AAA Technical Articles 2019- 2021 STTTING PDF

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Advanced Audit and Assurance (AAA) CONSOLIDATED TECHNICAL ARTICLES ( from ACCA portal as on 16.09.2019) LIST Exam technique for Advanced Audit and Assurance: part 1 – ethics Ethical standards and their application form a major part of the Advanced Audit and Assurance syllabus and are examined regularly. This article demonstrates how to maximise marks on these areas using effective exam technique. Exam technique for Advanced Audit and Assurance: part 2 – risk Risk is examined in several ways within the Advanced Audit and Assurance syllabus and understanding the difference between these can be key to scoring good marks in the exam. This article demonstrates how to maximise marks on these areas using effective exam technique. Exam technique for Advanced Audit and Assurance: part 3 – accounting issues Candidates will be required to discuss accounting issues in many contexts in the Advanced Audit and Assurance exam. This article utilises past questions from the exam to illustrate how accounting issues could be examined and to recap the accounting treatment on some of the areas candidates typically find difficult in this exam. Exam technique for Advanced Audit and Assurance: part 4 – audit procedures This article examines the key syllabus requirements in relation to procedures and considers the level of detail needed in order to obtain credit at this level. It also looks at some examples of past questions on this syllabus area and explains the difference between a strong answer and a weak answer to illustrate the detail and specificity that candidates should produce in their answers to attain marks in the exam. Exam technique for Advanced Audit and Assurance: part 5 – auditor reporting This article focuses on auditor reporting to shareholders. It is imperative for candidates to be prepared to answer questions on auditor reporting and will need an understanding of the format of the report, the types of opinions which may be given by the auditor and the other modifications which could be required to an auditor’s report. Data analytics and the auditor This article provides some insight into the matters which need to be considered by auditors when using data analytics. AAA candidates are expected to have a broad understanding of what is meant by the term data analytics, how it may be used in the audit and how it can improve audit efficiency.

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Auditing in specialised industries This article provides some insight into the matters that need to be considered by auditors when engaged to provide the external audit service to a client operating in a specialised industry. IAASB exposure draft – Proposed International Standard on Auditing 540 (Revised) Auditing Accounting Estimates and Related Disclosures This article provides an insight into recent proposed changes to ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures. Evaluation of misstatements The completion stage of the audit is when the auditor reviews the work performed and considers the implications for the auditor’s report. A crucial part of this review is the evaluation of misstatements found during the audit. Responding to Non-Compliance with Laws and Regulations (NOCLAR) This article is intended to provide insight into recent developments to the International Ethics Standards Board’s Code of Ethics for Professional Accountants (IESBA) in relation to the auditor’s response to non-compliance with laws and regulations. Corporate governance and its impact on audit practice P7 candidates are expected to be conversant with corporate governance principles, many of which they will have seen in previous exams like F8 and P1. In P7, the focus is on the impact that corporate governance principles and practice can have on the audit process, and this article explores some of these issues. Auditing disclosures in financial statements This article looks at auditing disclosures in financial statements, an issue that has been considered by the IAASB in recent years following developments in IFRS requirements and the increased level of complexity and subjectivity involved in the preparation of information to be disclosed in financial statements. Performance information in the public sector The Syllabus and Study Guide for P7 (INT), Advanced Audit and Assurance (and SGP adapted paper) includes a section entitled ‘The audit of performance information (predetermined objectives) in the public sector’. This article is intended to provide insight into this syllabus area and explain some of the issues of which candidates should be aware when studying this aspect of the syllabus. Laws and regulations It is important that candidates preparing for P7 have an understanding of how laws and regulations affect an audit, not only in terms of the work the auditor is required to do, but Page 2 of 213

also to appreciate the responsibilities of both management and the auditor where laws and regulations are concerned. Audit quality – a perpetual current issue Audit quality is relevant to P7 in that the Syllabus and Study Guide includes a specific section, C1, which contains a number of learning outcomes in relation to quality control in the context of practice management. Professional scepticism The article explains the importance of professional scepticism as an essential part of the auditor’s mindset, and considers the reasons why approaching an audit with an attitude of professional scepticism is becoming increasingly important. Using the work of internal auditors Also available as a podcast on iTunes This article focuses on the provision of direct assistance by the internal auditors, which – to date – has been a very controversial issue. Although internal auditors are the employees of the entity, which could result in threats to independence (either in fact or perceived) if direct assistance is provided by the internal auditors, there are benefits relating to this provision which cannot be ignored. Auditor liability Also available as a podcast on iTunes This article focuses on the issue of auditor’s liability in the UK, and therefore contains references to the UK Companies Act 2006, as well as UK-specific legal cases. Candidates other than those attempting the UK adapted paper are not expected to have UK-specific knowledge. The concepts discussed in this article however are broadly relevant and will help candidates to understand why this is an important issue within the auditing profession. The control environment of a company The purpose of this article is to provide candidates with a more detailed appreciation of matters pertinent to an auditor, focusing on the need for the auditor of a large limited liability company (in the UK – a limited company) to evaluate the effectiveness of the company’s control environment. Continue to be 'rest assured' This article looks at the topic of assurance in the context of P7, describing a framework for the classification of assurance and non-assurance engagements, and giving guidance on the practical approach required when undertaking assurance assignments. ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment (Related to Entity's Internal Page 3 of 213

Control) One of the major revisions of ISA 315 relates to the inquiries made by external auditors of the internal audit function since internal auditors have better knowledge and understanding of the organisation and its internal control. This article addresses and highlights the components of internal control. Completing the audit This article explores some of the key requirements of International Standards on Auditing (ISA) that are relevant at the completion stage, and discusses the practical implications of those requirements. Audit and insolvency This article highlights some of the issues that auditors may have to deal with in respect of insolvency. Group auditing This article reviews the most significant elements of group audits and changes to ISA 600 that were introduced as a result of the recent Clarity project. Acceptance decisions for audit and assurance engagements This article discusses the learning outcomes of Professional Appointments from Syllabus reference C4. Specific aspects of auditing in a computer-based environment This article provides guidance on various aspects of auditing in a computer-based accounting environment. Analytical procedures An outline of the analytical procedures relevant to the audit papers. Going concern The additional guidance given for ISA 570, Going Concern. Audit risk This article outlines and explains the concept of audit risk, making reference to the key auditing standards which give guidance to auditors about risk assessment. Auditing in a computer-based environment The aim of this article is to help students improve their understanding of computerassisted techniques by giving practical illustrations of computer-based controls and the way they may feature in exam questions.

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Massaging the figures Earnings management – what it is, when it becomes fraud, and implications for auditors. ISA 240 (redrafted), auditors and fraud The definitions given by International Standard on Auditing (ISA) 240 (Redrafted) of fraud and error, and the historical expectations of the audit role. Forensic auditing This article explores some of the key issues relevant to forensic investigations. Auditors' reports to those charged with governance This article discusses the important reporting 'output' produced as a result of the audit process, that of the auditor's communication to those charged with governance. Group audit issues This article summarises some of the sections of ISA 600 (Revised and Redrafted). Examining evidence This article explains the importance of understanding audit evidence. Audit working papers How working papers provide evidence that an effective, efficient, and economic audit has been carried out.

DETAIL

Exam technique for Advanced Audit and Assurance: part 1 – ethics Part 1 – Ethics

Ethical standards and their application form a major part of the Advanced Audit and Assurance syllabus and are examined regularly. Often the marks for this area will be spread over more than one question and may be combined with planning, professional issues or as a standalone. The basic ethical standards at this level are the same as those examined previously in Audit and Assurance; what sets apart the level of the questions is your ability to apply those standards to more complex situations and show that you understand both threats and safeguards. This is an area of the exam where candidates can use good exam Page 5 of 213

technique to increase the marks attained without having to rote learn much additional information above that learnt for previous exams. This article will demonstrate how to maximise marks on these areas using good technique. It is, however, specific to the context of auditing and assurance and will therefore have a different focus and application to the way ethics is examined in other areas of the ACCA Qualification.

What you need to know The starting point for preparing for any exam is to know the underlying knowledge that is required for this part of the syllabus. At this level the content of the guidance is what you should focus on. Marks are not awarded for memorising or quoting standard numbers, it is the application of the content of those standards that is important. For the Advanced Audit and Assurance exam the following standards are examinable: •

ACCA’s Code of Ethics and Conduct (2016)

•

IESBA’s Code of Ethics for Professional Accountants (Revised May 2015)

•

IESBA–Changes to the Code Addressing Certain Non-Assurance Services Provisions for Audit and Assurance Clients Ethical Considerations Relating to Audit Fee Setting in the Context of Downward Fee Pressure (January 2016)

In addition, for the UK exam candidates will be examined on the Financial Reporting Council’s Revised Ethical Standard 2016, for the IRL exam candidates will be tested on the IAASA’s Ethical Standard for Auditors (Ireland) 2016, and SGP candidates should also refer to the ISCA Code of Professional Conduct and Ethics (Revised November 2015). You will be familiar with ACCA’s Code of Ethics from the Audit and Assurance exam. This mirrors the IESBA’s Code of Ethics so you will be familiar with the five basic principles of Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour. You will also be familiar with the general areas of threat to the fundamental principles of Self Review, Self Interest, Advocacy, Familiarity, and Intimidation. The situations you will be appraising at this level will usually involve an assessment of those same principles within scenarios given in the question. In addition, you may be expected to identify situations where the auditor is at risk of assuming a management responsibility with respect to providing additional services to audit clients or appreciate

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the differences between listed (or other public interest entities) and non-listed clients when it comes to applying these principles. With regards to objectivity and independence, the general conceptual approach in the codes is as follows: (a) Identify threats to independence (b) Evaluate the significance of the threats identified, and (c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level. 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.

How to apply the knowledge When addressing ethical situations in the exam, you will usually have to demonstrate these skills: 1. that you can identify an ethical threat 2. that you understand how it arises and the implication of the threat, and 3. that you can relate the guidance to the specific scenario to determine the safeguards or course of action required.

Each of these skills can be illustrated through the examples below (note that the answers provided here are focusing on the ethical issues arising and do not cover the professional or other issues you might also need to discuss arising from the scenarios). These answers are not fully comprehensive and give an example of the content which could be produced in an exam. There are further points in each case that could be developed and additional outcomes available within the ethical codes; however, they do represent a well-developed answer a candidate could use to attain the full marks available. Example 1

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The audit committee of, Mumbai Co, has asked the partner to consider whether it would be possible for the audit team to perform a review of the company’s internal control system. A number of recent incidents have raised concerns amongst the management team that controls have deteriorated and that this has increased the risk of fraud, as well as inefficient commercial practices. The auditor’s report for the audit of the financial statements of Mumbai Co for the year ended 31 March 2016 was signed a few weeks ago. Mumbai Co is a listed company. Required: Comment on the ethical issues raised and the actions your firm should take in response to the client’s request. (6 marks) In this example, we are asked to provide an additional service to an audit client – a review of systems and controls. This is going to give rise to a self-review threat and may possibly lead to assuming a management responsibility. This identification is the first step to answering the question, but these points alone will not score credit in the exam until you have developed them. In order to do this you can use the steps described to build up marks as follows. The important phrases are in bold. Demonstrating you understand the threats, how they arise and the implication Providing a review of the company’s system and controls gives rise to a self-review threat as these controls will then be reviewed by the firm when determining our audit strategy. The firm may be reluctant to highlight errors or adopt a substantive approach during the audit as this may highlight deficiencies in the firm’s work on the additional service. (1 mark)

The design of systems and controls is a management responsibility so a review of such may give rise to a situation where the auditor is assuming a management responsibility by taking on the role of management. (1 mark) Apply the guidance to the scenario – evaluate the significance and suggest safeguards Page 8 of 213

The code states that the threat to independence of undertaking management responsibilities for an audit client is so significant that there are no safeguards which could reduce the threat to an acceptable level. (1 mark)

However, this answer could score three marks, it is likely that more marks are available. From an exam technique point of view, you should be looking for additional points to make. At this stage, don’t start speculating about relative fee size; try to focus on the information the examiner has given you. Here, the company is flagged as listed, so there must be further development available on this area. Think about how you’ve seen management responsibility issues overcome during your studies and past question practice. It is these points that you can use to attract further marks. Management responsibility can be avoided if the client takes responsibility for monitoring the reports made and taking the decisions on recommendations. (1 mark) However, as this client is listed, we are prohibited from undertaking internal audit services which relate to a significant part of the controls over financial reporting. (1 mark) Conclude As such we must decline the additional work. (1 mark)

In other circumstances, the safeguard of using separate teams to overcome self-review threats or considering the competence of the firm to provide this service would attain credit; however, in this case, the client is listed so these points are irrelevant here. Note that, in the exam, no marks are awarded for simply listing self-review or management responsibility as they will need to be described before marks are awarded. As such, ensure that you take the time to explain the threats rather than simply writing terms. Example 2 Your firm’s advisory department has been carrying out a

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due diligence assignment on a potential acquisition target of an audit client, Blue Co. The management team of Blue Co has also approached White & Co to ask whether representatives of the firm would be available to attend a meeting with the company’s bankers, who they are hoping will finance the acquisition of Red Co, to support the management team in conveying the suitability of the acquisition of Red Co. For the meeting the bank requires the most up-to-date interim accounts of Red Co with the accompanying auditor’s independent interim review report. Your firm is due to complete the interim review shortly and the management team of Red Co has requested that the interim review is completed quickly so that it does not hold up negotiations with the bank, stating that if it does, it may affect the outcome of the next audit tender, which is due to take place after the completion of this year’s audit. Required: Comment on the ethical issues raised and recommend any actions your firm should take in response to the client’s requests. (8 marks) In this example we have additional services and pressure relating to existing services to an audit client. The issues we face are advocacy, self-review, management responsibility and intimidation.

Demonstrating you understand the threats, how they arise and the implication Attending a meeting with the bank would give rise to an advocacy threat as we would be perceived as promoting the interests of our client and confirming the client’s assertions...