Introduction 2 © ACA Simplified 2013 No copying or reproductionкод для вставки
Introduction How To Use This Book Audit is a fundamental element of both Technical Integration stage papers, but particularly Business Reporting where it regularly accounts for 40% of the paper (see the ACA Simplified TI Audit Q&A for more detailed analysis). Many students neglect Audit, perhaps because it is primarily a written topic and therefore not considered to be вЂњtechnicalвЂќ or because it is perceived to be less interesting to revise. Whichever way, such neglect will make it very hard to pass TI. After thoroughly reviewing all TI past papers over the 2009 to 2012 period, we realised that Audit marks are almost always given for (1) identification of audit risks and (2) listing out and brief explanation of relevant tests to address these risks. This approach was confirmed when we reviewed the ICAEW Question Bank. We realised that it would be relatively straightforward to pick out the possible audit areas and organise these alphabetically, thereby providing a very valuable exam day resource вЂ“ students could simply look up the relevant area and all the relevant points would be there for them to use. Hence this book. On the basis of our reviews, we have concluded that past paper and Question Bank questions always relate to the same 70 potential audit areas/issues. The 70 or so areas are listed alphabetically in the index on page 5-6. In cases where past papers or the question bank provide marks for related risks, we have included risks at the top of each page, followed by related tests. In cases where there have been no marks to date for risks for a particular area, we have just included tests. If you do not see any risks detailed but need to provide risks in your answer, please flick to the General page (page 7) for some general reminders. If the question asks you to explain both risks and tests you should ideally aim for a 50:50 split in your writing on these two elements. If you are asked simply for tests, then prioritise tests but it is always worth putting in one or two sentences on risks as there are usually the odd couple of marks going for these, even though the question does not explicitly ask for them. The General section on page 7 provides ideas and idea generators for all questions and should be regularly consulted. As explained above, the General section is essential if you have to generate risks in an area where we have not provided any. 2 В© ACA Simplified 2013 No copying or reproduction permitted. Introduction How Not to Use This Book In providing you with this text, we should dramatically reduce the amount of time you need to invest in studying TI Audit вЂ“ you will no longer need to do any note-taking or file preparation in relation to this fundamental area. However, this does not mean that you should do no work on Audit and just turn up on exam day with this book. It is very important that you practise some past Audit questions for two reasons: (1) practice will make you familiar with the exam requirements and (2) practice will make you familiar with this book, by forcing you to flick to the correct pages, familiarise yourself with the presentation and understand which 70 areas are contained in this book. If you do not spend a little time on this familiarisation, there is a risk that you may not know where to turn on exam day, leaving easy marks unearned. We have tried to be as thorough as possible in preparing these notes, giving you all the risks and tests which have been awarded marks in past papers or question bank questions. Clearly, by being this thorough, we have provided more detail than will be needed to answer any given question - we wanted to provide notes which are as flexible as possible. You will need to use your skill and judgement to determine which are the most relevant risks and tests вЂ“ do not write out everything we have included as you will run out of time and will probably be wandering off topic, which is something the examiners hate to see. Again, it is only through using this book in trial runs (i.e. past paper practice) that you will develop this understanding of what to select in particular situations. ACA Simplified TI Audit Q&A Many students make the mistake of thinking that they do not need to learn topics in as much detail for TI because they can just refer to their notes or folder on the day. The danger in this strategy is that it neglects the time issue вЂ“ like all ACA exams, the TI exams are very time-pressured and the more time you spending looking things up, the less time you have to actually write and gain marks. On the other hand, if you have a good level of understanding in your head, rather than in your folder, you will be able to react in a much quicker and agile way and you will also have a better idea of what the question might be driving at. We therefore recommend that you prepare for TI by pretending that you do not have your folder to rely on. Obviously, take in a folder in the end, but try to revise as if this safety blanket is not available. To assist with this revision, you may wish to purchase the ACA Simplified TI Audit Q&A which provides a 100% active method of revising the whole syllabus. Audit is quite a 3 В© ACA Simplified 2013 No copying or reproduction permitted. Introduction dry topic to study so our short Q&A approach should help make it more interesting and active for you, enhancing your knowledge. Our TI Audit Q&A has also been arranged in such a way as to be useable as a quick reference in the exam itself вЂ“ you may find that you cannot quite remember the whole of a point or topic but you will remember doing a question on it from our Q&A (since you can practise the questions many, many times before the exam) so our Q&A can be both a revision tool and exam day resource. 4 В© ACA Simplified 2013 No copying or reproduction permitted. INDEX General Acquisition вЂ“ subsidiary Acquisition вЂ“ associate AHFS Bribery Bad debt allowances Bank borrowings/loans Bonus Borrowing costs (IAS 23) Cash Commercial assurance Construction contracts Contract Corporate governance including codes Cost of sales Currency risk Debenture loan Deferred tax Derivatives Development costs Discontinued operations Disposal вЂ“ subsidiary Director emoluments E-commerce Fair value Fair value less costs of sell Forex Goodwill Going concern Groups вЂ“ other component auditors Groups вЂ“ serving as a component auditor Groups вЂ“ consolidation entries Groups вЂ“ overseas subs Groups вЂ“ parent company loan Health and safety issues Hedging Hyperinflationary economy Impairment Intangibles Inventories Investments Investment properties IT system Leases Litigation Loan Non-current assets New audit Opening balances Option valuation Overdraft Payables Payroll controls 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 44 45 46 47 49 50 51 52 53 54 55 56 57 58 59 60 61 5 В© ACA Simplified 2013 No copying or reproduction permitted. INDEX Pensions Product recall Projected figures Provisions Receivables Related party transactions Rental income Revaluation Revenue Segmental reporting Share options/share based payments Social and environmental statement Staff expenses Systems change Tax Value in use Warranty 62 64 65 66 67 68 70 71 72 73 74 75 76 77 78 79 80 6 В© ACA Simplified 2013 No copying or reproduction permitted. General General Points General вЂў вЂў вЂў вЂў Should it be in the accounts? Is it in at the correct amount? Anything missed? Presentation, disclosure Types of procedure вЂў вЂў вЂў вЂў вЂў вЂў Inquiry Observation Inspection Recalculation Confirmation Analytical procedures Tests of details used if вЂў вЂў вЂў вЂў No controls, controls ineffective Inefficient to test effectiveness of controls Test is for overstatement Insufficient comfort obtained from controls work General purpose tests вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў Review board minutes Enquiries of mgt, staff Attend meetings of audit committee Agree opening position Vouching, matching, agreeing, casting Sequence checks Review for unusual items Circularisations Reconciliations Third party confirmations Use of experts Cut off testing Management reps Review subsequent events/post year end amounts Materiality вЂ“ Rules of Thumb Total revenue Gross profit PBT Total assets Equity 0.5 to 1% 1 to 2% 5 to 10% 1 to 2% 1 to 2% Also consider nature of the engagement Also consider performance materiality Also consider total/nature of misstatements found at end of audit 7 В© ACA Simplified 2013 No copying or reproduction permitted. Acquisition - subsidiary Acquisition вЂ“ subsidiary Risks вЂў вЂў вЂў вЂў вЂў вЂў вЂў Increases inherent risk of group accounts Unrecognised impairment Incorrect amortisation Errors in FV and unrecognised assets Incorrect recognition/categorisation of intangibles Correct statement of SFP figures вЂ“ goodwill etc Correct statement of IS figures вЂ“ profit post acquisition Tests вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў Agree purchase price to purchase documentation Obtain breakdown of purchase consideration and determine allocation into intangibles Establish how allocated and whether reasonable Determine nature of intangibles recognised e.g. customer lists вЂ“ how are contracts progressing? Confirm that goodwill does not include any non-purchased goodwill or any identifiable intangible assets Discuss with directors the need to perform an impairment review, and check that review is in line with IAS 36 e.g. allocation to CGUs Assess the assessment of UEL for reasonableness Determine how FV was determined Obtain consolidation schedule to ensure correct consolidated e.g. from correct date, post-acq results only Review disclosures relating to the acquisition Check all relevant exchange rates Check qualifications and approach of component auditor Owe duty of care to purchaser/seller? Disclaim. Hold harmless letter. See also Acquisition вЂ“ associate Goodwill Groups Investments p9 p34 p36-40 p49 8 В© ACA Simplified 2013 No copying or reproduction permitted.