for example. Distractor B is incorrect because it is less complete than Distractor C since continuing professional education is part of the firm’s system of quality control.

Distractor C is incorrect because ’to take true without examination’ would be the wrong approach. During an audit. responsive’) this is not as important as professional skepticism which helps to develop receptiveness or awareness.e. which includes a questioning mind and a critical assessment of audit evidence.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Answer to Question 3 A The question is about identifying the mind-set that the audit team should maintain during initial discussions concerning an audit engagement. Answer A is correct. the auditor should maintain an attitude of professional skepticism. Distractor B is incorrect because judgement is not as important as professional skepticism in the early discussions. is the sole supporting evidence for a material financial statement amount’. Distractor B is incorrect because conservative advocacy (support for traditionalism or low risk) is not appropriate. Q Answer to Question 4 D The question is about identifying the attitude required of the auditor during the examination of audit evidence.co. It also includes consideration of the sufficiency and appropriateness of audit evidence obtained in the light of the circumstances.uk 20 . ISA 200 states ‘Professional skepticism is necessary to the critical assessment of audit evidence. Paragraph A69. Distractor A is incorrect because although the auditor needs to be receptive or aware (i. ISA 200 states ’ …. Answer D is correct because paragraph A20. Distractor C is not correct because objectivity (impartiality or detachment) is part of skeptisicism. 2013 www. Q ©Tony Surridge Online Limited. This includes questioning contradictory audit evidence and the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance.tonysurridge. this ISA requires the auditor to adopt an attitude of professional skepticism. of a nature that is susceptible to fraud. this is necessary in all aspects of planning and performing an audit’. Distractor D is incorrect because to ‘disapprove’ would also be wrong at this early stage. for example in the case where fraud risk factors exist and a single document.

ISA 200 states ‘In conducting an audit of financial statements. for example. the overall objectives of the auditor are: (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 5 B The question is about identifying the technical knowledge and background required of an independent chartered certified accountant auditor. (b) Paragraph A16. Paragraph 11. Generally ISAs do not require the independent auditor to have experience in taxation.co.uk ©Tony Surridge Online Limited. The auditor must have adequate technical training and proficiency as an auditor and can take advantage of using ‘The work of an auditor’s expert’ Refer to ISA 620. and To report on the financial statements. whether due to fraud or error. Answer A is correct. to be objective and to maintain an attitude of professional skepticism’. therefore. 2013 21 . The auditor is neither trained as nor expected to be an expert in the authentication of documents’. in accordance with the auditor’s findings’. The auditor’s independence from the entity safeguards the auditor’s ability to form an audit opinion without being affected by influences that might compromise that opinion. The independent auditor should maintain an attitude of professional skepticism – an unbiased and objective view with respect to the audit which goes against forming pre-existing and well-informed points of view. The IFAC Code describes independence as comprising both independence of mind and independence in appearance. paragraph A47. in accordance with an applicable financial reporting framework. Distractor A is incorrect. required by the IFAC Code. collusion to falsify documentation which may cause the auditor to believe that audit evidence is valid when it is not. in all material respects. Paragraph A24. knowledge and experience have assisted in developing the necessary competencies to achieve reasonable judgments’. Distractor C is incorrect. An auditor does not need to have a background in many different disciplines. Q Answer to Question 6 A Q The question is about identifying the main objective of an independent audit of historic financial statements. ISA 200 states ‘The distinguishing feature of the professional judgment expected of an auditor is that it is exercised by an auditor whose training.tonysurridge. thereby enabling the auditor to express an opinion on whether the financial statements are prepared. Distractor B is incorrect because the objective of the auditor is not to assure the reader of financial statements that any fraudulent activity has been corrected. Therefore. audit procedures used to gather audit evidence may be ineffective for detecting an intentional misstatement that involves. ISA 200 states ‘Fraud may involve sophisticated and carefully organized schemes designed to conceal it. For example. Independence enhances the auditor’s ability to act with integrity. ISA 200 states ‘In the case of an audit engagement it is in the public interest and. Distractor D is incorrect. that the auditor be independent of the entity subject to the audit. which would suggest a 100% guarantee. rather the auditor must have adequate technical training and experience as an auditor and be able to use the work of experts as necessary. The answer continues on the next screen www. and communicate as required by the ISAs. Answer B is correct.

ISA 200 states ‘This International Standard on Auditing (ISA) deals with the independent auditor’s overall responsibilities when conducting an audit of financial statements in accordance with ISAs. Q Answer to Question 7 D The question is about identifying when IASs should be used by a chartered certified accountant auditor. Distractors A. B and C are incorrect because ISAs should be complied with in each case. regulatory or professional obligations’.co. authority and structure of the ISAs. Accordingly. They are to be adapted as necessary in the circumstances when applied to audits of other historical financial information. reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. Paragraph 1. while the auditor may find aspects of the ISAs helpful in such circumstances. Distractor C is incorrect because the audit report does not confirm the accuracy of management's financial representations.uk 22 . ISAs do not address the responsibilities of the auditor that may exist in legislation. It also explains the scope. Such responsibilities may differ from those established in the ISAs. Q ©Tony Surridge Online Limited. Paragraph 2. ISA 200 goes on to state ‘ISAs are written in the context of an audit of financial statements by an auditor. it is the responsibility of the auditor to ensure compliance with all relevant legal. and includes requirements establishing the general responsibilities of the independent auditor applicable in all audits. This statement does not imply that the auditor should not comply with applicable IASs. This is because there are inherent limitations of an audit. Specifically.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) An audit is not an official investigation into alleged wrongdoing. ISA 200 states ‘The auditor is not expected to. Distractor D is incorrect because the word ‘guarantees’ implies 100% assurance which is not given by the audit report. including the obligation to comply with the ISAs’. Q Answer to Question 8 B The question is about identifying why an independent auditor reports on financial statements. which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive’. Paragraph 45. for example. such as the power of search. the offering of securities to the public. and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives. Distractors A. which may be necessary for such an investigation’. Accordingly. Answer B is correct. 2013 www. regulation or otherwise in connection with. C and D are incorrect because they can be dealt with by internal auditors. it sets out the overall objectives of the independent auditor. the auditor is not given specific legal powers. Answer D is correct. and cannot.tonysurridge.

Q • ©Tony Surridge Online Limited. and To report on the financial statements. The independent auditor is concerned primarily with the financial system and financial reports and is not concerned with ‘other functional operations and data’. The statement ‘A regulatory function that prevents the issuance of improper financial information’ suggests a 100% assurance which is not the aim of the independent auditor. For purposes of the ISAs: (i) Sufficiency of audit evidence is the measure of the quantity of audit evidence. reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. or a higher authority in the governance structure that is outside the entity. the auditor may take such actions as: • • • Modifying the auditor’s opinion on the basis of a scope limitation. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information. which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive’ [i. Communicating with third parties (for example. Answer C is correct. Distractor B is incorrect.co. Auditing is not a branch of accounting. or the responsible government minister or parliament in the public sector. in accordance with the auditor’s findings’. Distractor D is incorrect. where withdrawal is possible under applicable law or regulation’. Obtaining legal advice about the consequences of different courses of action. that is.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 9 The question is about describing the work of independent auditing. in accordance with an applicable financial reporting framework. such as the owners of a business (for example. in all material respects. ISA 200 states ‘In conducting an audit of financial statements. its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based’. the overall objectives of the auditor are: (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. ISA 260 states ‘If the two-way communication between the auditor and those charged with governance is not adequate and the situation cannot be resolved. Q (ii) Paragraph 11. ISA 200 states that audit evidence is ‘Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. Withdrawing from the engagement. thereby enabling the auditor to express an opinion on whether the financial statements are prepared.e. and communicate as required by the ISAs. a regulator). 2013 www. Paragraph A45. and cannot. (b) Distractor A is incorrect. convincing] ‘rather than conclusive’. Answer to Question 10 Paragraph A44. ISA 200 states ‘The auditor is not expected to. shareholders in a general meeting). Appropriateness of audit evidence is the measure of the quality of audit evidence. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of such audit evidence. This is because there are inherent limitations of an audit.uk 23 . whether due to fraud or error. Paragraph 13(b).tonysurridge.

co.uk 24 . ©Tony Surridge Online Limited. 2013 www.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) International Standards on Auditing ISA 200 To access the ISA click here Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing Note: The first 9 Questions and Answers have been made active for the free sample.

the extent of these responsibilities. an audit in accordance with ISAs is conducted on the premise that management and.uk 25 . In terms of the ISAs define the following: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) Applicable financial reporting framework. Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing? A Question 2 For purposes of the ISAs. ISA 200 requires the auditor to maintain professional skepticism throughout the audit to reduce three risks.co. states that ‘the risks of material misstatement may exist at two levels’. A Question 5 Paragraphs A19. Misstatement Premise Professional judgement Professional skepticism Reasonable assurance Risk of material misstatement Those charged with governance A Question 3 Law or regulation may establish the responsibilities of management and. those charged with governance in relation to financial reporting. those charged with governance have acknowledged and understand that they have three responsibilities. where appropriate. However.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Question 1 What are the stated overall objectives of ISA 200. Give four examples of what professional skepticism includes the auditor being alert to. may differ across jurisdictions. where appropriate. ISA 200. What are they? A ©Tony Surridge Online Limited. or the way in which they are described. Audit evidence Audit risk Auditor Detection risk Financial statements Historical financial information Management. Despite these differences. A Question 4 Paragraph 15. states that the auditor ‘shall plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated’. different terms have meanings attributed. What are these risks? A Question 6 Paragraph A34. What are these responsibilities. ISA 200.tonysurridge. 2013 www.

2013 www. reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. Explain the terms: (i) (ii) ‘inherent risk’ ‘control risk’. the less the detection risk that can be accepted and. A Question 8 Paragraphs A42 and A43.. ISA 200 states ‘In performing an audit.tonysurridge. which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive’. Inherent risk and control risk are the entity’s risks. states that ‘The risks of material misstatement at the assertion level consist of two components: inherent risk and control risk. It is therefore a function of the effectiveness of an audit procedure and of its application by the auditor’. ISA 200. Briefly give four examples of matters that assist the auditor to enhance the effectiveness of an audit procedure and of its application and reduce the possibility that the auditor might select an inappropriate audit procedure. ISA 200. A Question 11 Parapgraph A55. states that ‘. misapply an appropriate audit procedure. the auditor may be required to comply with legal or regulatory requirements in addition to the ISAs. and there is a balance to be struck between the reliability of information and its cost’. ISA. and thereby its value. This is because there are inherent limitations of an audit. lays out the contents of a typical ISA. the more persuasive the audit evidence required by the auditor.. Detection risk relates to the nature. they exist independently of the audit of the financial statements’. and cannot. Briefly discuss the implications of this statement for the auditor. ISA 200.uk 26 . What are the main contents of an ISA? A ©Tony Surridge Online Limited. ISA 200 gives three matters from which the inherent limitations of an audit arise. What are the three inherent limitations? A Question 10 Paragraph A48.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Question 7 Para A37. ISA 200. state ‘For a given level of audit risk. the greater the risks of material misstatement the auditor believes exists. the acceptable level of detection risk bears an inverse relationship to the assessed risks of material misstatement at the assertion level. and extent of the auditor’s procedures that are determined by the auditor to reduce audit risk to an acceptably low level.co. the relevance of information. timing. accordingly. For example.’ What are the implications for the auditor in the event that such law or regulation differs from the ISAs? A Question 12 Paragraph A58. tends to diminish over time. A Question 9 Paragraph A45.. states that ‘The auditor is not expected to. or misinterpret the audit results.

ISA 200 defines professional judgements as ‘An attitude that includes a questioning mind.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Question 13 Paragraph A71. Detection risk is the risk that the procedures performed by the auditor to increase audit risk to an acceptably high level will not detect a misstatement that exists and that could be material. 2013 www. The risk of material misstatement is the risk that the financial statements are materially misstated prior to audit. What actions or procedures should the auditor perform when he or she concludes that the audit evidence is not sufficient and appropriate? A Question 14 Are all ISAs relevant for an audit? A Question 15 True or False? (i) (ii) (iii) Sufficiency of audit evidence is the measure of the quality of audit evidence. or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.tonysurridge.co. Appropriateness of audit evidence is the measure of the quantity of audit evidence. either individually or when aggregated with other misstatements. described as follows (1) inherent risk and (2) detection risk. A (iv) (v) (vi) (vii) (viii) The risk of material misstatement consists of two components. ISA 200 states that ‘The auditor is required to use the objectives to evaluate whether sufficient appropriate audit evidence has been obtained in the context of the overall objectives of the auditor’. classification. Misstatements can arise from error but not from fraud. Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. or disclosure of a reported financial statement item and the amount. Audit risk is a function of the risks of material misstatement and detection risk. and a critical assessment of audit evidence’. being alert to conditions which may indicate possible misstatement due to error or fraud. presentation. A misstatement is a difference between the amount. presentation. ©Tony Surridge Online Limited. classification.uk 27 .

uk 28 .co.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) International Standards on Auditing ISA 200 To access the ISA click here Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing ©Tony Surridge Online Limited. 2013 www.

Q (b) Answer to Question 2 Paragraph 13. in accordance with an applicable financial reporting framework. or that is required by law or regulation. and communicate as required by the ISAs. (d) (e) The answer continues on the next screen ©Tony Surridge Online Limited. the overall objectives of the auditor are: (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of such audit evidence. in all material respects. the firm. whether due to fraud or error. those charged with governance in the preparation of the financial statements that is acceptable in view of the nature of the entity and the objective of the financial statements. and To report on the financial statements. Q (b) - (c) Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. either individually or when aggregated with other misstatements. where appropriate. Auditor – “Auditor” is used to refer to the person or persons conducting the audit. “Engagement partner” and “firm” are to be read as referring to their public sector equivalents where relevant.uk 29 . Detection risk – The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material. its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based. Appropriateness of audit evidence is the measure of the quality of audit evidence. For purposes of the ISAs: Sufficiency of audit evidence is the measure of the quantity of audit evidence.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Answer to Question 1 Paragraph 11. 2013 www. usually the engagement partner or other members of the engagement team. the following terms have the meanings attributed below: (a) Applicable financial reporting framework – The financial reporting framework adopted by management and. in accordance with the auditor’s findings’. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information. Where an ISA expressly intends that a requirement or responsibility be fulfilled by the engagement partner. thereby enabling the auditor to express an opinion on whether the financial statements are prepared. as applicable. Audit risk is a function of the risks of material misstatement and detection risk. or. ISA 200 states ’For purposes of the ISAs. ISA 200 states ’ In conducting an audit of financial statements.tonysurridge.co. Audit evidence – Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. the term “engagement partner” rather than “auditor” is used. that is.

Misstatement – A difference between the amount. for example. those charged with governance for the purpose of the audit. presentation. The term “financial statements” ordinarily refers to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework. presentation. misstatements also include those adjustments of amounts. responsibility: For the preparation of the financial statements in accordance with the applicable financial reporting framework. but can also refer to a single financial statement. or give a true and fair view. That is. classification. For such internal control as management and. Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence. in all material respects. 2013 www. those charged with governance determine is necessary to enable the preparation of financial statements that are free from material misstatement. Additional information that the auditor may request from management and. Misstatements can arise from error or fraud. where appropriate. are necessary for the financial statements to be presented fairly. documentation and other matters. Where the auditor expresses an opinion on whether the financial statements are presented fairly. presentation. or an ownermanager. Management – The person(s) with executive responsibility for the conduct of the entity’s operations. The answer continues on the next screen ©Tony Surridge Online Limited. on which an audit is conducted) – That management and. in the auditor’s judgment. including where relevant their fair presentation. or disclosures that. where appropriate. about economic events occurring in past time periods or about economic conditions or circumstances at points in time in the past. and To provide the auditor with: Access to all information of which management and.co. those charged with governance. management includes some or all of those charged with governance. or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. or disclosure of a reported financial statement item and the amount. classification.tonysurridge. executive members of a governance board. Historical financial information – Information expressed in financial terms in relation to a particular entity. classifications. or to give a true and fair view. those charged with governance have acknowledged and understand that they have the following responsibilities that are fundamental to the conduct of an audit in accordance with ISAs. including related notes. For some entities in some jurisdictions. where appropriate. where appropriate.uk 30 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here (f) Financial statements – A structured representation of historical financial information. in all material respects. intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information. whether due to fraud or error. and Q (g) (h) (i) - - - -. where appropriate. (j) Premise (relating to the responsibilities of management and. derived primarily from that entity’s accounting system. those charged with governance are aware that is relevant to the preparation of the financial statements such as records.

Additional information that the auditor may request from management and. a high. those charged with governance determine is necessary to enable the preparation of financial statements that are free from material misstatement. those charged with governance for the purpose of the audit. where appropriate. but not absolute. For some entities in some jurisdictions. Reasonable assurance – In the context of an audit of financial statements. those charged with governance are aware that is relevant to the preparation of the financial statements such as records. Control risk – The risk that a misstatement that could occur in an assertion about a class of transaction. This includes overseeing the financial reporting process. For such internal control as management and. or detected and corrected. either individually or when aggregated with other misstatements. those charged with governance have acknowledged and understand that they have responsibility: (a) For the preparation of the financial statements in accordance with the applicable financial reporting framework.co. in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. executive members of a governance board of a private or public sector entity. whether due to fraud or error. will not be prevented. documentation and other matters. within the context provided by auditing. where appropriate. Q (l) (m) (n) - (o) Those charged with governance – The person(s) or organization(s) (for example.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here (k) Professional judgment – The application of relevant training. being alert to conditions which may indicate possible misstatement due to error or fraud. an audit in accordance with ISAs is conducted on the premise that management and. and Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence’. before consideration of any related controls. Answer to Question 3 Paragraph A2. or an owner-manager’. where appropriate. a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. described as follows at the assertion level: Inherent risk – The susceptibility of an assertion about a class of transaction. and a critical assessment of audit evidence. accounting and ethical standards. 2013 31 . Risk of material misstatement – The risk that the financial statements are materially misstated prior to audit. including where relevant their fair presentation. level of assurance. on a timely basis by the entity’s internal control. account balance or disclosure to a misstatement that could be material. either individually or when aggregated with other misstatements. where appropriate. those charged with governance may include management personnel. knowledge and experience.uk Q (b) (c) (ii) (iii) ©Tony Surridge Online Limited. ISA 200 states ’…. www. account balance or disclosure and that could be material.tonysurridge. Professional skepticism – An attitude that includes a questioning mind. for example. This consists of two components. and To provide the auditor with: (i) Access to all information of which management and.

Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here Answer to Question 4 Paragraph A18. Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence. Q Answer to Question 6 Paragraph A34. ISA 200 defines ‘inherent risk’ as ‘The susceptibility of an assertion about a class of transaction. account balances. and disclosures than for others. it may be higher for complex calculations or for accounts consisting of amounts derived from accounting estimates that are subject to significant estimation uncertainty. and The assertion level for classes of transactions. Such factors may include. 2013 www. ©Tony Surridge Online Limited. Conditions that may indicate possible fraud. Risks of material misstatement at the assertion level are assessed in order to determine the nature. Using inappropriate assumptions in determining the nature. ISA 200 states ’ Inherent risk is higher for some assertions and related classes of transactions. For example. Paragraph A38. account balances. ISA 200 states ’Maintaining professional skepticism throughout the audit is necessary if the auditor is. External circumstances giving rise to business risks may also influence inherent risk. either individually or when aggregated with other misstatements. account balance or disclosure to a misstatement that could be material. Q Risks of material misstatement at the overall financial statement level refer to risks of material misstatement that relate pervasively to the financial statements as a whole and potentially affect many assertions. thereby causing inventory to be more susceptible to overstatement. timing. for example. Over generalizing when drawing conclusions from audit observations. and extent of the audit procedures and evaluating the results thereof’. for example. or disclosures may also influence the inherent risk related to a specific assertion. technological developments might make a particular product obsolete. Q Answer to Question 5 Paragraph A19. Circumstances that suggest the need for audit procedures in addition to those required by the ISAs’. and disclosures. before consideration of any related controls’. and extent of further audit procedures necessary to obtain sufficient appropriate audit evidence. Answer to Question 7 (i) As stated previously. for example: • • • • Audit evidence that contradicts other audit evidence obtained. timing. account balances.co. For example. to reduce the risks of: • • • Overlooking unusual circumstances.tonysurridge. ISA 200 states ’The risks of material misstatement may exist at two levels: • • The overall financial statement level. Factors in the entity and its environment that relate to several or all of the classes of transactions. ISA 200 states ’Professional skepticism includes being alert to. a lack of sufficient working capital to continue operations or a declining industry characterized by a large number of business failures’.uk Q 32 . This evidence enables the auditor to express an opinion on the financial statements at an acceptably low level of audit risk’.

or misinterpret the audit results’. on a timely basis by the entity’s internal control Paragraph A39. and The need for the audit to be conducted within a reasonable period of time and at a reasonable cost’. the application of professional skepticism. Answer to Question 9 Paragraph A45. The nature of audit procedures. This is because there are inherent limitations of an audit. and supervision and review of the audit work performed. or detected and corrected. and cannot. These include. However. can only reduce. timing and extent of substantive procedures to be performed’. will not be prevented. ISA 200 defines control risk as ‘The risk that a misstatement that could occur in an assertion about a class of transaction. timing. which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive [credible] rather than conclusive [certain]. The inherent limitations of an audit arise from: • • • The nature of financial reporting. but not eliminate.uk 33 . no matter how well designed and operated. 2013 www. and extent of the auditor’s procedures that are determined by the auditor to reduce audit risk to an acceptably low level. or of controls being circumvented by collusion or inappropriate management override.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) To access ISA 200 click here (ii) As stated previously. The ISAs provide the conditions under which the auditor is required to. ISA 200 states ’The auditor is not expected to. account balance or disclosure and that could be material. or may choose to.tonysurridge. misapply an appropriate audit procedure. Q Answer to Question 8 Paragraph A43. the possibility of human errors or mistakes. Accordingly. Q ©Tony Surridge Online Limited.co. Q assist to enhance the effectiveness of an audit procedure and of its application and reduce the possibility that an auditor might select an inappropriate audit procedure. ISA 200 states ’Detection risk relates to the nature. internal control. reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. either individually or when aggregated with other misstatements. because of the inherent limitations of internal control. Matters such as: • • • • adequate planning. proper assignment of personnel to the engagement team. test the operating effectiveness of controls in determining the nature. implementation and maintenance of internal control by management to address identified risks that threaten the achievement of the entity’s objectives relevant to preparation of the entity’s financial statements. It is therefore a function of the effectiveness of an audit procedure and of its application by the auditor. for example. some control risk will always exist. risks of material misstatement in the financial statements. ISA 200 states ’ Control risk is a function of the effectiveness of the design.

uk 34 . 2013 www.co. The regulatory environment and corporate governance 4. Statutory audits 3.tonysurridge. Professional ethics and ACCA’s Code of Ethics and Conduct ©Tony Surridge Online Limited. The concept of audit and other assurance engagements 2.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section A: AUDIT FRAMEWORK AND REGULATION 1.

the extent of evidence gathering... discuss the function of an audit of historical financial statements.....Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 1 Independence The following are various services that accountants perform for clients.... Signature .... whether the financial statements are prepared... ..... To From Subject : : : Client Accountant....co.. and whether independence is required.. Question 3 Complete the IFAC's definition of an audit: The objective of an ..tonysurridge. Please write your answer on paper. Do not convey information in the form of a table or abbreviated presentation........ Compilation Tax preparation Review Examination Audit Agreed upon procedures A Question 2 In a brief memo to a client... 2... and express your ideas............uk 35 . indicate which of them requires the accountant to be independent. The phrases used to express the auditors' opinion are: 'give a . Your response in the exam will be graded for both technical content and writing skills.. in all ..... 5... in accordance with an identified financial reporting framework. 3............. of .. ACCA The audit function as it relates to the assurance provided.... including the assurance provided.......... and whether independence is required. Service: 1... in all material respects'.. A Note: The first 9 Questions and Answers have been made active for the free sample.. A ©Tony Surridge Online Limited.. 2013 www.. You should demonstrate your ability to develop... For each type of service.. is to enable the auditor to ...... organise.. the extent of evidence gathering.... an .......... which are equivalent terms.... and ..... respects. 6......... 4. .. view' or '.

State five advantages of the partnership having an audit. 4.co. 2013 www. Type of organisation Large limited liability company Small sole trader Charities Building societies Housing associations Trade unions A Question 5 Put the following key stages of an audit in the correct sequence: Test the financial statements Assess the system and internal controls Determine the audit approach Express an opinion Test the system and internal controls Ascertain the system and controls Review the financial statements A Question 6 A partnership might benefit from having an audit though it is not required to do so by law.uk 36 . 2. A Question 7 The term ‘Financial statements’ typically include four basic financial statements. Disclosure Negative assurance Internal audit Audit assurance A ©Tony Surridge Online Limited. What are they? A Question 8 Define the following terms: 1. 3. in the UK.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 4 Which of the following has a statutory obligation for an audit.tonysurridge.

uk 37 .co. by behaving rationally. The use of internal auditing is generally not a legal requirement Principal-agency theory (PAT) predicts that. A review is the same as an audit. A Question 10 List seven postulates of modern auditing. A Question 14 If the audit committee operates effectively it can bring significant benefits. A Question 12 Describe six features of poor governance. 6. 2. 4. A ©Tony Surridge Online Limited. The student of auditing is going to enjoy studying this subject. 8. A Question 13 State five duties of the members of an Audit Committee. A Question 11 Define corporate governance. List five such benefits. 9. 2013 www. What is included in the audited financial statements is determined largely by the entity's management. 7. 10. By the end of an audit.tonysurridge. When involved in a 'Compilation Engagement' the accountant provides assurance about the matter in hand. 5. (note: the question refers to benefits and not aims). an auditor may be able to certify that accounts are correct. (The term postulate means 'premises' 'foundation' 'groundrules'). A Question 15 Discuss six aims of an audit committee. National legislation has precedence over International Accounting Standards.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 9 True or false 1. Auditors can rely on controls that are well designed. The auditor ensures that the Audit Report is accurate at the time it is published. 3. management (the agents) are motivated to act in the interests of the shareholders (principals).

2013 38 . A Question 21 What is an 'Elective resolution'? A Question 22 The majority of companies are required by national law to have an audit.co. www. A Question 24 Discuss five arguments in favour of a small entity having an audit in respect to the users of financial statements. A Question 19 The IFAC issues different categories of standards and guidelines. What do the following stand for: 1. List five such advantages. A Question 25 Discuss five arguments against the statutory audit of small entities in respect to the users of financial statements. There are possible advantages for a small private (limited liability) company in having financial statements audited even when no statutory requirement exists for such as audit. 2. A Question 18 The auditor is regulated by four main regulatory bodies. Name them. A key exemption generally given to this requirement is that given to small companies. ISAs IAPSs ISREs ISAEs A Question 20 There are different types of regulatory mechanisms affecting the operations of a company.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 16 Describe five types of regular reporting that would be useful for the functioning of the audit committee. List four characteristics of a small entity that would have some bearing on the auditing activity A Question 23 The need for an external audit arises primarily when the ownership and management of an entity are separated. Describe five examples of such regulatory mechanisms. 3. 4. A Question 17 Briefly indicate four requirements that an auditor needs to meet to be eligible to conduct a statutory audit in most jurisdictions. of which the auditor needs to be aware.tonysurridge.uk A ©Tony Surridge Online Limited.

A Question 29 UK Companies Act. Exposure drafts of proposed IFAC standards are made available for public comment for at least 60 days. does not concern the auditor. Private companies that are large enough to require an audit are required to lay out accounts annually. A Question 31 Explain the role of the Professional Bodies in the regulation of auditors. A Question 30 Explain five responsibilities of external auditors to directors and shareholders. UK Companies Act. can require the accounts to be audited. 5. The contents of an auditor's report is laid out in ISA 700. 2006) is used to exemplify legislation used in most jurisdictions. 4.uk A 39 ©Tony Surridge Online Limited. 9. What must the auditor consider in order to meet this duty? A Question 28 Auditors must have certain rights to enable them to carry out their duties. An auditor must be given at least 28 days of notice of removal by 'Special Notice to remove the auditor'. excepting those dealing with resignation or removal. Question 27 The duties of an auditor require a report on every balance sheet and income statement laid before the company in general meeting. List six items that the Directors' report should set out. 2006 requires the directors to prepare a report with respect to the company's affairs. 3.co. 2013 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 26 True or false 1. 6. 7. Briefly discuss five rights of an auditor. www. In the UK a simple majority of members (in meeting) is required to appoint an auditor. In the UK it is the auditor's responsibility to deposit a 'Statement of Circumstances' at the company's registered office within 14 days of ceasing to hold office. The only occasion when directors have the right to appoint the auditor is to fill a casual vacancy. as such. This report. 10. A 2. 8. 2006 requires the directors to prepare a report with respect to the company's affairs. When an auditor ceases to hold office a 'Statement of Circumstances' must always be deposited by the auditor who is leaving the office. UK legislation (Companies Act. Members holding 10% of the nominal value of the issued capital of a private company which is not required to have a statutory audit.tonysurridge.

The firm. A Question 36 The onus is always on the auditor not only to be ethical but also to be seen to be ethical. its partners or staff and the audit client.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 32 Explain the benefits of external audit.uk 40 .tonysurridge. A Question 35 Explain why the provision of non-audit services to audit clients might be seen as a problem and why it is sometimes suggested that auditors should not provide such service. To this end the ACCA (recognised as a 'Recognised Supervisory Body [RSB]') promulgates its 'Rules of Professional Conduct'. A Question 34 Explain the requirements of the ACCA's Rules of Professional Conduct relating to the supply of nonaudit services to public company audit clients. A ©Tony Surridge Online Limited.co. 2013 www. These are similar to those of the ACCA. A Question 33 Describe five actions auditors can take when being threatened with removal by the directors. What are the five principles in the IFAC's code. its partners or staff have a financial interest in an audit client. What are they? A Question 37 The IFAC also has its 'Fundamental Auditing Principles' which requires professional accountants to observe a number of prerequisites or fundamental principles. part of which is the 'Fundamental Principles'. There are family or other close personal or business relationships between the firm. A Question 39 Describe ACCA's requirements that reduce the threats to auditor objectivity for each of the four circumstances detailed in Question 9. The 'Fundamental Principles' acts as a code which contains five major points. The firm provides other services to audit clients. A Question 38 Briefly describe why the objectivity of the external auditor may be threatened or appear to be threatened in the following circumstances: (a) (b) (c) (d) There is undue dependence on any audit client or group of clients.

List six circumstances in which a worker can make a qualifying disclosure (whistleblow) and seek protection of the courts should it be necessary. Explain four reasons against such rotation. A Question 42 It is argued that the long-term nature of the company audit engagement tends to create a loss of audit independence. and for which the worker is protected by making the disclosure.' In general information acquired in the course of professional work should not be disclosed. the Public Interest Disclosure Act 1988 gives protection to 'workers' who make qualifying disclosures (they whistleblow). A Question 41 An ACCA regulation states that 'A member's objectivity must be beyond question if (s)he is to report as an auditor. often offer a wide range of business and accountancy services... independent'. However they may be compelled .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 40 An ACCA regulation states that 'A member's objectivity may be threatened or appear to be threatened as a consequence of a family or other close personal or business regulation .' List six types of people who would be regarded as closely connected with an auditor. A Question 44 What is meant by 'Due skill and care'? A Question 45 Audit firms.. to consider it desirable in the public interest to disclose details of client's affairs to third parties. List eight services (which are not auditing services) which could be in such a portfolio. but there are exceptions to this rule. under the Act. due to an increasing familiarity with the company's management and staff. For this reason it is argued that there should be a rotation of the audit appointment every few years. in other words the disclosure of information that.. and its services could include a portfolio of services to a client. 2013 www. That objectivity can only be assured if the member is. even small ones. Under the Act there are qualifying disclosures. Explain six recognised exceptions. is permissible.. List five reasons.uk 41 . A ©Tony Surridge Online Limited. A Question 43 An ACCA regulation states. which works against the shareholders and the public's interest. and is seen to be.tonysurridge.co. 'Auditor's have a professional duty of confidentiality. Threats to an auditor's independence and objectivity could arise for a number of reasons.. A Question 46 In the UK.

A The question continues on the next screen ©Tony Surridge Online Limited. Required: Prior to your meeting the audit partner asks you to write a letter to the directors of QuickParts Company explaining the following points in your letter. and the difficulty in obtaining adequate professional indemnity insurance cover. You are required: (a) to list and briefly describe the circumstances when an auditor may be liable for damages for material mis-statements in published accounts on which he has expressed an audit opinion. A Question 48 QuickParts Company. which will be discussed at the meeting: (a) (b) (c) (d) Why an audit is required. 2006. What the auditor's rights are under the UK Companies Act. 2006) is used to exemplify legislation used in most jurisdictions. for the first time.tonysurridge. and its cost. obliged to have a statutory audit. You are required to prepare a note for your audit partner advising him of the possible defences should a liability claim arise. It has recently been discovered that for the past few years the managing director has consistently overvalued inventory. 2006. The audit partner has asked you as audit manager to visit the client and explain to the directors the more fundamental aspects of the accountability of the company and their relationship with the auditor.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 47 Briefly explain who is eligible to act as the auditor of a limited company under the provisions of the UK Companies Act. 2013 www. The directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. 2006. A A A A Question 49 The accountancy profession is constantly concerned by the problem of auditors' liability. UK legislation (Companies Act. A Question 50 It has been suggested that the liability of auditors should be limited because of: the increasing number and size of damages claims being brought against auditors. to state under what circumstances the auditor might be liable to third parties. made an initial public offer (IPO) and was listed on the London Stock Exchange and was therefore. he responsibilities of the directors in relation to the accounting function of the company.uk 42 . a car components manufacturer. and the circumstances when he may avoid liability. A Your firm has been the auditor of Artak Artworks for many years. How the auditor of a public company may be appointed under the UK Companies Act.co. (a) You are required: (i) (ii) (b) to state to which parties the auditor might be liable.

©Tony Surridge Online Limited. to consider what the effect of limiting an auditor's liability is likely to have on: (i) (ii) the investor's view of the reliability of the audit opinion.tonysurridge. the UK legal requirements relating to the appointment of limited company auditors ensure auditor independence. and state the basis a court of law would use to assess the value of damages. and whether you would agree with the proposal that an auditor's liability should be limited. Oklahoma best known for founding the retailers Wal-Mart and Sam's Club. and the amount of work an auditor will perform (compared with the work he would perform if his liability was unlimited).co. To what extent do you think your independence might be lessened because of: (i) (ii) your friendship with the club Chairman your own club membership? A A Question 52 Discuss the extent to which. The club Chairman. in practice. 2013 www. and consider the practicality of these methods of limiting an auditor's liability. A A A (c) (d) (e) to briefly come to a conclusion on: (i) (ii) (iii) whether you consider it is practicable for an auditor's liability to be limited.uk 43 . and the effect this will have on the reliability of the audit opinion. Required: (a) (b) Compare your responsibilities as accountant compared to those of auditor. entrepreneur. and Eagle Scout born in Kingfisher.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) (b) to list the persons who may make successful legal claim against an auditor. has persuaded you to become the centre's auditor and accountant. whether limiting an auditor's liability will affect the reliability of the audit opinion. Sam Walton Samuel Moore "Sam" Walton (1918 – 1992) was a businessman. A (f) Briefly discuss factors which the external auditor should consider in evaluating the work of the internal audit department A Question 51 You are a partner of a small certified accounting firm and also a member of a local sports centre. to briefly describe the ways the liability of auditors could be limited. A High expectations are the key to everything. who is a friend of yours.

One of the partners is responsible for two audits.000. (b) ACCA's Rules of Professional Conduct describe various situations and relationships. the total fee income of the audit firm is $700. could pose a threat to auditor independence. which if existing.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 53 You have just started working for a small firm of accountants and the first audit which you will be assisting on is the company where your sister works as a Financial Director. Required: Comment on the above statement ensuring that you include an explanation of the term 'professional objectivity' and include commentary on the validity of the statement. Pamoy Company has asked the audit partner to advise on the matter. The chief accountant is not a director of the company and the audit partners is not responsible for Manny Company's work. Whilst in the planning meeting the audit manager is discussing independence and you are unsure as to exactly whether or not this relationship prevents you from performing any audit work. He also provides you with details of personal circumstances of other audit staff and asks you to consider what the outcome should be (see extract below).000. he does not have to be seen to be independent. Extract (i) One of the audit partners is a personal friend of the chief accountant of Manny Company.tonysurridge. A A Question 54 (a) Provided an auditor possesses professional objectivity. Axol Company has recently tendered for a contract with Pamoy Company for a supply of material quantities of goods over a number of years.co.000 on which he is paying the market interest rate. Consider the following scenarios: A The question continues on the next screen ©Tony Surridge Online Limited.uk 44 . 2013 www. The audit senior in charge of the audit of Sterling Bank has a personal loan from the bank of $15. (b) State what you think the outcome should be in each of the four situations in the extract provided to you by the audit manager. When discussing this with the manager he suggests you do some reading on the subject to aid your understanding and continue the discussion the next day. The guidance notes provide examples of appropriate actions that can be taken to safeguard against the loss of independence where such situations and relationships exist. The audit fee receivable from Zoomic Company is $150. Axol Company and Pamoy Company. (ii) (iii) (iv) Required: (a) Prepare a memorandum addressed to the audit manager explaining what is meant by the independence and suggest ways in which the auditor can try and ensure his independence is maintained. Conclude on whether you think your relationship prevents you from assisting on the audit.

a large audit firm and auditors of Dampont Company . Your firm has recently received a letter from the nominee auditors asking if there are any professional reasons why they should not accept appointment as auditors of Metal Craft Company. The working paper should outline the rights which the UK Companies Act. A (b) A A (c) Draft a suitable response (in memorandum form) to the junior auditor. The directors have informed you that they intend to dismiss your firm as auditors. The annual total fee income of Gambles. Question 55 You are the audit senior in a firm who has recently completed the audit of Metal Craft Company. Each of the directors of Dampont Company is entitled to an annual bonus based on the reported profit of the company. and after extensive discussions with the directors of the company.uk 45 .000. the audit engagement partner of White & White Chartered Certified Co visited the offices of Campbo Company to plan the final audit procedures for the year ending 31 December 2012. 2013 www. (iii) A Required: For each of the above scenarios: comment on any concerns you may have regarding the threat to auditor independence and objectivity and recommend the appropriate action to be taken by the audit firm to safeguard against any threat identified.has recently been appointed as the Financial Director of Dampont Company. a long established firm. the audit report has been qualified in respect of the auditors' inability to agree with the directors on the appropriateness of a provision against obsolete inventory. and further they intend to appoint the new auditors because they are more likely to accept the accounting policies of the directors. The directors have informed you verbally that the reason for your dismissal is the disagreement over the provision for stock obsolescence.000 and the offer was not made to anyone else.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) (i) On the 3 October 2012. Draft a suitable letter in reply to the request from the nominee firm of auditors asking if there are any reasons why they should not accept appointment as auditors. Immediately prior to her appointment she had been employed by one of Dampont's competitors.000. and replace you with a small local firm of accountants. Gambles & Gambles. an entrepreneur with a very dominant personality. ©Tony Surridge Online Limited.4m and the combined audit fees attributable to the two companies is $220. Required: (a) Prepare a working paper for the audit partners to be used in a meeting to discuss the current situation with Metal Craft Company. 2006 gives the auditor when a company proposes to dismiss him and has dismissed him. The projected annual fee attributable to the third company is $240.co. A week later.tonysurridge. Gambles & Gambles with a view to appointing them as auditors to a third limited company under his control.. Albert Goldsmithe has recently approached Gambles. One of the junior auditors who has just commenced employment with the firm is very interested in the situation and would like to discuss it with you further. Individual annual membership normally costs $3. he asks you to explain what the ethical implications for the nominee auditor are if he decides to accept appointment as auditor. Gambles & Gambles is $2. Gambles. audit the financial statements of two private limited companies owned by Albert Goldsmithe. each of the five partners of White & White Co received an unsolicited letter from the Managing Director of Campbo Company offering one year's free membership at one of its golf and country clubs with effect from 1 November 2012. A (ii) The wife of one of the audit managers at McDonalds Chartered Certified Accountants and A Company .

where he led the team to three straight league championships and five in seven years. They have also decided to employ two junior members of staff to study for their ACCA qualification and have asked you to spend some time with them explaining exactly what is required of them as accountants by law and by the ACCA. Vince Lombardi Vincent Thomas "Vince" Lombardi (June 1913 – 1970) was an American football coach. Winners never quit and quitters never win. 2006 which strengthens the independence of the auditor.tonysurridge. objectivity and independence which strengthen the independence of the auditor. Vince Lombardi ©Tony Surridge Online Limited. including winning the first two Super Bowls following the 1966 and 1967 NFL seasons. 2006) is used to exemplify legislation used in most jurisdictions. This will then be reviewed by the partners prior to being given to the junior members of staff.co.uk 46 . A A UK legislation (Companies Act. 2013 www. He is best known as the head coach of the Green Bay Packers during the 1960s. (b) Explain to the junior auditors the requirements of the ACCA's Professional Conduct Rule on Integrity.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Question 56 You have just qualified with a BA degree in Accounting and Finance and have decided to study for a further professional accountancy qualification which your firm has offered to sponsor you for. Required: (a) Prepare a memorandum addressed to the partners of the firm outlining the provisions of the UK Companies Act.

co. Statutory audits 3. The regulatory environment and corporate governance 4. 2013 www. The concept of audit and other assurance engagements 2.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section A: AUDIT FRAMEWORK AND REGULATION 1. Professional ethics and ACCA’s Code of Ethics and Conduct ©Tony Surridge Online Limited.uk 47 .

Q There is only one boss.. Answer to Question 3 The objective of an audit of financial statements is to enable the auditor to give an opinion whether the financial statements are prepared.co. 4.. Signature . in accordance with an identified financial reporting framework. 2. in all material respects. some charities..uk 48 . housing associations and trade unions. Hence. 2013 www. Sam Walton ©Tony Surridge Online Limited. The evidence should provide reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used. significant management estimates. And he can fire everybody in the company from the chairman on down. which are equivalent terms. in all material respects. ACCA The audit function as it relates to the assurance provided. in all matters related to the assignment. the extent of evidence gathering. in conformity with International Accounting Standards. on a test basis. simply by spending his money somewhere else. an audit includes examining. The audit should be planned and performed to obtain sufficient competent evidence.. Thus. evidence supporting the amounts and disclosures in the financial statements.. and whether independence is required. Finally... 5.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 1 1. 6. an audit provides the highest form of assurance. The phrases used to express the auditors' opinion are: 'give a true and fair view' or 'present fairly in all material respects'. The customer.. Q An audit is an examination of the financial statements. the auditor(s) must maintain an independence in mental attitude. Q Answer to Question 4 The following require a statutory audit (in the UK): Large limited liability companies.tonysurridge. An audit is conducted in accordance with the International Auditing Standards.. building societies. 3.. It is intended to provide positive assurance about the true and fair view of the statements. No No Yes Yes Yes Yes Independence is not required Independence is not required Independence is required Independence is required Independence is required Independence is required Q Answer to Question 2 To From Subject : : : Client Accountant.. and the overall statement presentation. The audit report states whether the financial statements are fairly presented.

and ownership equity at a given point in time. reports on a company's income. Statement of Comprehensive Income: also referred to as Profit and Loss statement (or a "P&L"). May benefit a 'sleeping partner' who otherwise has little knowledge of partnership affairs. Q 2. 6. Deciding entry terms for a new partner. The term “financial statements” ordinarily refers to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework. investing and financing activities. Determine audit approach Ascertain the system and controls Assess the system and internal controls Test the system and internal controls Test the financial statements Review the financial statements Express an opinion Q Answer to Question 6 Advantages of an audit for the partnership include: 1. 3. May make the accounts more acceptable to the Inland Revenue. 5. including related notes. 3. Q (ii) (iii) (iv) ©Tony Surridge Online Limited. Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period . accompanied by a management discussion and analysis: (i) Statement of Financial Position: also referred to as a balance sheet. 4. liabilities. 7. 5. 2. 2013 www. and profits over a period of time. expenses. [International Accounting Standards Board] includes four basic financial statements.uk 49 . reports on a company's assets. but it can also refer to a single financial statement’. intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information.tonysurridge.co. May facilitate the negotiation of a loan. Statement of cash flows: reports on a company's cash flow activities. IAS 1. particularly its operating. A Profit & Loss statement provides information on the operation of the enterprise. 4. These include sale and the various expenses incurred during the processing state. Means of settling accounts between partners. A partnership which has a complicated profit-sharing arrangement may require an independent examination of the accounts/financial statements to ensure as far as possible an accurate assessment and division of profits between the partners.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 5 The key stages of the audit process are: 1. Answer to Question 7 The IFAC glossary defines ‘Financial Statements’ as ‘A structured representation of historical financial information.

evidence of the existence of controls is not enough. 3. Is the auditor's satisfaction as to the reliability of the assertion made by one party for use by another party. Reviews do not give the same high level of assurance as an audit. Audit assurance. 9. In other words s(he) gives an assurance in the absence of any evidence to the contrary. Internal audit. TRUE FALSE What is included in the audited financial statements. 5. 2013 www. Principal-agency theory (PAT) predicts that. objective assurance and consulting activity designed to add value and improve an entity's operations. Q 2. disciplined approach to evaluate and improve the effectiveness of risk management. 7. Is a release by the entity of information. positive or negative. the annual Financial Statements issued by a company constitute disclosures. by behaving rationally. For example. and what is excluded.uk 50 . management (the agents) are motivated to act against the interests of the shareholders (principals). Disclosure. It helps an entity accomplish its objectives by bringing a systematic. 4 Answer to Question 9 1. Auditors do not certify the financial statements or guarantee that the financial statements are correct.co. but no assurance is given. TRUE FALSE 8. they report whether in their opinion they give a 'true and fair view' or 'present fairly' the financial position. 10. 2. Controls can be overridden. A good time will be had by all!!! Q 3. Negative assurance. Is when an auditor gives an assurance that nothing has come to his (her) attention which indicates that the financial statements have not been prepared according to the relevant framework. Only in specific public sector organisations is the internal audit a statutory requirement. FALSE 4. is determined largely by national legislation and accounting standards. Users of the compiled information gain some benefit from the accountant's (as opposed to the auditor's) involvement. FALSE FALSE 6. The audit report may be out-of-date by the time its published. Internal audit is an independent.tonysurridge. FALSE FALSE TRUE ©Tony Surridge Online Limited. control and governance processes. that might bear on an entity's existing position or performance.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer to Question 8 1.

2013 www.uk 51 . Professional ethics and ACCA’s Code of Ethics and Conduct ©Tony Surridge Online Limited.tonysurridge. Statutory audits 3. The concept of audit and other assurance engagements 2. The regulatory environment and corporate governance 4.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section A: AUDIT FRAMEWORK AND REGULATION 1.

uk 52 .) Syllabus Section A: Audit Framework and Regulation Title Question Letters to a School Friend A question covering issues concerning ASAs Screen 903 904 906 907 909 910 912 913 916 917 920 921 924 925 927 928 930 931 933 934 Answer Letters to a School Friend A question covering underpayment. objectivity and independence and the engagement letter StrictBus Company Put-U-Up Construction Company A question covering various corporate governance issues Put-U-Up Construction Company Objectivity of the external auditor A question covering the objectivity of the auditor Objectivity of the external auditor Holway Hotel and Xfoods Company A question covering conflict of interests. ©Tony Surridge Online Limited. fundamental principles set out in ACCA’s Code of Ethics and Conduct of integrity. and audit independence Answer Newingreen Consolidated Company Question Rainbow Company A question covering weaknesses in a system and advantages of having an audit committee Answer Rainbow Company Note: The first 4 Questions and Answers have been made active for the free sample. contingent liabilities and contingent assets Holway Hotel and Xfoods Company Question JD Development Company Answer Question Answer Question Answer Question Answer Question Answer Question ACS Company A question covering corporate governance issues Answer ACS Company Question Arwan & Co A question covering issues related to corporate governance Answer Arwan & Co Question Newingreen Consolidated Company A question covering the principles of confidentiality. 2013 www. provisions.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other.co.tonysurridge. under provisions and the removal of the auditor JD Development Company StrictBus Company A question covering issues concerning inventory.

Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Letter to a School Friend: Question .1 of 1 A question covering issues concerning ISAs International Standards on Auditing (ISAs) are produced by the International Audit and Assurance Standards Board (IAASB).uk 53 . there's always another one coming. (8 marks) (c) The extent to which an auditor must follow ISAs.co. (4 marks) A A A A (b) The overall authority of ISAs and how they are applied in individual countries. (4 marks) (d) The extent to which ISAs apply to small entities. In recent years. However. A school friend who you have not seen for a number of years is considering joining ACCA as a trainee accountant.tonysurridge. Sir Richard Branson ©Tony Surridge Online Limited. (4 marks) (20 marks) Business opportunities are like buses. she is concerned about the extent of regulations which auditors have to follow and does not understand why ISAs have to be used in your country. Required: Write a letter to your friend explaining the regulatory framework which applies to auditors. there has been a trend for more countries to implement the ISAs rather than produce their own auditing standards. 2013 www. Your letter should cover the following points: (a) The due process of the IAASB involved in producing an ISA. which is a technical committee of the International Federation of Accountants (IFAC).

the whole of the text. The subcommittee produces an exposure draft on that subject. Other text in the ISA provides guidance on the implementation of the principles. Each ISA contains the basic principles and procedures to apply to that ISA (identified by bold type in the ISA itself). Comments are sent back to the IAASB and the exposure draft is amended as necessary. It is expected that departure from any ISA will be the exception rather than the rule. not simply the parts in bold type. The working procedure of the IAASB to produce an ISA The start of the process of producing an International Standard on Auditing (ISA) is for a subcommittee of the International Audit and Assurance Standard Board (IAASB) to determine appropriate areas for an ISA. Regarding the detailed requirements of an audit. then the ISA will be used. However. I will try and explain the need for standards in this letter. initially for consideration by the IAASB. Where our local codes on audit differ from the ISA. then the ISAs would not overrule that requirement.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Letter to a School Friend: Answer . our country may require an engagement letter to be signed every five years. Finally the exposure draft is re-issued as an ISA or an International Auditing Practice Statement (IAPS).uk 54 . In this situation. It is therefore unlikely that our country would issue a separate auditing standard. Q The answer continues on the next screen ©Tony Surridge Online Limited. then the local requirements are used. In this case. For example. 2013 www. but he or she must be prepared to justify the departure.tonysurridge. such as the nature of testing or the issuing of an engagement letter. must be read and understood.1 of 2 A question covering issues concerning ISAs 22b Cherry Garden Lane Anytown 3 March 2013 Dear Peppi Q I am pleased you are also thinking about accountancy as a career and understand your concern regarding the use of Auditing Standards. These bodies make comments on the exposure draft. The whole process can take between one and two years. The extent to which an auditor must follow ISAs An auditor should follow the ISAs wherever possible. but the ISA requires one every year. where our country requirements meet those of the ISA. If the IAASB approve the exposure draft. local change is needed to comply with the ISA. or to note where existing ISAs need amendment. However. ISAs are not designed to override the requirements for the audit of entities in individual countries. The overall authority of ISAs and how ISAs are applied in individual countries ISAs are designed to be applied in the audit of financial statements and may be applied to the audit of other historical financial information. then it is circulated to the member bodies of the International Federation of Accountants (IFAC) and any other organisations that have an interest in auditing standards and published on the IAASB website. we are encouraged to introduce changes in our country so that the requirements of the ISA are met. the auditor can depart from the ISA.co. So if our country did not require an audit of specific entities. In other words. the ISA would be sufficient. in some situations an auditor may consider it necessary to depart from the ISA so that the objectives of the audit can be achieved more efficiently. to apply the ISA.

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Letter to a School Friend: Answer - 2 of 2
A question covering issues concerning ISAs The extent to which ISAs apply to small entities

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To be clear, ISAs are meant to be applicable to the audit of any entity, no matter what its size. However, in small entities, the auditor may have to amend the audit approach to fit the circumstances of that business. For example, there will be greater reliance on substantive testing and management representations. However, the appropriate ISAs should be followed. Conclusion I hope that this clarifies your understanding of ISAs. Please let me know if I can be of further assistance to you in your accountancy career. Yours sincerely, Toni Ambel

Q

Customers want good value, but they care more than ever how food and clothing products are made. Sir Stuart Rose Sir Stuart Alan Ransom Rose (born 1949) is a British businessman, who was the executive chairman of the British retailer Marks & Spencer.

Marks & Spencer at Robinsons Mall, Manila, Philippines

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www.tonysurridge.co.uk

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JD Developments Company: Question - 1 of 1
A question covering underpayment, under-provisions and the removal of the auditor

You are the auditor of JD Developments, a limited liability company. The main activity of the company is the construction of buildings ranging in size from individual houses to large offices and blocks of flats. Under the laws of the country JD Developments operates in, JD Developments must add sales tax to all buildings sold and they pay this tax to the government at the end of each month. The largest non-current asset on JD Development’s balance sheet is the plant and machinery used in the construction of buildings. Due to the variety of different assets used, four different sub-classes of plant and machinery are recognised, each with its own rate of depreciation. You are now reaching the end of the audit work for the year ended 30 June 2013. There are two specific matters where additional audit work is required: (i) The sales tax for the month of May was not paid to the government. This appears to have been an accidental error and the amount involved is not material to the financial statements. The complicated method of calculating depreciation for plant and machinery appears to have resulted in depreciation being calculated incorrectly, with the result that depreciation may have been under-provided in the financial statements.

(ii)

Required: (a) Explain the additional audit procedures you should take regarding the accidental underpayment of sales tax. (7 marks) Explain the additional audit procedures you should take regarding the possible under-provision of depreciation. (7 marks) You have determined that the under-provision is material to the financial statements and therefore need to modify the audit report. The directors have informed you that they do not intend to take any action regarding the under-provision of depreciation. They also disagree with your action and have threatened to remove your company as the auditors of JD Developments unless you agree not to modify your report. Required: Explain the procedures that the directors must follow in order to remove your company as the auditors of JD Developments. (6 marks) (20 marks)

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(b)

(c)

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I could have closed down bits of British Home Stores to make more money but it's not my style. I want to make my money as a retailer, not by putting people out of work. Philip Green Sir Philip Green (born 1952) is a British businessman. Green was born into a Jewish family in 1952, beginning as a businessman at the age of 15. The first and last quoted company Green took lead of was "Amber Day", from which he stepped down as CEO and Chairman in 1992. Since then he has had links to a range of British companies; including a hostile bid for Marks and Spencer and the management of the Arcadia Group, both alongside or supporting his wife.

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ACCA Paper F8 (International)

JD Developments Company: Answer - 1 of 2
A question covering underpayment, under-provisions and the removal of the auditor (a) Audit procedures for underpayment of revenue tax – –

Q

Discuss the underpayment with the head of the accounting department to ascertain whether the error was known, and if so why no action had been taken to correct the error. Evaluate the results of testing to determine the amount of the underpayment. Where necessary perform additional substantive tests checking from the tax declared on sales invoices issued during August to the sales tax calculation. Summarise the results of testing, providing an estimate of the amount of sales tax underpaid. Discuss the situation with the directors to obtain an understanding of how the error occurred and determine what actions the directors will take. Include the weakness in the management letter noting, if possible, the reason for the error and the action that must be taken to correct the error. Inform the directors that non-payment of sales tax to the government is a breach of specific law of their country. Ask for a formal response from the directors, clearly indicating what action they propose to take regarding the underpayment. Where the amount due has been paid to the government, audit the payment and ensure it is sufficient given the extent of underpayment already detected. Where the amount due is not paid, consider informing the appropriate authorities where legislation requires this. Consider and ask the directors to provide for any late penalties that will need to be paid to the government with regards to the late payment.

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(b)

Audit procedures for under-provision of depreciation – – Review the results of the audit working papers to check that an error did occur. Extend substantive testing for this particular class of non-current assets to try and determine the extent of the error. Calculate the new depreciation provision based on the results of your testing. Compare your estimate of depreciation to the amount calculated by the client to determine whether the difference is material. Discuss the under-provision with the head of the accounting department to ascertain whether the error was known, and if so why no action had been taken to correct the error. Discuss the situation with the directors to ascertain what action the directors will take. If the difference is material then an amendment to the financial statements would be expected. Q

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Write to the shareholders providing notice of the meeting and the agenda. Between 1956–1959 he was Senior Vice President of Raytheon. If the auditor is removed.tonysurridge. Hampshire. ITT became the archetypal modern multinational conglomerate. obtain a statement of circumstances from the auditor. – Auditors are sometimes given the right to make written representations and to speak at the meeting. the reason for the error and the action that must be taken to correct the error. – – – Q Every company has two organizational structures: The formal one is written on the charts. The notice must also be sent to the auditor. He studied accounting at New York University. where necessary. Where required by specific country legislation. real estate management and other areas. hotels.co. If there are no circumstances that need to be brought to the attention of the shareholders then a statement of no circumstances is required. Geneen was born in 1910 in Bournemouth. deposit this statement along with notice of removal of auditor. He grew the company from a medium-sized business with $765 million sales in 1961 into multinational conglomerate with $17 billion sales in 1970. consider the need to modify the auditor’s report. In most situations. Geneen Harold S. England and migrated to the United States as an infant with his parents.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) JD Developments Company: Answer . developing his management structure. the other is the everyday relationship of the men and women in the organization. Attend the meeting and organise a counting of votes at the meeting on the resolution to remove the auditor from office. Harold S. with the appropriate authorities. If the difference is material and the directors do not amend the financial statements. 2013 www. (c) To remove the auditor from office before their term of office has expired. ©Tony Surridge Online Limited.2 of 2 A question covering underpayment. Under Geneen's management. a simple majority of the shareholders is required to confirm the resolution. if possible. under-provisions and the removal of the auditor Q – – Include the weakness in the management letter noting. From 1959–1977 he was the president and CEO of International Telephone and Telegraph Corp. He extended its interests from manufacturing of telegraph equipment into insurance.uk 58 . Make arrangements to appoint another auditor as companies are normally required to have auditors. allowing large degree of freedom for divisions while maintaining a high degree of financial and other accountability. the directors of JD Developments must proceed as follows: – – Arrange for a meeting of the shareholders of the company. (ITT).

StrictBus Co. be able to perform audit procedures on the research and development expenditure incurred on the website and included in non-current assets. the directors indicate that they cannot allow you access to information on the company’s new website development as this contains various trade secrets. therefore. The company owns one large warehouse.000 different titles. Briefly explain the actions you should take as a result of the directors not signing the engagement letter. promises are promises . The junior needs experience in auditing continuous inventory checking systems and some basic knowledge on ACCA’s Code of Ethics and Conduct.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) StrictBus Company: Question . (6 marks) During your preliminary audit planning you note that the engagement letter has been returned unsigned by the directors of StrictBus.tonysurridge. Continuous inventory checking is carried out by StrictBus’s internal audit department. Jacobson & Co has audited the system for the last five years and has found no errors within the software. StrictBus maintains a perpetual inventory system using standard ‘off the shelf’ software. explain the reason for carrying out that procedure. For each procedure. You are currently reviewing the continuous inventory checking system with an audit junior.000 customers. Harold S. (4 marks) A List the audit procedures you should perform to confirm the accuracy of the continuous inventory checking at StrictBus Co. You will not. objectivity and independence to accountants. (4 marks) 20 marks) A A (c) (d) A I think it is an immutable law in business that words are words. is a specialist supplier of business books with over 248. One of your audit clients.but only performance is reality. (6 marks) Explain the fundamental principles set out in ACCA’s Code of Ethics and Conduct of integrity. Books are despatched on the day of receipt of the order. objectivity and independence and the engagement letter You are an audit manager in Jacobson & Co.1 of 1 A question covering issues concerning inventory. fundamental principles set out in ACCA’s Code of Ethics and Conduct of integrity.co. Due to the high inventory turnover. which contains at any one time about 1 million books of up to 220. Customers place orders for books either over the Internet or by mail order. 2013 www. Returns are allowed up to 30 days from the despatch date provided the books look new and unread. explanations are explanations.uk 59 . Required: (a) (b) Explain the advantages of using a perpetual inventory system. When asked to explain their action. Geneen ©Tony Surridge Online Limited.

For any errors identified. Auditors can rely on the computerised inventory system. Discuss the procedures carried out and review working papers produced during the continuous inventory checks. objectivity and independence and the engagement letter (a) Advantages of perpetual inventory systems – – There is no disruption caused by an annual inventory count. Reason for procedure Determine the extent to which reliance can be placed on the work of the internal audit department.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) StrictBus Company: Answer . Ensure all inventory lines are counted at least once per year in discussion with the internal audit department. Form an opinion regarding the overall accuracy of the perpetual inventory system.tonysurridge. taking details of any which appear to be old or damaged. obtain details and agree perpetual computer system records. ensure that appropriate adjustments were made to the perpetual inventory system. There will also be fewer causes of inventory reaching zero causing stockouts with orders not being fulfilled. Visit the warehouse and: Obtain a sample of inventory items already recorded on the perpetual inventory system and agree to the book inventory. For a sample of books in the warehouse. reducing substantive audit tests of inventory during the year and at the year end. allowing re-ordering of best selling books to take place on a timely basis. Review the condition of the books. Q – Actual inventory balances are known at any time. 2013 www. which enables errors and slow moving or damaged inventory to be identified earlier.Physical count Arrange a meeting with the internal audit department.co. – – (b) Audit procedures Audit procedure .uk 60 . To confirm that inventory quantities have been correctly recorded. fundamental principles set out in ACCA’s Code of Ethics and Conduct of integrity. To confirm that any inventory which is damaged or unsaleable is correctly valued. Increased control over storekeepers because inventory is being reviewed regularly. Q The answer continues on the next screen ©Tony Surridge Online Limited.1 of 2 A question covering issues concerning inventory. To confirm that all inventory is counted regularly. To ensure that the inventory recorded on the computer system actually exists. There is more accurate and regular inventory counting. this should decrease any pilferage. To ensure that all inventory is recorded on the inventory computer system – and there is completeness of recording.

prejudice and compromise and that gives fair and impartial consideration to all matters that are relevant to the task in hand.tonysurridge.uk 61 . intellectual honesty and confidentiality. Accountants will therefore not participate in any activity or relationship that may impair. candour. During an audit it is essential that directors can rely on an auditor to keep information about the company confidential.2 of 2 A question covering issues concerning inventory. fundamental principles set out in ACCA’s Code of Ethics and Conduct of integrity. Further explain that because the lack of evidence appears to relate to a material amount that the auditor’s report will have to be modified with an ‘except for’ qualification due to the lack of information and the possibility of misstatement of non-current assets. Accountants have to be objective because many of the factors which make up an opinion on a set of financial statements relate to questions of judgement rather than fact. disregarding those that are not. Accountants therefore need to be unbiased and impartial in making their decisions. especially where they may need to challenge assumptions already made by the directors. They will also not accept anything which may appear to impair their judgement. Objectivity Objectivity is a state of mind that excludes bias. Integrity implies not only honesty.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) StrictBus Company: Answer . their judgement. or appear to impair. Independence Independence is freedom from situations and relationships which make it probable that a reasonable and informed third party would conclude that objectivity is either impaired or could be impaired. 2013 www. – – – Q ©Tony Surridge Online Limited. objectivity and independence and the engagement letter Q (c) Fundamental ethical principles Integrity Integrity is essential for all people operating in the public interest. Remind the directors that statutory audits require the directors to make all the necessary information and explanations available to the auditor. Independence is therefore related to and underpins objectivity. If this was not the case then directors may be less forthcoming with essential information. but also related qualities of fairness. Finally note that auditor may have to decline to work for StrictBus unless suitable terms of engagement can be agreed. (d) Actions in respect of the engagement letter not being signed – – Discuss the matter again with the directors in an attempt to reach a suitable compromise. Explain that lack of information on the website will result in a limitation in scope of the audit work. decreasing the effectiveness of the audit.

tonysurridge. particularly in Spain.uk 62 . Initially the other stalls were run by members of the family but gradually non-family members were added. particularly since they are currently looking at the possibility of obtaining a stock exchange listing. He was born in Chatham in the Medway area of Kent. the members of which are very concerned about meeting corporate governance ‘best practice’.co. He began his working life as an apprentice tailor to his father but in 1917 he joined the Royal Flying Corps where he served as a canvas maker. starting at dawn and counting money until late. born Jacob Edward Kohen and commonly known as Jack Cohen. Sime Zamremb. Cohen could not run fast so he simply threw his cap at the spot and this could beat anyone. at a signal they would race to their favoured pitch. the son of an Avram Kohen. Cohen and his wife worked 7 days a week. Upon his demobilisation in 1919 he established himself as a market stall holder in Hackney. Put-U-Up have recently established an Audit Committee. At each market the traders would gather and. dealing with large scale contracts throughout the UK and with some international interest in Europe. an immigrant Polish-Jewish tailor. He soon became the owner of a number of market stalls. ©Tony Surridge Online Limited. was a British businessman who founded the Tesco supermarket chain. 2013 www. and started a wholesale business. and his first wife. You are an internal auditor with the company and have been asked to conduct a review of how well the company is meeting relevant corporate governance requirements.1 of 1 A question covering various corporate governance issues Put-U-Up are an independent construction company. (3 marks) (20 marks) (e) Sir John Edward Cohen (6 October 1898 – 24 March 1979).Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Put-U-Up Construction Company: Question . (a) What is meant by ‘corporate governance’ and why is it important that companies should comply with relevant corporate governance requirements? (4 marks) A (b) What are the key issues for Put-U-Up to address to achieve effective corporate governance? (5 marks) A A A A (c) What is the role of internal audit in achieving corporate governance compliance? (4 marks) (d) What should the role of the Audit Committee in relation to corporate governance be? (4 marks) List the types of regular reporting that would be useful for Put-U-Up in the context of establishing sound corporate governance. in London's East End by purchasing surplus NAAFI stock with his demob money. You are required to prepare a report that addresses the following.

measured and reported. Consider the nature and extent of the risks regarded as acceptable. There needs to be a clear understanding of the risk attitude of Put-U-Up. Assess the chances of such risks materialising and their likely impact. (b) Requirements of Corporate Governance Put-U-Up need to ensure that the following key requirements are met: Evaluate risks within the organisation.co. Good exam technique requires you to make use of specific information provided in the question.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Put-U-Up Construction Company: Answer . The key risks throughout the organisation need to be identified. Failure by a company to comply with relevant corporate governance requirements could result in a qualification in the audit report and could damage the company’s image and reputation. Report to the Audit Committee (a) Corporate Governance Corporate Governance concerns the way that a company is operated and directed.1 of 3 A question covering various corporate governance issues Tutorial comment This question is ideally answered using bullet points rather than long paragraphs (with the exception of part (a)). it is very important to note that Put-U-Up is considering a stock exchange quotation – corporate governance issues are important if the company’s shares are listed. Management and control is often more difficult to achieve in larger. Use the number of marks as a guide to the number of points needed for each part of the answer. The Turnbull Report for example requires that companies have an ongoing process for identifying. in the UK such companies are subject to the requirements of the Combined Code and the Turnbull report. and should be regularly reviewed by the Board. This process should comply with the Turnbull guidelines. Overall control and risk management framework. For example.uk 63 . It encompasses the following key aspects: The role of the Board and Audit Committee. Q Q The answer continues on the next screen ©Tony Surridge Online Limited. This will include a review of the contingency arrangements which are in place. more complex organisations. In addition. shareholders (the owners) tend to be more remote from the directors who manage the company on their behalf. Remember that you are always more likely to achieve high marks by providing a number of relevant points in your answer rather than just one or two.tonysurridge. Here. particularly those with a stock exchange listing. 2013 www. Corporate Governance has become increasingly important to all organisations. evaluating and managing the company’s key risks. Evaluate the ability of the company to reduce incidence and impact if risk arise.

(c) Role of Internal Audit Turnbull says that an independent and adequately resourced internal audit function should be in a positive to provide the Board with much of the assurance it requires regarding the effectiveness of the system of internal control. which should be communicated regularly to the Board and Audit Committee.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Put-U-Up Construction Company: Answer . The precise role of internal audit will depend on the nature and type of organisation and what other risk type functions are in existence within the company. (d) Role of the Audit Committee The role and importance of the Audit Committee has increased as the corporate governance requirements have been strengthened. Key internal audit procedures will be to: review the company’s measures to achieve corporate governance ensure that Internal Audit Department’s operation is consistent with the major risks facing the organisation produce analysis of and opinions on the effectiveness of the organisation’s control mechanisms. The audit committee must have at least three nonexecutive directors who should be independent of the company in that they have no direct involvement in the day to day running of its affairs.uk 64 . showing how the risks are being managed Q Q The answer continues on the next screen ©Tony Surridge Online Limited. The Board and Audit Committee need to establish a culture in the company which is responsive to the requirements of sound corporate governance. Internal Audit’s main role is normally to evaluate risk and monitor the effectiveness of the system of internal control.2 of 3 A question covering various corporate governance issues Costs and benefits relating to operating relevant controls will need to be considered. The Audit Committee should: assess the framework for complying with corporate governance guidelines within the company. Regular reporting should be in place to demonstrate that risks are being managed on an ongoing basis.tonysurridge. including the risk assessment procedures review the major risks identified including their chances of occurring and their likely impact require regular reporting from internal and external auditors and any other review bodies.co. 2013 www.

uk 65 .tonysurridge. Georges Jacques Danton ©Tony Surridge Online Limited. Q Q Audacity. (e) Types of Regular Reporting Types of regular reporting that could be produced for the Audit Committee include: listing of current major risks and up-to-date assessment of impact and likelihood reports on control of risks including how they are being managed details of any issues/concerns that have arisen since the last report audit reports issued and impact on corporate governance information on follow up on outstanding risks and findings from reports. always audacity. more audacity. Danton's role in the onset of the Revolution has been disputed. many historians describe him as "the chief force in the overthrow of the monarchy and the establishment of the First French Republic". Georges Jacques Danton Georges Jacques Danton (1759 – 1794) was a leading figure in the early stages of the French Revolution and the first President of the Committee of Public Safety.3 of 3 A question covering various corporate governance issues receive and review internal audit assignment reports and follow up information discuss and consider any concerns of directors and internal audit staff review annual financial statements and the results of the external auditors’ exam to ensure that the auditors have performed an effective. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Put-U-Up Construction Company: Answer . efficient and independent audit receive and deal with external auditors’ criticisms of management and ensure that recommendations of internal and external auditors have been implemented.co.

co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) PAST EXAM QUESTIONS AND ANSWERS Click to the next screen ©Tony Surridge Online Limited.tonysurridge.uk 66 . 2013 www.

3. The order is identified by a unique order number. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department. the stores clerk confirms that the inventory agrees to the delivery note and checks the order database to ensure that the inventory were in fact ordered by DinZee. As part of the interim audit work two weeks prior to the company year-end. Staff were warned that they had to remember which inventory had been counted. 5. Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used. allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). microwaves.) The order in the order database is updated to confirm receipt of goods. Information was recorded on the count sheets in pencil so amendments could be made easily as required. Procurement and purchases system Parts inventory is monitored by the stores manager. A copy of the e-mail is filed on the store manager’s computer. where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated. 4. (2 marks) On the day of the inventory count. Staff in the procurement department check the e-mail. invoices are automatically routed to the accounts department. DinZee Co assembles fridges. (12 marks) (b) List FOUR audit procedures that an auditor will normally perform prior to attending the client’s premises on the day of the inventory count. 2013 www. Weaknesses detected in a control system for counting inventory and related discussion. the accounts clerk checks the order database. washing machines and other similar domestic appliances from parts procured from a large number of suppliers. and the perpetual inventory system updated to show the receipt of inventory. On receipt of the invoice. The supplier sends a purchase invoice to DinZee using EDI. explaining the reason for each procedure. although the teams were allowed to decide which pair of staff counted which inventory within each area. You observed the following activities: 1. you are testing the procurement and purchases systems and attending the inventory count.tonysurridge. Procedures prior to an inventory count.co. Required: (a) List SIX audit procedures that an auditor would normally carry out on the purchases system at DinZee Co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) DinZee Company: Question Audit procedures – on a purchase system. The count sheets showed the inventory ledger balances for checking against physical inventory. Three counting teams were allocated to each area of the stores to count. All count staff were drawn from the inventory warehouse and were counting in teams of two. When the quantity of a particular part falls below re-order level. you attended depot nine at DinZee. ©Tony Surridge Online Limited. The invoice is added to the purchases database. A copy of the EDI order is filed in the order database by the computer system.uk 67 . When goods are received at DinZee. an e-mail is sent to the procurement department detailing the part required and the quantity to order. matches the invoice details with the database and updates the database to confirm receipt of invoice. Pre-numbered count sheets were being issued to client’s staff carrying out the count. (Delivery is refused where goods do not have a delivery note. A A (c) 2.

(4 marks) (30 marks) A (d) (i) (ii) A The fool doth think he is wise. but the wise man knows himself to be a fool. the sheets were not signed. state one test of control and one substantive procedure that you should perform. ©Tony Surridge Online Limited. published in 1623. 2013 www.uk 68 .co. (3 marks) For each weakness. William Shakespeare As You Like It Facsimile of the first page of As You Like It from the First Folio.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) 6. (9 marks) State the aim of a test of control and the aim of a substantive procedure. all count sheets were collected and the numeric sequence of the sheets checked. At the end of the count. Required: (i) (ii) List the weaknesses in the control system for counting inventory at depot nine. In respect of your attendance at DinZee Co’s inventory count. explain why it is a weakness and state how that weakness can be overcome.

1 mark would be earned for stating the procedure and 1 mark for the reason for that procedure which must be fully explained. Answer (a) For full answer (a) click here Procedure E-mails to order database Order database to delivery note Orders to inventory database Paper goods receipt notes to inventory database Orders database to payables ledger database Computerised purchase invoice details to record of purchase invoice Details of purchase invoice database to EDI purchase invoice received Purchase invoice record to payables database CAATs – cast Purchase Day Book (PDB).uk 69 . End of Tutorial comment Q ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) DinZee Company : Answer Plan Q A quickly drafted answer plan will help you plan and structure your answer.co.tonysurridge. This is the approach adopted here. trace to general ledger Walk through test Observing goods being received Other relevant procedures Tutorial comment Only 6 procedures are required. 2013 www. A columnar approach may save time and give a better visual relationship between procedure and reason. We provide plans for each answer to show how this might be done.

5 marks for explaining the reasons and up to 1·5 for stating how to overcome weakness. 2013 www. 4 max therefore per weakness.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Answer (b) For full answer (b) click here Audit procedures prior to inventory count attendance Review prior year working papers for problems Contact client to obtain stock-take 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 Obtain prior year management letter for evidence of stocktake problems Other relevant points Q Tutorial comment 0.5 marks for each procedure. up to 1.uk Q 70 . End of Tutorial comment ©Tony Surridge Online Limited. End of Tutorial comment Answer (c) For full answer (c) click here Weaknesses in counting inventory Inventory sheets stating the quantity of items expected to be found in the store Count staff all drawn from the stores Count teams allowed to decide which areas to count Count sheets not signed by the staff carrying out the count Inventory not marked to indicate it has been counted Recording information on the count sheets in pencil Count sheets for inventory not on the pre-numbered count sheets where only numbered when used Other relevant points Tutorial comment The Examiner awarded 1 mark for each weakness.co.tonysurridge.

End of Tutorial comment All that is gold does not glitter. philologist. The old that is strong does not wither. S.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Q Answer (d) For full answer (d) click here Test of control Test of control aim Substantive procedure aim Stating test of control relevant to inventory count Stating substantive procedure relevant to inventory count Tutorial comment 1 marks for each. J. J. He served as the Rawlinson and Bosworth Professor of Anglo-Saxon at Pembroke College. Lewis—they were both members of the informal literary discussion group known as the Inklings. Tolkien The Fellowship of the Ring John Ronald Reuel Tolkien.R.R. Oxford. 2013 www.R.uk 71 . He was at one time a close friend of C. Oxford from 1945 to 1959. best known as the author of the classic high fantasy works The Hobbit. Not all those who wander are lost.tonysurridge. CBE (1892 – 1973) was an English writer. from 1925 to 1945 and Merton Professor of English Language and Literature at Merton College. Deep roots are not reached by the frost. poet.co. The Lord of the Rings. and university professor. and The Silmarillion.R Tolkien Q ©Tony Surridge Online Limited.

Weaknesses detected in a control system for counting inventory and related discussion. To confirm that purchase invoice details have been correctly recorded in the payables database. agree details to the individual payables account in the payables database. obtain a sample of invoices recorded in the purchase day book. Obtain a sample of orders in the order database. To confirm the completeness and accuracy of the liability recorded in the general ledger. Within the purchase database. agree details to the delivery notes for items on that invoice. To confirm that goods received were completely and accurately recorded in the inventory database. Select increases in the purchase daybook and vouch to the order database. Reason for procedure Q Ensure that all orders are recorded and that the order details are correct. cast the purchase day book and agree total of liability incurred to the general ledger. (a) Audit procedures procurement and purchases system Procedure Obtain a sample of e-mails from the store manager’s computer. ©Tony Surridge Online Limited. For a sample of orders in the orders database. Procedures prior to an inventory count. To confirm that all goods ordered were received.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) DinZee Company: Answer Audit procedures – on a purchase system. confirming details against the purchase invoice.uk 72 . confirming the occurrence assertion. cast and cross cast invoice price and quantities confirming price to the original order. For a sample of supplier invoices. Note: To ensure goods received have been recorded as a payables liability the sample selected from the order database should be only those orders that have been received. Trace details to the order database. For the sample of purchase invoices above. agree details to the payables ledger database. Using computer-assisted audit techniques. Q www.co. agree details of price and supplier to the purchase invoice record in the database. To confirm that inventory received has been recorded in DinZee’s accounting system and that liabilities are therefore not understated. To confirm that the liability has been recorded in the correct payables account.tonysurridge. To confirm the arithmetical accuracy of invoices and ensure the company was charged the correct price for goods received. For the sample of orders above. Obtain a sample of paper delivery notes and agree to the order database and inventory database. 2013 To confirm that the purchase liability has been recorded only for goods actually received. For a sample of purchase invoices in the purchase day book. agree to the inventory database. record details of the order and trace to the paper delivery note filed in the goods inwards department. The invoice number in the order database is then noted and traced to the payables ledger in the purchase database. To confirm complete and accurate recording of the inventory liability in the payables database. To ensure that invoiced goods have been ordered.

How to overcome weakness: Count sheets should not state the quantity of items so as not to pre-judge how many units will be found. There could be a temptation to hide errors or missing inventory that they have removed from the store illegally. should be pre-numbered. Count staff were all drawn from the stores Count teams allowed to decide which areas to count Count sheets were not signed by the staff carrying out the count All count sheets should be signed to confirm who actually carried out the count of individual items. Count teams should include staff who are not responsible for inventory to provide independence in the count.uk 73 . (c) Weaknesses in counting inventory Weakness Inventory sheets stated the quantity of items expected to be found in the store Reason for weakness Count teams will focus on finding that number of items making undercounting of inventory more likely – teams stop counting when ‘correct’ number of items found. Recording in pencil means that the count sheets could be amended after the count has taken place. Each team should be given a precise area of the store to count. Lack of signature makes it difficult to raise queries regarding items counted because the actual staff carrying out the count are not known. including those for ‘extra’ inventory. Inventory not marked to indicate it has been counted Recording information on the count sheets in pencil Inventory should be marked in some way to show that it has been counted to avoid this error.co. Count sheets should be completed in ink. There is a danger that teams will either omit inventory from the count or even count inventory twice due to lack of precise instructions on where to count. again giving rise to the possibility of loss. 2013 www. Count staff are also responsible for the inventory. Count sheets for inventory not on the pre-numbered count sheets were only numbered when used All inventory sheets.tonysurridge. It is possible that the additional inventory sheets could be lost as there is no overall control of the sheets actually being used. Q ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) (b) 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. Q For an aide memoire chart concerning the procedure of attending an inventory count refer to the next screen. there is a danger that inventory will be either omitted or included twice in the count. not just during the count. Sheets may not be numbered by the teams. The inventory balances will then be incorrectly recorded. As above.

conditions and stage of production of work-inprogress. stage reached in the production process). with one counting and the other checking or alternatively holding two independent counts.  Teams of two counters.  Risks identified with the inventory. third party and returnable inventory.uk 74 . . slow-moving.  Location of inventory and how it affects inventory control and recording. including senior staff involved with inventory. 2 The auditor needs to identify the key factors 3 Planning precedes performance! The auditor should:  Plan a representative selection of locations. control and return of all inventory sheets.  Recording of last numbers of goods inwards and outwards and of internal transfer records. 4 Organisation of the count The auditor needs to organise the following:  Client supervision to be present on the count.  Information to be recorded on the count records (location and identity.  Ensure sufficient attention is given to high value items.  Inventory sheets to be completed in ink (or printed) and signed.  Method of accounting for inventory.co. conditions of items.  Arrange to obtain from third parties (such as external warehousing companies) confirmation of inventory they hold.  Tidying and marking inventory to help counting. Q ©Tony Surridge Online Limited.  Reconciliation with inventory records and investigation and correction of any difference. Best practice would require:  Systematic counting to ensure all inventory is counted.  The identification of high value items.  Identification of damaged.  Consider the need for expert help.  Internal control and accounting systems in use which will enable the auditor to identify potential areas of difficulty.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Substantive audit tests: inventory count Preliminary knowledge is required Q 1 The auditor needs to:  Review the previous year’s arrangements and success rating.tonysurridge.  Recording of quantity. 2013 www.  Discuss with management inventory control arrangements and significant changes during the current year. obsolete. Counting 5 Recording 6 The following practice is normally adopted:  Serial numbering. inventory and procedures to be covered in the count.  Restriction and control of the production process and inventory movements during the count. The key factors concerning the inventory count are:  The nature and volume of inventory. quantity counted. count units.

K. The aim of a substantive procedure is to ensure that there are no material errors at the assertion level in the client’s financial statements. Rowling Harry Potter and the Sorcerer's Stone Harry Potter and the Philosopher's Stone Author J. Q (ii) Regarding the inventory count: Test of control Observe the count teams ensuring that they are counting in accordance with the client’s inventory count instructions. 2013 www.co. K. Rowling Illustrators Thomas Taylor (UK) Mary GrandPré (US) Q 75 ©Tony Surridge Online Limited. It does not do to dwell on dreams and forget to live.uk . J.tonysurridge. Substantive procedure Record the condition of items of inventory to ensure that the valuation of those items is correct on the final inventory summaries.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) (d) (i) The aim of a test of control is to check that an audit client’s internal control systems are operating effectively.

Q ©Tony Surridge Online Limited. Secondly. The marking scheme was clear. The scenario itself was based on a computerised procurement and purchases system and the work of an auditor in attending the inventory count at a client. Pass standard candidates provided between four and six good procedures.tonysurridge. As in similar paper 2. Common errors and reasons why those errors did not obtain marks included: Error Testing the controls over the computer system such as passwords and backup systems Reason for lack of marks These were tests of the general controls over the computer rather than tests on the purchases system. The aim being to cut down the amount of reading and assimilation time candidates need to understand a question prior to preparing an answer. This was a 30 mark question and the rationale behind providing this small case study was two-fold: • Firstly.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Q Examiner’s Report You might find it useful to know what the Examiner reported about the quality of answers for this scenario. Candidates who recognised that basic audit procedures such as tracing information through a system or ensuring that details were recorded in specific ledgers or books did obtain a pass standard.6 examinations. whether the first has been achieved will depend on results to the Professional papers in future diets. particularly regarding the use of the purchases system and partly in respect to the computerisation of that system. to allow the examiner to effectively combine two 20 mark questions to use one scenario rather than two. requiring the candidates to list audit procedures and then explain the reason for each procedure. 2013 www. • Given the overall higher standard of answers in this exam. only a minority of candidates demonstrated a good understanding of audit procedures and the reasons for those procedures. To obtain full marks candidates needed to provide six procedures meeting this criterion.co. The question was worth 12 marks. the second objective at least appears to have been met. with some explanation of each procedure. Many candidates struggled with the scenario.uk 76 . to provided candidates with experience of attempting longer questions in preparation for the significant case studies that will be found in the professional level papers. six procedures were required with the procedure itself being worth 1 mark and the explanation of a procedure also being worth one mark. However. Part (a) Candidates were required to use information concerning the purchases system provided in the scenario. The purchases system was deliberately based on a computer system. candidates were expected to use the information in the scenario to provide relevant comments in their answers. in line with the comments made by the examiner in the study guide and at the 2007 lecturers’ conference.

Unfortunately. stating that for all goods received there should be a three part delivery note raised. However. No marks could be awarded because no audit procedure was actually stated.co.uk Q 77 . many candidates correctly attempted to link audit procedures to the audit assertions. Just stating an assertion word as a reason for performing a procedure. Q Procedures relating to cut-off. obtain details from a sample of purchase invoices and agree these to the purchase day book and ledger would form a valid procedure. Tracing details from the delivery note to the purchase order to confirm correct valuation of the invoice – the completeness assertion would normally be used here. “confirming occurrence of purchases by agreeing purchase invoice details to the delivery notes. 2013 www. or reviewing a sample of goods receipt notes to ensure they were signed to confirm receipt of goods etc.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Error Procedures relating to the payment of suppliers including recording of transactions in the cash book and supplier ledger accounts Reason for lack of marks These procedures related to the payments systems not the purchases systems. • Finally. Regarding the explanation mark. Writing out what the purchase system should do without actually stating any audit procedures. many comments related to procedures that either could not be carried out or were simply incorrect. The scenario was dated prior to the year-end making these comments not relevant. This was generally not sufficient for an answer as it was not necessarily clear that the candidate understood the assertion . and in many cases stating an incorrect assertion. Many candidates also continued to “check” documents rather than actually show clear what procedures were.g. Mark earning comments would include observing the goods receipt system to ensure that goods receipt notes were raised. Providing a few words of explanation e. For example: • Suggesting that agreeing purchase order details to the inventory ledgers confirmed the completeness of invoices – when the correct assertion was occurrence. For example. This assertion relates to year-end testing of stock and purchases.tonysurridge. the quoting of assertions was not always clear or accurate. typical comments in this respect were: • • • Check the invoice Check the goods received note Check return of goods. For example. more detail was needed to earn the procedure mark. For example. it was not clear exactly what was being checked or why. provided useful and relevant Explanation. If the distinction was not clear to the candidate. For example: ©Tony Surridge Online Limited. These comments showed good knowledge of systems but not of audit procedures. payment systems were not mentioned within the scenario indicating that comments in this area were not relevant. Other answers failed to provide sufficient detail to obtain either the procedure mark or the explanation mark.

Candidates and tutors are reminded of the importance of understanding sales. would have been used during the year in the manufacture of the items produced by the company. Orders are normally agreed to the delivery notes.uk 78 . 2013 www.co. The marking scheme for this question was therefore 0. many candidates wrote significant amounts of text in providing an answer to this section. Candidates and tutors need to understand that the requirement verb list is simply that. agreeing physical goods to the goods inwards documentation would be impossible – as noted above. no explanation of the individual procedures was required to obtain the 0. So agreeing orders to purchase day book is not possible. the standard of the answers for this basic auditing question was disappointing. For example. purchases and similar systems and the need to be able to provide clear audit procedures and explanation for those procedures.tonysurridge. Secondly. Again. these procedures were unfortunately not relevant. in some cases easily exceeding one page of writing. Q ©Tony Surridge Online Limited. The key word in the requirement was prior.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Example “procedure” Agreeing details from the purchase invoice to the goods held in the inventory store. contact client was insufficient for a procedure whereas contact client to obtain inventory count instructions was sufficient. Candidates tended to obtain either full marks or zero marks for this question. Agreeing individual items of physical inventory to the goods inwards documentation. This will remain a key element of the audit and assurance examination. Overall.5 mark for each procedure. Tracing details of orders to the purchase day book. a significant minority of candidates missed reading this word and listed procedures relevant to actually attending the inventory count. The key difference between this sub-question and part (a) being the lack of need to relate those procedures to the scenario and therefore the award of 1 mark per point. depending on whether or not they had read the question requirement correctly. etc. it would be virtually impossible to agree details to the goods held – as the parts. Given that only four procedures had to be listed. While not an error as such. Other common errors and reasons why those errors did not obtain marks included: Error Not stating the procedure in sufficient detail Reason for lack of marks It was unclear what the procedure aimed to do. Problem with “procedure” Q There are two problems with this comment: Firstly. the goods would be included in items manufactured by the company. Part (b) Candidates were required to list four audit procedures that the auditor would perform prior to attending the inventory count at a client. not the purchase day book. goods received notes are normally used to update inventory. The latter is for recording the purchase invoices. this amount of writing was clearly inappropriate.5 mark for each procedure. not purchase invoices.

all valid weaknesses were marked. In this case three procedures would provided the full 3 marks for sub-question (i) as those procedures had to be related to the scenario. A candidate providing valid weaknesses. In practice. To obtain the method of overcoming the weakness marks there had to be a clear link between the weakness and the method of alleviating that weakness. stating that the count sheets were completed in pencil and then stating that this did not provide an adequate segregation of duties.5 marks for explanation and recommendation.co. Marks were generally not awarded where comments did not relate to the auditors’ standard work.5 marks) and state how the weakness could be overcome (again 1. For example. For example. the question was well answered.uk Q 79 . as in part (a). most candidates provided more than three weaknesses with some explanation and methods of overcoming each weakness. This meant that there were 3 marks for each section in (ii) to explain the weakness (1. For example. In other words. In practice. the overall standard of answers to this section was high. The requirement verb was “list” indicating that simply the weakness was required to obtain a mark. stating that the auditor would assign count teams to different areas of the depot. As the question requirement did not place any cap on the number of weaknesses that could be mentioned in the answer. with an explanation and method of overcoming that weakness could obtain full marks. Common errors and reasons why those errors did not obtain marks included: Error Not linking the explanation of the weakness to the weakness itself. Overall. the auditor is there to observe the inventory count. where count sheets were recorded in pencil then the weakness was those sheets could be amended easily to show incorrect inventory quantities – and there would be no record of that amendment. The difficulty for many candidates appeared to be simply when to stop writing as the scenario did include six or seven key weaknesses where marks could be obtained. the question was based on a letter of weakness. the marking scheme followed the convention of parts (a) and (b). with almost all candidates correctly using the information in the scenario . where letter of weakness type questions are allowed. The identification of weaknesses and how to respond to those weaknesses had clearly been well learned/taught enabling candidates to provide sound answers. This scheme allowed many candidates to obtain full marks in this section with most candidates deserving those marks as many clear and well thought out comments were made. not organise it. although the specific format for that letter was not required.5 marks). For example.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Part (c) Q Candidates were required to list the weaknesses in the control system for counting inventory at one of the client depots and then explain the weakness and state how the weakness could be overcome. For the future. The scheme was possibly generous in allowing 1. Not linking the method of overcoming the weakness with the weakness itself. 2013 www. stating that the count sheets were completed in pencil and then indicating that all sheets should be signed by a senior official. While not completely transparent. a cap will be placed on the number of weaknesses allowed to provide a clear and transparent guide to candidates. Reason for lack of marks To obtain the reason marks there had to be a clear link between the weakness and the reason for that weakness. ©Tony Surridge Online Limited. As already noted.tonysurridge. Following the published guidance from the examiner in this respect in the Examiner’s Approach may have helped provide this guidance. Not necessarily thinking about the practicality or realism of the comments being made.

1st Baron Roborough. Common errors and reasons why those errors did not obtain marks included: Error Explaining substantive audit procedures as being used when tests of controls were not available or had failed. confirmation of balances in the suppliers’ ledger or other substantive tests on purchasing system. ©Tony Surridge Online Limited. the reason for the procedure in terms of validating balance sheet assertions was not mentioned. Inner Temple. However. Reason for lack of marks While the reason for using substantive procedures may have been partly correct.uk Lord Justice Lopes Q 80 . Lopes was knighted in 1876 and sworn of the Privy Council in 1885. Providing examples not relevant to the inventory count. In 1876 he was appointed a Justice of the Common Pleas Division of the High Court of Justice. He was educated at Winchester and Balliol College. Lord Justice Lopes Henry Charles Lopes. stating that ensuring all count sheets were signed was a substantive test or agreeing the quantities of inventory to the inventory ledgers. Explaining tests of controls as substantive test and substantive tests as tests of controls.5. In 1897 he was raised to the peerage as Baron Ludlow. For example. Ludlow sat as Member of Parliament for Launceston from 1868 to 1874 and for Frome from 1874 to 1876. QC (3 October 1828-25 December 1899). Many candidates obtained full marks. 2013 www. was a British judge and Conservative Party politician. 1st Baron Ludlow PC. The auditor is a watchdog and not a bloodhound. The question requirement clearly stated examples had to be provided from the inventory count. and then served as a Lord Justice of Appeal from 1885 to 1897. a significant minority of candidates either did not attempt the question or scored zero points due to poor and incorrect explanation and examples. hence 1 mark was available for each test/procedure rather than 0. and the uncle of Henry Lopes.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Part (d) Candidates were required to state the aim of a test of control and substantive procedure and then to provide examples of those tests/procedure with reference to inventory count attendance.co.tonysurridge. in 1852. This question turned out to be an unusually good discriminator of candidates. As in parts (a) and (c). therefore these points were not relevant. Q The marking scheme for this question was simply 1 mark for each explanation and 1 mark for each test/procedure. for example. clearly demonstrating their knowledge of tests of control and substantive audit procedures. the test/procedure had to be linked to the specific scenario. He was also a Recorder of Exeter from 1867 to 1876 and became a Queen's Counsel in 1868. No marks could be awarded because the example was incorrect. and was called to the Bar. 2nd Baronet. of Heywood in the County of Wiltshire. Ludlow was a younger son of Sir Ralph Lopes. a post he held until 1880. Oxford.

Differences between external and internal audit 3. Outsourcing the internal audit department 5. The scope of the internal audit function 4. Internal audit and corporate governance 2. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section B: INTERNAL AUDIT 1.tonysurridge. Internal audit assignments ©Tony Surridge Online Limited.uk 81 .co.

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Exam Status Questions and Answers
(Note: Questions and Answers are also hyper-linked to each other.)

Syllabus Section B: Internal Audit
Title
Question Office Equipment and Furniture Answer
A question covering the relations between internal and external audit work Office Equipment and Furniture

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Question WindHopper Airline
A question covering the extent to which the external auditor can rely on the work on the internal auditor Answer WindHopper Airline Question Fix It! Company A question covering the issues concerning the work of internal auditors Answer Fix It! Company Question Newingreen Industrial Co A question covering the issues involved in outsourcing internal audit responsibilities Answer Newingreen Industrial Co

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In short, we have, among African countries, a duty of solidarity. Omar Bongo El Hadj Omar Bongo Ondimba (1935 – 2009), born as Albert-Bernard Bongo, was a Gabonese politician who was President of Gabon for 42 years from 1967 until his death in office in 2009.

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Section C:
PLANNING AND RISK ASSESSMENT

1. 2. 3. 4. 5. 6. 7.

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

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Syllabus Section C: Planning and Risk Assessment
Title
Question Fordcon Textiles Answer Question
A question covering audit planning Fordcon Textiles ExpoZ A question covering understanding the entity and its environment, assessing risk of material misstatements and the features of audit working papers ExpoZ Spectrual Gemstones Company A question covering inventory and the auditor’s external agent Spectrual Gemstones Company CallV Company A question covering audit acceptance and the engagement letter CallV Company LinkZ Company A question covering risk assessment and audit procedures LinkZ Company Guston Company A question covering the assessment of inherent and control risk and the design of specific audit procedures Guston Company

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Answer Question Answer Question Answer Question Answer Question Answer

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Question Link Arms Charity
A question covering inherent, control and detection risk and associated audit tests Answer Link Arms Charity Question SeeUs Company A question covering audit documentation Answer SeeUs Company

It's the job that's never started takes longest to finish.

J. R. R. Tolkien John Ronald Reuel Tolkien (1892 – 1973) was an English writer, poet, philologist, and university professor, best known as the author of the classic high fantasy works The Hobbit, The Lord of the Rings, and The Silmarillion. Note:

J. R. R. Tolkien 1916

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uk 85 .tonysurridge. 4. 5. 2. 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 ©Tony Surridge Online Limited. 6.co. 3. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section D: INTERNAL CONTROL 1.

tonysurridge. the prevention of fraud and error and the completeness and accuracy of the accounting records and audit sampling Answer Internal Controls Question ShoesR Company A question covering risk assessment and internal control Answer ShoesR Company Question Ashley Enterprise (AE) Company A question covering control objectives and audit tests carried out a sales and despatch system Answer Ashley Enterprise (AE) Company Screen 982 983 986 987 989 990 992 993 995 996 998 999 Note: No Questions and Answers have been made active for the free sample. You cannot shake hands with a clenched fist.uk 86 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other.co. safeguarding of assets. 2013 www.) Syllabus Section D: Internal Control Title Question DustUp Company A question covering risk and internal controls assessment Answer DustUp Company Question PlastU Company A question covering assessment of internal controls Answer PlastU Company Question Express AM Company A question covering problems resulting from poor internal controls and associated recommendations Answer Express AM Company Question Internal Controls A question covering adherence to management policies. Indira Gandhi ©Tony Surridge Online Limited.

4.tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section E: AUDIT EVIDENCE 1. 3. 2. 5.co. 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 ©Tony Surridge Online Limited. 6. 2013 www.uk 87 .

co. completeness and measurement testing Watch & Black BigginWood A question covering audit sampling BigginWood IAS2. Inventories A question covering the valuation of inventory IAS2.) Syllabus Section E: Audit Evidence Title Question Training Material A question covering audit purpose. 2013 www.tonysurridge. procedures and processes Answer Training Material Question Audit Evidence Answer Question Answer Question Answer Question Answer Question Answer A question covering the methods of obtaining audit evidence Audit Evidence TeddyMax Company A question covering five procedures used for gathering audit evidence TeddyMax Company Ethel Bancroft A question covering aspects concerning the audit of a charity Ethel Bancroft Greenway Tennis Club A question covering the audit of a not-for-profit entity Greenway Tennis Club Small Entities A question covering the audit of small entities Small Entities A question covering occurrence.uk 88 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other. ©Tony Surridge Online Limited. Inventories 4-U Beds Company A question covering inventory and auditing issues 4-U Beds Company Sodafizz Company A question covering different audit tests Screen 1004 1005 1007 1008 1011 1012 1014 1016 1019 1020 1022 1023 1026 1028 1032 1034 1038 1039 1042 1043 1045 1046 1048 1049 Question Watch & Black Answer Question Answer Question Answer Question Answer Question Answer Sodafizz Company Question BurgerQueen Company Answer A question covering the audit of accounts payable and accruals BurgerQueen Company Note: 1 OF 2 No Questions and Answers have been made active for the free sample.

Wright and Conibear A question covering materiality considerations. one only finds that there are many more hills to climb. Rialto.co. Rialto.tonysurridge.) Syllabus Section E: Audit Evidence Title Question Furnital Company A question covering sufficiency of audit evidence and substance audit procedures Answer Furnital Company Question Analytical Procedures Answer Question Answer Question Answer Question Answer Question Answer A question covering analytical procedures and concept of materiality and its implications Analytical Procedures Jacobson Gravel (JB) Company A question covering audit work and analysing stated figures Jacobson Gravel (JB) Company Barton. relevant accounting principles and appropriate accounting standards Barton. Wright and Conibear Confirmations A question covering the audit evidence provided by confirmations Confirmations DK Electronics A question covering computer application controls DK Electronics Screen 1052 1053 1056 1057 1059 1060 1062 1064 1068 1069 1072 1074 1079 1081 1084 1086 1091 1092 Question Leadworks Quays A question covering general controls in a computer environment Answer Leadworks Quays Question Lympne Industrials A question covering ‘test data’ and Computer Assisted Audit Techniques Answer Lympne Industrials Question DriveU Company A question covering Computer Assisted Audit Techniques Answer DriveU Company 2 OF 2 After climbing a great hill. Goodsel.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other. Goodsel. 2013 www. Nelson Mandela ©Tony Surridge Online Limited.uk 89 .

uk 90 .co. 4.tonysurridge. 2013 www. 2. Subsequent events Going concern Management representations Audit finalisation and the final review ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section F: REVIEW 1. 3.

impatiently.) Syllabus Section F: Review Title Question Injan Computers Company A question covering and analytical procedure and consideration of going concern Answer Injan Computers Company Question OrganZ Company A question covering issues concerning ethical threats of going concern Answer OrganZ Company Question Caddymol Retailers A question covering subsequent events Answer Caddymol Retailers Question FrostLand Supermarkets A question covering audit objectives and the auditor’s responsibilities with regard to subsequent events Answer FrostLand Supermarkets Question Wolfe Incorporated A question covering the management representation letter Answer Wolfe Incorporated Screen 1096 1099 1102 1103 1105 1106 1110 1111 1113 1114 Note: No Questions and Answers have been made active for the free sample. 1859 .uk 91 . Arthur Conan Doyle.tonysurridge. 2013 www. ‘I should do so.1930 The Valley of Fear (1915) ©Tony Surridge Online Limited.’ Sherlock Holmes remarked. ‘I am inclined to think .‘ said I [Dr Watson].Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other.co.

Internal audit reports ©Tony Surridge Online Limited. 2013 www.uk 92 . Reports to management 3.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Section G: REPORTING 1.tonysurridge. Audit reports 2.

) Syllabus Section G: Reporting Title Question ABC Company A question covering audit and review reports Answer ABC Company Question MCA Industrials Company A question covering the auditor’s report and audit procedures Answer MCA Industrials Company Question Audit Reports A question covering internal and external audit reports Answer Audit Reports Question TQR Transporters A question covering the management representation letter Answer TQR Transporters Question AG Industrials Company A question covering the responsibilities of directors and auditors.uk 93 . 2013 www.tonysurridge. the contents of the audit report and the difference between positive and negative assurance Answer AG Industrials Company Screen 1118 1120 1122 1123 1125 1126 1128 1129 1131 1132 Note: No Questions and Answers have been made active for the free sample. 1918-86 ‘I Remember It Well’ (1957) ©Tony Surridge Online Limited.co. you were late Ah yes! I remember it well.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Exam Status Questions and Answers (Note: Questions and Answers are also hyper-linked to each other. He: She He: She: He: We met at nine We met at eight I was on time No. Alan Jay Lerner.

to read it aloud. 2013 www.uk 94 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance ACCA F8 Questions and Answers Main Contents Study classification Multiple Choice Questions and Answers Short Questions and Answers: International Standards on Auditing Diagnostic Questions and Answers Exam Status Questions and Answers Past Exam Questions and Answers Screen 1135 1136 1137 1138 1532 Did you know? From 1986 poetry became and remains a familiar sight on London Underground’s trains and posters. Source: Stephen Halliday.co. One of the first poems to be published on the Underground was Wordsworth’s ‘Composed Upon Westminster Bridge’ which prompted twenty people to gather on the bridge at dawn on 3rd September 1986. ‘London Underground Facts. ©Tony Surridge Online Limited.tonysurridge. the 184th anniversary of the poems composition. ‘D&C’.

while the girls were bought up to be warriors like their mothers.co.uk 95 . they displayed their fighting abilities in raiding expeditions. ©Tony Surridge Online Limited. It was said that any male off-spring of these unions were abandoned to die.tonysurridge. Expert riders and archers. 2013 www. A woodcut depicting defeated Greeks being cruelly executed by Amazons. the Amazons were a race of mounted women warriors who lived near the Black Sea.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance ACCA F8 Questions and Answers Contents: Multiple Choice Questions and Answers Screen Section section A B C D E F G Syllabus classification Questions Audit Framework and Regulation Internal Audit Planning and Risk Assessment Internal Control Audit Evidence Review Reporting Answers Number of Q&As 20 43 48 104 141 206 221 29 45 69 119 165 213 223 27 3 77 55 20 20 2 204 Total number of Multiple Choice Questions and Answers Did you know? In Greek myth. They kept men as slaves for procreation.

uk . 2013 www.tonysurridge.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance ACCA F8 Questions and Answers Contents: ISA Short Questions and Answers Screen International Standard on Auditing Questions ISA 200 ISA 210 ISA 230 ISA 240 ISA 250 ISA 260 ISA 265 ISA 300 ISA 315 ISA 320 ISA 330 ISA 402 ISA 450 ISA 500 ISA 501 ISA 505 ISA 510 ISA 520 ISA 530 ISA 540 ISA 560 ISA 570 ISA 580 ISA 610 ISA 620 ISA 700 ISA 705 ISA 706 ISA 710 ISA 720 225 237 245 307 327 334 344 351 359 386 393 409 420 428 442 454 464 473 481 495 511 519 528 538 545 557 568 586 594 600 Answers 229 240 248 313 330 338 347 354 367 389 399 413 423 433 447 458 467 476 486 501 514 523 532 541 549 562 578 590 597 602 15 9 11 14 10 11 7 14 33 7 28 12 11 23 21 19 10 11 15 25 11 11 8 6 13 13 21 9 7 5 410 96 Total number of ISA Short Questions and Answers ©Tony Surridge Online Limited.

uk 97 . a triumphal feature of Roman architecture.co.tonysurridge. recalling the ancient Classical associations of the arch with the sky and its supreme god Zeus.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance ACCA F8 Questions and Answers Contents: Diagnostic Questions and Answers Syllabus section Screen Syllabus classification Questions Audit Framework and Regulation Internal Audit Planning and Risk Assessment Internal Control Audit Evidence Review Reporting Answers Number of Q&As A B C D E F G 605 653 672 728 803 873 883 618 658 687 748 820 876 890 56 21 34 28 30 4 7 180 Total number of Diagnostic Questions and Answers Did you know? An arch was a ceremonial gateway. ©Tony Surridge Online Limited. hence the ceremonial arches formed for newlyweds. 2013 www. Initiates passing under an arch symbolically leave their former lives.

uk 98 . mistress of Alexander the Great.co. To prove his love. In revenge Campaspe charmed the old philosopher. she insisted that Aristotle allow her to ride on his back.tonysurridge. scientist and pupil of Plato. such as Samson and Delilah. 2013 www. The subject was often painted on domestic furniture along with related themes. Apelles paints Campaspe. A tutor of Alexander the Great.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) +AddVance ACCA F8 Questions and Answers Contents: Exam Status Questions and Answers Syllabus section Syllabus classification Audit Framework and Regulation Internal Audit Planning and Risk Assessment Internal Control Audit Evidence Review Reporting Contact screen Number of Q&As A B C D E F G 901 936 950 980 1001 1094 1116 10 4 8 6 21 5 5 59 Total number of Exam Status Questions and Answers Did you know? Aristotle (384 . and Alexander saw how a woman could undo the wisest of men.322 BC) was a Greek philosopher. 1716. ©Tony Surridge Online Limited. Campaspe. also called Indiscrete love. a medieval legend relates how he expounded that women were the downfall of men and tried to persuade Alexander to abandon his favourite courtesan.

co. 2013 www.uk 99 .tonysurridge.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) PAST EXAM QUESTIONS AND ANSWERS Click to the next screen ©Tony Surridge Online Limited.

Control procedures over standing data. Potential problems of using audit software. Amendments to financial statements. Whether or not an audit report should be modified. Corporate governance requirements. Procedures prior to an inventory count. 1091 1092 1094 n/a Dark and Co: Pilot Paper Threat to independence.co.uk 100 . 1102 1103 1105 n/a EastVale Co: Pilot Paper Additional audit procedures. Extent to which CAATs might be used. 1126 1127 1128 1129 Matalas Co : December 2007 Issues which limit the independence of the internal audit department.com. ©Tony Surridge Online Limited. Types of audit evidence. Question Answer plan Answer Examiner’s report 1081 1082 1085 n/a ISAs 210/500/700: Pilot Paper Items to be included in an engagement letter. Internal control weaknesses in a petty cash system. 1107 1108 1110 n/a DinZee Company: December 2007 Audit procedures – on a purchase system. The concept of ‘auditing around the computer’ and associated audit risk. Weaknesses detected in a control system for counting inventory and related discussion. 1112 1114 1117 1121 ACCA Code: December 2007 Actions of the auditor to ascertain going concern. 1138 1139 1141 1143 Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. 1131 1132 1133 1135 Delphic Co: December 2007 Procedures when using audit software on a receivables balance. 1097 1098 1100 n/a SouthLea Co: Pilot Paper Weaknesses in a system of internal control. Audit procedures on the trade payables balance.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Pages Contents: Past Exam Q&As – 1 of 8 Wesestra Co: Pilot Paper Substantive audit procedures to confirm assertions. Factors an entity should consider when appointing an external consultant. Communication with an audit committee. Ways in which an auditor’s report may be modified. 2013 www. Responsibilities of external/internal auditors to detect fraud.tonysurridge.accaglobal. Note: the ACCA Official solutions are available free of charge on www.

Actions required when audit evidence is not considered to be sufficient to support the audit opinion. Effect on an audit report of two alternative situations. Four audit procedures in respect of testing the accuracy of the time recording system. Four assertions that relate to the direct confirmation of receivables. procedures available and situations where applicable. 1193 1194 1197 1199 Blake Co: December 2008 Control objectives of a wages system.co. 1154 1156 1159 1161 Sufficiency of evidence: June 2008 Four factors regarding the sufficiency of evidence obtained. 1186 1187 1189 1191 Smithson Co: June 2008 The auditor’s responsibilities in respect of ‘Going concern’. Identification and discussion of four weaknesses in a (described) wages recording and payment system. Note: the ACCA Official solutions are available free of charge on www.accaglobal.uk 101 . Audit procedures to determine going concern. Question Answer plan Answer Examiner’s report 1146 1147 1149 1151 Brennon & Co: June 2008 Checking the accuracy of an internal control questionnaire. Deciding on a sample for categories of receivables. 1202 1204 1206 1209 Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Pages Contents: Past Exam Q&As – 2 of 8 JonArc & Co: December 2007 Audit procedures regarding non-deprecation of buildings.com. Meaning and purposes of extracts in a draft audit report. ©Tony Surridge Online Limited. Six items that could be included in a management representation letter.tonysurridge. 1176 1177 1179 1183 MonteHodge Co: June 2008 Advantages/disadvantages of an entity outsourcing an internal audit department. Procedures in a case when the client is unlikely to be a going concern. 1166 1167 1169 1173 ISA 520: June 2008 Discussion re ‘analytical procedures’ – explanation of. Six tests of control re a despatch and sales system. Analysing changes in a presented income statement covering two years. 2013 www. By using a stated situation a discussion of the reasons for and against an entity having an internal audit department. Three substantive analytical procedures re a shift managers’ salary system. Procedures re a direct confirmation of receivables. Explanation/implication of the term ‘negative assurance’. Procedures to obtain a bank confirmation letter.

Risks that could affect the assertion of completeness and associated controls and substantive procedures. Note: the ACCA Official solutions are available free of charge on www. 1226 1227 1229 1231 ZeeDiem Co: December 2008 Adjusting or non-adjusting events? (IAS 10). In terms of audit reports explanation of the term ‘modified’. Benefits of an entity establishing an internal audit department. 1219 1220 1222 1224 The EuKaRe Charity: December 2008 Areas of inherent risk and the effect of these risks. 1266 1267 1268 1271 Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Benefits to an entity of forming an audit committee. 1253 1254 1255 1256 Cal & Co: June 2009 Benefits of using audit software. Explanation as to why a (described) control environment may be weak. Audit procedures on a credit card receivables balance. 2013 www. Substantive procedures re total income from ticket sales for one day and one year.uk 102 .tonysurridge. Evaluation of computer systems documentation.co. Four assertions relevant to the audit of non-current assets and one related audit procedure. Three rights that enable auditors to carry out their duties. Problems that may be encountered in the audit of described (computer) situations and explanation of how these problems may be overcome. The auditor’s responsibility/procedures that should be carried out according to ISA 560.accaglobal. ©Tony Surridge Online Limited. 1240 1242 1246 1249 ISAs 530/500: June 2009 Four methods of selecting a sample (ISA 530). Question Answer plan Answer Examiner’s report 1213 1214 1216 1217 Ali & Co: December 2008 Discussion and mitigation of ethical threats which may affect an auditor . Four assertions from ISA 500 that relate to the recording of classes of transactions. 1258 1259 1261 1264 Conoy Co: June 2009 Contrasting the role of internal and external auditors. 1233 1234 1236 1238 B-Star Theme Park: June 2009 Purpose of the main sections of an audit strategy document.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Pages Contents: Past Exam Q&As – 3 of 8 ISA 620: December 2008 Three factors re assessing the competence and objectivity of an auditor’s expert.com.

and (ii) the completeness of provisions or contingent liabilities. 1291 1292 1294 1296 Letham Co: December 2009 Understanding the entity and its environment. 1318 1320 1323 1328 Non-audit engagements/ISA 320: June 2010 The elements of an assurance engagement. ©Tony Surridge Online Limited. 1280 1281 1284 1289 ISAs 500/260: December 2009 Four factors that influence the reliability of audit evidence. Three substantive tests to ensure that a royalties charge is accurate and complete.uk 103 . Three items of evidence concerning a (described) potential claim and how the matter should be reported in the financial statements/audit report.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Pages Contents: Past Exam Q&As – 4 of 8 Tye Co: June 2009 Audit procedures/actions in respect of aviation fuel inventory. Two inherent risks that may affect an inventory figure and one mitigation control. Suitable controls that should exist over a continuous/perpetual inventory counting system. Providing assurance.accaglobal. 1330 1331 1332 1333 Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Six strengths in a (described) control environment in respect of noncurrent assets.com. 1297 1298 1300 1303 Brampton Co: December 2009 Reliance on the work on internal auditors.co. Explanation/discussion of a test for completeness. Three substantive procedures for each of (i) the valuation of inventory. 2013 www. Discussion of the importance of assessing such risks. Note: the ACCA Official solutions are available free of charge on www. Safeguards to overcome the intimidation threat from a client’s directors. Question Answer plan Answer Examiner’s report 1273 1274 1276 1278 Redburn Co: December 2009 Two procedures to ensure that sales statistics may be relied on.tonysurridge. 1311 1312 1314 1317 Smoothbrush Paints Co: June 2010 Audit risks identified at the audit planning stage. External auditor’s responsibilities regarding the detection of fraud and reporting of ‘fictitious’ aviation fuel inventory. 1304 1305 1307 1309 Have a Bite Co: December 2009 Two controls concerning purchases and two associated audit procedures. Two specific responsibilities of those charged with governance and four examples of matters that might be communicated to such people by the auditors. Definition of materiality and determination of how the level of materiality is assessed. Three procedures in an examination of a cash flow forecast. Definition/procedures re net realisable value.

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Shiny Happy Windows Co: June 2010
Definition of (i) a ‘test of control’, and (ii) a ’substantive procedure’. Three deficiencies in a (described) system and controls required to address them. Audit test of controls to assess if controls are operating effectively. Substantive procedures performed to verify a company’s bank balance.

Question

Answer plan

Answer

Examiner’s report

1334

1335

1337

1339

Jones & Co: June 2010
Five audit threats (ACCA’s Code) and an example of a circumstance that may create each of the threats. Independence threats (using a described scenario) and how each threat might be avoided. Steps of an audit firm prior to accepting a new audit engagement.

1341

1342

1344

1347

Medimade Co: June 2010
Definition of the going concern assumption. Identification of indicators that a (described) company is not a going concern. Audit procedures in assessing whether or not a company is a going concern. Impact on the audit report if the auditor believes the client is a going concern but a material uncertainty exists.

1348

1349

1353

1356

Greystone Co: December 2010
Matters concerning a deficiency in internal controls (ISA 265). Four deficiencies in a (described) purchasing system, implications of and recommendation to address each deficiency. Substantive procedures on year-end payables. Additional assignments that the internal audit department could be asked to perform.

1358

1360

1363

1370

General auditing aspects: December 2010
Explanation of the concept of TRUE and FAIR. Status of International Standards on Auditing. Four benefits of documenting audit work (ISA 230).

1372

1373

1375

1376

White & Co: December 2010
Assessment of whether the pre-conditions of an audit are present. Four matters when obtaining an understanding of the entity. Calculation of five ratios, for each of two years, which would assist the audit senior in planning the audit. (A described scenario).Explain the audit risks that arise from the scenario with appropriate audit response.

1377

1378

1381

1384

Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Note: the ACCA Official solutions are available free of charge on www.accaglobal.com.

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Questions and Answers

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Bluesberry Hospital: December 2010
Identification of four strengths within a (described) operating environment and how the client might use each strength to provide the best value for money. Description of two substantive procedures used to verify each of the following assertions in relation to an entity’s property, plant and equipment: (i) valuation, (ii) completeness and (iii) rights and obligations.

Question

Answer plan

Answer

Examiner’s report

1386

1387

1389

1392

Greenfields Co: December 2010
Audit procedures in respect of accounting estimates. The appropriateness of written representation as a form of audit evidence. Reaching a conclusion on a (described) balance in the financial statements. Implications of the refusal of management to provide a requested written representation.

1393

1394

1397

1399

Tinkerbell Toys Co: June 2011
Six tests of controls on the (described) sales systems with explanation of the objective for each test. Substantive procedures to confirm year-end receivables balance. Identification and explanation of controls used to reduce the risk of fraud and how each control would mitigate the risk. Substantive procedures performed to confirm revenue.

1401

1402

1405

1408

Audit documentation: June 2011
Advantages/disadvantages to the auditor of (i) narrative notes and (ii) internal control questionnaires. Purposes of an engagement letter and six matters that should be included within an audit engagement letter.

1410

1411

1413

1415

Donald Co: June 2011
Five procedures for obtaining audit evidence and for each an example relevant to the audit of purchases and other expenses. From information provided a description of five audit risks and the auditor’s response to each risk in planning the audit.

1416

1417

1419

1422

Goofy Co: June 2011
Safeguards for auditors to ensure that conflict of interest is properly managed. Advantages/disadvantages to both client and auditor of outsourcing the internal audit department. From information provided an explanation of ethical threats to the audit independence and how each threat may be reduced.

1424

1425

1427

1430

Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Note: the ACCA Official solutions are available free of charge on www.accaglobal.com.

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Questions and Answers

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Daffy & Co: June 2011
‘Misstatement’ and the auditor’s responsibility. Factors that an entity should consider when placing reliance on the work of an independent valuer. Discussion of three (provided) issues and their impact on the audit report if they remain unresolved.

Question

Answer plan

Answer

Examiner’s report

1431

1432

1435

1438

Chuck Industries: December 2011
For deficiencies already identified (i) an explanation of implications and (ii) recommendation to address each deficiency. Substantive procedures to confirm accuracy and completeness of a (described) payroll charge. Responsibilities of management/auditors in relation to compliance with law and regulations (ISA 250). Substantive procedures to confirm a redundancy provision. Factors considered by the auditor before reliance can be placed on the work performed by a client’s internal audit department.

1440

1442

1447

1451

ISAs 315/700: December 2011
Five components of an entity’s internal control with an explanation of each. Five elements of an unmodified auditor’s report.

1454

1455

1457

1459

Abrahams Co: December 2011
Description of the component of audit risk with an example of a factor which can result in increased audit risk. Using information provided identification/description of five audit risks and the auditor’s response to each. Substantive procedures used to obtain sufficient appropriate audit evidence in relation to: (i) inventory held by a third party, and (ii) use of standard costs for inventory valuation.

1460

1461

1463

1468

Serena VDW Co: December 2011
Explanation/importance of ‘corporate governance’. Description of six corporate governance weaknesses (using a provided scenario) and recommendations to address each weakness. The auditor’s ethical responsibilities with regard to client confidentiality and when they have (i) obligatory obligations, and (ii) voluntary responsibility to disclose client information.

1470

1471

1474

1478

Humphries Co: December 2011
The auditor’s responsibility for subsequent events. For each of three provided events: (i) discussion of whether financial statements require amendment, (ii) description of audit procedures to form a conclusion on the amendment, and (iii) the impact on the audit report should the issue remain unresolved.

1479

1480

1482

1485

Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. Note: the ACCA Official solutions are available free of charge on www.accaglobal.com.
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1519 1520 1523 1525 Our Answers are based on the ACCA Official solutions but extended to include tutorial guidelines (in green shaded boxes) to aid understanding as well as the use of hyperlinks to glossary terms and external sources. 1503 1504 1506 1509 Pineapple Beach Hotel Co: June 2012 Identification of four financial statement assertions relevant to year-end account balances and for each a description of a substantive procedure relevant to the audit of year-end inventory. Audit procedures in assessing whether or not a company is a going concern. Question Answer plan Answer Examiner’s report 1487 1489 1492 1496 ISAs 300/530: June 2012 Explanation of the benefits of audit planning. Description of the three types of modified audit opinions. 1510 1511 1514 1517 Strawberry Kitchen Designs Co: June 2012 Three stages of an audit when analytical procedures can be used by the auditor.tonysurridge. The impact on the auditor’s report if management refuse to amend the financial statements. Substantive procedures relevant to obtain sufficient/appropriate audit evidence in relation to two stated issues. Using information provided an explanation of three potential indicators that the entity is not a going concern.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Pages Contents: Past Exam Q&As – 8 of 8 Pear International Co: June 2012 In respect of the internal control (scenario provided) (i) identification/ explanation of five deficiencies. Four items that should be included on every audit working paper.accaglobal. The auditor’s responsibility for reporting on going concern to management. Contrast of internal/external audit. (ii) recommendation of a control to address each and (iii) a test of control to assess if each of these controls is operating effectively.co. ©Tony Surridge Online Limited. Identification/explanation of three methods of selecting a sample. Identification/explanation of the level of assurance provided by external audit/other review engagements. Note: the ACCA Official solutions are available free of charge on www. 2013 www. Benefits to an organisation of establishing an audit committee. 1498 1499 1501 1502 Orange Financial Co: June 2012 From a scenario provided an explanation of six ethical threats which might affect audit independence and how each might be reduced to an acceptable level.uk 107 . and (ii) disposals. Substantive procedures to confirm each of the following for plant and equipment: (i) additions.com.

Hyperlinks are provided both on the following screens or when referred to in the text. Reference is made to them as applicable in the body of this Tony Surridge +AddVance e-publication.co.tonysurridge. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) Appendix A: International Standards on Auditing: June and December 2013 Examinations – 1 of 5 The following six screens itemise the International Audit Standards and other examinable documents for the June and December 2013 examinations.uk 108 . ©Tony Surridge Online Limited.

org/download/2009_Auditing_Handbook_A009_ISA_ 210.uk 109 . Documents may be examinable even if the effective date is in the future. This means that all regulations issued by 30th September 2012 will be examinable in the June and December 2013 examinations.pdf √ ©Tony Surridge Online Limited. Other Assurance and Related Services http://web. The study guide should therefore be read in conjunction with the examinable documents list.ifac.org/download/2008_Auditing_Handbook_A055_Framework.ifac.org/download/2009_Auditing_Handbook_A008_ISA_200. The study guide offers more detailed guidance on the depth and level at which the examinable documents should be examined.ifac.ifac.pdf √ ISA 210 Agreeing the Terms of Audit Engagements http://web. Auditing.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) EXAMINABLE DOCUMENTS JUNE AND DECEMBER 2013 AUDIT INTERNATIONAL – 2 of 5 Knowledge of new examinable regulations issued by 30th September will be examinable in examination sessions being held in the following calendar year. Click here Title International Standards on Auditing (ISAs) F8 CLICK Glossary of Terms http://web.tonysurridge.co. pdf CLICK Preface to the International Standards on Quality Control.ifac. candidates studying for Paper F8 should refer to the Accounting Standards listed under Paper F3.org/download/2009_Auditing_Handbook_A004_2009_Prefa ce-WithConformingAmendments. Accounting Standards Paper F8 Audit and Assurance The accounting knowledge that is assumed for Paper F8 is the same as that examined in Paper F3. 2013 www. Therefore. Review.pdf √ ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing http://web.pdf √ √ CLICK International Framework for Assurance Assignments http://web.org/download/2009_Auditing_Handbook_A005_Glossary.

org/download/2009_Auditing_Handbook_A019_ISA_330.ifac. 2013 www.pdf √ √ √ ISA 330 (Redrafted) The Auditor’s Responses to Assessed Risks http://web.ifac.org/download/2009_Auditing_Handbook_A017_ISA_315.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) EXAMINABLE DOCUMENTS JUNE AND DECEMBER 2013 AUDIT INTERNATIONAL .ifac.pdf ISA 402 Audit Considerations Relating to an Entity Using a Service Organisation http://web.ifac.ifac.org/download/2009_Auditing_Handbook_A016_ISA_300.tonysurridge.pdf √ √ ISA 315 (Redrafted) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment http://web.pdf √ ISA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management http://web.ifac.pdf √ ISA 300 (Redrafted) Planning an Audit of Financial Statements http://web.pdf ISA 320 Materiality in Planning and Performing and Audit http://web.uk 110 .3 of 5 Click here ISA 230 Title (Redrafted) Audit Documentation http://web.org/download/2009_Auditing_Handbook_A014_ISA_260.org/download/2009_Auditing_Handbook_A020_ISA_402.org/download/2009_Auditing_Handbook_A013_ISA_250.ifac.org/download/2009_Auditing_Handbook_A011_ISA_230.ifac.pdf F8 √ √ ISA 240 (Redrafted) The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements http://web.ifac.pdf √ ©Tony Surridge Online Limited.ifac.pdf ISA 450 Evaluation of Misstatements Identified During the Audit http://web.org/download/2009_Auditing_Handbook_A021_ISA_450.org/download/2009_Auditing_Handbook_A018_ISA_320.org/download/2009_Auditing_Handbook_A012_ISA_240.org/download/2009_Auditing_Handbook_A015_ISA_265.pdf √ ISA 260 (Revised and Redrafted) Communication with Those Charged with Governance http://web.co.pdf ISA 250 (Redrafted) Consideration of Laws and Regulations in an Audit of Financial Statements http://web.ifac.

org/download/2009_Auditing_Handbook_A030_ISA_560. 2013 www.ifac.ifac.ifac.org/download/2009_Auditing_Handbook_A026_ISA_520.pdf F8 √ √ √ √ √ √ √ ISA 501 Audit Evidence – Specific Considerations for Selected Items http://web.ifac.ifac.pdf ISA 520 Analytical Procedures http://web.org/download/2009_Auditing_Handbook_A031_ISA_570.co.org/download/2009_Auditing_Handbook_A035_ISA_620.org/download/2009_Auditing_Handbook_A024_ISA_505.org/download/2009_Auditing_Handbook_A027_ISA_530.pdf ISA 510 (Redrafted) Initial Audit Engagements – Opening Balances http://web.org/download/2009_Auditing_Handbook_A022_ISA_500.ifac.pdf ISA 540 (Revised and Redrafted) Auditing Accounting Estimates.pdf √ √ √ ISA 570 (Redrafted) Going Concern http://web.org/download/2009_Auditing_Handbook_A028_ISA_540.pdf √ ©Tony Surridge Online Limited.ifac.ifac.pdf ISA 580 (Revised and Redrafted) Written Representations http://web.org/download/2009_Auditing_Handbook_A034_ISA_610.org/download/2009_Auditing_Handbook_A025_ISA_510.uk 111 .org/download/2009_Auditing_Handbook_A023_ISA_501. Including Fair Value Estimates and Related Disclosures http://web.ifac.ifac.tonysurridge.ifac.pdf ISA 530 Audit Sampling http://web.pdf ISA 505 External Confirmations http://web.org/download/2009_Auditing_Handbook_A032_ISA_580.pdf √ ISA 620 Using the Work of an Auditor’s Expert http://web.pdf ISA 610 Using the Work of Internal Auditors http://web.ifac.pdf ISA 560 (Redrafted) Subsequent Events http://web.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) EXAMINABLE DOCUMENTS JUNE AND DECEMBER 2013 AUDIT INTERNATIONAL – 4 of 5 Click here ISA 500 Title Audit Evidence http://web.

pdf √ ISA 710 Comparative Information – Corresponding Figures and Comparative Financial Statements http://web.ifac. and philosopher. pdf √ Other documents CLICK ACCA’s ‘Code of Ethics and Conduct’ http://rulebook.frc.ifac.co.ifac. written in 1926.ifac.aspx √ Moral codes adjust themselves to environmental conditions” Will Durant William James Durant (1885 – 1981) was a prolific American writer. which one observer described as "a groundbreaking work that helped to popularize philosophy".pdf √ √ ISA 705 Modifications to the Opinion in the Independent Auditor’s Report http://web.ifac.org.org/download/2008_Auditing_Handbook_A025_Code_of_Et hics.org/download/2009_Auditing_Handbook_A037_ISA_705.org/download/2009_Auditing_Handbook_A036_ISA_700. Will and Ariel Durant ©Tony Surridge Online Limited.uk 112 . 2013 www.org/download/2008_Auditing_Handbook_A270_ISAE_3000. historian.tonysurridge.org/download/2009_Auditing_Handbook_A039_ISA_710.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) EXAMINABLE DOCUMENTS JUNE AND DECEMBER 2013 AUDIT INTERNATIONAL – 5 of 5 ISA 700 Forming an Opinion and Reporting on Financial Statements http://web.accaglobal.ifac.org/download/2009_Auditing_Handbook_A038_ISA_706. He is best known for The Story of Civilization.org/download/2009_Auditing_Handbook_A040_ISA_720.com/ √ √ CLICK IFAC’s ‘Code of Ethics for Professional Accountants’ http://web.pdf √ ISA 720 (Redrafted) The Auditor’s Responsibilities Related to Other Information in Documents Containing Audited Financial Statements http://web.uk/getattachment/b0832de2-5c94-48c0-b771ebb249fe1fec/The-UK-Corporate-Governance-Code. He was earlier noted for The Story of Philosophy.pdf √ International Standards on Assurance Engagements (ISAEs) ISAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information http://web.ifac.pdf CLICK UK Code of Corporate Governance 2012 as an example of a code of best practice http://www.pdf ISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report http://web. 11 volumes written in collaboration with his wife Ariel Durant and published between 1935 and 1975.

co.tonysurridge.uk 113 .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 ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) APPENDIX B: GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . 2013 www.

Specifically. in all material respects. access cards or biometric data. as well as for other amounts that require estimation. The recipients of the report form their own conclusions from the report by the auditor. Accounting estimate* An approximation of a monetary amount in the absence of a precise means of measurement. Accounting records* The records of initial accounting entries and supporting records. the auditor shall state in the opinion paragraph that. Entry of unauthorised transactions. www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . This term is used for an amount measured at fair value where there is estimation uncertainty. The use of computer programs by unauthorised personnel. Agreed-upon procedures engagement* An engagement in which an auditor is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. invoices. programs and data. 2013 114 . or (b) The financial statements have not been prepared. An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. Agent An agent is authorised to act on behalf of another (called the Principal) Agree To confirm that balances in the general ledger are correct. computations. unaware of the reasons for the procedures may misinterpret the results. passwords. journal entries and other adjustments to the financial statements that are not reflected in formal journal entries. and records such as work sheets and spreadsheets supporting cost allocations.February 2009) Access controls* Procedures designed to restrict access to on-line terminal devices. because of the significance of the matter(s) described in the Basis for Adverse Opinion paragraph: (a) The financial statements do not present fairly (or give a true and fair view) in accordance with the applicable financial reporting framework when reporting in accordance with a fair presentation framework. reconciliations and disclosures. the term “fair value accounting estimates” is used. Access controls consist of “user authentication” and “user authorisation. in the auditor’s opinion. the general and subsidiary ledgers. Where ISA 540 addresses only accounting estimates involving measurement at fair value.” “User authentication” typically attempts to identify a user through unique logon identifications. such procedures are designed to prevent or detect: (a) (b) (c) (d) (e) Unauthorised access to on-line terminal devices.uk ©Tony Surridge Online Limited.co. Adverse opinion When the auditor expresses an adverse opinion. contracts. Unauthorised changes to data files.tonysurridge. The report is restricted to those parties that have agreed to the procedures to be performed since others. and The use of computer programs that have not been authorised. such as cheques and records of electronic fund transfers. in accordance with the applicable financial reporting framework when reporting in accordance with a compliance framework. Accrued revenue This is revenue that has been credited but not yet paid. programs and data. “User authorisation” consists of access rules to determine the computer resources each user may access.

uk 115 . ©Tony Surridge Online Limited. The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and: (a) Acknowledges explicitly or implicitly that. which includes its financial statements together with the auditor’s report thereon. Anomaly* A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population. record. Application controls in information technology* Manual or automated procedures that typically operate at a business process level. it may be necessary for management to provide disclosures beyond those specifically required by the framework. Applied criteria (in the context of ISA 810)* The criteria applied by management in the preparation of the summary financial statements. those charged with governance in the preparation of the financial statements that is acceptable in view of the nature of the entity and the objective of the financial statements. The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework. where appropriate. ordinarily on an annual basis. application controls relate to procedures used to initiate. 2013 www. or (b) Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. to achieve fair presentation of the financial statements.co. Accordingly. Annual report* A document issued by an entity. or that is required by law or regulation. process and report transactions or other financial data. Such departures are expected to be necessary only in extremely rare circumstances. Applicable financial reporting framework* The financial reporting framework adopted by management and.tonysurridge. Analytical procedures* Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data. but does not contain the acknowledgements in (a) or (b) above.February 2009) Analyse Separation of account balances into separate parts and the ascertainment of those parts. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. Application controls can be preventative or detective in nature and are designed to ensure the integrity of the accounting records.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .

its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based. official correspondence and meeting minutes. and equity interests exist.February 2009) Appropriateness (of audit evidence)* The measure of the quality of audit evidence. 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) Occurrence—transactions and events that have been recorded have occurred and pertain to the entity. that is. Archived files An archive is a collection of records. Arm’s 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. (ii) Rights and obligations—the entity holds or controls the rights to assets. archives consist of records which have been selected for permanent or long-term preservation.co. Archives contain records which have accumulated over the course of time. Assertions (and the ‘assertion level’. (iii) Completeness—all assets. (ii) Completeness—all transactions and events that should have been recorded have been recorded. Please go to the next screen To complete this term ©Tony Surridge Online Limited. and liabilities are the obligations of the entity. (iv) Valuation and allocation—assets.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . and the location in which the collection is kept. (iii) Accuracy—amounts and other data relating to recorded transactions and events have been recorded appropriately. business records. memos. explicit or otherwise. liabilities. (b) Assertions about account balances at the period end: (i) Existence—assets. as used by the auditor to consider the different types of potential misstatements that may occur. 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. (v) Classification—transactions and events have been recorded in the proper accounts. Assertions* Representations by management. (iv) Cut-off—transactions and events have been recorded in the correct accounting period.e. i.tonysurridge. The archives of an organisation tend to contain administrative files. 2013 www. liabilities and equity interests that should have been recorded have been recorded. is paid or secured. In general. liabilities. and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. the arrester.uk 116 . that are embodied in the financial statements.

as the basis for a negative form of expression of the practitioner’s conclusion.uk 117 . and disclosures are clearly expressed. Audit committee An audit committee is a committee consisting primarily of non-executive directors which is able to view a company’s affairs in a detached and independent way and liaise effectively between the main (executive) board of directors and the external and internal auditors.co. (iv) Accuracy and valuation—financial and other information are disclosed fairly and at appropriate amounts. Limited assurance engagement The objective of a limited assurance engagement is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement. and other matters have occurred and pertain to the entity.e. Assess* Analyse identified risks of to conclude on their significance.tonysurridge. but where that risk is greater than for a reasonable assurance engagement.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Assurance engagement* An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. (also see Evaluate) Association* (see Auditor association with financial information) Assurance* (see Reasonable assurance – on this screen) Attributes sampling Attribute sampling provides results based on two possible values (i. Reasonable assurance engagement The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion. (iii) Classification and understandability—financial information is appropriately presented and described. 2013 www.February 2009) (c) Assertions about presentation and disclosure: (i) Occurrence and rights and obligations—disclosed events. Under the “International Framework for Assurance Engagements” there are two types of assurance engagement a practitioner is permitted to perform: a reasonable assurance engagement and a limited assurance engagement. The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria. ©Tony Surridge Online Limited.” by convention. not correct). transactions. “Assess. correct. (ii) Completeness—all disclosures that should have been included in the financial statements have been included. is used only in relation to risk.

uk 118 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Audit risk is a function of the risks of material misstatement and detection risk. containing the records that comprise the audit documentation for a specific engagement. Audit evidence* Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based.co.tonysurridge. and conclusions the auditor reached (terms such as “working papers” or “work-papers” are also sometimes used). See also: Risk of material misstatement. in physical or electronic form.February 2009) Assurance engagement risk* The risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated. Audit risk has three components: inherent risk. Audit sampling (sampling)* The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information. steps. 2013 www. Audit risk* The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit firm* (see Firm*) Audit opinion* (see Modified opinion* and Unmodified opinion*) Audit procedures Audit procedures are methods. relevant audit evidence obtained. control risk and detection risk. (See Sufficiency of audit evidence* and Appropriateness of audit evidence*. ©Tony Surridge Online Limited. Audited financial statements* (in the context of ISA 810) Financial statements audited by the auditor in accordance with ISAs. acts or tasks used by the auditor to gather evidence about the subject matter. Audit documentation* The record of audit procedures performed.) Audit file* One or more folders or other storage media. and from which the summary financial statements are derived.

Internal auditor . Auditor’s expert* An individual or organisation possessing expertise in a field other than accounting or auditing. where required. usually the engagement partner or other members of the engagement team.) External auditor – Referred to in the Internal Auditing Standards as the independent auditor the external auditor is defined in the first paragraph above.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .The partner or other person in the firm who is responsible for the engagement and its performance. whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. or an auditor’s external expert. “Engagement partner” and “firm” are to be read as referring to their public sector equivalents where relevant. the term “engagement partner” rather than “auditor” is used.  Adverse opinion . Existing audit – The auditor who is currently holding an audit or assurance services appointment with the entity (client). has the appropriate authority from a professional. Incoming auditor – The incoming auditor is the current period’s auditor who did not audit the prior period’s financial statements.February 2009) Auditor “Auditor” is used to refer to the person or persons conducting the audit. the firm.uk 119 . An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff. legal or regulatory body. of the auditor’s firm or a network firm).     Auditor association with financial information* An auditor is associated with financial information when the auditor attaches a report to that information or consents to the use of the auditor’s name in a professional connection. and for the report that is issued on behalf of the firm.tonysurridge. Disclaimer of opinion . Internal auditors may belong to an internal audit department or equivalent function.   Continuing auditor – The auditor who performed the audit and reported on the prior period’s financial statements and continues as the auditor for the current period. Where an ISA expressly intends that a requirement or responsibility be fulfilled by the engagement partner. including temporary staff. Auditor’s opinion The auditor’s report contains a clear written expression of opinion (‘what seems to be probably true’) on the financial statements as a whole. as applicable. and who. (Often referred to as the ‘Principal auditor’.co. or. Please go to the next screen To complete this term ©Tony Surridge Online Limited. 2013 www.Those individuals who perform the activities of the internal audit function.A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. Engagement auditor .

 Unqualified opinion – The opinion expressed by the auditor when he or she concludes that the financial statements are prepared.tonysurridge.February 2009) Qualified opinion . or range of amounts. derived from audit evidence for use in evaluating management’s point estimate. Auditor’s range* (see Auditor’s point estimate* . in accordance with the applicable financial reporting framework. respectively. 2013 www.on this screen) ©Tony Surridge Online Limited. Auditor’s procedures Procedures used by the auditor to gather evidence about the subject matter.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as being ‘except for’ the effects of the matter to which the qualification relates.uk 120 .A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management. Auditor’s point estimate or auditor’s range* The amount. in all material respects.

tonysurridge. Business risk* A risk resulting from significant conditions. events.co. actions or inactions that could adversely affect an entity’s ability to achieve its objectives and execute its strategies.February 2009) Balance sheet A balance sheet (or statement of financial position) is a summary of a company’s balances. A balance sheet is often described as a snapshot of a company's financial condition. liabilities and ownership equity are listed as of a specific date. all sales invoices in a particular week. the balance sheet is the only statement which applies to a single point in time. such as the end of its financial year.uk 121 . The schedule is prepared by using bank statements for the periods before and after year-end and by using the client’s cash receipts and payments cash books.[ Of the four basic financial statements. Bank transfer schedule A bank transfer schedule shows the dates of all transfers of cash among the client’s various bank accounts. Best-estimate assumption A best-estimate assumption is an assumption about future events which management expects to take place and actions management expects to take as of the date the information is prepared. 2013 www. ©Tony Surridge Online Limited. Block sampling Block sampling is a method in which a number of adjacent transactions or items will be selected. Assets.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . circumstances.g. e. This should be compared with hypothetical assumption. or from the setting of inappropriate objectives and strategies. or all debtors with a name beginning with a particular letter.

Such restrictions on cash.co.tonysurridge. in terms of units of work or of processing time. when material. The purpose of check-pointing is to minimise the amount of time and effort wasted when a long software process is interrupted by a hardware failure. such as to compare the beginning balances with last year’s audited figures. Compare To set one group of figures with another set so as to ascertain how far they agree or disagree. or resource unavailability. Compare To set one group of figures with another set so as to ascertain how far they agree or disagree. Casual vacancy Is an unforeseen vacancy Check-point restart Check-point restart is a facility offered by some database management systems (DBMSs) and backuprestore software. as are backup and restore operations. 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. 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. checkpoints are initiated at specified intervals. such as agreement that there has been correct application of International Financial Reporting Standards. compensating balances are typically required under the terms of bank loan agreements. are referred to in the auditor’s opinion. 2013 www. They consist of many units of work. 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. At each checkpoint the process's progress is saved to back-up storage. Compliance Agreement with. Check-points are taken in anticipation of the potential need to restart a software process. if audited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . The level of information included in those comparative financial statements is comparable with that of the financial statements of the current period. ©Tony Surridge Online Limited. a software failure.February 2009) Carrying value Is the value of an asset or liability in a company’s books or balance sheet. such as to compare the beginning balances with last year’s audited figures. If check-pointing is enabled. Many ordinary batch processes on impersonal computers are time-consuming. The contents of the program's memory area may also be saved. should be disclosed in financial statements.uk 122 . the process can be restarted from the latest checkpoint rather than from the beginning. With check-pointing.

tonysurridge. as opposed to auditing expertise. performs work on financial information related to a component for the group audit. will be implemented by user entities.co. Component management* Management responsible for the preparation of the financial information of a component. if necessary to achieve control objectives. and which.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . classify and summarise financial information. Ownership of consignment inventory is passed only when the stock is used (issued). Confidence A firm trust or belief in the outcome. ©Tony Surridge Online Limited. Computer-assisted audit techniques* Applications of auditing procedures using the computer as an audit tool (also known as CAATs). Conclusion To form a final judgement concerning the subject matter. Component auditor* An auditor who. at the request of the group engagement team. Unused inventory in a warehouse may be returned to the manufacturer. in the design of its service. are identified in the description of its system. 2013 www. Component materiality* The materiality for a component determined by the group engagement team. is used to collect. Confidentiality A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. but held by another.February 2009) Compilation engagement* An engagement in which accounting expertise. Consignment inventory Consignment inventory is stock legally owned by one party.uk 123 . Compliance framework* (see Applicable financial reporting framework and General purpose framework) Component* An entity or business activity for which group or component management prepares financial information that should be included in the group financial statements. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties. Complementary user entity controls* Controls that the service organisation assumes.

(Criteria. diligence. certification or information quality. benchmarks for presentation and disclosure. but also includes relatively objective characteristics such as credentials.tonysurridge. Expertise can be similarly subjectively perceived. Credibility Credibility relates to the amount of confidence placed on the information or the ability of the person producing it.co. etc). for example. Criteria* The benchmarks used to evaluate or measure the subject matter including. Suitable criteria are required for reasonably consistent evaluation or measurement of a subject matter within the context of professional judgment. etc. The control environment is a component of internal control. Count To sum the value of (volume. could include International Financial Reporting Standards.) Please go to the next screen To complete this term ©Tony Surridge Online Limited. ‘Creeping materiality’ Misrepresentations or omissions which may not be material in isolation but may be cumulatively. inventory. awareness and actions of those charged with governance and management concerning the entity’s internal control and its importance in the entity. It has two key components: trustworthiness and expertise. Criteria can be formal or less formal.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . and are intended to be read only in relation to the amounts and other disclosures relating to the current period (referred to as “current period figures”). such as reckoning the value of cash.February 2009) Control activities* Those policies and procedures that help ensure that management directives are carried out. Control activities are a component of internal control. Control environment* Includes the governance and management functions and the attitudes. etc. There can be different criteria for the same subject matter. Control risk* (see Risk of material misstatement*) Corporate governance* (see Governance*) Corresponding figures* Comparative information where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements. The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the current period figures.uk 124 . monetary value. but can include objective measurements such as proven ability and reliability. where relevant. 2013 www. Trustworthiness is based more on subjective factors (honesty.).

©Tony Surridge Online Limited. (d) Neutrality: neutral criteria contribute to conclusions that are free from bias. (c) Reliability: reliable criteria allow reasonably consistent evaluation or measurement of the subject matter including. where relevant. (b) Completeness: criteria are sufficiently complete when relevant factors that could affect the conclusions in the context of the engagement circumstances are not omitted.co. 2013 www.February 2009) Suitable criteria* Exhibit the following characteristics: (a) Relevance: relevant criteria contribute to conclusions that assist decision-making by the intended users. benchmarks for presentation and disclosure. (e) Understandability: understandable criteria contribute to conclusions that are clear. not subject to significantly different interpretations. comprehensive.tonysurridge. presentation and disclosure. Complete criteria include.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . when used in similar circumstances by similarly qualified practitioners.uk 125 . where relevant.

misstatements in the financial statements on a timely basis is missing. 2013 www. or detect and correct.February 2009) Data analytics Data analytics relates to data analysis. either individually or when aggregated with other misstatements. that might bear on a company’s existing position or performance. misstatements in the financial statements on a timely basis.co. Date the financial statements are issued* The date that the auditor’s report and audited financial statements are made available to third parties.uk 126 . positive or negative. Disclosure A release by the company of information. Date of report (in relation to quality control)* The date selected by the practitioner to date the report. or detect and correct. Date of the auditor’s report* The date the auditor dates the report on the financial statements in accordance with ISA 700. have been prepared and those with the recognised authority have asserted that they have taken responsibility for those financial statements. suggesting conclusions. For example. including the related notes.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Deficiency in internal control* This exists when: (a) A control is designed. Detection risk* The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material. and transforming data with the goal of highlighting useful information. Date of approval of the financial statements* The date on which all the statements that comprise the financial statements. ©Tony Surridge Online Limited. implemented or operated in such a way that it is unable to prevent. In general there is a requirement to disclose all material facts relevant to the aspect reported on.tonysurridge. modelling. or (b) A control necessary to prevent. Data analysis is a process of gathering. Disclaimer of opinion A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements. the annual Financial Statements issued by a company constitute disclosures. Date of the financial statements* The date of the end of the latest period covered by the financial statements. and supporting decision making.

Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . has the appropriate authority from a professional. or a team made up of such individuals. and ceases to have effect if the company is re-registered as a plc.tonysurridge. 1989 introduced for private companies the right to dispense with certain formalities. for which the firm has determined an engagement quality control review is required. other person in the firm. The engagement quality control review process is for audits of financial statements of listed entities and those other engagements. where required. legal or regulatory body.uk 127 . Engagement partner* The partner or other person in the firm who is responsible for the engagement and its performance. An elective resolution can be revoked by ordinary resolution. and any individuals engaged by the firm or a network firm who perform procedures on the engagement. in the auditor’s judgment.co. Engagement documentation* The record of work performed. is of such importance that it is fundamental to users’ understanding of the financial statements. with sufficient and appropriate experience and authority to objectively evaluate the significant judgments the engagement team made and the conclusions it reached in formulating the report. and who. This excludes external experts engaged by the firm or a network firm. and for the report that is issued on behalf of the firm. Element* (see Element of a financial statement – on this screen*) Element of a financial statement* (in the context of ISA 805) An element. account or item of a financial statement. if any. results obtained. and conclusions the practitioner reached (terms such as “working papers” or “work-papers” are sometimes used). on or before the date of the report. ©Tony Surridge Online Limited. suitably qualified external person. none of whom is part of the engagement team. Engagement quality control review* A process designed to provide an objective evaluation. such as to dispense with the requirement to appoint auditors annually. Engagement letter* Written terms of an engagement in the form of a letter. 2013 www.February 2009) Elective resolution (UK) Companies Act. Emphasis of Matter paragraph* A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that. Engagement quality control reviewer* A partner. Engagement team* All partners and staff performing the engagement. of the significant judgments the engagement team made and the conclusions it reached in formulating the report.

Estimation uncertainty* The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its measurement. 2013 www. including evidence. (Note ISAs refer to the engagement client as entity. to come to a specific conclusion on a matter.February 2009) Entity Something that exists independently. Error* An unintentional misstatement in financial statements. ©Tony Surridge Online Limited.uk 128 . the results of procedures and the effectiveness of management’s response to a risk. (b) Consequences of violating environmental laws and regulations. or contained in the entity’s records. including performing further procedures as necessary.tonysurridge. or to deal with conservation of renewable and non-renewable resources (such initiatives may be required by environmental laws and regulations or by contract.” by convention.co.) Entity’s risk assessment process* A component of internal control that is the entity’s process for identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks. and (d) Consequences of vicarious liability imposed by law (for example. its achievement in managing the relationship between its business processes and environmental risk. such as to enquire into authoritative documents. separate from the financial statements. and information provided by the confirming party. its policies and targets in that field. Environmental matters* (a) Initiatives to prevent. abate. is used only in relation to a range of matters. factors relevant to the assessment of inherent risk for the development of the overall audit plan may include the risk of material misstatement of the financial statements due to environmental matters. or remedy damage to the environment. (c) Consequences of environmental damage done to others or to natural resources. including the omission of an amount or a disclosure. Evaluate* Identify and analyse the relevant issues. (also see Assess*) Examine To enquire into evidence.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . “Evaluation. Exception* A response that indicates a difference between information requested to be confirmed. liability for damages caused by previous owners). and quantitative information on its environmental performance. and the results thereof. Environmental performance report* A report. or they may be undertaken voluntarily). Environmental risk* In certain circumstances. in which an entity provides third parties with qualitative information on the entity’s commitments towards the environmental aspects of the business.

The business environment in which the entity operates. and a reasonable understanding of: (a) (b) (c) (d) Audit processes. ©Tony Surridge Online Limited.) Expertise* Skills. or by electronic or other medium.uk 129 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .co.tonysurridge. Expert* (see Auditor’s expert* and Management’s expert*. External confirmation* Audit evidence obtained as a direct written response to the auditor from a third party (the confirming party). 2013 www. knowledge and experience in a particular field.February 2009) Experienced auditor* An individual (whether internal or external to the firm) who has practical audit experience. and Auditing and financial reporting issues relevant to the entity’s industry. in paper form. ISAs and applicable legal and regulatory requirements.

employees.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . statements of changes in financial position [which may be presented in a variety of ways. income statements [or profit and loss accounts]. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information. or third parties. ©Tony Surridge Online Limited. involving the use of deception to obtain an unjust or illegal advantage. (Note: ‘Financial statement’ usually consist of the balance sheets. Fraudulent financial reporting* Involves intentional misstatements. those charged with governance. including omissions of amounts or disclosures in financial statements. notes and other statements and explanatory material which are identified as being part of the financial statement. Fraud risk factors* Events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. The term “financial statements” ordinarily refers to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework. Fraud* An intentional act by one or more individuals among management.tonysurridge. Foot Add figures. including related notes.co. Firm* A sole practitioner. partnership or corporation or other entity of professional accountants. but it can also refer to a single financial statement. Forecast* Prospective financial information prepared on the basis of assumptions as to future events which management expects to take place and the actions management expects to take as of the date the information is prepared (best-estimate assumptions). such as to add the figures in a column of monetary values. when work is focused on the final financial statements.uk 130 . for example. to deceive financial statement users. 2013 www. as a statement of cash flows). intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. This should be compared with interim audit.) Final audit The final audit is the main period of audit testing.February 2009) Fair presentation framework* (see Applicable financial reporting framework and General purpose framework) Financial statements* A structured representation of historical financial information.

and in the preparation of financial statements. and application system acquisition. and maintenance. General purpose framework* A financial reporting framework designed to meet the common financial information needs of a wide range of users. General IT-controls commonly include controls over data centre and network operations. it may be necessary for management to provide disclosures beyond those specifically required by the framework. conventions. 2013 www. GAAP includes the standards. Garnishee order A garnishee order is a notice to a person or organisation to retain custody of assets in his control that are owed to or belong to another person.uk 131 . and rules accountants follow in recording and summarising transactions. or (b) Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. The garnishee (possibly a bank) merely holds the assets until legal proceedings determine who is entitled to the property. Such departures are expected to be necessary only in extremely rare circumstances. General purpose financial statements* Financial statements prepared in accordance with a general purpose framework. development. but does not contain the acknowledgements in (a) or (b) above. ©Tony Surridge Online Limited. change and maintenance. The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework.February 2009) GAAP Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction.tonysurridge. access security. Governance* Describes the role of person(s) or organisation(s) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. Many countries use or are converging on the International Financial Reporting Standards (IFRS). to achieve fair presentation of the financial statements. system software acquisition. The financial reporting framework may be a fair presentation framework or a compliance framework. The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and: (a) Acknowledges explicitly or implicitly that. General IT-controls* Policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .co. established and maintained by the International Accounting Standards Board.

perform work on the consolidation process. Group engagement team* Partners. then the next generation up backup (grandfather) is required. 2013 www. Likewise. It's commonly used for a batch transaction processing system with a magnetic tape.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Group* All the components whose financial information is included in the group financial statements. communicate with component auditors. Of course the older the generation. and evaluate the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements. Organisations can have up to twenty generations of backup. Group-wide controls* Controls designed.co. the most recent backup is the son. is corrupted or destroyed.February 2009) Grandfather-father-son data cycling This procedure refers to at least three generations of backup master files. and for the auditor’s report on the group financial statements that is issued on behalf of the firm.uk 132 . including the group engagement partner. Group management* Management responsible for the preparation of the group financial statements. the more the data may be out of date. Group financial statements* Financial statements that include the financial information of more than one component. ©Tony Surridge Online Limited. A group always has more than one component.tonysurridge. thus. if that fails. and staff who establish the overall group audit strategy. the joint engagement partners and their engagement teams collectively constitute the group engagement partner and the group engagement team. implemented and maintained by group management over group financial reporting. the master file is recreated by using the son backup and then restarting the batch. Group engagement partner* The partner or other person in the firm who is responsible for the group audit engagement and its performance. the oldest backup is the grandfather. However if the son backup fails. Group audit opinion* The audit opinion on the group financial statements. Group audit* The audit of group financial statements. The term “group financial statements” also refers to combined financial statements aggregating the financial information prepared by components that have no parent but are under common control. Where joint auditors conduct the group audit. then the next generation up backup (father) is required. If the system fails during a batch run.

tonysurridge. about economic events occurring in past time periods or about economic conditions or circumstances at points in time in the past. Hypothetical assumption A hypothetical assumption is a projection which is based partly or wholly on assumptions about future events and management actions which are not necessarily expected to take place.co. ©Tony Surridge Online Limited.February 2009) Haphazard selection This is a selection process used in sampling in which the auditor attempts to give all items in a population a chance of being selected by choosing items in a haphazard way.uk 133 . and may typically include entities that are in a start-up phase or are considering a major change in the nature of operations.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . derived primarily from that entity’s accounting system. 2013 www. This should be compared with best-estimate assumption. Historical financial information* Information expressed in financial terms in relation to a particular entity.

These backups will be incremental if each original piece of backed up information is stored only once. record.uk 134 . liabilities and equity. allowing an individual to act with integrity. Imprest system The Imprest system is a form of financial accounting system.co.an organisation of national accounting associations and other groups interested in accounting matters. process and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . and then successive backups only contain the information that changed since a previous backup.) made during the period. and exercise objectivity and professional skepticism. As a backup method. The most common imprest system is the petty cash system. Information system relevant to financial reporting* A component of internal control that includes the financial reporting system. objectivity or professional skepticism had been compromised. Independence* Comprises: (a) Independence of mind The state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment. integrity. The basis of an imprest system is that a fixed amount is issued to a fund-holder (as a debt) which is replenished at the end of a period in return for documentation of payments (vouchers. including any safeguards applied. Incremental backup An incremental backup is a computer data backup method where multiple backups are kept (not just the last one). would reasonably conclude a firm’s. and consists of the procedures and records established to initiate. ©Tony Surridge Online Limited. etc. about the basis for the auditor’s opinion on the financial statements. A material inconsistency may raise doubt about the audit conclusions drawn from audit evidence previously obtained and. or a member of the assurance team’s. IFRS International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).February 2009) IFAC The International Federation of Accountants . Inconsistency* Other information that contradicts information contained in the audited financial statements.tonysurridge. This replenishment is paid from a central cash account. or when the circumstances request it. having knowledge of all relevant information. it is highly efficient. possibly. (b) Independence in appearance The avoidance of facts and circumstances that are so significant that a reasonable and informed third party.

or a physical examination of an asset.uk 135 . electronic form. Integrity also implies fair dealing and truthfulness. Its functions include. or (b) The financial statements for the prior period were audited by a predecessor auditor. This should be compared with the final audit. amongst other things. It helps an organisation accomplish its objectives by bringing a systematic. or other media. disciplined approach to evaluate and improve the effectiveness of risk management. Intended users* The person. whether internal or external. Interim audit An interim audit is undertaken prior to the final audit. evaluating and monitoring the adequacy and effectiveness of internal control.co. Internal audit: ‘Internal auditing is an independent. procedures designed to provide evidence of compliance by engagement teams with the firm’s quality control policies and procedures. Inspection (as an audit procedure)* Examining records or documents.February 2009) Inherent risk* (see Risk of material misstatement*) Initial audit engagement* An engagement in which either: (a) The financial statements for the prior period were not audited. persons or class of persons for whom the practitioner prepares the assurance report. The auditor is likely to carry out tests of control at interim audits. The responsible party can be one of the intended users. Inquiry*(Enquiry) Enquiry consists of seeking information of knowledgeable persons. in paper form. within the entity or outside the entity. examining. ©Tony Surridge Online Limited. both financial and non-financial. objective assurance and consulting activity designed to add value and improve an organisation’s operations. often during the period under review.tonysurridge. Internal audit function* An appraisal activity established or provided as a service to the entity.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Inspection (in relation to quality control)* In relation to completed engagements. Interim financial information or statements* Financial information (which may be less than a complete set of financial statements as defined above) issued at interim dates (usually half-yearly or quarterly) in respect of a financial period. control and governance processes’ (The Institute of Internal Auditors). Integrity The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in professional and business relationships. but not the only one. 2013 www.

Internal auditors may belong to an internal audit department or equivalent function.co. International Financial Reporting Standards* The International Financial Reporting Standards issued by the International Accounting Standards Board. The term “controls” refers to any aspects of one or more of the components of internal control. implemented and maintained by those charged with governance. and compliance with applicable laws and regulations. operating systems.) and application software that it uses to support business operations and achieve business strategies. Internal control* The process designed. 2013 www. Investigate* Enquire into matters arising from other procedures to resolve them.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . etc. ©Tony Surridge Online Limited. IT environment* The policies and procedures that the entity implements and the IT infrastructure (hardware.tonysurridge. management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting. effectiveness and efficiency of operations.February 2009) Internal auditors* Those individuals who perform the activities of the internal audit function.uk 136 .

or a continuing business relationship. to administer justice within a defined area of responsibility. ©Tony Surridge Online Limited.February 2009) Joint venture A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity. The venture can be for one specific project only.uk 137 . Jurisdiction Jurisdiction is the practical authority granted to a formally constituted legal body to deal with and make pronouncements on legal matters and.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . by implication. 2013 www.tonysurridge. and control of the enterprise. and they then share in the revenues.co. expenses. Judgemental sampling This is a selection process used in sampling in which the auditor attempts to give all items in a population a chance of being selected by choosing items according to judgement.

Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .tonysurridge.co.February 2009) Kiting Kiting is a form of fraud that overstates cash by causing it to be simultaneously included in two or more bank accounts. 2013 www.uk 138 . ©Tony Surridge Online Limited.

when the terms of the engagement specify that the auditor will not carry out the audit procedure that the auditor considers is necessary). stock or debt are quoted or listed on a recognised stock exchange. 2013 www.tonysurridge. the client’s accounting records are inadequate or when the auditor is unable to carry out an audit procedure considered necessary. the timing of the auditor’s appointment is such that the auditor is too late [unable] to observe the counting of inventories).uk 139 . It may also arise when. usually the management (e. or are marketed under the regulations of a recognised stock exchange or other equivalent body.co. ©Tony Surridge Online Limited.February 2009) Limitation on scope A limitation on the scope of the auditor’s work may sometimes be imposed by the client.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Limited assurance engagement* (see Assurance engagement*) Listed entity* An entity whose shares. A scope limitation may be imposed by circumstances (e.g.g. in the opinion of the auditor.

However. or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. or to give a true and fair view. For some entities in some jurisdictions. 2013 www. a mindset is a set of assumptions or methods held by one or more people or groups of people which is so established that it creates a powerful incentive within these people or groups to continue to adopt or accept prior behaviors. presentation. Misstatements can arise from error or fraud. are necessary for the financial statements to be presented fairly. for example. or an owner-manager. Management’s expert* An individual or organisation possessing expertise in a field other than accounting or auditing. misstatements also include those adjustments of amounts. whose work in that field is used by the entity to assist the entity in preparing the financial statements. Misstatement of fact* Other information that is unrelated to matters appearing in the audited financial statements that is incorrectly stated or presented. choices.co. executive members of a governance board. Mind-set In decision theory and general systems theory. classification. in the auditor’s judgment. or disclosure of a reported financial statement item and the amount. Misappropriation of assets* Involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts. and is usually sent at the end of both the interim and final audits. presentation. Management letter The management letter is the means by which the auditor communicates to management any weaknesses discovered in the system of internal control. it can also involve management who are usually more capable of disguising or concealing misappropriations in ways that are difficult to detect.uk 140 . A material misstatement of fact may undermine the credibility of the document containing audited financial statements.tonysurridge. or tools. Where the auditor expresses an opinion on whether the financial statements are presented fairly. Material misstatement A significant mistake found in financial information which could arise from errors and fraud and which could influence the economic decisions of users taken on the basis of the financial statements. Management’s point estimate* The amount selected by management for recognition or disclosure in the financial statements as an accounting estimate. or disclosures that. ©Tony Surridge Online Limited. classifications. management includes some or all of those charged with governance. or give a true and fair view. Misstatement* A difference between the amount. in all material respects. Management bias* A lack of neutrality by management in the preparation of information. presentation.February 2009) Management* The person(s) with executive responsibility for the conduct of the entity’s operations. in all material respects. classification.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .

tonysurridge.uk 141 . based on the examination of the evidence supporting the assumptions. ©Tony Surridge Online Limited. an adverse opinion or a disclaimer of opinion. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Monitoring (in relation to quality control)* A process comprising an ongoing consideration and evaluation of the firm’s system of quality control. It represents limited assurance. It includes assessing the design and operation of controls on a timely basis and taking necessary corrective actions modified for changes in conditions. anything has come to his or her attention which causes him or her to believe that the assumptions do not provide a reasonable basis for the prospective financial information. designed to provide the firm with reasonable assurance that its system of quality control is operating effectively. including a periodic inspection of a selection of completed engagements. Monitoring of controls* A process to assess the effectiveness of internal control performance over time. Monitoring of controls is a component of internal control.February 2009) Moderate level of assertion A moderate level of assertion is an assertion in which the professional accountant states.co. Modified opinion* Is a qualified opinion.

or a confirmation request returned undelivered.uk 142 . or fully respond. and (b) That is clearly aimed at profit or cost-sharing or shares common ownership. 2013 www. control or management. or on its behalf.February 2009) Negative assurance Negative assurance is when an auditor gives an assurance that nothing has come to his attention which indicates that the financial statements have not been prepared according to the framework. or in the name of. Such acts include transactions entered into by. Non-compliance (in the context of ISA 250)* Acts of omission or commission by the entity. or a significant part of professional resources. Non-response* A failure of the confirming party to respond. In other words. management or employees of the entity. common quality control policies and procedures. ©Tony Surridge Online Limited. Non-compliance does not include personal misconduct (unrelated to the business activities of the entity) by those charged with governance. to a positive confirmation request. common business strategy. he or she gives their assurance in the absence of any evidence to the contrary.tonysurridge. Negative confirmation request* A request that the confirming party respond directly to the auditor only if the confirming party disagrees with the information provided in the request. by those charged with governance. the entity. either intentional or unintentional. the use of a common brand name. Network firm* A firm or entity that belongs to a network. which are contrary to the prevailing laws or regulations. management or employees.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Network* A larger structure: (a) That is aimed at cooperation. Non-sampling risk* The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk.co.

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(* International Auditing and Assurance Standards Board [IAASB] - February 2009) Objectivity A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments. Observation* Consists of looking at a process or procedure being performed by others, for example, the auditor’s observation of inventory counting by the entity’s personnel, or of the performance of control activities. Opening balances* Those account balances that exist at the beginning of the period. Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments. Other information* Financial and non-financial information (other than the financial statements and the auditor’s report thereon) which is included, either by law, regulation, or custom, in a document containing audited financial statements and the auditor’s report thereon. Other Matter paragraph* A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report. Outcome of an accounting estimate* The actual monetary amount which results from the resolution of the underlying transaction(s), event(s) or condition(s) addressed by the accounting estimate. Overall audit strategy* Sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan.

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(* International Auditing and Assurance Standards Board [IAASB] - February 2009) Partner* Any individual with authority to bind the firm with respect to the performance of a professional services engagement. Peer review Peer review is a process of self-regulation by a profession involving qualified individuals within the relevant field, such as qualified auditors reviewing the work of other auditors. Peer review methods are employed to maintain standards, improve performance and provide credibility. Performance materiality* The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures. Perpetual inventory In business and accounting/accountancy, perpetual inventory (or continuous inventory) describes systems of inventory where information on inventory quantity and availability is updated on a continuous basis as a function of doing business. Generally this is accomplished by connecting the inventory system with order entry and in retail the point of sale system. Personnel* Partners and staff. Persuasive Having the power or ability to persuade or convince. Pervasive* A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditor’s judgment: (a) Are not confined to specific elements, accounts or items of the financial statements; (b) If so confined, represent or could represent a substantial proportion of the financial statements; or (c) In relation to disclosures, are fundamental to users’ understanding of the financial statements. Population* The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions. Positive confirmation request* A request that the confirming party respond directly to the auditor indicating whether the confirming party agrees or disagrees with the information in the request, or providing the requested information. Practitioner* A professional accountant in public practice.

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GLOSSARY OF TERMS
(* International Auditing and Assurance Standards Board [IAASB] - February 2009) Preconditions for an audit* The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted. Predecessor auditor* The auditor from a different audit firm, who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor. Premise, relating to the responsibilities of management and, where appropriate, those charged with governance, on which an audit is conducted* That management and, where appropriate, those charged with governance have acknowledged and understand that they have the following responsibilities that are fundamental to the conduct of an audit in accordance with ISAs. That is, responsibility: (a) For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation; (b) For such internal control as management and, where appropriate, those charged with governance determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and (c) To provide the auditor with: (i) Access to all information of which management and, where appropriate, those charged with governance are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; (ii) Additional information that the auditor may request from management and, where appropriate, those charged with governance for the purpose of the audit; and (iii) Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.

In the case of a fair presentation framework, (a) above may be restated as “for the preparation and fair presentation of the financial statements in accordance with the financial reporting framework,” or “for the preparation of financial statements that give a true and fair view in accordance with the financial reporting framework.” The “premise, relating to the responsibilities of management and, where appropriate, those charged with governance, on which an audit is conducted” may also be referred to as the “premise.” Principal A principal is a person or entity who authorises an agent to act. Principal-agency problem The principal-agent problem (or agency dilemma) concerns the difficulties that arise when a principal hires an agent, in a situation where the two may not have the same interests, and where the principal is, presumably, hiring the agent to pursue the interests of the former. Principal-agency Theory Principal -agency relationships occur when one party, the principal, employs another, the agent, to perform a task on their behalf. Professional accountant* An individual who is a member of an IFAC member body.
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knowledge and experience. Review. Professional standards* International Standards on Auditing (ISAs) and relevant ethical requirements. This term is also used to refer to a firm of professional accountants in public practice. legislation and techniques. Professional Behaviour A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. Prospective financial information* Financial information based on assumptions about events that may occur in the future and possible actions by an entity. 2013 www. tax or consulting) in a firm that provides professional services. and a critical assessment of evidence. a projection or a combination of both. such as when some entities are in a start-up phase or are considering a major change in the nature of operations.February 2009) Professional accountant in public practice* A professional accountant. or (b) A mixture of best-estimate and hypothetical assumptions. Projection* Prospective financial information prepared on the basis of: (a) Hypothetical assumptions about future events and management actions which are not necessarily expected to take place.uk 146 . accounting and ethical standards. IAASB Engagement Standards. as defined in the IAASB’s Preface to the International Standards on Quality Control. being alert to conditions which may indicate possible misstatement due to error or fraud. (see Forecast* and Projection – on this screen*) ©Tony Surridge Online Limited. Professional judgment* The application of relevant training.co. Auditing. Professional skepticism* An attitude that includes a questioning mind. Professional Competence and Due Care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice. irrespective of functional classification (for example. Other Assurance and Related Services.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Professional standards (in the context of ISQC 1). within the context provided by auditing. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services. in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Prospective financial information can be in the form of a forecast.tonysurridge. audit. and relevant ethical requirements.

co.uk 147 . ©Tony Surridge Online Limited. local (for example. provincial. boards. regional (for example. city. town) governments and related governmental entities (for example. state. Public sector* National governments. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . agencies. such as to re-calculate totals to ascertain their correctness.tonysurridge. territorial) governments. commissions and enterprises).February 2009) Prove To test the genuineness of.

2013 www.February 2009) Qualified opinion A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management.uk 148 . or limitation of scope.tonysurridge.co. ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

2013 www. Owners who are close family members. Common controlling ownership.co. and quality control)* A high. such as to test that cash balances. Related services* Comprise agreed-upon procedures and compilations. such as to read minutes of directors’ meetings. Reconcile To prove consistency. or accounts receivables balances are consistent with the facts.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .uk 149 . or (b) Where the applicable financial reporting framework establishes minimal or no related party requirements: (i) A person or other entity that has control or significant influence. entities that are under common control by a state (that is. ©Tony Surridge Online Limited.February 2009) Random selection Simple random selection is a method of selection used in sampling in which every item in a population has the same statistical probability of being selected as every other item. (Note: assurance is ‘confidence’) Reasonable assurance engagement* (see Assurance engagement*) Recalculation* Consists of checking the mathematical accuracy of documents or records. regional or local government) are not considered related unless they engage in significant transactions or share resources to a significant extent with one another. Related party* A party that is either: (a) A related party as defined in the applicable financial reporting framework. including audit engagements. directly or indirectly through one or more intermediaries. Read To interpret facts. but not absolute. Reasonable assurance (in the context of assurance engagements.tonysurridge. c. (ii) Another entity over which the reporting entity has control or significant influence. a national. etc. level of assurance. or Common key management. over the reporting entity. b. directly or indirectly through one or more intermediaries. However. or (iii) Another entity that is under common control with the reporting entity through having: a.

which ordinarily comprise Parts A and B of the International Federation of Accountants’ Code of Ethics for Professional Accountants (IFAC Code) together with national requirements that are more restrictive. control objectives and related controls. and (b) A report by the service auditor with the objective of conveying reasonable assurance that includes the service auditor’s opinion on the description of the service organisation’s system.co. Re-performance* The auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal controls. Report on the description. prepared by management of the service organisation. and (ii) A description of the service auditor’s tests of the controls and the results thereof. prepared by management of the service organisation. their operating effectiveness throughout a specified period. view or argument. and operating effectiveness of controls at a service organisation (referred to in ISA 402 as a type 2 report)* A report that comprises: (a) A description. For example a company’s financial statements . would constitute management representation. in some cases.uk 150 . their design and implementation as at a specified date or throughout a specified period and. Reliance approach to auditing The reliance approach is based on the convention that when control testing uncovers a strong control system (control detection risk is low) then because audit risk is low. ©Tony Surridge Online Limited. 2013 www. of the service organisation’s system. of the service organisation’s system. and (b) A report by the service auditor with the objective of conveying reasonable assurance that includes: (i) The service auditor’s opinion on the description of the service organisation’s system. Report on the description and design of controls at a service organisation (referred to in ISA 402 as a type 1 report)* A report that comprises: (a) A description.tonysurridge. and the operating effectiveness of the controls. the suitability of the design of the controls to achieve the specified control objectives. Representation A presentation of facts.February 2009) Relevant ethical requirements* Ethical requirements to which the engagement team and engagement quality control reviewer are subject. control objectives and related controls that have been designed and implemented as at a specified date.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . substantive testing can be reduced. which are the responsibility of the company’s management. design. control objectives and related controls and the suitability of the design of the controls to achieve the specified control objectives. control objectives and related controls.

legal documents. Review (in relation to evidence) An inspection of. and may be responsible for the subject matter. Risk of material misstatement* The risk that the financial statements are materially misstated prior to audit. Review (in relation to quality control)* Appraising the quality of the work performed and conclusions reached by others. either individually or when aggregated with other misstatements. Review engagement* The objective of a review engagement is to enable an auditor to state whether. on a timely basis by the entity’s internal control. in all material respects. in accordance with an applicable financial reporting framework. 2013 www.co. will not be prevented. either individually or when aggregated with other misstatements. including the entity’s internal control. such as the inspection of disclosures. ©Tony Surridge Online Limited. primarily enquiries of entity personnel and analytical procedures applied to financial data. at the financial statement and assertion levels. described as follows at the assertion level: (a) Inherent risk The susceptibility of an assertion about a class of transaction. on the basis of procedures which do not provide all the evidence that would be required in an audit. etc. Review procedures* The procedures deemed necessary to meet the objective of a review engagement. (b) Control risk The risk that a misstatement that could occur in an assertion about a class of transaction. or (b) In an assertion-based engagement. to identify and assess the risks of material misstatement. is responsible for the subject matter information (the assertion).February 2009) Responsible party* The person (or persons) who: (a) In a direct reporting engagement. whether due to fraud or error.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . account balance or disclosure and that could be material. account balance or disclosure to a misstatement that could be material.tonysurridge. and (ii) what constitutes sufficient appropriate evidence. anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared. This consists of two components. or detected and corrected.uk 151 . before consideration of any related controls. Risk assessment procedures* The audit procedures performed to obtain an understanding of the entity and its environment. Risk based auditing Risk based auditing is based on the theory that the assessed level of audit risk will have a direct impact on: (i) the way the audit is conducted. The responsible party may or may not be the party who engages the practitioner (the engaging party). is responsible for the subject matter (often the client’s management).

(b) In the case of a test of controls. 2013 www. Scope of a review* The review procedures deemed necessary in the circumstances to achieve the objective of the review. Sampling risk can lead to two types of erroneous conclusions: (a) In the case of a test of controls. This type of erroneous conclusion affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect.uk 152 . Service organisation* A third-party organisation (or segment of a third-party organisation) that provides services to user entities that are part of those entities’ information systems relevant to financial reporting. that controls are less effective than they actually are. that a material misstatement exists when in fact it does not. A sceptic is someone who has doubts or tends to disbelieve. debentures. Service auditor* An auditor who. or in the case of a test of details. Sampling unit* The individual items constituting a population. shares (stocks). The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion. at the request of the service organisation. and warrants. Scan To examine critically. notes. such as bonds. that controls are more effective than they actually are. Service organisation’s system* The policies and procedures designed. others not) bought and sold in financial markets. implemented and maintained by the service organisation to provide user entities with the services covered by the service auditor’s report. skepticism skepticism relates to the doctrine that no facts can be certainly known. provides an assurance report on the controls of a service organisation.co.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .tonysurridge. Securities Financing or investment instruments (some negotiable. options. ©Tony Surridge Online Limited. for example to study a set of data to specifically identify unusual items.February 2009) Sampling* (see Audit sampling*) Sampling risk* The risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure. that a material misstatement does not exist when in fact it does. or in the case of a test of details.

where the context is a judgment about whether to report a matter to those charged with governance. is of sufficient importance to merit the attention of those charged with governance. These qualitative characteristics are not exhaustive. taken in context. in the auditor’s judgment.tonysurridge. or (ii) that. Significant deficiency in internal control* A deficiency or combination of deficiencies in internal control that. for example. and (b) One or more of the following: (i) (ii) (iii) (iv) (v) (vi) Straightforward or uncomplicated transactions. the reasonable prospect of its changing or influencing the decisions of intended users of the practitioner’s report.co. The significance of a matter is judged by the practitioner in the context in which it is being considered. Significant risk* An identified and assessed risk of material misstatement that. 2013 www. Few levels of management with responsibility for a broad range of controls. or (iii) to modify the CBA (permanently or temporarily). Smaller entity* An entity which typically possesses qualitative characteristics such as: (a) Concentration of ownership and management in a small number of individuals (often a single individual – either a natural person or another enterprise that owns the entity provided the owner exhibits the relevant qualitative characteristics). and which the parties to the contract utilise to (i) reach agreement on issues the CBA does not cover. Few internal controls. they are not exclusive to smaller entities. is likely to include significant risks of material misstatement of the group financial statements. Simple record-keeping.uk 153 . (ii) to clarify issues in the CBA. Significant component* A component identified by the group engagement team (i) that is of individual financial significance to the group. or Few personnel. such as relative magnitude. and smaller entities do not necessarily display all of these characteristics. Few lines of business and few products within business lines. as another example. Significance can be considered in the context of quantitative and qualitative factors. requires special audit consideration. the nature and effect on the subject matter and the expressed interests of intended users or recipients. ©Tony Surridge Online Limited.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . This might include. Significance* The relative importance of a matter. in the auditor’s professional judgment. or. due to its specific nature or circumstances. many having a wide range of duties. whether the matter would be regarded as important by them in relation to their duties.February 2009) Side agreement A side agreement (or side letter) is a collective agreement that is not part of the underlying or primary collective bargaining agreement (CBA).

Subject matter information* The outcome of the evaluation or measurement of a subject matter. and disclosures). Substantive procedure* An audit procedure designed to detect material misstatements at the assertion level. account balances. Stratification* The process of dividing a population into sub-populations. including any experts the firm employs. Subject matter In an assurance engagement (such as an audit). and (b) The use of probability theory to evaluate sample results.tonysurridge. including measurement of sampling risk. an internal control process or statistical information.co. 2013 www. other than partners. The financial reporting framework may be a fair presentation framework or a compliance framework. non-financial indicators. each of which is a group of sampling units which have similar characteristics (often monetary value). Sub-service organisation* A service organisation used by another service organisation to perform some of the services provided to user entities that are part of those user entities’ information systems relevant to financial reporting. Subsequent events* Events occurring between the date of the financial statements and the date of the auditor’s report. Substantive procedures comprise: (a) Tests of details (of classes of transactions. Statistical sampling* An approach to sampling that has the following characteristics: (a) Random selection of the sample items. Special purpose framework* A financial reporting framework designed to meet the financial information needs of specific users. A sampling approach that does not have characteristics (a) and (b) is considered non-statistical sampling. the subject matter is the topic about which the assurance is conducted. It is the subject matter information about which the practitioner gathers sufficient appropriate evidence to provide a reasonable basis for expressing a conclusion in an assurance report.uk 154 . Subject matter could be financial statements. ©Tony Surridge Online Limited. Staff* Professionals.February 2009) Special purpose financial statements* Financial statements prepared in accordance with a special purpose framework. and facts that become known to the auditor after the date of the auditor’s report.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . and (b) Substantive analytical procedures.

Suitable criteria* (see Criteria*) Suitably qualified external person* An individual outside the firm with the competence and capabilities to act as an engagement partner. or an employee (with appropriate experience) of either a professional accountancy body whose members may perform audits and reviews of historical financial information. ©Tony Surridge Online Limited. or of an organisation that provides relevant quality control services. or other assurance or related services engagements.co. 2013 www. for example a partner of another firm.tonysurridge. Summary financial statements (in the context of ISA 810)* Historical financial information that is derived from financial statements but that contains less detail than the financial statements.uk 155 . while still providing a structured representation consistent with that provided by the financial statements of the entity’s economic resources or obligations at a point in time or the changes therein for a period of time. Different jurisdictions may use different terminology to describe such historical financial information. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of such audit evidence.February 2009) Sufficiency (of audit evidence)* The measure of the quantity of audit evidence. normally presented in either supplementary schedules or as additional notes. Supplementary information* Information that is presented together with the financial statements that is not required by the applicable financial reporting framework used to prepare the financial statements.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Systematic selection The systematic selection method used in sampling where the auditor calculates a uniform sampling interval by dividing the population by the sample size.

February 2009) Teeming and lading Teeming and lading (or ‘lapping’) is an embezzlement scheme in which cash collections from customers are stolen and the shortage is concealed by delaying the recording of subsequent cash receipts. It is generally understood to mean a presentation of accounts drawn up according to accepted accounting principles using accurate figures as far as possible and reasonable estimates otherwise. 2013 www. those charged with governance may include management personnel. manipulation or concealment of material facts.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . or detecting and correcting. Those charged with governance* The person(s) or organisation(s) (for example. It involves the offsetting of one debtor’s cash received against another debtor’s account to cover up a misappropriation of the first debtor’s cash received. for example. This includes overseeing the financial reporting process.uk 156 . distortion. a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. Test* The application of procedures to some or all items in a population. or an owner-manager. and arranging them so as to show within the limits of current accounting practice as objective a picture as possible free from wilful bias. Total rate of deviation* A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population. True and fair True and fair has become a term of art. Tracing Checking from supporting document to recorded entry. executive members of a governance board of a private or public sector entity. material misstatements at the assertion level. For some entities in some jurisdictions. Tests of controls* An audit procedure designed to evaluate the operating effectiveness of controls in preventing.’ (Lee) ©Tony Surridge Online Limited.co. Tolerable misstatement* A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.tonysurridge.

co. in accordance with the applicable financial reporting framework. Uncertainty* A matter whose outcome depends on future actions or events not under the direct control of the entity but that may affect the financial statements. 2013 www.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . Uncorrected misstatements* Misstatements that the auditor has accumulated during the audit and that have not been corrected. for example a company’s shareholders who are going to use the company’s financial statements to make investment decisions. User The individual or individuals who are going to use the subject matter for some advantageous purpose.tonysurridge.uk 157 . ©Tony Surridge Online Limited. Unmodified opinion* The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared.February 2009) Unadjusted error worksheet An unadjusted error worksheet is adjusting proposed entries with accompanying justifications suggested by the auditor and required by management to bring the account balance on the company financial statements in line with the audited account balance. in all material respects) ) in accordance with the identified financial reporting framework. Unqualified opinion An audit opinion expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly. in all material respects. User auditor* An auditor who audits and reports on the financial statements of a user entity. User entity* An entity that uses a service organisation and whose financial statements are being audited.

tonysurridge. It can test either whether a certain statement is true or false or give an estimate of the true value of a population. Vouching Checking from recorded entry to supporting document. 2013 www.co. ©Tony Surridge Online Limited.uk 158 .Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] .February 2009) Variable sampling Variables sampling is concerned with sampling units which can take a value within a continuous range of possible values and is used to provide conclusions as to the monetary value of a population.

tonysurridge. 2013 www. regulation and/or a direct threat to public interest. the assertions therein. Written representation* A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. to other people within the accused organisation) or externally (to law enforcement agencies. and corruption. for example. usually from within that same organisation. though. Whistleblowers may make their allegations internally (for example.co.uk 159 . or supporting books and records.February 2009) Walk-through test* Involves tracing a few transactions through the financial reporting system. ©Tony Surridge Online Limited. Written representations in this context do not include financial statements. ethics. and customs governing meetings) for making decisions. Written resolution A resolution is a written motion adopted by a deliberative body (an organisation. committee or meeting. Whistleblower A whistleblower is a person who publicly alleges concealed misconduct on the part of an organisation or body of people. The substance of the resolution can be anything that can normally be proposed as a motion. it is often better to have them written out so that discussion is easier or so that it can be distributed outside of the body after its adoption. such as fraud.Questions and Answers MAIN PAGE CONTENTS GLOSSARY ISAs ACCA Paper F8 (International) GLOSSARY OF TERMS (* International Auditing and Assurance Standards Board [IAASB] . For long or important motions. a violation of a law. to the media or to groups concerned with the issues). rule. This misconduct may be classified in many ways. health/safety violations. comprising members) who use parliamentary procedure (a body of rules.

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