Advanced

Audit &
Assurance

Revision Sharon Zhao

中博教育

29th Jun 2020

 Agenda
1. Introduction of AAA

2. Key exam topic revision

3. Tips for AAA exam

4. Next steps

© ACCA PUBLIC
 1. Introduction of AAA

1.1 Main capabilities

1.2 Features of the exam

© ACCA PUBLIC
 1.1 Main capabilities

© ACCA PUBLIC
 1.2 Features of the exam

• Section A-50marks
Case Study, worth 50 marks, set at the planning stage of the audit, for a single
company, a group of companies or potentially several audit clients.

• Section B-25marks*2=50marks
One question will always predominantly come from syllabus section E,
The other Section B question can be drawn from any other syllabus section,
including A, B, C, D and F.

© ACCA PUBLIC
 1.2 Features of the exam

Professional marks

Examiner comments:

© ACCA PUBLIC
 2. Key exam topic revision
2.1 Ethics and Professional Issues
2.2 Risk Assessment (Section A)
2.3 Matter & Evidence
2.4 Auditor’s Report
2.5 Non-Audit Assignments

© ACCA PUBLIC
 2.1 Ethics and Professional Issues
2.1.1 Technical knowledge of Ethics and Professional Issues
2.1.2 Answering a question on Ethics and Professional Issues

© ACCA PUBLIC
 2.1.1 Technical knowledge
Fundamental principle

© ACCA PUBLIC
 2.1.1 Technical knowledge
Potential threat
1. Self-Interest threat;
2. Self-review threat;
3. Advocacy threats;
4. Familiarity threats;
5. Intimidation threats;
6.Management threat (EA assume mg responsibility)

© ACCA PUBLIC
 2.1.1 Technical knowledge
Management threat

© ACCA PUBLIC
 2.1.1 Technical knowledge
Management threat

© ACCA PUBLIC
 2.1.1 Technical knowledge
Safeguards：

© ACCA PUBLIC
 2.1.1 Technical knowledge
Money laundering
• Stages of money laundering
• Basic money laundering offences
• Sign of money laundering
• Practical anti-money laundering program for audit firm

© ACCA PUBLIC
 2.1.1 Technical knowledge
Quality control within the firm: Policies and procedures
Quality control on each engagement
• All work is suitably
• Independent partner review
• Member
• Plan and document
• Acceptance/ continuance of client relationships

© ACCA PUBLIC
 2.1.2 Answering a question on Ethics and Professional Issues

Steps：
1. Identify threats to independence
2. Evaluate the significance of the threats identified, and
3. Apply safeguards, when necessary, to eliminate the threats or reduce them
to an acceptable level.
4. When the professional accountant determines that appropriate safeguards
are not available or cannot be applied to eliminate the threats or reduce them
to an acceptable level, the professional accountant shall eliminate the
circumstance or relationship creating the threats or decline or terminate the
audit engagement.

© ACCA PUBLIC
 2.1.2 Answering a question on Ethics and Professional Issues

Example：Expansion plans
Management is planning to expand Parker Co’s operations into a new market
relating to beauty salons. This is a growing market, and there is synergy
because Parker Co’s products can be sold and used in the salons. Expansion
would be through the acquisition of an existing company which operates beauty
salons. A potential target, Beauty Boost Co, has been identified and preliminary
discussions have taken place between the management of the two companies.
Parker Co’s managing director has asked for our firm’s advice about the
potential acquisition, and specifically regarding the financing of the transaction.
Beauty Boost Co is an audit client of our firm, so we have considerable
knowledge of its business.

© ACCA PUBLIC
 2.1.2 Answering a question on Ethics and Professional Issues

Fact 1
Parker Co has specifically requested advice on financing the acquisition.
IESBA’s Code has specific guidance on such activities, which are corporate
finance activities.
Step1：Identify threats to independence
•The provision of such services can create advocacy and self-review threats to
objectivity. The advocacy threat arises as the audit firm could be put in a position
of promoting the audit client’s interests, for example, when negotiating financial
arrangements. The self-review threat arises because the financing arrangements
will directly affect amounts that will be reported in the financial statements on
which the firm will provide an opinion.

© ACCA PUBLIC
 2.1.2 Answering a question on Ethics and Professional Issues
Step2：Evaluate the significance of the threats identified
The significance of any threat must be evaluated and safeguards applied when necessary to
eliminate the threat or reduce it to an acceptable level.

Step3：Safeguards
•– Using professionals who are not members of the audit team to perform the corporate
finance service;
•The extent of the self-review threat should be evaluated, for example, by considering the
materiality of the potential financing transactions to the financial statements, and the degree
of subjectivity involved in determining the amounts to be recognised.

Step4： Conclusion
•Where no safeguards could reduce the threat to an acceptable level, the corporate finance
advice should not be provided.

© ACCA PUBLIC
 2.2 Risk Assessment (Section A)
2.2.1 Technical knowledge of Risk Assessment
2.2.2 Answering a question on Risk Assessment

© ACCA PUBLIC
 2.2.1 Technical knowledge of Risk Assessment
The three main types of risk you might be asked to evaluate in the exam :
• Business risk
• Risk of material misstatement (RoMM)
• Audit risk

© ACCA PUBLIC
 2.2.1 Technical knowledge of Risk Assessment
Business risk
• A risk resulting from significant conditions, events, circumstances, actions or
inactions that could adversely affect an entity’s ability to achieve its objectives
and execute its strategies, or from the setting of inappropriate objectives and
strategies (ISA 315)

© ACCA PUBLIC
 2.2.1 Technical knowledge of Risk Assessment
Audit risk
• ‘The risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated. Audit risk is a function of
material misstatement and detection risk’

© ACCA PUBLIC
 2.2.1 Technical knowledge of Risk Assessment
Risk of material misstatement (RMM)
• ‘The risk that a material misstatement exists in figures or disclosures within
the financial statements prior to audit’

© ACCA PUBLIC
 2.2.2 Application of knowledge
Business risk-Exam type：
• Evaluate the business risks faced by Connolly Co; (11 marks)

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Exam type：
• You will be asked to evaluate those risks. At this level you will not be credited
for defining business risk, nor will you receive credit for describing what a
client could do to mitigate those business risks.
• As set out in the ISAs, the focus of business risk evaluation as part of the
audit process is identifying matters that could impact on audit planning, in
particular matters that could give risk to risks of material misstatement or
audit risks.
• Marks will not be awarded for points that are purely speculative – ie not
based on specific information provided in the question scenario – nor will
marks be awarded for business risks that do not impact on the audit.

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Marking scheme
• For identifying only without meaningful explanation, ½ mark
• For a briefly explained business risk, 1 mark will be awarded, and
• Full marks will only be awarded where a well explained business risk is
presented.

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Example
The machines and equipment made by Dali Co are mostly made to order in the
company’s three manufacturing sites. Customers approach Dali Co to design
and develop a machine or piece of equipment specific to their needs. Typically, a
machine takes three months to build, and a smaller piece of equipment takes on
average six weeks.

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Example
⚫ Identification only–worth ½ mark
The company manufactures bespoke machines for clients which may take six
weeks to complete.

In an exam, an answer that merely repeats facts from the question is unlikely to
attain many marks –in a business risk question it can score ½ mark for
identification only as the implications for the company have not been considered.

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Example
⚫ Identified and briefly explained– worth 1 mark
The company manufactures bespoke machines for clients which may take six
months to complete. During this time the company has funds tied up in work in
progress.

This point cannot score full marks as there is no development of why this is a
risk; how does it impact on the business or the audit?

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Business risk-Example
⚫ Identified and well explained– worth full marks
The company manufactures bespoke machines for clients which may take six
weeks to complete. During this time the company has funds tied up in work in
progress, which could give rise to cashflow problems, especially as the 30%
deposit may not cover all the upfront costs. This service has increased in the
year putting further strains on cash flow.

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Risk of material misstatement (RMM)
When describing RMMs, an effective approach is to use the following steps to
construct your answer
1. Calculate and conclude on the materiality of the issue where sufficient information
is available – a mark will be given for a correct and relevant calculation of
materiality with an appropriate conclusion – this will only be awarded once per
issue and materiality marks may be capped in an exam question.
2. Briefly describe the relevant financial reporting requirement – note that no credit is
awarded for the accounting standard names or numbers, only the accounting
treatment.
3. Relate the risk in the scenario to the accounting treatment.
4. Illustrate the impact of the risk on the financial statements

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Risk of material misstatement (RMM)-Example
Q：The company receives a 30% deposit for the design of bespoke
machinery.
A：
• Revenue should be recognized over time or at a point in time when control is
passed. Such points will be determined by the contractual terms. Payments
received in advance of control passing should be recognized as deferred
income. Step 2
• There is a risk that revenue might be recognized early when payment is
received rather than being deferred. Step 3
• This would result in an overstatement of revenue and an understatement of
liabilities for deferred revenue. Step 4

© ACCA PUBLIC
 2.2.2 Answering a question on Risk Assessment
Audit risks
• much of your answer would be the same as risks of material misstatements
• detection risk is now also relevant.
• Examples: a new audit client, time pressure for the audit

© ACCA PUBLIC
 2.3 Matter & Evidence
2.3.1 Technical knowledge of Matter & Evidence
2.3.2 Answering a question on Matter & Evidence

© ACCA PUBLIC
 2.3.1 Technical knowledge of Matter & Evidence
Matter
Step1: Materiality(5%of profit，1%ofrevenue/asset)
Step2: Discussion of relevant accounting rules
Step3: Whether client did it right or wrong/there is a risk that…

Evidence
'up to 1 mark for each well described audit procedure' hence a poorly described
procedure will not obtain 1 mark, it will obtain at most ½ mark.

© ACCA PUBLIC
 2.3.1 Technical knowledge of Matter & Evidence
Evidence
• 1) Test Fact-Date, Amount, Event, Transaction, Decision
• 2) Standard Procedures
• - expert check：independence/experience/qualification
• - Accounting estimation: discuss reasonableness/recalculate
• - Fixed asset: physical inspect
• - Depreciation/amortization/finance charge/gain or loss on disposal/gain or loss
on foreign exchange/goodwill:recalculate
• - All reconciliation：reperform
• 3) Test accounting treatment:
• - Disclosure: check disclosure for completeness
• - Consolidation: inter-company balance, profit margin

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence
A good start to answering the question would be to consider what assertions
need to be covered. Here the auditor will want to know whether the machine is
owned by the company, its existence, and its valuation.
'up to 1 mark for each well described audit procedure' hence a poorly described
procedure will not obtain 1 mark, it will obtain at most ½ mark.

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example1:
The client has purchased a new machine for use in production of widgets.
Design the principle audit procedures to be performed in respect of the new
machine.

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example1:
Strong answer
• Obtain the purchase invoice for the machine and confirm the purchase value
to the non-current asset register and ownership of the machine - 1 mark
Weak answers
• Review purchase invoice – this would score ½ mark- this does not state what
the invoice is being reviewed for or what assertion is being targeted.
• Purchase invoice – this would score no marks – this is a source of evidence
but without an action is not a procedure.
• Review the relevant document- this would score no marks – there is no
detailed action or purpose and no identifiable source.

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example1:
Strong answer
Physically examine (or inspect) the asset to confirm it exists - 1 mark
Weak answers
Physically examine machine - this would score ½ mark – not tied to an assertion
so does not explain why the asset is being examined.
Observe assets – this would score no marks - there is no detailed action or
purpose and no identifiable source.

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example1:
Strong answer
Physically examine (or inspect) the asset to confirm it exists - 1 mark
Weak answers
Physically examine machine - this would score ½ mark – not tied to an assertion
so does not explain why the asset is being examined.
Observe assets – this would score no marks - there is no detailed action or
purpose and no identifiable source.

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example2:
Acquired brand names are held at cost and not amortised on the grounds that
the assets have an indefinite life. Annual impairment reviews are conducted on
all brand names. In December 2016, the Chico brand name was determined to
be impaired by $30 million due to allegations made in the press and by
customers that some ingredients used in the Chico perfume range can cause
skin irritations and more serious health problems. The Chico products have been
withdrawn from sale.
Recommend the principal audit procedures to be performed on:
(i) The impairment of the Chico brand

© ACCA PUBLIC
 2.3.2 Answering a question on Matter & Evidence
Evidence-Example2:
Answer:
• Confirm the carrying value of the Chico brand pre-impairment to prior year
financial statements or management accounts
• Obtain management’s calculations relevant to the impairment and review to
understand methodology
• Evaluate the assumptions used by management in their impairment review and
consider their reasonableness
• Obtain a breakdown of operating expenses to confirm that the impairment is
included
• Review the presentation of the income statement, considering whether separate
disclosure of the impairment is necessary given its materiality

© ACCA PUBLIC
 2.4 Auditor’s Report
2.4.1 Technical knowledge of Auditor’s Report
2.4.2 Answering a question on Auditor’s Report

© ACCA PUBLIC
 2.4.1 Technical knowledge of Auditor’s Report

© ACCA PUBLIC
 2.4.1 Technical knowledge of Auditor’s Report

© ACCA PUBLIC
 2.4.1 Technical knowledge of Auditor’s Report

© ACCA PUBLIC
 2.4.2 Answering a question on Auditor’s Report
Exam Type 1:
An appraisal of information provided within a scenario and a requirement
to consider further actions and possible reporting implications

Exam Type 2:
A critique of draft wording for an auditor’s report.

© ACCA PUBLIC
 2.4.2 Answering a question on Auditor’s Report
Common error in the Exam Type 1
• using outdated standards and stating the basis for opinion paragraph is
presented before the audit opinion.
• Using an EOM paragraph for a material misstatement or failure to obtain
evidence – these give rise to qualified opinions
• Using an EOM paragraph for uncertainties surrounding going concern – these
have a separate paragraph
• Using an EOM paragraph for something which would be a key audit matter
for a listed company.

© ACCA PUBLIC
 2.4.2 Answering a question on Auditor’s Report
Common error in the Exam Type 2
• Structure (1mark per point)
• Title/heading(1mark)
• Professional language(1mark)
• Clarity(1mark)
• Opinion right？(2-3mark)

© ACCA PUBLIC
 2.5 Non-Audit Assignments

Prospective financial information review

• Matters to be considered before accepting the engagement
• Forecast F/S:less Evidence
• Review: enquire和ARP
• General Procedure

© ACCA PUBLIC
 2.5 Non-Audit Assignments

Forensic Audit
• Matters to be considered and steps to be taken in planning the forensic
service
• Investigation=detailed test=AEIOU

© ACCA PUBLIC
 2.5 Non-Audit Assignments

CSR & Public Sector

• Discuss the relevance and measurability
• Procedure：Test Fact

© ACCA PUBLIC
 2.5 Non-Audit Assignments

Due Diligence
• The purpose/advantage of a due diligence assignment
• Procedure：fact finding process, enquiry, information needed

© ACCA PUBLIC
 3. Tips for AAA exam

• An understanding of the technical knowledge

• Past question practice
• Read the technical articles

• Read the requirements carefully

• An understanding of the marking scheme

© ACCA PUBLIC
 4. Next steps
Step 1: Complete the AAA PT under exam condition
Step 2: Refer to suggested answer and carefully read the PT feedback report
Step 3: Join the Debriefing live webinar for PT
Step 4: Watch recorded videos to address the problems identified
Step 5: Join the final preparation live webinar 1 week prior to the exam
Please refer to https://cn.accaglobal.com/trainee/c61/free-online-course/sp-practice-videos.html for more details

© ACCA PUBLIC
 Thank you!

© ACCA PUBLIC