Audit and Assurance (AA) Revison Notes 2019 unlocked PDF

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ACCAAudit and AssuranceAAPractice & Revision NotesFor exams in September 2019,December 2019, March 2020 andJune 2020ISBN: 97815097805322BlankAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electroni...

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ACCA Audit and Assurance AA Practice & Revision Notes For exams in September 2019, December 2019, March 2020 and June 2020 ISBN: 9781509780532

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd. The contents of this book are intended as a guide and not professional advice. Although every effort has been made to ensure that the contents of this book are correct at the time of going to press, BPP Learning Media makes no warranty that the information in this book is accurate or complete and accept no liability for any loss or damage suffered by any person acting or refraining from acting as a result of the material in this book. BPP Learning Media is grateful to the IASB for permission to reproduce extracts from the International Financial Reporting Standards including all International Accounting Standards, SIC and IFRIC Interpretations (the Standards). The Standards together with their accompanying documents are issued by: The International Accounting Standards Board (IASB) 30 Cannon Street, London, EC4M 6XH, United Kingdom. Email: [email protected] Web: www.ifrs.org Disclaimer: The IASB, the International Financial Reporting Standards (IFRS) Foundation, the authors and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise to the maximum extent permitted by law. Copyright © IFRS Foundation All rights reserved. Reproduction and use rights are strictly limited. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IFRS Foundation. Contact the IFRS Foundation for further details. The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the “Hexagon Device”, “IFRS Foundation”, “eIFRS”, “IAS”, “IASB”, “IFRS for SMEs”, “IASs”, “IFRS”, “IFRSs”, “International Accounting Standards” and “International Financial Reporting Standards”, “IFRIC” “SIC” and “IFRS Taxonomy” are Trade Marks of the IFRS Foundation. Further details of the Trade Marks including details of countries where the Trade Marks are registered or applied for are available from the Licensor on request.

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Co n te n ts

Page

Introduction How to use the Practice & Revision material

4

The examination and syllabus aims

5

Skills bank

9

Knowledge bank

21

Appendix

83

3

INTRODUCTION

Introduction How to use the Practice & Revision material Step 1

Learn

Until now you have been introduced to the core skills needed to pass this exam. You must now focus on developing these new skills to address the ultimate test – the exam itself.

Step 2

Practise

Your revision course material will help you to apply this knowledge to the context of the exam-style questions. Using real exam questions written by the examining team you'll learn the unique exam skills required to achieve success in each exam. Your revision material consists of:



Skills bank (in these notes) This illustrates the main skills needed to pass this exam. We will teach you: – – – – –



Effective reading and planning at the start of the exam Analysis of a question's requirements Disciplined time management Tackling mini-case style scenario questions Producing an answer that is tailored to the exam scenario

Knowledge bank (in these notes) During the Step 1 phase of your studies (Learning phase) you have already gained the knowledge required to pass the exam. During this phase reinforcement of this knowledge is critical. To help this reinforcement you will find that the same diagrams contained in your taught course notes are used here with additional information added if we feel it is necessary.



Question and answer bank The Practice & Revision Kit contains: – – –

Step 3

Questions that will be covered in class Questions you will do during home study following guidance provided by your tutor Additional questions for further practice

Rehearse

All your skills need to be applied on the day of the exam to deal with a complete exam. This can be developed through use of mock exams within the Practice & Revision Kit.

4

INTRODUCTION

The examination and syllabus aims The examination The examination lasts three hours and all questions are compulsory.

Computer-based exams From exams in June 2019, it will be possible for candidates to sit Applied Skills exams only as a computer-based exam (CBE). Paper-based exams will no longer be run in parallel.

Exam duration The syllabus is assessed by a CBE format. With effect from June 2019 for TX and September 2019 for all Applied Skills exams seeded questions have been removed from CBE exams and the exam duration is 3 hours for 100 marks. Prior to each exam there will be time allocated for students to be informed of the exam instructions. For more information on these changes, please visit the ACCA website: www.accaglobal.com

Format of the exam The exam format will comprise two exam sections. Section

Style of question type

Description

A

Objective test (OT) case

 3 questions  10 marks

Proportion of exam, % 30

 Each question will contain 5 OT questions worth 2 marks each B

Constructed Response (Long questions)

 1 question  30 marks

70

 2 questions  20 marks

Total

100

Section A questions will be selected from the entire syllabus. The responses to each question (or subpart in the case of OT cases) are marked automatically as either correct or incorrect. Section B questions will mainly focus on the following syllabus areas. but a minority of marks can be drawn from any other area of the syllabus: 

Planning and risk assessment (syllabus area B)



Internal control (syllabus area C)



Audit evidence (syllabus area D)

The responses to these questions are human marked.

5

INTRODUCTION

Aims On successful completion of this exam, candidates should be able to:

6

A

Explain the concept of audit and assurance and the functions of audit, corporate governance, including ethics and professional conduct.

B

Demonstrate how the auditor obtains and accepts audit engagements, obtains an understanding of the entity and its environment, assesses the risk of material misstatement (whether arising from fraud or other irregularities) and plans an audit of financial statements.

C

Describe and evaluate internal controls, techniques and audit tests, including IT systems to identify and communicate control risks and their potential consequences, making appropriate recommendations. Describe the scope, role and function of internal audit.

D

Identify and describe the work and evidence obtained by the auditor and others required to meet the objectives of audit engagements and the application of the International Standards on Auditing (ISAs).

E

Explain how consideration of subsequent events and the going concern principle can inform the conclusions from audit work and are reflected in different types of auditor's report, written representations and the final review and report.

Skills bank This section explains and demonstrates the key skills required to enable you to maximise your chance of exam success. Knowledge of the syllabus is insufficient on its own. Through question practice you will develop a set of skills that will enable you to pass this exam.

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8

SKILLS BANK

Key skills required to pass Our analysis of the examining team's comments on past exams, together with our experience of preparing students for this type of exam, suggests that to pass Audit and Assurance (AA) you will need to develop a number of key skills.

5 Producing a tailored

1 Effective reading and planning at the start of the exam

answer to the scenario in the exam question

4 Tackling minicase style scenario questions

2 Quick and accurate analysis of a question's requirements 3 Disciplined time management to ensure that all parts of the question are answered in the time allowed

Each of these key skills is analysed on the following pages, with example(s) from past exam questions of the importance of these skills and how these skills should be applied.

9

SKILLS BANK

Skill 1 – Effective reading and planning at the start of the exam 1 Take some time to plan the order in which you will attempt the questions We recommend that you spend time at the beginning of your exam to carefully read your paper, specifically looking through the requirements of each exam question (especially in Section B). All of the questions in this exam are compulsory so there is no choice to make in terms of which questions you will attempt, but you should give some thought to the order in which you attempt them. Once you feel familiar with your exam we recommend that you attempt Section A first but please do not rush through Section A otherwise you will make unnecessary mistakes and lose valuable marks. When you are ready to begin the longer written questions in Section B, make sure you focus on the requirements of each of the three questions first so that you can decide the order in which you will attempt them. Once you have decided this, highlight key verbs such as describe, explain and state, to ensure that you know how many points you need in your answer. Where the question includes a scenario, you will need to use the information in the scenario; we recommend that you create a heading for each new area in the constructed response solution box, and briefly note down any key information from the scenario.

2 Reading Section B scenario based questions

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STEP 1

Read the requirements

STEP 2

Focus on the longest requirements

STEP 3

Read the question actively identifying data relevant to each requirement

There is no point in wasting time reading through a long scenario before you have identified exactly what you have been asked to do! See key skill 2 for detailed guidance.

This will make sure that you concentrate on a manageable amount of the question on your first read through.

This will ensure that you are actively attacking the question, ie that you are trying to achieve something, not just passively reading it through. This could involve highlighting points that are relevant to your answer, and making headings with brief notes in the solution box. In many questions this will form the basis of an answer plan, and will mean that you do not have to re-read all of the highlighted points just to remind yourself why you thought they were important in the first place. In some scenarios numerical information may be included, in which case you should use the reading and planning time to make relevant observations on this and in some cases calculate ratios that may be relevant to your answer.

SKILLS BANK

For example, in the Specimen Exam, Q17 (a) had the following requirement. (a)

In respect of the internal control of Baggio International Co: (i)

Identify and explain SIX deficiencies;

(ii)

Recommend a control to address each of these deficiencies; and

(iii) Describe a test of control Suarez & Co would perform to assess whether each of these controls, if implemented, is operating effectively.

In reading the scenario, therefore, you have the following two aims.  

Familiarise yourself with the deficiencies of the sales system set out in the scenario, and Think up appropriate internal controls which could address these deficiencies.

Once you have understood the scenario, you will have taken a big step towards another of the key skills that the examining team demands in this exam, namely the ability to produce an answer tailored to the scenario in the question (see skill 5). 

By analysing the flow of information, you will be able to suggest internal controls that are relevant to the specific deficiencies in the question.



Reading the scenario closely will prevent you from falling into 'traps', such as writing about substantive procedures when the question is clearly asking for tests of control.

Skills practice When you practise any of the scenario questions from the practice and revision kit, you should always read the requirement first and then annotate/highlight relevant information in the scenario. You should then re-read the requirement and number the points you have annotated before you start writing your answer.

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SKILLS BANK

Skill 2 – Quick and accurate analysis of a question's requirements 1 Be aware of the verbs used in exam questions You need to be aware of the meaning of the key verbs used by the examining team; these are reproduced in full in the BPP Practice & Revision Kit. You don't need to learn each term precisely but it is important that you appreciate the differences between them, for example, 'explain' means clarifying an issue or developing a point, whereas 'state' means list out the information/ factors or criteria without needing to give further explanation. Generally speaking the requirement to 'explain' will earn you 1 mark per point, whereas the requirement to 'state' carries ½ a mark.

EXPLAIN

For example, here is an extract from Q16 (b) in the Specimen Exam: '(b)Using the minutes provided, identify and describe SEVEN audit risks, and explain the auditor's response to each risk, in planning the audit of Milla Cola Co.'

There were a number of audit risks that could have been identified from the scenario but note the level of explanation required to gain full marks.

Milla has spent $5m updating, repairing and replacing production machinery. Milla has incurred expenditure of $5m updating, repairing and replacing machinery used in the production process. There is a risk that such expenditure may not have been correctly accounted for in accordance with IAS 16 Property, plant and equipment, and that revenue expenditure (for example, expenditure relating to repairs to the machinery) may have been capitalised as part of the cost of the machinery. This could mean that both non-current assets and profit are overstated. Obtain a breakdown of the $5m costs incurred from management and determine which items relate to capital expenditure and which relate to revenue expenditure. Trace the expenditure through to the nominal ledger and the financial statements to ensure that it has been appropriately classified.

This would only have scored ½ mark for stating the issue

This would have scored 1 mark for identifying and describing the audit risk

This would have scored 1 mark for explaining the auditor's response to the audit risk

Taking time to consider the exact wording of the requirement will help to produce an answer which is focused and responds directly to the question set.

12

SKILLS BANK

2 Identify ALL the question's requirements in your answer plan The question above also shows how the requirements of a question often contain a number of sub-requirements. You need to make sure that these sub-requirements are clearly identified on the question paper by highlighting or underlining them, so that your answer is comprehensive and addresses all parts of the requirement. Failure to answer the whole question is often due to candidates forgetting to address these sub-requirements, and is a key reason why people fail this exam.

Skills practice In each question you attempt you should spend a minute identifying the verb and planning what structure your answer should have. This will help ensure that you really do 'explain', 'discuss', 'recommend' etc.

13

SKILLS BANK

Skill 3 – Disciplined time management The 3 hours that you are given to write your answers breaks down to 1.8 minutes for each available mark and you must stick to this closely. Given the format of the exam, you know from the start that your time allocations will be as follows. Marks

Time allocation

Section A (Questions 1 – 15)

30

54 minutes

Section B Question 16

30

54 minutes

Section B Question 17

20

36 minutes

Section B Question 18

20

36 minutes

You may find that the questions in Section A do not take the whole 54 minutes, but you should be careful not to rush through them in case you misread a requirement, or answer a question that is different from the one which was set! In Section B each of the three questions will be divided into a number of sub-requirements, so it is important to identify how much time you should allocate to each of these. If you overrun by just a few minutes on several requirements as you make your way through the exam, you risk putting yourself in the position of not having enough time to complete the exam. Make sure you keep a careful check on timings as you plan your approach to each question. Note time allocations and stick to them. Even if you think you have more to say on a particular part, stop when you run out of time; there's a chance that you may save time later in the question and will be able to add one or two extra points then. In this exam, time management skills overlap with the other key skills, if you   

Plan effectively Accurately analyse the requirements Produce a tailored answer

Then you should find that it is possible to write good, pass-standard answers that are concise, focused and relevant. It really is true in this exam that, in general, less (quantity!) is more (marks!)

Skills practice When you are practising questions, always work out the time allocations and get into the habit of writing the answers, to time, just as you will have to do in the exam hall.

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SKILLS BANK

Skill 4 – Tackling mini-case style scenario questions Section A is worth 30 marks and comprises three sets of five questions each based on a scenario. When answering mini-case style scenario questions firstly read the requirements for each of the five sub-questions relating to the scenario information, then read the scenario presented in the question. Next re-read the requirement for each sub-question and have a think about what you think the correct answer may be.

Approaching Questions Logically 1 What to do if you know the answer to the question If you know the answer you should: 1.

Locate the correct answer

2.

Check the other answers

3.

Read the question again to ensure you're answering the correct question

4.

Confirm that you have the correct answer

This systematic check will ensure that you do ...