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12
EDITION
AUDITING
ALAN
MILLICHAMP
JOHN
TAYLOR
Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States
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Auditing, 12th Edition © 2022, Cengage Learning EMEA
Alan Millichamp & John Taylor WCN: 02-300
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British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
ISBN: 978-1-4737-7899-3
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Printed in the United Kingdom by Ashford Colour Press Ltd

Print Number: 01 Print Year: 2021
John R. Taylor
MSc, FCA
John Taylor has taught accounting and auditing at Leeds Beckett University and before this was a professional
auditor for many years. He is the author of various successful auditing, accounting and finance books and
currently works as a freelance writer and lecturer in auditing, accounting and management.
The late A. H. Millichamp

BA, MSocSc, FCA, FCCA, ATII
Alan Millichamp taught at the Universities of Wolverhampton and Birmingham, at the Open U niversity
Business School and in the private sector. He was a former examiner and assessor in auditing to the
Association of Chartered Certified Accountants and was also a member of the examining panel of the ACCA.
BRIEF CONTENTS
Preface – Aims of the Book xi

Acknowledgementsxvii
1 Introduction to Auditing – the Why of Auditing 1

2 Corporate Governance 22
3 The Statutory Framework for Auditing 35
4 Accounting Requirements of the Companies Act 2006 52
5 Auditing and Accounting Standards and Guidelines 64
6 Ethical Standards and Rules of Professional Conduct 71
7 Quality Control in Audit Firms 91
8 Accepting Appointment as Auditors 100
9 Accounting Systems and Internal Controls 108
10 Audit Planning, Audit Risk and Materiality 129
11 Audit Evidence and Using the Work of an Expert 163
12 Audit Testing, Sampling and Analytical Review Procedures 178
13 Systems-Based Auditing 203
14 Risk-Based Auditing 224
15 The Audit of Assets 243
16 The Audit of Liabilities 273
17 Auditing and Computers 286
18 Audit Working Papers 302
19 Internal Audit 319
20 Errors, Fraud and Unlawful Acts 327
iv
BRIEF CONTENTS v
21 Related Parties 347

22 Use of Service Organizations 357
23 Subsequent Events and Going Concern 364
24 Management Representations 380
25 The Final Review Stage of the Audit 388
26 Auditor’s Reports to Shareholders 401
27 Auditor’s Reports to Directors and Management 432
28 Group Accounts 448
29 Auditor’s Liability 464
30 Review Engagements and Non-Audit Assurance Assignments 480
31 Public Sector Audit and Value for Money Auditing 509
32 Performance Evaluation, Environmental Reporting
and Corporate Social Responsibility Reporting Assignments 531
33 Current Issues 545
Appendix 1 557
Appendix 2 565
Appendix 3 566
Glossary 569
Index 581
CONTENTS
About the Authors iii Companies Act 2006 30

Preface – Aims of the Book xi Audit Committees 30
Sarbanes–Oxley (2002) 31
Acknowledgementsxvii
1 Introduction to Auditing – 3 The Statutory Framework

the Why of Auditing 1 for Auditing 35
Introduction 2 Introduction 36
Agency Theory 2 The Companies Act 2006 36
Why Is There a Need for an Audit? 4 Requirement to Have Auditors 36
The Audit Process 8 Who Can Be an Auditor? 37
International Pressures and Globalization 8 The Rights and Duties of an Auditor Under
Objectives of Auditing 10 the Companies Act 2006 38
Directors’ Responsibilities 10 Appointment of Auditors 38
Auditor Responsibilities 11 Remuneration of Auditors 39
Types of Assignment 12 The Removal of an Auditor 40
Advantages and Disadvantages of Resignation of Auditors 40
an Audit 13 Auditor’s Duties 41
Auditing Theory, Postulates and Concepts 13 Auditor’s Rights 42
The Expectation Gap 17 The Auditor’s Report 43
Auditor’s Rights to Attend Meetings 45
Powers of an Auditor 45
2 Corporate Governance 22 Recognized Supervisory Bodies 46
Introduction 23 Recognized Qualifying Bodies 46
What is Corporate Governance? 23 Professional Body Rules 47
Principles of Corporate Governance 23
‘Comply or Explain’ – Framework Versus 4 Accounting Requirements
Legislative Approaches 24
UK Corporate Governance Code 25
of the Companies Act 2006 52
Private and Unlisted Companies 27 Introduction 53

The Wates Principles 28 Accounting and Accounting Records 53
Value of Good Corporate Governance 28 Statutory Books 55
Substance over form 29 Accounting Requirements 55
vi
CONTENTS vii
Accounting Principles 57 8 Accepting Appointment

Content – Disclosure Requirements 58
as Auditors 100
True and Fair Override 58
Introduction 101
Procedure on Completion of the
Client Screening 101
Financial Statements 58
Other Considerations 101
Period Allowed for Filing Accounts 59
Preconditions for an Audit 102
Abridged or Filleted Accounts 59
Professional Etiquette 102
Publication of Accounts 60
Letters of Engagement 103
Dormant Companies 61
5 Auditing and Accounting 9 Accounting Systems

Standards and Guidelines 64
and Internal Controls 108
Introduction 109
Introduction 65
Internal Control 109
Role of the Financial Reporting
Limitations of Internal Controls 112
Council (‘FRC’) 66
Internal Control Systems 113
International Standards on Auditing
Control Procedures 115
(‘ISAs’) 66
Control Activities in Specific Areas
Practice Notes 67
of a Business 117
Accounting Standards 67
The Relevance of Accounting Standards
to Auditing 68 10 Audit Planning, Audit Risk
and Materiality 129
6 Ethical Standards and Rules Introduction 130
of Professional Conduct 71 Objectives 130
Meeting Audit Objectives 130
Introduction 72
Required Procedures 131
Principles-Based or Rules-Based
Influences on an Audit 132
Approach? 73
Planning the Audit 140
Fundamental Ethical Principles 74
Internal Control System Review 143
Ethics – General Rules 76
Audit Strategies 149
General Ethical Threats 77
Planning the Audit Work 152
Threats to Independence 78
Analytical Review Procedures 155
Provision of Non-Audit Services 80
The Timing of Audit Work 156
Commissions and Fees 82
Conflicts of Interest 82
Advertising and Publicity 84
11 Audit Evidence and Using
Ethics and Quality Issues 84 the Work of an Expert 163
Ethical Standards – Smaller Companies 85 Introduction 164
Insider Dealing 85 Professional Scepticism 164
Money Laundering 86 Assertions 166
Whistleblowing 87 Reliability of Audit Evidence 168
Basic Techniques for Collecting
7 Quality Control in Audit Firms 91 Evidence 169
Using the Work of an Auditor’s Expert 171
Introduction 92
Audit Firm Organization 92
Planning, Controlling and Recording Individual
12 Audit Testing, Sampling and
Audits 94 Analytical Review Procedures 178
Reviews of Audit Firms’ Procedures in Introduction 179
General and of Particular Audits 95 Relationship to Audit Risk and Materiality 179
viii CONTENTS
Forms of Audit Testing 179 Finance Lease Liabilities 276

Audit Sampling 183 Bank Overdrafts and Short-Term Loans 277
Sampling Approaches 187 Amounts Due to Group and Related
Sampling Methods 189 Companies 278
Analytical Review Procedures 193 Long-Term Liabilities 278
Share Capital and Reserves 278
13 Systems-Based Auditing 203 Unrecorded Liabilities 278
Introduction 204 Contingent Liabilities 280
Testing System Components 204 Auditing Accounting Estimates 281
The Purchases and Expenses System 205

17 Auditing and Computers 286
The Revenues (Sales) System 208
The Payroll System 213 Introduction 287
Significant Deficiencies 216 Auditors and Management Information

The Audit of Small Entities 217
Systems 287
Audit Risk and IT Systems 289
The Control Environment 290
14 Risk-Based Auditing 224
The Audit Approach to Computerized
Introduction 225 Systems 295
External Risks 226
Internal Risks 229 18 Audit Working Papers 302
The Client’s Approach to Risk 231
Introduction 303
Evaluating the Organization’s Purposes 304
Risk Assessment Process 234 Evidence of Work Carried Out 305
Why Use a Business Risk Approach Nature and Content of Working Papers 306
to Auditing? 235 Departure from Basic Principles 306
Understanding the Business Content of Working Papers 306
Risk Approach 236 Sample Working Papers 307
The Implications of the Business Risk Professional Judgement 309
Approach for the Audit 237 The Audit Programme 310
Standardization of Working Papers 313
15 The Audit of Asse ts 243 Finalization 313
Introduction 244 Smaller Audits 313
Aspects to be Verified 245 Ownership of Books and Papers 313
Verification of Non-Current Assets 245 Accountant’s Lien 314
Current Assets 251 Retention of Working Papers 314
Inventory and Work in Progress 252
Cut-off 256 19 Internal Audit 319
Receivables 260 Introduction 320
Accounting Estimates 264 Role of Internal Audit 320
Bank Balances 265 Differences Between Internal
Loans 266 and External Audit 321
Cash 267 Public Sector 322
External Auditors and Internal Audit 322
16 The Audit of Liabilities 273 Outsourcing Internal Audit Services 323
Introduction 274
Verification Procedures 274
20 Errors, Fraud and
Trade Payables 274 Unlawful Acts 327
Cut-off 275 Introduction 328
Accruals 275 Errors and Misstatements 328
Provisions 276 Fraud and Other Irregularities 329
CONTENTS ix
Bribery and Corruption 331 24 Management

Responsibility for Prevention and Detection Representations 380
of Fraud and Error 332
Introduction 381
The Audit Approach 333
Contents of a Letter 381
Audit Tests and Fraud 335
Reliance on Letter of Representation 382
Reporting and Disclosure 336
Auditor Responsibilities 383
Small Companies 338
Example of a Management Representation
Unlawful Acts of Clients and Their Staff 338
Letter 383
Audit Issues Arising From
Refusal to Co-operate 385
Non-Compliance 340
25 The Final Review Stage

21 Related Parties 347
of the Audit 388
Introduction 348
Introduction 389
Disclosure 349
Opening Balances and Comparative Figures 389
The Auditor’s Duties to Related Parties 350
The Auditor’s Interest 390
Detailed Audit Procedures 351
Uncorrected Errors or Misstatements 392
Unusual Transactions Outside
Final Accounts Review 393
the Normal Course of Business 352
Procedures 393
Control of the Entity 353
Auditors’ Duties in Respect of Compliance
Smaller Organizations 353
with the UK Corporate Governance Code 394
Modified Audit Reports 354
Directors’ Remuneration Disclosure 396
22 Use of Service 26 Auditor’s Reports

Organizations 357 to Shareholders 401
Why Do Firms Outsource? 358 Report on the Directors’ Responsibilities
Audit Planning Issues 358 for the Financial Statements 402
Accounting Records 360 Auditor’s Responsibilities 403
Audit Evidence 360 Bannerman Wording 403
Reports by Service Organization’s Auditors 361 The Auditor’s Opinion 405
Ethical Threats 361 Going Concern 407
Key Audit Matters 408
23 Subsequent Events Basis of Opinion 409
and Going Concern 364 When is an Unmodified Report Appropriate? 409
Introduction 365 Contents of an Auditor’s Report 410
Subsequent Events 365 Additional Reporting for Listed Companies 415
Adjusting and Non-Adjusting Events 366 Modified Audit Reports 416
Audit Tests for a Subsequent Events Sample Wording of Modified Audit Reports 420
Review 367 Listed Companies – Special Provisions 425
Going Concern 368 Emphasis of Matter Reports 426
Consequences of Going Concern 369 Audit Reporting – Special Circumstances 427
Directors’ Duties 370 Auditor’s Liability in Respect of Audit Reports 427
The Auditor’s Procedures 371
Specific Audit Procedures 372
27 Auditor’s Reports to Directors
If Events Are Identified 374 and Management 432
Effect on Audit Reports 374 Introduction 433
Specific Considerations about Going Communication with Those Charged
Concern and Small Organizations 376 with Governance 433
x CONTENTS
Significant Deficiencies in Internal Control 435 31 Public Sector Audit and

Reporting Where Part of the Audit Is Value for Money Auditing 509
Carried out by Another Firm 435
Introduction 510
Listed Companies and Others Applying the
Supreme Audit Institutions (SAI) 512
UK Code of Corporate Governance 436
Public Sector Auditing – UK 512
Reporting to the Audit Committee of PIEs 436
UK Government Departments 513
The Management Letter 437
Local Public Bodies 515
Response by Management 441
England 515
The Report and Third Parties 441
Scotland 519
Example of a Management Letter 441
Wales 520
Northern Ireland 520
28 Group Accounts 448
Auditing Issues 521
Introduction 449 Internal Audit 522
Audit Considerations 450 Value for Money 525
Planning Issues 451
Component Auditors 452
32 Performance Evaluation,
Communication 453
Auditing Investments in Subsidiaries
Environmental Reporting
and Other Undertakings 454 and Corporate Social
Auditing the Consolidation 455 Responsibility Reporting
Modified Auditor’s Reports 456 Assignments 531
Overseas Subsidiaries 456 Introduction 532
Joint Audits 456 Performance Evaluations 532
Support Letters to Subsidiaries 457 Environmental Reporting 533
Transnational Audits 459 Corporate Social Responsibility Reporting 539
29 Auditor’s Liability 464 33 Current Issues 545

Criminal Law 465 The Future of Regulation 546
Civil Liability Under the Common Law 466 The Future Structure of Audit Firms 546
Duty of Care 467 Dominance of the ‘Big 4’ 547
Liability for Negligence 469 The Role of the Auditor 548
Minimizing Risk to Audit Firms 473 The Future of Audit Reporting 548
Limited Liability Partnerships (LLPs) 474 The Future of Internal Control Reporting 550
Limiting Auditor’s Liability 474 Risk Disclosure 551
The Future 475 Audit Challenges 551
Cryptocurrencies and Blockchains 552
30 Review Engagements New Opportunities, New Problems 553
and Non-Audit Assurance
Assignments 480 Appendix 1 557
Introduction 481 Appendix 2 565
Review Engagements 481
Appendix 3 566
Direct Reporting Engagements 486
Negative Assurance 487 Glossary569
Prospective Financial Information 492 Index581
Forensic Auditing 496
Assurance Engagements 496
Levels of Assurance 501
PREFACE –
AIMS OF THE BOOK
The primary aim of this book is to provide a simplified but thorough approach to the understanding of au-
diting theory and practice. It is intended for those with little or no knowledge of the subject, however, some
knowledge of financial accounting, company law and information technology would be an advantage.
Students who will find this book useful will include those studying auditing as part of an accounting or
business course in a university or HE college as well as students studying for the professional examinations
of the accountancy bodies such as the ACCA or the Institutes of Chartered Accountants.
This book will provide the student with a clear and succinct exposition of the subject and will, hopefully,
be sufficiently interesting to encourage even the least conscientious student to proceed in easily digestible
stages!
STRUCTURE OF THE BOOK

The book has been designed with several uses in mind:
• as a textbook, on its own, for specific examinations
• for use with a lecture
• as a revision text for those who are taking or retaking examinations.
The case studies, student self-testing questions and examination questions are particularly useful for those
taking exams.
At the end of each chapter is found:
• Summary of the chapter.
• Points to note – these are used for emphasis and clarification of points which students often misunderstand.
• Short case studies – the objective of the case studies is to illustrate the material in the chapter. Readers may find
it helpful to ponder on the case study while reading the chapter.
• Questions – these are a mixture of:
❍❍ short questions to test comprehension and learning of the material in the chapter and as an aide-memoire
❍❍ exercises
❍❍ examination standard questions where appropriate.
In addition, the case studies can be seen as questions. Answers to the exam questions are available on the
digital support resources for the book.
xi
xii PREFACE – AIMS OF THE BOOK
DIGITAL SUPPORT RESOURCES

The digital support resources contain:
• additional questions and case studies
• answers to the exam questions and some discussion on the case studies
• mock exam questions and answers
• PowerPoint slides
• downloadable figures and tables from the book.
NOTES TO THE 12TH EDITION

The 12th edition now takes account of:
• the revised International Auditing Standards issued by the Financial Reporting Council and applying to all audits
on or after 15 December 2021. The text also includes up-to-date references to other official pronouncements,
practice notes, bulletins and other practice statements extant at the time of writing
• the relevant Financial Reporting Standards and other accounting standards issued by the Financial Reporting
Council
• public sector auditing
• illustrative real world auditing examples.
In addition, the opportunity has been taken to revise the text, rewrite some chapters completely and intro-
duce new material. The final chapter considers current issues which the audit profession is currently debating
and which are likely to have a significant impact on auditing practice in the future.
The test questions have also been updated and revised.
Words or phrases in bold type have been highlighted because their meaning has been included in the
Glossary at the back of the book.
CHAPTER ORDER
The chapter order follows a logical sequence. The chapters are self-contained and can be read in any order,
although some chapters do take account of what has gone before. If this is the case previous chapters have
been referred to in the text.
HOW TO PASS AUDITING EXAMINATIONS

Some students have difficulty in passing auditing exams, often because auditing exams involve a lot of writing
rather than calculations or amending or preparing financial statements. This can be quite off-putting to some
people. However it needn’t be. Experience shows that some of this is simply due to a lack of preparation, but it can
also be due to a lack of exam technique. We have begun the book with suggestions on how to pass auditing exams.
This has been written from our experience as teachers and examiners in auditing. We hope it will be helpful!
There is no simple formula for success. If there were then everybody would be successful. However, there
are many ways in which you can increase your chances of success.
These include:
• Being well prepared – there is no real substitute for hard work and application. However, reading is not
enough. You must practise exam questions. At the end of each chapter there are student self-testing
questions, exam questions and the case studies. The best way to learn is to write out answers to these in
full. It is only by being faced with having to write things down that you discover the gaps in your knowledge
and understanding. The professional institutes also make available past exam papers and answers which
can be used for additional practice. The ACCA is particularly good at this.
PREFACE – AIMS OF THE BOOK xiii
• Knowing the syllabus and what you should know – guidance on this is obtained by reading the relevant course
content syllabus and any other information available from the examiners. This book is intended to be comprehensive
so there may be aspects of it which will not be included in the syllabus for a particular course. It is as helpful to
know what you do not need to study as it is what you do.
• Exams are now becoming increasingly computer-based – both ICAEW and ACCA exams are computer-based but
other professional bodies are, at the moment, sticking with traditional paper-based assessments. However, the
computer is simply a way of delivering the answer – it does not help with the content so the same principles apply
whether the exam is computerized or paper-based.
• Time – should be used efficiently and profitably. Specific points here are:
❍❍ Answer all the questions that you are asked to answer. Given a choice, never spend time finishing a question
when there is still a question unanswered. The first few marks on a question are always easy but the last few
are always hard to earn. This is as true of short questions as long ones.
❍❍ Give proper weight to each question and part of a question. There is no point in providing a very compre-
hensive answer to part of a question which earns you two marks. Similarly writing two lines on a 20-mark
question is clearly not enough. It is a good idea to consider how much time you can allocate to each task.
For example, in a three-hour, 100-mark exam, you should not spend any more than nine minutes per five
marks so a 25-mark question requires you to think and write for 45 minutes. That will provide you with some
indication of the size and detail of the answers required. Anyone who finishes the examination in under two
hours has probably failed it!
❍❍ One advantage of some computerized exams is that they present you with a clock counting down the remain-
ing time. This can lead to panic, but shouldn’t do if you have been watching how much time you have spent
on each question using the formula set out above.
❍❍ Be ruthless with time. Watch the time on each question. Once you have spent your allotted time – say 45 min-
utes – stop and move on, otherwise you can find you’ve spent 65 minutes on it and have less time for the next
one. When answering practice questions at home, try to answer them in the time allotted. Don’t ramble on!
❍❍ Many examinations are deliberately designed to put candidates under time pressure. This encourages candi-
dates to be succinct and relevant.
• Never omit parts of a question. Even if you do not know the answer, guess and write something – you never know,
it may get you a mark or two!
Reading through the paper

Many students have a moment of panic when they first see the paper. This will pass when you realize how
easy the paper really is! If possible students should read through all the questions briefly first, concentrating
on the requirements of each question. As you do this, note down any thoughts that occur to you as soon as
you can, otherwise, if you find yourself under time pressure, you may spend fruitless time trying to remember
a fact you have now forgotten.
Tackling a question
Here are some general points:
• Plan the answer briefly – this is time well spent once you’ve worked out what the question is asking.
• Answer the question asked – this is a vital point. It is no good answering the question you would have preferred.
Many examiners report that weak candidates simply write down everything they know about a topic rather than
relating what they know to the question being asked. You do not get any marks for irrelevant detail. This means
reading the question carefully and noting exactly what is required. A good way of doing this is to underline significant
words in the question in a paper-based exam or making notes in a computerized one.
• Don’t waffle – questions are not marked by weight, so droning on with irrelevant detail will not get you any marks
even if it fills up the page. Use bullet points and keep it brief but relevant.
• Make points – this is the most important thing of all. Some questions say ‘List four procedures . . .’. Obviously four
points are wanted. Some say ‘State the audit tests that you . . .’. What is wanted in such questions is as many tests
as you can think of. It does not want long descriptions of two tests or a general answer. Relate the requirements of
xiv PREFACE – AIMS OF THE BOOK
the answer to the marking scheme – if the question asks for four key points and the value of that answer is 12 points
it does not take a genius to work out that each point is worth three marks, so requires some detail but not pages.
• Use all the data given in the question – many auditing questions have long scenarios before the requirement. This
information is not just for idle reading. The examiner expects you to use it in your answer. It probably contains lots
of clues to the answer required.
• Auditing examiners expect intelligent answers – try to see the implications in a question. For example, a question
about audit risk may want a general answer and if so that is what it will ask for. Specific points about particular audit
risks in the particular case will be in the scenario and these are what the examiner is looking for, so don’t waffle on
about matters which are not included in the scenario.
• Keep the answers as short and succinct as possible – when you have made a point using one sentence consider
whether you really need more sentences. Write legibly and use short sentences and paragraphs. Tabulating and
listing is usually acceptable, using bullet points, and this helps the marker see what you have said.
• Label each part of your answer – if a question has four parts, a, b, etc., make sure each part is clearly labelled
as such.
• Explain your terms – suppose you are faced with a question like ‘Explain why external auditors seek to rely on
the proper operation of internal controls wherever possible’. First, briefly define ‘external auditor’ and ‘internal
controls’. You may get marks for it, but in any case it will give you clues to how to answer it.
• Apply lateral thinking – in the internal controls example think about what an external auditor is trying to do or the
context in which internal controls are designed or what they are designed to prevent or ensure. Don’t just drone on
about what internal controls are and why they are really, really important – relate it to the work the auditors do and
explain why internal controls are relevant to that work.
How to answer a question

It all depends on the question, but here are some general ideas:
• Read the question.
• Read it again.
• Underline important words in the question if you can or make notes.
• Make sure you know exactly what the examiner requires you to do.
• Note down the points you want to make, add to these points others as you think of them even while writing out
the answer.
• Stop and think for a moment.
• Draft an outline plan of your answer with the key points, if possible.
• Write your answer referring back continually to the requirements of the question. Take plenty of room, use short
sentences and paragraphs. Number your points if you think it appropriate.
Tackling a question – specific ideas

With many questions, you may be faced with making points but not being able to think of many. Here are a
few ideas which may trigger points you can make:
• What Auditing Standards are involved? Is it new material and recent revisions?
• What Accounting Standards are involved?
• What Companies Act accounting or auditing requirements are involved?
• Is business or audit risk relevant?
• Does the question have any relevance for the Letter of Engagement?
• Does the question have any relevance for the Auditor’s Report?
• What assertions about a figure in the financial statements are implied?
• Does the question have any relevance to the idea of misstatements in the financial statements?
• Is materiality worth mentioning?
• Do ethics have any relevance?
• What types of audit tests may be applied?
PREFACE – AIMS OF THE BOOK xv
• What working papers may be needed?

• What errors or frauds could occur?
• Is going concern an issue?
• Is internal audit involved?
Reviewing your answer

Some students like to finish early and then proof read their answer. This is unlikely to add many marks unless:
• you think of new points or
• you realize you haven’t answered the question properly
mainly because you have probably put down everything you know already.
Polishing the grammar, spelling and punctuation is very unlikely to add many marks to your score and can waste
time. If you finish very early either you are extremely able or you have not answered all the questions properly.
Common faults in auditing answers

Here are some common faults:
• Not obeying the questioner’s requirements – if it says set out, list, tabulate, to what extent, examine the truth of,
state, state concisely, what are the principal matters, discuss, comment on, describe, write a short essay, then do
what it says!
• Not reading the question carefully – for example, students on being asked to audit a partnership will refer to com-
pany-based information such as the Memorandum and Articles.
• Not making enough points – this is very hard to overcome, but one good technique is to try to break the question
down into sections and list specific points relevant to each part of the question.
• Not being specific – an audit test stating ‘check sample transactions in the cash book’ will not often do; ‘check a
sample of the entries in the cash book with available supporting documents such as . . .’ might do.
• Being irrelevant – tied up with not obeying instructions and not reading the question carefully.
• Lack of planning, coherence and logic – planning an answer should cure this.
• Lack of balance – if the examiner asks for five points they do not want four pages on point one and one line each
on the others.
• Handwriting, grammar, spelling, punctuation – do not waste your time and opportunities by presenting your work
badly or with avoidable errors, even in the case of computerized assessments.
• Confusing the role of auditor with that of accountant, tax consultant, etc. – if asked what the auditor should do
in certain circumstances, never say, for example, ‘Alter the accounts’ because producing accounts is not the
auditor’s function. Neither should you advise an action which would save your client tax; you must say what you
would do as auditor.
Layout and wording of answer

• Use the wording of the question wherever you can.
• Answer the question in the sequence requested.
• Obey instructions on layout, e.g. tabulate.
• State any assumptions you make in answering the question; however, do not make assumptions which change
the question to suit your knowledge.
End of exam procedure

• Have a very quick look at each answer, checking for repetitions, irrelevancies, grammatical errors and badly formed
letters. Add any new points if you can think of them.
xvi PREFACE – AIMS OF THE BOOK
Conclusion
Good technique plays a large part in examination success; this is a fact. Refuse to be panicked, keep your
head, and with reasonable preparation you should make it.
Finally – remember – you don’t have to score 100 per cent to pass.
USEFUL ABBREVIATIONS
Auditors, like most professionals, use a lot of abbreviations as a kind of shorthand. Here is a list of the
most common abbreviations – there are others but these are the ones you may come across most frequently.
We refer to these in the text and explain them fully and, for quick reference, further details of many of them
are contained in the Glossary at the end of the book.
ACCA – Association of Chartered Certified Accountants
AGM – Annual General Meeting
CA 2006 – Companies Act 2006
FCA – Financial Conduct Authority
FRC – Financial Reporting Council
GAAP – Generally Accepted Accounting Practice
HMRC – HM Revenue & Customs
IAASB – International Auditing and Assurance Standards Board
IAS – International Accounting Standard
ISA – International Standard on Auditing
ICAEW – Institute of Chartered Accountants in England & Wales
IFAC – International Federation of Accountants
ISA – International Standard on Auditing
NED – Non-executive director
PIE – Public Interest Entity
LIST OF USEFUL WEBSITES

Details of sources and additional reading are set out at the end of each chapter. However, there are some
websites which contain lots of useful information and technical updates. Here is a list of the most useful and
ones which can be referred to for technical updates and research:
www.accaglobal.com
www.accountancyage.com
www.frc.org.uk
www.ft.com
www.icaew.com
www.icaew/insights
www.icaew.com/en/technical/audit-and-assurance
www.ifac.org
www.ifac.org/iaasb
www.iia.org.uk
www.legislation.gov.uk/ukpga/2006
www.nationalcrimeagency.gov.uk
ACKNOWLEDGEMENTS
EXAMINATION QUESTIONS
We are grateful to the Association of Chartered Certified Accountants (ACCA) for permission to reproduce
past examination questions. The suggested solutions in the exam answer bank have been prepared by us,
unless otherwise stated.
REVIEWERS
Particular thanks are due to those reviewers who gave their thoughtful comments on the strengths and weak-
nesses of the previous editions and the proposals for the 12th edition:
• Lynn Bradley, University of Glasgow
• Dinisa Kandasamy, Birmingham City Business School
• Karen McFarlane, Glasgow Caledonian University
• Kudzanai Munongi, University of Sunderland
• Dhru Shah, Nottingham Trent University
• Richard Tawiah, University of Strathclyde
• Dinusha Weerawardane, University of West London
IFRS STANDARDS
This publication contains copyright material of the IFRS® Foundation in respect of which all rights are
reserved. Reproduced by Cengage Learning (EMEA) Ltd. with the permission of the IFRS Foundation. No
permission granted to third parties to reproduce or distribute. For full access to IFRS Standards and the work
of the IFRS Foundation please visit http://eifrs.ifrs.org
The International Accounting Standards Board®, the IFRS Foundation, the authors and the publishers do
not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in
this publication, whether such loss is caused by negligence or otherwise.
xvii
xviii ACKNOWLEDGEMENTS
ISA AND FRC STANDARDS

This publication contains copyright material of the Financial Reporting Council Ltd (FRC) which is adapted
and reproduced with the permission from the FRC (www.frc.org.uk).
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Title: The poetic

Edda
Author: Henry Info
Adams https://viaf.org/viaf/5294877/
Bellows
(1885–
1939)
File 2024-05-
generation 04
date: 10:27:49
UTC
Language: English
Original [1923]
publication
date:
Encoding
The foot-notes in the source, which are linked to line-
numbers, have been moved to the end of each chapter.
Revision History
2024-03-18 Started.
Corrections
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text:
Page Source Correction Edit

distance
N.A.,
84,
246,
314,
373,
421, [Not in
572 source] . 1
15,
19 lacunae lacunæ 2
19 Gniparhellir Gnipahellir 1
58 “ [Deleted] 1
84 encyclopedic encyclopædic 1
99, Hlok Hlokk 1
99
121 stan a stanza 1
129 characterised characterized 1
143 s as 1
216,
324, [Not in
429 source] ” 1
225 Smaland Småland 1/0
227 detroyed destroyed 1
253 folk tales folk-tales 1
274 Hjorvath’s Hjorvarth’s 1
291 Hundingbane Hundingsbane 1
306 Spornvitnir Sporvitnir 1
307 Hynduljoth Hyndluljoth 1
310,
559,
560,
572,
572,
577,
579 . , 1
312,
313,
330,
538 , . 1
326 work word 1
359 be he 1
404 vengance vengeance 1
433 vengence vengeance 1
511 ” [Deleted] 1
532 Line 4 may [Deleted] 24
be spurious.
568 Haddings - Haddings’-
Hero Hero 1
571 Hrīm″-gerth- Hrīm″-gerth-
a-mǭl′ ar-mǭl′ 1
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Auditing 12th Edition Alan Millichamp

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Campbell-Walsh Urology 12th Edition Review Alan Wein

Campbell Walsh Wein Urology 12th Edition Alan W Partin

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Campbell-Walsh Urology 12th Edition Review, 3e (Mar 2,

eTextbook 978-1133187899 Contemporary Auditing

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AUDITING and ASSURANCE SERVICES 9th Edition Timothy J.

Auditing: A Risk Based-Approach 11th Edition Johnstone-

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Preface – Aims of the Book xi

1 Introduction to Auditing – the Why of Auditing 1

21 Related Parties 347

About the Authors iii Companies Act 2006 30

1 Introduction to Auditing – 3 The Statutory Framework

Private and Unlisted Companies 27 Introduction 53

Accounting Principles 57 8 Accepting Appointment

5 Auditing and Accounting 9 Accounting Systems

Forms of Audit Testing 179 Finance Lease Liabilities 276

Introduction 204 Contingent Liabilities 280

Testing System Components 204 Auditing Accounting Estimates 281

The Purchases and Expenses System 205

Significant Deficiencies 216 Auditors and Management Information

Bribery and Corruption 331 24 Management

25 The Final Review Stage

22 Use of Service 26 Auditor’s Reports

Significant Deficiencies in Internal Control 435 31 Public Sector Audit and

29 Auditor’s Liability 464 33 Current Issues 545

STRUCTURE OF THE BOOK

DIGITAL SUPPORT RESOURCES

NOTES TO THE 12TH EDITION

HOW TO PASS AUDITING EXAMINATIONS

Reading through the paper

How to answer a question

Tackling a question – specific ideas

• What working papers may be needed?

Reviewing your answer

Common faults in auditing answers

Layout and wording of answer

End of exam procedure

LIST OF USEFUL WEBSITES

ISA AND FRC STANDARDS

A sentimental journey with a practical

XIII. Niels Lyhne, by J. P. Jacobsen

A psychological novel, translated, with an

XIV. The Family at Gilje: A Domestic Story

Translated by Samuel Coffin Eastman,

XV & XVI. The Charles Men, by Verner von

Tales from the exploits of Charles XII,

XVII. Early Plays: Catiline, The Warrior’s

XVIII. The Book about Little Brother: A

Translated, with an Introduction, by Edwin

XIX. A Book of Danish Verse

Selections from the works of Danish Poets

XX. Per Hallström: Selected Short Stories

A collection of tales by Sweden’s great

Price $2.00 each

Preface – Aims of the Book xi

About the Authors iii Companies Act 2006 30