Audit & Assurance (F8) : Hamzah Siddique Fcca

AUDIT & ASSURANCE (F8)
Crash Course Notes Dec 2020
HAMZAH SIDDIQUE FCCA

Audit & Assurance│Crash Course DEC 20 HAMZAH SIDDIQUE FCCA
Link2hamzah@gmail.com WhatsApp: +923336644771 1

Course Plan
Day1 (7th Nov) Day 2 (8th Nov) Day 3 (9th Nov)
• Internal controls & TOC • Substantive Tests • Audit Risk

• Substantive Tests • Audit Risk • Ethics
• Review and Report
Syllabus Area MJ 20 SD 19 MJ 19 SD 18 MJ 18
Audit Risk 16 Marks 16 Marks 16 Marks 16 Marks 16 Marks
Internal control & 16 Marks 16 Marks 18 Marks 16 Marks 20 Marks

Test of Control
Substantive Tests 20 Marks 18 Marks 18 Marks 23 Marks 20 Marks
Audit review & 5 Marks 8 Marks 6 Marks 5 marks 5 mark

report
Audit Going Subsequent Going Audit
report Concern Event concern report
EXAM FORMAT
SECTION MARKS QUESTION TYPE
A 30
3X10 –CASE STUDY HAVING 5 OBJECTIVE
TEST QUESTIONS
B 70
1X30-MARK QUESTION
2 X 20-MARK QUESTIONS PREDOMINANTLY ON
PLANNING AND RISK ASSESSMENT, INTERNAL
CONTROL OR AUDIT EVIDENCE

Common Reasons for Failures in AA

1. lack of conceptual knowledge
2. There is little or no application of that knowledge to the scenario
3. Lack of exam appropriate practice and poor exam techniques
4. Being unable to draft answer as per examiner guidance
Audit Cycle
Audit Risk
Risk of inappropriate audit opinion by Auditor. Auditor wants to reduce this risk to an
acceptable low level
Risk of Material Misstatement in FS Detection Risk
Inherent Risk Control Risk Auditor may be unable to

detect material
Due to the nature /complexity Due to weak Internal control misstatements in FS
of the item system

Audit Response
General /overall/FS level Response Specific Response/assertion level

response
 Emphasizing professional scepticism As per the Risk …. Test of controls or/and

 Assigning additional or more experienced staff Substantive tests
 Providing more supervision on the audit
 Incorporating more unpredictability into the
audit procedures
How to solve Audit Risk Scenario?
 Audit risks to be identified ( 0.5 marks each)
 explained (0.5 marks each) and
 an auditor’s response to each risk (1 mark each)
To explain audit risk, candidates need to Audit Response

 state the area of the FS impacted with an
assertion (e.g. cut off, valuation etc.), or, Auditor’s response does not have to be a detailed
under/over/misstated of any item in FS , audit procedure, rather it is the approach the
or, audit team (Test of controls or substantives to
 inherent, control or detection risk. verify the issue) will take to address the
Misstated is only awarded if it was clear that the
identified risk
balance could be either over or understated.
Remember
 Audit Response must address the Audit

Risk and must be specific to that,
otherwise you will not be granted any
mark
 It should not be too vague such as
‘increase substantive testing’ without
making it clear how, or in what area,
this would be addressed.

Audit RISK RESPONSE

Company undertakes continuous production and discuss with management the process they
the work in progress balance at the year-end is undertook to assess the cut-off point for work in
likely to be material. progress at the year end and review the process
while attending the year-end inventory count
As production will not cease, the risk is that exact
cut-off of the work in progress may not be
established by the company and the inventory
valuation may be under or over stated
Company has ordered $720,000 of plant and Discuss with management as to whether the
machinery, two-thirds of which may not have remaining plant and machinery ordered have
been received by the year end. arrived; if so, physically verify a sample of these
assets to ensure existence
The risk is that machinery may not have been
received, may have been included in NCA of the
company , PPE will be overstated
Management has introduced a new payroll Discuss with the management about any training
system this year of staff about new system and assess adequacy of
that training
The risk is that staff may not be trained enough
to use new system causing errors and Perform detailed substantive tests on the payroll
misstatements in payroll record record generated after implementation of new
system
Management has introduced a new payroll Enquire from the management the process used
system this year. to shift data from old system to new payroll
system and assess whether the process was good
The risk is that during shifting of data from old
enough to prevent errors / misstatements in FS
system to new system, errors may have been
or not
committed causing misstatements in payroll
record
Company has capitalized 2.2 m Research and Obtain the break up of 2.2m R & D cost from
development cost in FS management and verify whether it includes all
the costs eligible for capitalization or not
The risk is that this 2.2 m may include research
cost and other cost not meeting capitalization
criteria of IAS 38 and hence profits and assets
may be over stated

The receivables days have been increased from Review aged receivable analysis of the company
35 days in the last year to 47 days this year and assess whether provision for doubtful debts
and bad debts have been recorded at correct
The risk is that receivables are struggling to pay amount or not
and they are taking more time to pay because of
that and provision for doubtful debts and bad
debts may not have been recorded at correct
amount and assets & profits may be overstated
Management has demanded that this year audit Perform interim audit this year to reduce the
should be completed in just two months after the amount of work to be done at year end
year end The risk is that due to shortage of time
auditor may not be able to perform all the
required work to be able to give appropriate
report due to this detection risk
Practice Questions
MJ 2019 SD 2018 MJ 2018 SD 2017 MJ 2017
RISK Q17 (b) Q16 part(c) Q17 part(b) Q17 part (c) Q16 part(a,b)
Question 10 33 49 61 71
page
Answer 16 38 55 67 75
page
Internal controls of the client and Auditor

Controls: Procedures implemented by Management of company within the
organization to achieve organizational objectives
Test of Controls: Ways/methods used by auditor to test th`\
effectiveness of the internal control system

After understanding the controls, auditor will initially do a walk-through test – that is,
they will follow a transaction through the system to see if all the controls they think
should be in existence operated for that transaction.
What audit procedures can the auditor use to get evidence about controls?
• Inspection of documents (checking the signatures / sequential numbering)

• Inquiries about internal controls
• Re-performance of control procedures (enter a fictitious credit sales exceeding the
credit limit, it should be rejected)
• Observation of controls
Purchase System
 Purchase requisition is generated

 Purchase order is placed
 Goods are received
 Payment to supplier
Purchase requisition is generated (by stores department)

Control Objectives Controls Test of controls
 Avoid excessive  Reorder level & EOQ For sample of purchase requisitions
stock & stock out as must be defined & prepared, review whether they have
well observed while preparing been prepared according to
Purchase requisition relevant EOQ and Reorder levels
defined by organization
 Appropriate record of  Purchase requisitions Review a sample of purchase

purchase must be sequentially pre requisitions whether they are
requisitions. numbered & multi copied sequentially pre numbered and
properly multi copied properly.
Purchase order is placed (By purchase department)

Purchases at competitive A list of authorized suppliers Review a sample of purchase
prices must be maintained and all the orders placed, whether they
orders must be places with have been placed with the
those suppliers only authorized suppliers of
company or not
Appropriate record of Purchase orders must be Review a sample of

purchase orders sequentially pre-numbered and purchased orders whether
multi-copied properly they are sequentially pre
numbered and multi copied
Goods requested are Purchase Order must be Review a sample of copies of

ordered counterchecked with Purchase purchase orders whether
Requisition by a specific person they bear the signatures of
and be signed by that person the person counterchecking it
with the relevant purchase
orders or not
Purchase order should be Purchase orders must be review a sample of purchase

authorized signed by Purchase manager/or orders whether they bear the
some other senior person signature of a senior person (
purchase manager) as an
evidence of authorisation
Goods are received (at store)

Ensure that Goods ordered On receipt, goods must be Observe for a sample of
are accepted matched with copy of goods deliveries whether
they are being matched with

Purchase Order at stores and relevant copy of Purchase

then should be accepted order before being accepted
Appropriate record of goods For the goods received at

received stores, a sequentially pre
numbered and multi-copied
GRN must be issued
Payment to supplier
Payment for goods received& Accounts department For a sample of payments to
purchased only personals must match the the suppliers , review the
purchase invoice with the relevant vouchers/invoices
relevant copy of GRN and whether they bear the
goods ordered mentioned on signatures of the relevant
copy of PO and then issue person of accounts as an
cheque in the name of evidence if its matching witrh
supplier the relevant copy of PO and
GRN
For a sample of vouchers

prepared for payments
compare the names of
supplier mentioned on the
voucher with the relevant
Purchase invoice to see
whether payment has been
made to the right supplier
Question Type 1
a) Identify and explain deficiencies in the system / controls

b) Give recommendation to remove that deficiency
Deficiency Recommendation
Purchase manager does not always authorize the All the purchase orders must be signed/
purchase orders , rather employees purchase approved by the purchase manager before being
goods by themselves placed with suppliers
Employees may purchase the goods not required
for the business resulting unnecessary
expenditures
Question Type 2
a) Identify and explain deficiencies in the system / controls

b) Give recommendation to remove that deficiency

c) Write test of controls on those recommendations
Deficiency Recommendation Test of Controls
Purchase manager does not All the purchase orders must be For a sample of purchase
always authorize the purchase signed/ approved by the orders placed with suppliers ,
orders , rather employees purchase manager before being review their copies whether
purchase goods by themselves placed with suppliers they bear the signatures of
purchase manager as approval
Employees may purchase the or not
goods not required for the
business resulting unnecessary
expenditures
June 2015
Cherry Blossom Co (Cherry) manufactures custom made furniture and its year end is 30 April. The
company purchases its raw materials from a wide range of suppliers. Below is a description of Cherry’s
purchasing system.
When production supervisors require raw materials, they complete a requisition form and this is
submitted to the purchase ordering department. Requisition forms do not require authorisation and no
reference is made to the current inventory levels of the materials being requested. Staff in the purchase
ordering department use the requisitions to raise sequentially numbered purchase orders based on the
approved suppliers list, which was last updated 24 months ago. The purchasing director authorises the
orders prior to these being sent to the suppliers.
When the goods are received, the warehouse department verifies the quantity to the suppliers despatch
note and checks that the quality of the goods received are satisfactory. They complete a sequentially
numbered goods received note (GRN) and send a copy of the GRN to the finance department.
Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a manual file until
the end of each week. He then inputs them into the purchase ledger using batch controls and gives each
invoice a unique number based on the supplier code. The invoices are reviewed and authorised for
payment by the finance director, but the actual payment is only made 60 days after the invoice is input
into the system.
Required:
In respect of the purchasing system of Cherry Blossom Co:
I. Identify and explain FIVE deficiencies; and
II. Recommend a control to address each of these deficiencies.
Note: The total marks will be split equally between each part. (10 marks)
Deficiency Recommendation

Requisition forms are completed by production Requisition forms should be authorised by the
supervisors but are not authorised. production manager or director prior to being
This increases the risk of fraudulent sent to the purchase ordering department. This
purchases, or of goods being ordered which are department should not process any unauthorised
not required, leading to unnecessary cash requisitions.
outflows ( 1 mark )
Orders are being placed for goods without the The inventory system should be updated to
inventory levels being checked first. record minimum/maximum required levels of
This could result in goods being ordered which raw materials. When completing the purchase
are not required, leading to unnecessary cash order, the ordering clerk should check the
outflows. current level of inventory on the system and only
order if the quantity is within the set parameters.
In addition, as the company does not currently
monitor inventory levels, it could experience The company should set minimum authorised
stock-outs resulting in the company being unable reorder levels for inventory items
to meet customer orders.
The purchase ordering department maintains an The approved supplier list should be reviewed
approved supplier list; however, this has not and updated as necessary. Going forward, it
been updated for 24 months. should be updated regularly, at least on an
As this list has not been recently updated, the annual basis.
suppliers being used may not be ideal with
regards to price, quality and delivery times. This
could result in Cherry paying increased costs for
raw materials or receiving poorer quality goods.
Goods are being received without any checks A copy of the authorised order form should be
being made against purchase orders. sent to the warehouse department. This should
This could result in Cherry receiving and then be checked to the goods when received
subsequently paying for goods it did not order
Purchase invoices are manually filed by the The purchase ledger clerk should record the
purchase ledger clerk and only updated to the invoices in the ledger on a daily rather than
ledger on a weekly basis. weekly basis.
Until the invoices are input into the system, there
is a risk that they may be misplaced and not
entered. This would result in an understatement
of trade payables and Cherry failing to make
payment to the suppliers on time.
Purchase invoices are not being agreed to the All purchase invoices should be matched to the
relevant goods received notes (GRNs) prior to related GRN; the details should be agreed prior to
authorisation and payment by the finance the invoice being logged in the purchase ledger.
director.
This could result in invoices being paid for goods
which were not received.
EXAMINER GUIDANCE

Internal control questions typically require internal control deficiencies to be identified (½ marks
each), explained (½ marks each), a relevant recommendation to address the control (1 mark), and,
often a test of control the external auditor would perform to assess whether each of these controls, if
implemented, is operating correctly (1 mark).
In common with prior sittings, Candidates were able to identify the internal control deficiency from
the scenario however some candidates did not clearly explain the implication of the deficiency, they
needed to explain how this could cause problems for the company
The scenario in the exam will always contain more issues than required to be discussed and it was
therefore encouraging that candidates generally applied effective exam technique and focused on
providing answers which identified the required number of issues as noted in the question.
Most candidates were able to provide good recommendations to address the deficiencies. However,
often the recommendations did not clearly address the specific control weakness identified.
Many candidates simply repeated their controls and added “to check that” or “to make sure”. These
are not tests of control.
Also many candidates suggested that the control be tested through observation. For example
“observe the process for authorisation of sales discounts”. This is a weak test as it is likely that if the
auditor is present that the control will operate effectively; instead a better test would be “to review
sales invoices for evidence of authorisation of discounts by sales manager.”
Practice Questions
MJ 19 SD 18 MJ 18 SD 17 MJ 17
Question 16(b) Q17 part(b) Q16 part Q16 part (c) Q18
Number (a,b)
Question 8 35 48 60 73
page
Answer 16 42 52 64 79
page

Substantive Tests
Procedures/ WAYS used by auditor to detect misstatement in FS
 Analytical Procedures
 Test of details
 Inspection of documents (invoices, Board minutes , correspondence)
 Confirmation letter
 Enquiry/discussion with management
 Physical observation … (inventory/assets )

Financial Statement Assertions are representations by management explicit or otherwise,

embodied in FS
Assertions related to Valuation and allocation

Account balances
Completeness
Rights and obligation
Existence
Presentation and disclosures
Assertions related to Accuracy

classes of transaction and
events Completeness
Occurrence
Classification
Cut off
P&D
ACCA COVER
Substantive tests
 Write three substantive procedures on Receivables ( 3 marks)

 Write audit procedures to verify completeness and existence of receivables ( 5 marks)
 Write procedures on a scenario ( )
1 mark per procedure
 Understanding / knowledge /concepts

 Drafting skill
Substantive Test = Action + Source + Purpose (sufficient detailed)

AUDIT TESTS FOR SPECIFIC ASSERTIONS
ASSERTIONS TYPE OF TYPICAL AUDIT TESTS

ASSERTIONS
COMPLETENESS • Classes of
transactions (b) Tracing
• Account (c) Analytical procedure
balances (d) Reconciliations to control accounts
(e) Completion of disclosure check lists
Rights & • Account (a) Reviewing invoices for proof that item belongs to
Obligation balances the company
(b) Confirmations with third parties (receivable
/payable /bank / lawyer / inventory held at third party)
(c) title / registration book
(d) register of charges
Valuation & • Account (a) Matching amounts to invoices
Allocation balances (b) Recalculation
(c) Confirming accounting policy is consistent and
reasonable
(d) Expert valuation
Existence • Account (a) Physical verification
Balance (b) Third party confirmations
(c) Review of post year-end items
(d) vouching
(e) Review of correspondence of company with third
parties
Occurrence • Classes of (a)Inspection of supporting documentation (vouching)
transactions (b) Confirmation from directors that transactions relate
to business
(c) Inspection of items purchased
Accuracy • Classes of (a) Recalculation of correct amounts
transactions (b) Analytical review
Classification and • Classes of a) Confirming compliance with law and accounting
understandability transactions standards
(b) Reviewing notes for understandability
Cut Off • Classes of Tracing Last source documents through accounting

transactions record

Substantive Procedures on Payables
Completeness
 Reconcile the sum of individual payable accounts with the balance of payable ledger
control account and if there is difference investigate
 Obtain selected suppliers' statements and reconcile these to the relevant suppliers'
accounts and if there is difference, investigate
 Complete the disclosure checklist to ensure that all the disclosures relevant to liabilities
have been made.
 Compare the payables turnover and payables days to the previous year and industry
data and if there is unusual difference, investigate
 Trace a sample of purchase invoices from relevant GRN, purchase ledger and relevant
Payable ledger
Existence
 Vouch selected amounts from the trade accounts payables listing and accruals listing to
supporting documentation, such as purchase orders and suppliers' invoices & GRN as well
 write a confirmation letter for a sample of accounts payables
 Review post year-end transactions of the company to identify any payment made to supplier.
 Review any correspondence of client with the suppliers to assess the existence of payables
Valuation & Allocation

 Trace selected samples from the trade accounts payables listing and accruals listing to
the supporting documentation (purchase orders, minutes authorising expenditure,
suppliers' invoices etc).
 Obtain selected suppliers' statements and reconcile these to the relevant suppliers'
accounts.
 For a sample of accruals, recalculate the amount of the accrual to ensure the amount
accrued is correct.
 Compare the current year balances for trade accounts payables and accruals with the
previous year and if there is significant difference investigate
 Compare the payables turnover and payables days with the previous year and industry
data and if there is significant difference investigate
Rights & obligation

perform payable circularization for a sample of suppliers

(a)
i. Identify and explain four financial statement assertions relevant to account
balances at the year end.
ii. For each identified assertion, describe a substantive procedure relevant to the
audit of year-end inventory. (8 marks)
Practice Questions (Substantive Tests)
MJ 19 SD 18 MJ 18 SD 17 MJ 17
Question 16c 18 16 18 16 (d) 18 16 (d) 18 Q17

Number (a,b,c) (d,e) (a,b) (a,b,c) (a,b,c) part(a,b,c,d)
Question page 9 11 33 36 48 50 60 62 72
Answer page 17 20 40 43 54 57 65 68 78

SUBSEQUENT EVENTS REVIEW

Subsequent events are events occurring between the date of the financial statements and the date of
the auditor's report, and facts that become known to the auditor after the date of the auditor's report.
Two types
• Adjusting events: events that provide evidence of conditions that existed at the year-end date.
FS are amended for their effect
• Non-adjusting events: events that are indicative of conditions that arose after the year-end
date. They are just disclosed in notes to FS
Adjusting events Non-adjusting events
Settlement of a court case which was in court Dividends declared after the year-end
at year end
Sales of inventory after year-end providing Fire causing destruction of major plant
evidence of its NRV at year-end
Fraud or error showing the financial statements Announcement of a major restructuring

are incorrect

Going concern
Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable
future.
Responsibilities
MANAGEMENT
 Assess entity's ability to continue as a going concern and present the financial
statements accordingly
 The assessment should cover at least 12 months from the reporting date.
 Disclose any material uncertainty to going concern appropriately
AUDITOR
Auditor should evaluate
 The process management followed to make its assessment
 The assumptions on which management's assessment is based
 Management's plans for future action and whether these are feasible in the circumstances
 remain alert throughout the audit for evidence of events or conditions that may cast
significant doubt on the entity's ability to continue as a going concern
check whether any material uncertainty has been appropriately disclosed by

management or not
Indicators of going concern Problems

Financial Indicators
 Net liability or net current liability position
 Inability to pay creditors on due dates
 Inability to comply with terms of loan agreements
 Inability to obtain financing for essential new product development or other essential investments
 Fixed-term borrowings approaching maturity without realistic prospects of renewal or
repayment
 Indications of withdrawal of financial support by creditors
 Negative operating cash flows
 Adverse key financial ratios
 Substantial operating losses
 Arrears or discontinuance of dividends
Operational indicator
 Loss of key management without replacement
 Loss of a major market, key customers, licence, or principal suppliers
 Shortages of important supplies
 Emergence of a highly successful competitor
Other Indicators
 Non-compliance with laws
 Litigation
 Changes in laws/regulations/government policy expected to adversely affect the entity
 Uninsured or underinsured

Audit procedures applied in performing going concern reviews

 Analyse and discuss cash flow, profit and other relevant forecasts with management
 Analyse and discuss the entity's latest available interim financial statements (or management
accounts)
 Review the terms of debentures and loan agreements and determine whether they have been
breached
 Read minutes of the meetings of shareholders, the board of directors and important committees
for reference to financing difficulties
 Inquire of the entity's lawyer regarding litigation and claims
 Confirm the existence, legality and enforceability of arrangements to provide or maintain financial
support with related and third parties
 Assess the financial ability of such parties to provide additional funds
 Consider the entity's position concerning unfulfilled customer orders
 Review events after the period-end for items affecting the entity's ability to continue as a going
concern
 Confirm the existence, terms and adequacy of borrowing facilities
 Obtaining and reviewing reports of regulatory actions
Reporting implications
Going concern assumption Going concern assumption Inadequate assessment by

inappropriate appropriate, but a material management
uncertainty exists
FS prepared on FS on Properly disclosed Not properly Unable to obtain audit evidence
going concern Liquidation by management disclosed by
basis basis management
Adverse opinion Unmodified MURGC Qualified or Qualified / disclaimer of opinion
opinion with paragraph will be adverse opinion
EOMP added to Audit
report to highlight
this matter

KAM
Audit Report Those matters that, in the auditor’s professional
judgment, were of most significance in the audit of
 Title
 Addressee the financial statements of the current period. Key
 Opinion audit matters are selected from matters
 Basis of opinion communicated with those charged with
 MU relating to going concern governance.’
 KAM (only for Listed Co Report)
 Other information EOM
 Responsibilities – Management
Used to emphasize/ highlight the Matters of
 Responsibilities – Auditor
 Date, address and signature fundamental importance for users understanding,
correctly disclosed by management
OM
 Used to enhance the understanding of FS

users regarding auditor’s responsibilities
Pervasiveness
A matter will be pervasive when its effect
 Will not be confined to one item of FS and is spread across multiple items of FS (Non
consolidation of subsidiary, FS prepared on inappropriate basis) or
 Is confined to one item of FS and that item is substantial Part of FS ( correction of the item may
turn profit into loss, more than 70% of the assets / revenues for the year )
 Is related to some fundamental disclosures in FS
Modified Audit Report
With Unmodified opinion With modified opinion
Emphasis of Matter paragraph Material but not Material and

pervasive pervasive
Misstatement in FS Qualified / Except Adverse opinion

for
Other Matter Paragraph Auditor is unable to Qualified / Except Disclaimer of

obtain evidence for opinion

REVIEW & REPORT PRACTICE QUESTIONS
MJ 19 Sep/dec2018 Mar/june 2018 Sep/dec 2017 Mar/june 2017
Question 18(d) Q18 part (d) Q18 part (d) Q18 part (d) Q17 part (e)
number
Question page 12 36 50 62 72
Answer page 21 45 57 69 78
ACCA Codes of Ethics

 Integrity ( honest & straightforward )
 Objectivity ( being unbiased, independent, avoid conflict of interest)
 Professional competence & due care (Maintain competence CPD . work as per all professional
standards)
 Confidentiality ( must keep client’s information confidential )
 Professional Behaviour (compliance with laws & avoiding actions which discredit the profession)
Ethical Threats Safeguards in General with specific guidance
 Self-Review Threat ( where

auditor has to review and  Different team + independent partner review
report on the credibility of  Rotation of the person from audit team
his own work previously  Discuss with TCWG/Audit Committee
performed)  Politely decline the audit services
 Familiarity Threat ( where
auditor loses professional
skepticism)
 Advocacy Threat ( where
auditor is promoting the
position of client in fromt of
third parties)
 Intimidation Threat ( where
auditor is pressurized by
client )
Vary
 Self Interest Threat (where
 Prohibited
personal benefits of Auditor)
 Sell off / or change the person
 Delay the start of next audit till recovery is made

Provision of Non Audit services with audit services Self review threat
Auditor Shouldn’t assume management responsibilities
Listed Clients Other clients
 if impact is material on FS: Prohibited Allowed with safeguards

 Immaterial : allowed with safeguards
How to solve the Scenario??
1. Identify & explain the threat

2. Explain how it will impair the objectivity of auditor
3. Apply safeguards as per the scenario
Practice Questions on ethics

SEP/DEC17 (Q 16) Page 60 (answer page 64)
MJ 17 (Q 16) Page 71 (answer page 77)
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AUDIT & ASSURANCE (F8)

Crash Course Notes Dec 2020

HAMZAH SIDDIQUE FCCA

Link2hamzah@gmail.com WhatsApp: +923336644771 1

• Internal controls & TOC • Substantive Tests • Audit Risk

Audit Risk 16 Marks 16 Marks 16 Marks 16 Marks 16 Marks

Internal control & 16 Marks 16 Marks 18 Marks 16 Marks 20 Marks

Substantive Tests 20 Marks 18 Marks 18 Marks 23 Marks 20 Marks

Audit review & 5 Marks 8 Marks 6 Marks 5 marks 5 mark

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Common Reasons for Failures in AA

Risk of Material Misstatement in FS Detection Risk

Inherent Risk Control Risk Auditor may be unable to

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General /overall/FS level Response Specific Response/assertion level

 Emphasizing professional scepticism As per the Risk …. Test of controls or/and

How to solve Audit Risk Scenario?

 Audit risks to be identified ( 0.5 marks each)

 explained (0.5 marks each) and

 an auditor’s response to each risk (1 mark each)

To explain audit risk, candidates need to Audit Response

 Audit Response must address the Audit

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Audit RISK RESPONSE

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MJ 2019 SD 2018 MJ 2018 SD 2017 MJ 2017

Internal controls of the client and Auditor

Test of Controls: Ways/methods used by auditor to test th`\

effectiveness of the internal control system

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• Inspection of documents (checking the signatures / sequential numbering)

 Purchase requisition is generated

Purchase requisition is generated (by stores department)

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Control Objectives Controls Test of controls

 Appropriate record of  Purchase requisitions Review a sample of purchase

Purchase order is placed (By purchase department)

Appropriate record of Purchase orders must be Review a sample of

Goods requested are Purchase Order must be Review a sample of copies of

Purchase order should be Purchase orders must be review a sample of purchase

Goods are received (at store)

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Purchase Order at stores and relevant copy of Purchase

Appropriate record of goods For the goods received at

For a sample of vouchers

a) Identify and explain deficiencies in the system / controls

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b) Give recommendation to remove that deficiency

Deficiency Recommendation Test of Controls

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Financial Statement Assertions are representations by management explicit or otherwise,

Assertions related to Valuation and allocation

Rights and obligation

Presentation and disclosures

Assertions related to Accuracy

 Write three substantive procedures on Receivables ( 3 marks)

1 mark per procedure

 Understanding / knowledge /concepts

Substantive Test = Action + Source + Purpose (sufficient detailed)