AAA Exam Requirement

AAA – EXAM FOCUS
Understanding the requirements of exam questions
RASHID HUSSAIN
info@marfatacca.com
Email: marfatonline@yahoo.com | Whatsapp: +923009433841 | Skype: MARFAT Online
Planning – Risk Assessment

Requirement
Evaluate the audit risks to be considered in planning the audit of the ABC
Write in the following pattern:
• Case-study Line
• Accounting treatment
• Risk
• Affect
Exam Focus:
Always relate the audit risk/FS risk/Risk of MM with accounting treatment or FS otherwise you will
end up writing the business risk. Further make headings for each of the risk identified.
Example
When customers book to stay in the hotel, they are charged a deposit equivalent to 20% of the total
cost of their stay, and a further 20% is payable eight weeks before arrival. The remaining 60% is
settled on departure. If a booking is cancelled prior to a week before a guest’s stay commences, then
a full refund is given, but no refunds are given for cancellations within the week leading up to a
guest’s stay.
Solution
The group receives 40% of revenue is advance. According to IFRS 15 revenue should be recognized
when the performance obligation is satisfied. There is a risk that revenue may be immediately
recorded when received resulting in the overstatement of revenue.
Further this 40% should be recognized as deferred revenue in the current liability. There is a risk that
it may not be recorded resulting in the understatement of liabilities.
Requirement sometimes along with the audit risk
Your evaluation should utilise analytical procedures for identifying relevant audit risks.
Solution
Here you should look for relevant trends (Increase/Decrease) and ratios calculation such as
Profitability and liquidity ratios. Further you should use these in your answer of audit risk as well as a
separate risk where applicable.
Requirement sometimes along with the audit risk
Recommend the additional information which would be relevant in the evaluation of audit risk.
Exam Focus
This is just like the audit procedure to look into the matter for better evaluation. In simple words
these are used when question gives some information regarding acquisitions, revaluations, listings,
entering into lease agreements etc. Additional information is then all about getting these things
reviewed for better understanding. Such as:
• A copy of licence should be reviewed to identify the terms of the licence and the appropriate
amortisation period to be used.
• Details of the stock exchange listing during the year including the terms of the flotation, number
of equity shares issued and amount of equity capital raised.
PREPARED BY: RASHID HUSSAIN 1

• Details on the valuation of properties including the date of the revaluation and information on
the valuer such as their professional qualification and relationship with the company and a copy
of the valuation report.
Marking Scheme
Up to 3 marks for each ROMM evaluated. Allow 1 mark per audit risk for relevant materiality
calculations, to a maximum of 4 marks. In addition, ½ mark for relevant trends which form part of the
audit risk evaluation (max 3 marks).
Requirement
Evaluate Business Risks
Exam Focus:
Never relate business risk with the accounting treatment. Always relate that with the possible impacts
of the risk on the business. Simply think like a business man.
Example
It is common in the industry for patents to be acquired for new drugs and patent rights are rigorously
defended, sometimes resulting in legal action against potential infringement.
Solution
Patent infringements
In developing new products and improving existing products, Co must be careful not to breach any
competitor’s existing patent. In the event of this occurring, significant legal costs could be incurred in
defending the company’s legal position.
Time and effort must be spent monitoring product developments to ensure legal compliance with
existing patents. Similarly, while patents serve to protect Co’s products, if a competitor were found to
be in breach of one of the company’s patents, costs of bringing legal action against that company
could be substantial.
Marking Scheme
Up to 2 marks for each Business risk identified and explained. In addition, allow ½ mark for relevant
trends which form part of the business risk evaluation, e.g. % increase in revenue and profit before
tax.
Audit Procedures
Requirement
Recommend the principal audit procedures to be performed on:
Exam Focus:
• Write the relevant procedure
• Write complete procedure which gives the full meaning that what you intend to check or verify
• One procedure for one mark
The simplest way to write procedure is to use AEIOU. The other way is to check three things. Source
document (which gives initial evidence such as lease agreement for Lease contracts), Accounting
treatment (Checking in the SPL, SFP and Notes) & Corroborative or other records (Such as board
minutes, bank statements etc.)
Example – Acquired Brand
• Obtain the purchase agreement and confirm the rights in respect of the brand.

• Recalculate the CV of the brand and agree to the figure presented in the SFP to confirm
valuation.
• Recalculate the amortisation expense for the year and agree the charge to the financial
statements, and confirm adequacy of disclosure in the notes to the financial statements.
• Agree the cost to the company’s cash book and bank statement.
• Review board minutes for evidence of discussion of the purchase of the acquired brand, and for
its approval.
Marking Scheme
Up to 1 mark for each well described procedure
Matters – Completion & Review

Requirement
Comment on the matters to be considered, and explain the audit evidence you should expect to find
during your file review in respect of each of the issues described above.
Exam Focus:
Comment on the matters to be considered:
• Materiality
• Accounting treatment
• Risk and Affect
Evidence you expect to find:
This is just like the Principle audit procedure with the little change in the wordings. The evidence has
already been gathered and is in the audit file. Therefore, you should not write Obtain, Inspect,
Recalculate etc. Instead you should write “a copy of, inspection of, recalculation of, review of”.
If the examiner requires the evidence you should consider then it is same as normal audit procedure.
Example
Assets held for sale
Snipe Co owns a number of properties which have been classified as assets held for sale in the
statement of financial position. The notes to the financial statements state that the properties are all
due to be sold within one year. On classification as held for sale, in October 20X1, the properties were
re‐measured from carrying value of $26 million to fair value less cost to sell of $24 million, which is
the amount recognised in the statement of financial position at the year end.
Solution
Matters to consider
The properties classified as assets held for sale are material to the financial statements as the year‐
end carrying value of $24 million represent 13.7% of total assets.
Assets can only be classified as held for sale if the conditions referred to in IFRS 5 Non‐current Assets
Held for Sale and Discontinued Operations are met. The conditions include the following:
• Sale is highly probable
• Asset is available for immediate sale
• An active programme to locate a buyer is initiated
• Asset is expected to be sold within 12 months
There is a risk that the assets have been inappropriately classified if the above conditions have not
been met.

The assets should not be depreciated after being classified as held for sale. There is a risk that
incorrect depreciation may be charged.
Evidence
• A copy of the board minute at which the disposal of the properties was agreed by management.
• Details of the active programme in place to locate a buyer, for example, instructions given to
real estate agency, marketing literature.
• A copy of any minutes of meetings held with prospective purchasers of any of the properties, or
copies of correspondence with them.
• Written representation from management on the opinion that the assets will be sold within 12
months.
• Subsequent events review, including a review of post year‐end board minutes and a review of
significant cash transactions, to confirm if any properties are sold in the period after the year‐
end.
• Details of any impairment review conducted by management on the properties.
• A copy of the client’s depreciation calculations, to confirm that depreciation was charged up to
classification date but not subsequently.
Marking Scheme
Generally 1 mark for each matter/evidence point explained
Requirement
• Comment on the sufficiency and appropriateness of the audit evidence obtained
• Recommend further audit procedures to be performed by the audit team
Exam focus:
The general principle of audit evidence is, it should be sufficient (in terms of quantity) & appropriate
(relevance & reliable). In this requirement you are required to comment on the evidence obtained by
audit team whether it is sufficient, reliable and relevant or it needs further testing.
Further procedures are simply writing the procedures which they have not performed.
Report
Requirement
• Explain the matters which should be discussed with management in relation to each of the
uncorrected misstatements, including an assessment of their individual impact on the financial
statements; and
• Assuming that management does not adjust any of the misstatements, discuss the effect on the
audit opinion and auditor’s report.
Exam focus:
First of all, writing the guideline of the standard regarding discussion with management.
ISA 450 requires that the auditor obtains an understanding of management’s reasons for not making
recommended adjustments to the financial statements and that they take this into account when
evaluating whether the financial statements as a whole are free from material misstatement.
ISA 450 also requires that the auditor communicates with those charged with governance about
uncorrected misstatements and the effect that they, individually or in aggregate, may have on the
opinion in the auditor’s report. Each of the matters included in the summary of uncorrected

misstatements will be discussed below and the impact on the auditor’s report considered individually
and in aggregate.
Secondly writing the accounting treatment of issues mentioned in the case. What should have been
done according to the standard, what is done by management and the proposed adjustments.
Thirdly writing that if management refuse to amend then this will lead to a material misstatement of
FS.
Lastly “Impact on the audit opinion and auditor’s report” is all about writing the individual as well as
aggregate impact on the auditor’s opinion. The matters should be clearly identified as material or
pervasive (in most cases it is material, pervasiveness is a higher degree which affects FS as a whole)
and accordingly opinion should be given.
E.g.
Therefore, a qualified opinion should be expressed, with the auditor stating in the opinion that the
financial statements show a true and fair view ‘except for’ the effects of the matters described in the
basis for qualified opinion paragraph.
The basis for qualified opinion paragraph should include a description of the matter giving rise to the
qualification, including quantification of the financial effects of the misstatement.
There will be no impact on the auditor’s report for matters which are clearly immaterial.
(Note: Immaterial matters in the question should be clubbed to see whether they are material in
aggregation and accordingly report should be given).
Requirement
Critically appraise the proposed auditor’s report.
Exam Focus:
• The draft report will not be according to the standard. You should look for the following things:
• Title of Headings
• Placement of headings
• Whether correct opinion is given
• Non-professional wordings
• Any unusual claims
• Any ambiguities
Once issues are identified you should write that one by one.
For example, if opinion para is placed after basis para then you should write that the standard
requires the opinion para to be placed before basis para. This is not in compliance with the relevant
auditing standard. (Mentioning/Omitting standard number does not give any marks)
Ethics & Quality Control

Requirement
Explain the quality control and other professional issues raised, discussing any implications for the
completion of the audit.
Exam Focus:

• Quality issues are related to the quality of the audit and evidence obtained by the audit team.
You are required to comment on the reasons why the audit team is unable to gather quality
evidence such as any limitations by management, intimidations, hurdles, possible frauds etc.
Further you should write what auditing standards states regarding the particular situation.
• These quality issues may lead towards the professional issues such as incorrect opinion.
• Implications is about the difficulties the auditor is having to complete the audit due to these
issues and what actions should be taken such as discussion with TCWG, writing to the
engagement partner etc.
Requirement
Comment on the quality of the audit performed discussing the quality control, ethical and other
professional issues raised.
Exam Focus:
Ethical matters are related to the ethical threats. You are required to identify the threat and explain it
according to ACCA code of ethics. Further write safeguards.
Quality matters are already described above and are related to the quality of the audit and evidence
obtained. Such as using junior/untrained staff, not spending appropriate time on the audit client,
incorrect sample level, inappropriate materiality levels, lack of professional skepticism etc.
Professional issues are the business issues for the firm. E.g. loss of client, loss of revenue, loss of key
staff, litigations, loss of reputation etc.
Example
The planning for the audit of Renoir Co's financial statements for the year ending 31 March 20X6 will
commence shortly. In preparation the audit partner telephoned Renoir Co's finance director, Jim
Cassatt, to set up a planning meeting and to remind him that fees relating to a tax engagement from
the previous year were still outstanding. Mr Cassatt raised concerns about the conduct of the
previous audit, stating numerous examples of when he and his staff had been interrupted when they
were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less
intrusive and cheaper, otherwise he will seek an alternative auditor.
Solution
Ethical Threats
• Intimidation threat as Mr. Cassat is trying to undue influence the conduct of audit
• The overdue fee creates the self-interest and intimidation threat
Safeguards
• Discussing the matter with client’s audit committee
• Independent review should be conducted
• Using senior staff so that they are not intimidated and influenced easily
• Considering resignation at the last resort
Quality Issues
• Reducing the audit testing due to fee may affect the audit quality
Safeguards
• Proper planning to reduce unnecessary work

• Providing the list of documents required during the audit to the client so that audit can be
managed timely and efficiently
• Setting up the time in advance to meet the relevant staff so that they do not feel interrupted
Professional Issues
• May loose the client and fee if these things are not properly managed
Other Assignments
Due Diligence (Analysis of target co for acquirer)
Requirements
Explain the potential benefits of having an externally provided due diligence review.
• Writing the benefits to acquirer for having a due diligence review
Recommend additional information which should be made available for your firm’s due diligence
review, and explain the need for the information.
• Writing information from the case study and relevant to the case
(Up to 1 mark for each piece of information recommended and adequately explained)
e.g. Org structure, Employment Contracts, Purchase documents, Recent Management accounts,
loan agreements etc.
• Recommend the investigation procedures to be performed.
Again, the procedures for review engagements are AP’s & Enquiries. Procedures should be related to
the case study. Avoid writing the crammed procedures.
(Up to 1 mark for procedures adequately explained)
Prospective Financial Information
Exam Requirements
Explain the matters to be considered by ABC Co before accepting the engagement to
review and report on XYZ Co’s prospective financial information
Exam Approach
Here you are required to write (with explanation) the Pre-Conditions related to the
acceptance of PFI engagement.
Example:
• The intended use of the information
• The period covered by the PFI
• The scope of Work etc.
Up to 1 mark for each matter explained
Recommend the procedures that should be performed in order to examine and report on the
forecast financial statements.
Exam Approach:
• Mainly using AP’s and Enquiries as part of the review engagement. There are some general
procedures which can be used in all PFI engagements such as:
o Cast the cash flow forecast to confirm its mathematical accuracy.
o Confirm the consistency of the accounting policies used in the preparation of the
forecast financial statements with those used in the last audited financial statements.

o Discuss the key assumptions underlying the preparation of the forecast with
management
o Analytically review the forecast trends in cash flows comparing with them with
historical cash flow statements and other forecast data which is available for the
sector and local economy and investigate any significant differences
o Recalculate the patterns of cash flows based on management’s historical analysis of
credit sales to confirm that the forecast has been properly prepared on the basis of
these assumptions
o Perform sensitivity analyses on the cash flow forecast by varying the key assumptions
(in particular, in relation to growth rates and payment periods) and assessing the
impact of these variations on the company’s forecast cash position
• Other procedures will be specific to the case study where you are required to link the
procedures with amounts/figures in the case.
Generally 1 mark for each specific procedure described

AAA Exam Requirement

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AAA – EXAM FOCUS

Understanding the requirements of exam questions

Planning – Risk Assessment

PREPARED BY: RASHID HUSSAIN 1

PREPARED BY: RASHID HUSSAIN 2

Matters – Completion & Review

PREPARED BY: RASHID HUSSAIN 3

PREPARED BY: RASHID HUSSAIN 4

Ethics & Quality Control

PREPARED BY: RASHID HUSSAIN 5

PREPARED BY: RASHID HUSSAIN 6

PREPARED BY: RASHID HUSSAIN 7

PREPARED BY: RASHID HUSSAIN 8

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