The Institute of Chartered Accountants of Bangladesh ASSURANCE Professional Stage Knowledge Level PDF

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The Institute of Chartered Accountants of Bangladesh ASSURANCE Professional Stage Knowledge Level www.facebook.com/cainbd Study Manual www.icab.org.bd Assurance The Institute of Chartered Accountants of Bangladesh Professional Stage These learning materials have been prepared by the Institute of Cha...

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The Institute of Chartered Accountants of Bangladesh

ASSURANCE Professional Stage Knowledge Level www.facebook.com/cainbd

Study Manual www.icab.org.bd

Assurance The Institute of Chartered Accountants of Bangladesh Professional Stage These learning materials have been prepared by the Institute of Chartered Accountants in England and Wales ISBN 978-1-84152-637-9 First edition 2009 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means or stored in any retrieval system, or transmitted in, any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission of the publisher.

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© The Institute of Chartered Accountants in England and Wales, March 2009

Welcome to the ICAB

© The Institute of Chartered Accountants in England and Wales, March 2009

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© The Institute of Chartered Accountants in England and Wales, March 2009

Contents 

Introduction

vii



Specification grid for Assurance

viii



The learning materials

ix



Study guide

x



Getting help

xvii



Syllabus and learning outcomes

xviii

1.

Concept of and need for assurance

1

2.

Process of assurance: obtaining an engagement

17

3.

Process of assurance: planning the assignment

37

4.

Process of assurance: evidence and reporting

67

5.

Introduction to internal control

85

6.

Revenue system

107

7.

Purchases system

127

8.

Employee costs

145

9.

Internal audit

159

10. Documentation

169

11. Evidence and sampling

185

12. Management representations

209

13. Substantive procedures – key financial statement figures

221

14. Codes of professional ethics

251

15. Integrity, objectivity and independence

263

16. Confidentiality

287



Sample paper

299

© The Institute of Chartered Accountants in England and Wales, March 2009

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© The Institute of Chartered Accountants in England and Wales, March 2009

INTRODUCTION

1 Introduction 1.1

What is Assurance and how does it fit within the Professional Stage? Structure The syllabus has been designed to develop core technical, commercial, and ethical skills and knowledge in a structured and rigorous manner. The diagram below shows the fourteen modules at the Professional stage, where the focus is on the acquisition and application of technical skills and knowledge, and the Advanced stage, which comprises three technical modules and the Case Study.

The knowledge base The aim of the Assurance module is ensure that students understand the assurance process and fundamental principles of ethics and are able to contribute to the assessment of internal controls and gathering of evidence on an assurance engagement. Progression to application level The knowledge base that is put in place here will be taken further in the Application level Audit and Assurance module where the aim will be to develop the students’ understanding of the critical aspects of managing an assurance engagement (including audit engagements): acceptance, planning, managing, concluding and reporting. Students will be expected to have an understanding of the audit of not-for-profit entities as well as non-specialised profit oriented entities. Progression to advanced stage The Advanced level paper Advanced Audit & Assurance then takes things further again. Ethical and audit issues are likely to be important in the compliance issues faced by business, including controls and corporate governance. At Advanced Stage this paper also looks at the modern audit process and services other than audit, as well as taking the principles learnt and applying these to services performed for a wide range of different clients.

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Assurance The above illustrates how the knowledge of assurance principles gives a platform from which a progression of skills and assurance expertise is developed.

1.2

Services provided by professional accountants Professional accountants should be able to: 

Explain the concept of assurance, why assurance is required and the reasons for assurance engagements being carried out by appropriately qualified professionals



Explain the nature of internal controls and why they are important, document an organisation’s internal controls and identify weaknesses in internal control systems



Select sufficient and appropriate methods of obtaining assurance evidence and recognise when conclusions can be drawn from evidence obtained or where issues need to be referred to a senior colleague



Understand the importance of ethical behaviour to a professional and explain issues relating to integrity, objectivity, conflicts of interest, conflicts of loyalty, confidentiality and independence.

2 Specification grid for Assurance 2.1

Module aim To ensure that students understand the assurance process and fundamental principles of ethics, and are able to contribute to the assessment of internal controls and gathering of evidence on an assurance engagement.

2.2

Specification grid This grid shows the relative weightings of subjects within this module and should guide the relative study time spent on each. Over time the marks available in the assessment will equate to the weightings below, while slight variations may occur in individual assessments to enable suitable questions to be set. 1 2 3 4

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The concept, process and need for assurance Internal controls Gathering evidence on an assurance engagement Professional ethics

© The Institute of Chartered Accountants in England and Wales, March 2009

Weighting (%) 20 25 35 20 100

INTRODUCTION

3 The learning materials You will find the learning materials are structured as follows:   

Title page Contents page Introduction. This includes –

A review of the subject to set the context

–

A list of the top level learning outcomes for this subject area entitled 'Services provided by professional accountants' (set with reference to what a newly qualified accountant would be expected to do as part of their job)



The specification grid for Assurance



A brief note about the learning materials



Study Guide. This includes –

Hints and tips on how to approach studying for your CA exams

–

Guidance on how to approach studying with this study manual

–

A detailed study guide suggesting how you should study each chapter of this study manual and identifying the essential points in each chapter



Information on how to obtain help with your studies



The detailed syllabus and learning outcomes

Each chapter has the following components where relevant: 

Introduction – – – – –



Learning objectives Practical significance Stop and think Working context Syllabus links

Examination context –

Exam requirements



Chapter topics



Summary and Self-test



Technical reference



Answers to Self-test



Answers to Interactive questions

The technical reference section is designed to assist you when you are working in the office. It should help you to know where to look for further information on the topics covered. You will not be examined on the contents of this section in your examination.

© The Institute of Chartered Accountants in England and Wales, March 2009

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Assurance

4 Study guide 4.1

Help yourself study for your CA exams Exams for professional bodies such as ICAB are very different from those you have taken at college or university. You will be under greater time pressure before the exam – as you may be combining your study with work. Here are some hints and tips.

The right approach 1

2

Develop the right attitude Believe in yourself

Yes, there is a lot to learn. But thousands have succeeded before and you can too.

Remember why you're doing it

You are studying for a good reason: to advance your career.

Focus on the exam Read through the Syllabus and Study Guide

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These tell you what you are expected to know and are supplemented by Examination context sections in the text.

The right method See the whole picture

Use your own words

Keeping in mind how all the detail you need to know fits into the whole picture will help you understand it better. 

The Introduction of each chapter puts the material in context.



The Learning objectives, Section overviews and Examination context sections show you what you need to grasp.

To absorb the information (and to practise your written communication skills), you need to put it into your own words.    

Give yourself cues to jog your memory

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The Study Manual uses bold to highlight key points.  

Try colour coding with a highlighter pen. Write key points on cards.

The right recap Review, review, review

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Take notes. Answer the questions in each chapter. Draw mindmaps. Try 'teaching' a subject to a colleague or friend.

Regularly reviewing a topic in summary form can fix it in your memory. The Study Manual helps you review in many ways. 

Chapter summary will help you to recall each study session.



The Self-test actively tests your grasp of the essentials.



Go through the Examples in each chapter a second or third time.

© The Institute of Chartered Accountants in England and Wales, March 2009

INTRODUCTION

4.2

Study cycle The best way to approach this Study Manual is to tackle the chapters in order. We will look in detail at how to approach each chapter below but as a general guide, taking into account your individual learning style, you could follow this sequence for each chapter. Key study steps Step 1 Topic list

Activity This topic list is shown in the contents for each chapter and helps you navigate each part of the book; each numbered topic is a numbered section in the chapter.

Step 2 Introduction

This sets your objectives for study by giving you the big picture in terms of the context of the chapter. The content is referenced to the Study guide, and Examination context guidance shows what the examiners are looking for. The Introduction tells you why the topics covered in the chapter need to be studied.

Step 3 Section overviews

Section overviews give you a quick summary of the content of each of the main chapter sections. They can also be used at the end of each chapter to help you review each chapter quickly.

Step 4 Explanations

Proceed methodically through each chapter, particularly focussing on areas highlighted as significant in the chapter introduction or study guide.

Step 5 Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being able to record something yourself is a sign of being able to understand it. Your notes can be in whatever format you find most helpful; lists, diagrams, mindmaps.

Step 6 Examples

Work through the examples very carefully as they illustrate key knowledge and techniques.

Step 7 Answers

Check yours against the suggested solutions, and make sure you understand any discrepancies.

Step 8 Chapter summary Step 9 Self-test Step 10 Question practice

Review it carefully, to make sure you have grasped the significance of all the important points in the chapter. Use the Self-test to check how much you have remembered of the topics covered. Attempt the question(s) relating to this chapter in the Revision Question Bank.

Moving on... When you are ready to start revising, you should still refer back to this Study Manual. 

As a source of reference.



As a way to review (the Section overviews, Examination context, Chapter summaries and Self-test questions help you here).

Remember to keep careful hold of this Study Manual – you will find it invaluable in your work. The technical reference section has been designed to help you in the workplace by directing you to where you can find further information on the topics studied.

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Assurance

4.3

Detailed study guide Use this schedule and your exam timetable to plan the dates on which you will complete each study period below: Study period

Approach

Essential points

1

Read through Chapter 1 carefully. Make sure you understand what an assurance engagement is and the different levels of assurance which it can provide depending on the specific nature of the engagement. You should also be familiar with the objective of an audit and the meaning of ‘true’ and ‘fair’.

 Key elements of an assurance engagement

Attempt the Interactive questions and the Self-test questions to confirm your understanding of the topics covered in this chapter. 2

Read through sections 1 and 2 of Chapter 2 paying particular attention to the appointment decision chart. You should also attempt Interactive questions 1 and 2. Read through section 3 and make sure you understand the purpose of the engagement letter.

 Definitions of reasonable assurance and limited assurance  Purpose of an audit  Limitations of assurance and the meaning of the expectations gap

 Appointment considerations  Communication with previous auditors  Purpose and content of the engagement letter

Complete all remaining Interactive and Selftest questions. 3

Chapter 3 introduces a number of important auditing concepts and principles so work through it carefully. Read through section 1. Make sure you can distinguish between the audit strategy and the audit plan. You must also be familiar with the ways in which the auditor will obtain an understanding of the entity including the various sources of information.

 Planning procedures  The meaning of professional scepticism  Applying analytical procedures  Concept of materiality  Audit risk model

Section 2 introduces analytical procedures. Work through the Worked example and make sure you attempt the Interactive question on this topic. Materiality is one of the key concepts in auditing. You must be familiar with the definition of materiality and understand its impact on the audit overall. Section 4 deals with audit risk, another key concept. Look carefully at the components of audit risk and the way in which they interact. Complete all the Interactive and Self-test questions.

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Due date

INTRODUCTION

Study period

Approach

Essential points

4

Section 1 of Chapter 4 is important as it introduces some of the basic definitions and principles of audit evidence which are developed in later chapters. Read through this section carefully and attempt Interactive question 1.

 Definitions of tests of controls and substantive procedures

Section 2 deals with reporting. You must be aware of the basic content of an unqualified audit report, and in particular the opinion given. Also note section 2.4 on other reports.

 Explicit and implied opinions

Due date

 Evaluation of the quality of different types of evidence  Financial statement assertions  Expectations gap

Finally complete all the Self-test questions to confirm your understanding of the topics covered in this chapter. 5

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Chapter 5 is important as it provides an introduction to internal control. The principles introduced here are developed for specific transaction cycles in Chapters 6-8.

 Definition of internal control

You need to be able to view this topic from both the business’s point of view and that of the auditor. As you are reading the chapter notice that it is the responsibility of the business to implement and maintain a system of internal controls. The auditor then records and assesses the system as part of the audit process.

 IT controls

Chapter 6 looks at internal control within the revenue cycle taking each stage of the cycle in turn. This is an important chapter as questions in your assessment may require application of knowledge to a specific scenario. Read through sections 1-4 carefully. Make sure you understand the difference between the control objectives, controls and tests of controls. Attempt Interactive questions 1-4.

 Control objectives

 Components of internal control  Types of control activity  Methods of recording internal control

 Tests of controls  Identifying weaknesses

Section 5 looks at a particular way in which this topic could be examined. Make sure you attempt Interactive question 5. Complete all Self-test questions. 7

The format of Chapter 7 is very similar to that of Chapter 6. Again the key issues are the control objectives at the various stages of the cycle and the tests of controls which the auditor might perform to determine whether the controls are operating effectively. Make sure you are familiar with both of these aspects within the context of the purchases cycle.

 Control objectives  Tests of controls  Identifying weaknesses

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Assurance Study period

Approach

Essential points

Also note section 4 on the identification of weaknesses and attempt Interactive question 5. 8

Chapter 8 continues the theme of internal controls but applied to the payroll cycle. Again, you must be familiar with the key control objectives and tests of controls at each stage of the cycle. Attempt Interactive questions 1-3. Work through section 4 and attempt Interactive question 4. Complete all Self-test questions.

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This is a brief chapter but includes some important information. Read through sections 1 and 2 paying particular attention to the distinction between the internal and the external auditor and the role of internal audit.

 Definition of internal audit  Com...