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Introduction 2 © ACA Simplified 2013 No copying or reproduction

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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
“technical” 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 – 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 – 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 – 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 – 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 – 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 – subsidiary
Acquisition – 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 – subsidiary
Director emoluments
E-commerce
Fair value
Fair value less costs of sell
Forex
Goodwill
Going concern
Groups – other component auditors
Groups – serving as a component auditor
Groups – consolidation entries
Groups – overseas subs
Groups – 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
•
•
•
•
Should it be in the accounts?
Is it in at the correct amount?
Anything missed?
Presentation, disclosure
Types of procedure
•
•
•
•
•
•
Inquiry
Observation
Inspection
Recalculation
Confirmation
Analytical procedures
Tests of details used if
•
•
•
•
No controls, controls ineffective
Inefficient to test effectiveness of controls
Test is for overstatement
Insufficient comfort obtained from controls work
General purpose tests
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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 – 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 – subsidiary
Risks
•
•
•
•
•
•
•
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 – goodwill etc
Correct statement of IS figures – profit post acquisition
Tests
•
•
•
•
•
•
•
•
•
•
•
•
•
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 – 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 – associate
Goodwill
Groups
Investments
p9
p34
p36-40
p49
8
В© ACA Simplified 2013
No copying or reproduction permitted.
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