Paper AA (F8) – AUDIT & ASSURANCE

OTQs (Objective Test Questions) CRQs (constructive Response Questions)

This involves having a scenario/case and This involves a case study and different
MCQS are asked which are related to requirements being tested related to case,
that specific case. also includes some knowledge based
questions

Paper Pattern

SECTION A (OTQs)
3 OTQs (per OTQ = 5 mcqs worth 2 marks each) = 30

SECTION B (CRQs)
1 CRQ worth = 30
2 CRQS (worth 20 marks each) = 40
TOTAL = 100

Basic Introduction 1 By:- Haris Hanif

Some Basic overview
 Auditor is external to the company (external firm)

 Audit is of Financial statements

 There may be misstatements in the financial statements, which is prepared by the

company.

o Misstatements:- Difference between Accounting standard and Accounting adopted by the

company.
Over state or under state

 External audit is for the satisfaction of shareholders

 It is the legal requirement for PLC to conduct external audit

 Auditor is appointed by shareholders in the AGM

 Auditor test/check the Financial statements and then thereafter express the OPINION
(no Guarantee)

 Auditor tests the F.S. on sample basis

 Auditor tests the material items

 The auditor is NOT responsible to detect the fraud, he is there to check the application
of accounting standards

 Auditor should think that there may be:-

- Errors
- Fraud
- Everything is genuine

 Auditor prepare the audit report and express the opinion whether the FS is true and fair
or not

Basic Introduction 2 By:- Haris Hanif

  Auditor has to perform the audit based on the systematic approach

 The auditor has to do some work (actions) known as

AUDIT PROCEDURES

Basic Introduction 3 By:- Haris Hanif

Note: - Controls have impact on the Financial Statements

Basic Introduction 4 By:- Haris Hanif

Expectation Gap:-
It is the gap of the PUBLIC opinion about audit and what AUDIT actually is.

 Some people may think that auditor tests 100%, but in the real, auditor works on
sample basis

 People may think that auditor verifies all the items in the F.S. but in real, auditor tests
the material item

 People usually think that auditor is giving the guarantee after the audit, but it instead
auditor gives the Opinion.

 People may think that auditor is responsible for the detection of fraud, but in real, he is
not responsible to detect the fraud, he should ensure financial statements are free from
material misstatements whether due to error or fraud.

AGENCY

Principal appoint agent means

Shareholders appoint B.O.D or Auditor

STEWARDSHIP Stewards means caretaker

B.O.D have to pay Fiduciary duty to shareholders.

Fiduciary means duty to maintain trust.

ACCOUNTABILITY

Auditor and BOD are accountable to the shareholders.

Basic Introduction 5 By:- Haris Hanif

Audit Cycle (systematic approach)
Auditor’s Audit Engagement
Appointment/Reappointment Letter (A.E.L.)

Planning stage of
the Audit

Performing the
Audit

Review Stage

Opinion on F.S.

Basic Introduction 6 By:- Haris Hanif

Opinion of the AUDITOR

Basic Introduction 7 By:- Haris Hanif