Audit & Assurance Study Guide 2015

The Institute of Chartered Accountants in England and Wales

AUDIT AND ASSURANCE

Study Guide

For exams from 2015

www.icaew.com

Contents

1 Introduction 1

2 Audit and Assurance 3

3 Study guide 4

4 Syllabus and learning outcomes 17

5 Skills assessment guide 20

6 Key resources 23

Study Guide 1

1 Introduction ACA Overview

The ICAEW chartered accountancy qualification, the ACA, is one of the most advanced learning and professional development programmes available. Its integrated components provide you with an in-depth understanding across accountancy, finance and business. Combined, they help build the technical knowledge, professional skills and practical experience needed to become an ICAEW Chartered Accountant.

Each component is designed to complement each other, which means that you can put theory into practice and can understand and apply what you learn to your day-to-day work. The components are:

Professional development

ICAEW Chartered Accountants are known for their professionalism and expertise. Professional development prepares you to successfully handle a variety of different situations that you'll encounter throughout your career.

The ACA qualification improves your ability and performance in seven key areas:

Adding value Communication Consideration Decision making Problem solving Team working Technical competence. Ethics and professional scepticism

Ethics is more than just knowing the rules around confidentiality, integrity, objectivity and independence.

Its about identifying ethical dilemmas, understanding the implications and behaving appropriately. We integrate ethics throughout the ACA qualification to develop your ethical capabilities so you will always know how to make the right decisions and justify them.

3-5 years practical work experience

Practical work experience is done as part of a training agreement with one of our 2,850 authorised training employers or authorised training principals around the world. You need to complete 450 days, which normally takes between three and five years. The knowledge, skills and experience you gain as part of your training agreement are invaluable, giving you the opportunity to put what you're learning into practice.

15 accountancy, finance and business modules

You will gain in-depth knowledge across a broad range of topics in accountancy, finance and business.

There are 15 modules over three levels. These can be taken in any order with the exception of the Case Study which has to be attempted last. You must pass every exam (or receive credit) there are no

Audit and Assurance 2

options. This ensures that once qualified, all ICAEW Chartered Accountants have a consistent level of knowledge, skills and experience.

Certificate Level

There are six modules that will introduce the fundamentals of accountancy, finance and business.

Each module is examined by a 1.5 hour computer-based assessment which can be sat at any time. You may be eligible for credit for some modules if you have studied accounting, finance, law or business at degree level or through another professional qualification.

These six modules also provide a stand-alone certificate, the ICAEW Certificate in Finance, Accounting and Business (ICAEW CFAB). Once you have completed all six Certificate Level assessments, you can apply for the ICAEW CFAB certificate of completion, visit icaew.com/cfab for more information.

The aim of the Assurance module is to ensure students understand the assurance process and fundamental principles of ethics and are able to contribute to the assessment of internal controls and gathering of evidence on an assurance engagement.

Professional Level

The next six modules build on the fundamentals and test your understanding and ability to use technical knowledge in real-life scenarios. Each module has a 2.5 3 hour exam, which are available to sit four times per year. These modules are flexible and can be taken in any order. The Business Planning: Taxation and Business Strategy modules in particular will help you to progress to the Advanced Level.

The knowledge base put into place at Assurance is taken further in the professional level module, where the aim will be to enable students to understand the critical aspects of managing an assurance engagement. This includes acceptance, planning, managing, concluding and reporting.

Advanced Level

The Corporate Reporting and Strategic Business Management modules test understanding and strategic decision making at a senior level. They present real-life scenarios, with increased complexity and implications from the Professional Level modules.

The Case Study presents a complex business issue which challenges your ability to problem solve, identify the ethical implications and provide an effective solution. The Case Study tests through contextualisation the ability to apply your knowledge, skills and experience.

The Advanced Level exams are fully open book, so they replicate a real-life scenario where all the resources are at your fingertips. The Corporate Reporting and Strategic Business Management exam will consist of two scenario-based questions, forming a stepping stone to the Case Study. Access further exam resources and support at icaew.com/dashboard.

Study Guide 3

2 Audit and Assurance The full syllabus and technical knowledge grids can be found within the module study guide. Visit icaew.com/dashboard for this and more resources.

2.1 Module aim To develop candidates understanding of the critical aspects of managing an assurance engagement (including audit engagements): acceptance, planning, managing, concluding and reporting.

2.2 Specification grid This grid shows the relative weightings of subjects within this module and should guide the relative study time spent on each. Over time the marks available in the assessment will equate to the weightings below, while slight variations may occur in individual assessments to enable suitably rigorous questions to be set.

Syllabus area

Weighting (%)

1 Legal and other professional regulations, ethics and current issues 20 2 Accepting and managing engagements 15 3 Planning engagements 40 4 Concluding and reporting on engagements 25 100

Your exam will consist of

Part one 6 short form questions (worth between 2 and 4 marks each)

20 marks

Part two 3 questions (2 worth around 20 marks and 1 worth around 40 marks)

80 marks

The Audit and Assurance module is examined using traditional paper-based exams. The paper-based exam is 2.5 hours long. The exam tests each of the four syllabus areas in accordance with the weightings set out in the specification grid. Ethics and law may be tested in any of the questions and candidates may use the open book text.


3 Study guide 3.1 Help yourself study for your ACA exams

The right approach 1 Develop the right attitude

Believe in yourself Yes, there is a lot to learn. But thousands have succeeded before and you can too.

Remember why you're doing it You are studying for a good reason: to advance your career.

2 Focus on the exam

Read through the Syllabus in this guide

This tells you what you are expected to know.

3 The right method

See the whole picture Keeping in mind how all the detail you need to know fits into the whole picture will help you understand it better.

The Practical significance and Working context to each chapter in the study guide put the material into context.

The Learning objectives and Section overviews in the study manual show you what you need to grasp.

Use your own words To absorb the information (and to practise your written communication skills), you need to put it into your own words.

Take notes. Answer the questions in each chapter. Draw mindmaps. Try 'teaching' a subject to a colleague or friend.

Give yourself cues to jog your memory

The Study Manual uses bold to highlight key points.

Try colour coding with a highlighter pen. Write key points on cards.

4 The right recap

Review, review, review Regularly reviewing a topic in summary form can fix it in your memory. The Study Manual helps you review in many ways.

Each Chapter Summary will help you to recall that study session.

The Self-test actively tests your grasp of the essentials. Go through the Examples in each chapter a second or

third time.

Study Guide 5

3.2 Study cycle The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at how to approach each chapter below but as a general guide, taking into account your individual learning style, you could follow this sequence for each chapter.

Key study steps Activity

Step 1 Topic list

This topic list is shown in the contents for each chapter and helps you navigate each part of the book; each numbered topic is a numbered section in the chapter.

Step 2 Introduction

The practical significance and working context sections for each chapter, set out in this study guide give you the big picture in terms of the context of the chapter. The Examination context guidance shows what the examiners are looking for and tells you why the topics covered in the chapter need to be studied.

Step 3 Section overviews

Section overviews give you a quick summary of the content of each of the main chapter sections. They can also be used at the end of each chapter to help you review each chapter quickly.

Step 4 Explanations

Proceed methodically through each chapter, particularly focusing on areas highlighted as significant in the chapter introduction or study guide.

Step 5 Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being able to record something yourself is a sign of being able to understand it. Your notes can be in whatever format you find most helpful; lists, diagrams, mindmaps.

Step 6 Examples

Work through the examples very carefully as they illustrate key knowledge and techniques.

Step 7 Answers

Check yours against the suggested solutions, and make sure you understand any discrepancies.

Step 8 Chapter summary

Review it carefully, to make sure you have grasped the significance of all the important points in the chapter.

Step 9 Self-test

Use the Self-test to check how much you have remembered of the topics covered.

Step 10 Learning objectives

Ensure you have ticked off the Learning objectives.

Moving on... When you are ready to start revising, you should still refer back to the Study Manual.

As a source of reference (you should find the index particularly helpful for this). As a way to review (the Section overviews, Examination context, Chapter summaries and Self-test

questions help you here).

Remember to keep careful hold of the Study Manual you will find it invaluable in your work.

3.3 Detailed study guide Use this schedule and your exam timetable to plan the dates on which you will complete each study period that follows.

Revision phase your revision should be centred around using the questions in the ICAEW Question Bank.

Study Guide 7

Study Period Practical significance Working context Approach Syllabus references and exam context Due Date

1 In the recent past, the services provided by accounting practices in the UK were mainly restricted to accounts preparation, audit and tax. Audits were virtually the only assurance engagements in existence and nearly all companies required an audit. Consequently, most accountants worked on audits at some point in their careers. More recently there have been developments which have tended to split the 'traditional' view that assurance firms provide audit and other services in one 'package'. Factors such as The restriction on which

companies are legally required to have audits

Pressure to maintain auditor independence post-Enron, and

The growth in other types of assurance service being requested from, and offered by, accounting practices

mean that there are now many more assurance services being carried out in the UK and the more general concept of assurance is a very important issue for practices indeed. Now trainees might train in an assurance department but never actually attend an audit.

Stop and think

Why is assurance more widely required in the modern world?

If you are training in practice, you are likely to spend some training time working in an assurance department and being involved in work on audits or other assurance engagements. If you work in industry, you might be involved from the other side!

Read through Chapter 1 of the Study Manual quickly to revise the background knowledge which you should have from studying Assurance. Work through the self-test and interactive questions carefully to ensure that you have grasped the main points in the chapter.

This chapter revises key concepts from your Assurance paper.

This chapter is revision of what you have previously been examined on in your Assurance paper.

You will need an understanding of what assurance services are, and in particular, audit, brought forward from your lower level paper to answer any questions at this level.

Essential points in this chapter are the definitions of audit and assurance.



2 It is clearly important that all parties to an assurance engagement understand their responsibilities. Law and professional standards imply a number of responsibilities into general assurance services, and particularly into audits. It is important that all parties understand the nature and extent of these responsibilities, or it could lead to a breakdown in the relationship between parties.

Stop and think

Why might a lack of understanding result in a breakdown in the relationship?

The issue of what a professional is responsible for is clearly of vital importance. However, the issues discussed in this chapter will only be relevant to you in practice if you operate in an assurance department. Bear in mind, however, if you work elsewhere in practice, that other people in your firm have to consider these issues, and if they get it wrong, it could impact on you, particularly if you are by then a partner in the firm. If you work in industry, you need to know your own responsibilities and also be aware of what you are getting when you buy assurance services.

Read sections 1 and 2 of Chapter 2 and learn the distinction between the responsibilities of assurance providers and management.

The specific responsibilities of auditors for the matters outlined in the rest of this chapter are also important. Read through each section and use the section overviews as checklists for your knowledge.

Attempt the self-test and interactive questions.

Specific syllabus references for this chapter are: 1a, b, c, d, g, h, j, 3l.

Various areas of auditor responsibility are covered regularly in the short form section of the examination paper, including fraud, responsibilities with regard to a review of projected information and compliance with laws and regulations.

Essential points in this chapter are:

Distinction between responsibilities of assurance providers and management

Auditor responsibilities with regard to:

Error Fraud Laws and regulations Related parties Money laundering Bribery.

Study Guide 9


3 Increasingly, assurance providers and particularly auditors are being asked to carry out their procedures in a more globally recognised way, The EU has recently adopted both international financial reporting standards (for listed companies) and international auditing standards for all statutory audits, so convergence is an issue which is dominating auditors lives in a practical way at the moment.

Stop and think

Why is convergence important?

In your working environment, you may be more accustomed to dealing with IFRSs than UK accounting standards, although the reverse is likely to be true if you work in a mid-tier or smaller firm, or in industry in a non-listed environment. If you work in audit, you will now be dealing with ISAs (UK and Ireland) rather than the UKs own statements of auditing standards which used to exist. As noted above, convergence is impacting on UK accountants in a practical way.

Read quickly through Chapter 3 which covers a topic less likely to be examined in detail than Chapter 4.

The syllabus references relevant to this chapter are 1d, e, f, i.

While the content of auditing standards will impact on your exam, the details of who issues them and how they are issued are likely to be of less importance, hence the fact that there are few interactive and other questions in this chapter. Ethics, which are covered in the next chapter, are likely to be far more heavily examined in the context of professional standards.

Essential points:

The need for regulation The roles of IAASB and FRC.

4 All members of ICAEW, and trainees, are required to comply with the ethical rules of ICAEW.

Stop and think

Why are professional ethics important?

Professional ethics are important to all ICAEW members and trainees, regardless of what field they work in.

Chapter 4 is all revision from Assurance, but you should ensure that you are very certain of the rules of professional ethics and be prepared to apply them to situations in the exam. Particularly read carefully through section 4.

Work through the interactive questions and the exam-style questions to practise applying your knowledge of the rules.

Specific syllabus references for this chapter are: 1a, b, c, d.

As this is an important practical area, you can expect it to be examined regularly.

Essential points:

Fundamental principles FRC Ethical Standard requirements.



5 If you work in practice, you will be subject to the types of quality control procedures set out in this chapter as they are a requirement of audit firms

Stop and think

Why is it important that audit firms have quality control processes?

If you work in practice, you will soon be accustomed to the types of quality control procedures on individual assignments. Your work will be supervised and reviewed by the people superior to you on the assurance team, for example. You might also be involved in more general controls, such as confirming that you do not own any shares that would cause a barrier to independence in relation to a particular client.

Even if you work outside of practice, as an ICAEW member, you will be required to verify that you have undertaken continuing professional development.

Read sections 1 and 8 of Chapter 5 very carefully, particularly the worked example, considering the practical impact that quality standards have on assurance work. Sections 2 to 7 cover some of the detailed requirements, but the general principles are most important in this chapter. You should work through the sample paper question at the end of the chapter.

Specific syllabus references for this chapter are: 2a, b, d, e, f, g.

This is an area of the syllabus that is likely to be examined in conjunction with other issues such as client acceptance or ethics.

Essential points:

The need for quality standards The basic principles and

procedures of quality control.

Study Guide 11


6 It is of practical significance to both companies and assurance firms how assurance engagements are obtained and the processes that assurance firms go through when determining whether to accept engagements, because companies need assurance services, particularly audits which are a statutory requirement in many cases and because assurance firms need to generate income. A key issue for firms to consider, as raised in the previous chapter, is the risk associated with that client or potential client in terms of getting the opinion wrong. In addition, they need to consider ethics and resources. Companies should bear in mind when seeking auditors that audit firms generally prefer to take on clients which appear to have integrity and commitment to internal control.

Stop and think

What can a company do to make its audit attractive to assurance firms and why might it do so?

If you work in practice, you may become involved in the tender process for a new client in some way at some stage during your training. If you work in industry, you may be responsible for evaluating audit tenders and recommending who to appoint as auditors.

Chapter 6 is another chapter which builds on the basic knowledge you obtained in your Assurance paper. Read all the sections carefully to note the higher level points.

Use the worked example in section 2 to see how the theory applies in practice, as you will be required to apply your knowledge in this exam.

Use the summary as a checklist to think through if client acceptance issues come up in the exam.

Try both of the exam-style questions.

Specific syllabus references for this chapter are: 1h, 2a, c, h, i, j.

You may be asked to apply the principles discussed in this chapter to a scenario question in the exam.

Essential points:

Process of obtaining engagements Risk analysis Legal issues Engagement letters and

negotiating the terms of engagements (other than audit).



7 Planning is an important aspect of the quality control processes relating to an assurance assignment and it is key in determining whether the work carried out is capable of supporting a correct conclusion. It is therefore of crucial importance.

Stop and think

Why does planning an audit increase the chances of the correct conclusion being drawn?

If you work in practice, you may become involved in planning assignments, particularly as you progress, if you have worked on a client in the previous year and acquired a degree of knowledge of the business.

If you work in industry, you may be involved in the other side of planning, providing auditors with necessary planning information, such as budgets and draft financial information.

Chapter 7 is largely revision so read through it fairly quickly trying all the interactive questions to apply your knowledge.

Finish the chapter by trying the self-test questions and the sample paper question.

Specific syllabus references for this chapter are: 3h, i, o.

A question which deals with planning in the exam is also very likely to deal with risks, which we shall look at in more detail in the next chapter, hence the question practice given in this chapter is limited and more practice will be given in the next chapter.

Essential points:

Definition and practical impact of materiality

Benefits and limitations of analytical procedures.

8 It is vital that assurance providers have a good understanding of the entity they are providing assurance to and the environment in which it operates, or their work could be meaningless. For example, if they misunderstand the nature of the business, they could miss key risks and items in the financial statements could be seriously misstated. In addition, if they do not understand their client's business, they will be incapable of carrying out an audit in accordance with auditing standards, which could lead to negligence claims.

Stop and think

Why is it so important to understand the entities in relation to which assurance is being given?

If you work in practice, this area will be an important area for you and you are likely to undertake a lot of work to obtain knowledge about your clients before using that knowledge to assess risks. If you work in industry, you are likely to be at the opposite end of that process, providing information about your business to your assurance providers, so that they can provide you with a good service, as may some of your non-financial colleagues.

Chapter 8 is another revision chapter. Read section 1 carefully though, particularly the worked example, so that you really understand the importance of understanding the entity. In section 3, ensure you understand the importance of know your client in relation to the money laundering regulations.

Specific syllabus references for this chapter are: 3a, b, c, e.

Understanding the entity is a key component of risk assessment. Risk assessment is the subject of chapter 9, which is big exam topic.

Essential points:

The need for understanding the entity

The link with money laundering (know your client).

Study Guide 13


9 We have already focused on the importance of risk to auditors.

Stop and think

Reflect on why risk assessment is important to auditors before commencing your study of this chapter.

If you work in audit, you will carry out risk assessment procedures at some point in your career. If you work in industry, you should see this in practice, as assurance providers carry out risk assessment procedures in your business.

Read through Chapter 9 carefully working through all the examples and interactive questions. This chapter covers an area of important practical significance, and it is therefore of importance for your exam also.

Finally try the self-test questions at the end of the chapter.

Specific syllabus references for this chapter are: 3d, f, g, k, p.

Risk assessment is a very important area for your exam.

Essential points:

Difference between business and audit risk

Identifying risks in a given scenario.

10 The importance of audit approach is two-fold:

It is important for an audit firm that its audits are carried out in accordance with professional standards

How the tests used impact on audit cost

Stop and think

Why would a firm want to rely on the clients systems and internal auditors?

While training in practice, trainees are unlikely to be involved in the judgements going into audit approach. However, as you progress in your career, you may become more involved in making such judgements. If you work in industry, you will see the impact of the approach the auditors are using from the other side.

Read through all the sections in this chapter carefully. In particular section 4 covers new and important areas, and you should try all the interactive questions in this section.

Use the exam-style question to bring various sections of the chapter together in a practical way

Specific syllabus references for this chapter are: 3h, j.

In the exam, you could be asked to identify risks and then justify an approach towards those risks.

Essential points:

Obtaining audit confidence Use of:

Internal auditors

Experts

Other auditors (in a group situation).



11 Although all companies are unique, many are fairly standard for audit purposes, and would be described as non-specialised. However, some entities and companies have specialised requirements which add complexity to the audit being carried out.

Stop and think

Why might certain entities have special audit requirements?

Many firms have specialisms within their audit departments, so if you work in practice, you may find you specialise in the audit of certain specialised entities or not-for-profit entities. You may work for an audit firm such as the National Audit Office that undertakes public sector audit work. Alternatively, you do not audit one of these entities at all.

Read through sections 1 and 2 quickly. Then work through section 3 carefully, identifying the key differences between specialised audits and other audits, and using the interactive questions to try to consolidate this understanding.

Specific syllabus references for this chapter are: 3m, n, o.

Complex auditing requirements relating to specialised entities are not examinable.

Essential point:

The differences between audits of non-specialised profit-making entities and other entities, such as charities or public sector organisations.

12 Completion is a very critical stage of the audit because the partner is required to make the important judgements of whether sufficient evidence has been obtained to support the audit opinion and what that opinion should be.

Stop and think

How does an audit partner determine whether there is sufficient audit evidence?

If you work in practice, you may be involved in any part of audit completion. The more senior you become in the firm, the more likely you are to be involved in completing the memorandum to the audit partner.

Read through this whole chapter carefully, but in particular, the issues of going concern and subsequent events in section 4. Work through the interactive questions in these areas.

Specific syllabus references for this chapter are: 4a, b, c, d, g, h.

The reviews carried out at the end of the audit, such as going concern and subsequent events reviews are extremely important so could easily be examined in a short form or a long form question in the exam.

Candidates will be able to conclude and report on assurance engagements in accordance with the terms of the engagements and appropriate standards.

Essential points:

Overall review Going concern Subsequent events.

Study Guide 15


13 The report is the last aspect of the assurance process. It is the purpose of the assurance process it communicates the assurance provider's conclusion on the subject matter to the users. It is therefore of critical practical significance. Unfortunately, historically, problems with the wording of reports have contributed largely to the expectations gap.

Stop and think

How should assurance providers ensure that their reports are not misunderstood?

If you work in practice, you are more likely to be involved in carrying out disclosure checklists on the financial statements (as discussed in the previous chapter) than drafting the audit report. However, you should be aware when a modified audit report might be required, so that you can highlight that fact to senior audit staff members.

Read through section 1 of Chapter 13 and ensure that you know what issues should be covered in a letter to those charged with governance.

Read quickly through section 2 and familiarise yourself with the example report so that you are aware of the differences between it and an audit report.

Section 3 should be revision from Assurance, so read it quickly, but remember that you do need to know the detail that goes into an audit report.

Section 4 on modifications is new material so read through it carefully and familiarise yourself with the example reports. Use figure 13.3 to learn when an audit report might be modified and try exam-style questions 3 and 4 to put this skill into practice.

Specific syllabus references for this chapter are: 4e, f, i, j.

This is an important area for the exam.

Essential points:

Reporting to those charged with governance

Modified audit reports and which one to use when.

Study Guide 17

4 Syllabus and learning outcomes Covered in chapter

1 Legal and other professional regulations, ethics and current issues Candidates will be able to understand and advise on the regulatory, professional and ethical issues relevant to those carrying out an assurance engagement.

In the assessment, candidates may be required to:

All assurance engagements

(a) Identify and advise upon the professional and ethical issues that may arise during an assurance engagement. 2, 4

(b) Recognise the professional and ethical issues that may arise during an assurance engagement, explain the relevance and importance of these issues and evaluate the relative merits of different standpoints taken in debate. 2, 4

(c) Judge when to raise legal and ethical matters arising from assurance work with senior colleagues for review and possible referral to external parties. 2, 4

(d) Discuss the purposes and consequences of UK laws and other regulatory requirements surrounding assurance work. 2, 3, 4

(e) Explain the standard-setting process used by national and international (IAASB) bodies and the authority of the national and international standards. 3

(f) Explain, in non-technical language, significant current assurance issues being dealt with by the national standard-setting body and the IAASB. 3

(g) Explain, using appropriate examples, the main ways in which national legislation affects assurance. 2

Audit engagements

(h) Explain the main ways in which national legislation and other regulations affect the scope and nature of the audit and the appointment and removal of auditors (including the relationship between the law and auditing standards). 2, 6

(i) Explain the principles behind different auditing requirements in different jurisdictions and describe how national and international bodies are working to harmonise auditing requirements, including requirements to report on internal controls. 3

(j) Describe the principal causes of audit failure and their effects and the gap between outcomes delivered by audit engagements and the expectations of users of audit reports. 2

2 Accepting and managing engagements Candidates will be able to understand the processes involved in accepting and managing assurance engagements and how quality assurance processes mitigate the risks to those conducting the engagement.



(a) Identify the legal, professional and ethical considerations that an individual or firm must consider before accepting a specified assurance engagement. 5, 6

(b) Identify the sources of liability (including professional negligence) arising from an assurance engagement and their impact upon the conduct of the engagement. 5

(c) Discuss the issues which underlie the agreement of the scope and terms of an assurance engagement (new or continuing). 6

(d) Formulate the approach suitable for management of the assurance engagement. 5

(e) Discuss the principles and purposes of quality control of assurance engagements. 5


(f) Demonstrate how the assurance function within an organisation can be monitored. 5

(g) Describe how quality can be monitored and controlled through procedures external to the organisation. 5

Audit engagements

(h) Discuss the process by which an auditor obtains an audit engagement. 6

(i) Discuss the issues and risks that an individual auditor or audit firm must consider with regard to the acceptance of an audit engagement (new or continuing) with a client, including terms of engagement and their documentation. 6

(j) Identify the legal, professional and ethical considerations that an individual auditor or audit firm must consider before accepting a specified audit engagement. 6

3 Planning engagements Candidates will be able to plan assurance engagements in accordance with the terms of the engagements and appropriate standards.



(a) Explain, in the context of a given scenario, why it is important to have an understanding of the business when planning an engagement. 8

(b) Identify ways of gaining an understanding of a clients business. 8

(c) Recognise the circumstances under which it may be necessary to bring in expertise from other parties to support assurance processes. 8

(d) Identify the risks arising from, or affecting, a given set of business processes and circumstances and assess their implications for the engagement. 9

(e) Identify the risks arising from error, fraud and non-compliance with law and other regulations and assess their implications for the engagement. 8

(f) Assess significant business risks identified for their potential impact upon an organisation, in particular their potential impact on performance measurement. 9

(g) Identify the components of risk for a specified assurance engagement. 9

(h) Assess the impact of risk and materiality on the engagement plan, including the nature, timing and extent of assurance procedures, for a given organisation. 7, 10

(i) Discuss the benefits and limitations of analytical procedures at the planning stage. 7

(j) Determine an approach appropriate for an engagement for a specified organisation which addresses: 10

Possible reliance on controls (including those within IT systems) Possible reliance on the work of internal audit Possible reliance on the work of other experts Possible reliance on the work of another auditor Probable extent of tests of controls and of substantive procedures, including analytical

procedures

The nature and extent of client-generated information The probable number, timing, staffing and location of assurance visits The assurance of entities published sustainability and corporate responsibility reports.

Audit engagements

(k) Identify the components of audit risk for a specified audit engagement, including the breakdown of audit risk into inherent risk, control risk and detection risk. 9

Study Guide 19

(l) Outline the aspects of employment and social security law which are relevant to statutory audit. 2

(m) Discuss the differences between the audit of a non-specialised profit oriented entity and the audit of a given specialised profit oriented entity. 11

(n) Discuss the differences between the audit of a non-specialised profit oriented entity and the audit of a given not-for-profit entity. 11

(o) Specify and explain the steps necessary to plan, perform, conclude and report on the audit of the financial statements of a non-specialised profit oriented entity in accordance with the terms of the engagement including appropriate auditing standards. 7, 11

(p) Evaluate the impact of risk and materiality in preparing the audit plan, including the nature, timing and extent of audit procedures. 7, 9

4 Concluding and reporting on engagements Candidates will be able to conclude and report on assurance engagements in accordance with the terms of the engagements and appropriate standards.



(a) Describe the nature and timing of specific procedures designed to identify subsequent events that may require adjustment or disclosure in relation to the matters being reported on. 12

(b) Describe the nature and timing of specific procedures designed to identify the appropriateness of the going concern assumption, including compliance with relevant legal and regulatory requirements. 12

(c) Evaluate, quantitatively and qualitatively (including use of analytical procedures), the results and conclusions obtained from assurance procedures. 12

(d) Draw conclusions on the ability to report on an assurance engagement which are consistent with the results of the assurance work. 12

(e) Draft suitable extracts for an assurance report (including any report to the management issued as part of the engagement) in relation to a specified organisation on the basis of given information, including in the extracts (where appropriate) statements of facts, their potential effects, and recommendations for action relevant to the needs and nature of the organisation being reported upon. 13

(f) Advise on reports to be issued to those responsible for governance in accordance with International Standards in Auditing, legislation, regulation and codes of corporate governance. 13

(g) Judge when to refer reporting matters for specialist help. 12

Audit engagements

(h) Draw conclusions on the ability to report on an audit engagement, including the opinion for a statutory audit, which are consistent with the results of the audit work. 12

(i) Explain the elements (both explicit and implicit) of the auditors report issued in accordance with the International Standards on Auditing and statutory requirements and recommend the nature of an audit opinion to be given in such a report. 13

(j) Draft suitable extracts for an audit report (including any report to the management issued as part of the engagement) in relation to a specified organisation on the basis of given information, including in the extracts (where appropriate) statements of facts, their potential effects, and recommendations for action relevant to the needs and nature of the organisation being reported upon. 13


5 Skills assessment guide

5.1 Technical knowledge The tables contained in this section show the technical knowledge covered in the ACA syllabus by module.

For each technical topic, the level of knowledge required in the relevant Certificate or Professional Level module and at the Advanced Level is shown.

The knowledge levels are defined as follows:

Level D

An awareness of the scope of the standard.

Level C

A general knowledge with a basic understanding of the subject matter and training in its application thereof sufficient to identify significant issues and evaluate their potential implications or impact.

Level B

A working knowledge with a broad understanding of the subject matter and a level of experience in the application thereof sufficient to apply the subject matter in straightforward circumstances.

Level A

A thorough knowledge with a solid understanding of the subject matter and experience in the application thereof sufficient to exercise reasonable professional judgement in the application of the subject matter in those circumstances generally encountered by Chartered Accountants.

Key to other symbols:

the knowledge level reached is assumed to be continued.

Assurance and Audit

Topic

A

ssu

ran

ce

A

ud

it a

nd

Ass

ura

nce

Ad

van

ced

L

evel

The International Auditing and Assurance Standards Board D C

The Authority Attaching to Standards Issued by the International Auditing and Assurance Standards Board

C A

The Authority Attaching to Practice Statements Issued by the International Auditing and Assurance Standards Board

A

Discussion Papers C

Working Procedures C

International Standards on Auditing (UK and Ireland)

200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing

B A

210 Agreeing the Terms of Audit Engagements B 220 Quality Control for an Audit of Financial Statements B 230 Audit Documentation B A

240 The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements B A

Study Guide 21

Topic

A

ssu

ran

ce

A

ud

it a

nd

Ass

ura

nce

Ad

van

ced

L

evel

250 A Consideration of Laws and Regulations in an Audit of Financial Statements B A

250 B The Auditors Right and Duty to Report to Regulators in the Financial Sector C

260 (Revised October 2012) Communication with Those Charged with Governance B A

265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

B A

300 Planning an Audit of Financial Statements B A 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment

C A

320 Materiality in Planning and Performing an Audit C A 330 The Auditors Responses to Assessed Risks B A

402 Audit Considerations Relating to an Entity Using a Service Organisation C B

450 Evaluation of Misstatements Identified during the Audit C A

500 Audit Evidence B A 501 Audit Evidence Specific Considerations for Selected Items B A

505 External Confirmations B B A

510 Initial Audit Engagements Opening Balances B A

520 Analytical Procedures B A A

530 Audit Sampling B B A

540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures

C B

A

550 Related Parties B A

560 Subsequent Events B A

570 Going Concern A 580 Written Representations C B A

600 Special Considerations Audits of Group Financial Statements (including the Work of Component Auditors)

C A

610 (Revised June 2013) Using the Work of Internal Auditors C B A

620 Using the Work of an Auditors Expert C A

700 (Revised June 2013) The Independent Auditors Report on Financial Statements B A 705 (Revised October 2012) Modifications to the Opinion in the Independent Auditors Report

A

706 (Revised October 2012) Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditors Report

A

710 Comparative Information Corresponding Figures and Comparative Financial Statements B A

720 A (Revised October 2012) The Auditors Responsibility Relating to Other Information in Documents Containing Audited Financial Statements

B A

720 B The Auditors Statutory Reporting Responsibility in Relation to Directors Reports A


Topic

A

ssu

ran

ce

A

ud

it a

nd

Ass

ura

nce

Ad

van

ced

L

evel

International Standards on Auditing

800 Special Considerations Audits of Financial Statements prepared in Accordance with Special Purpose Frameworks

B

805 Special Considerations Audits of Single Financial Statements and Specific Elements, Accounts or items of a Financial Statement

B A

810 Engagements to Report on Summary Financial Statements B A

International Auditing Practice Note (IAPN)

1000 Special Considerations in Auditing Financial Instruments C

International Standards on Review Engagements (ISREs)

2400 (Revised September 2012) Engagements to Review Historical Financial Statements C B

2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity

B

International Standards on Assurance Engagements (ISAEs)

3000 Assurance Engagements Other than Audits or Reviews of Financial Information C B

3400 The Examination of Prospective Financial Information C B

3402 Assurance Reports on Controls at a Service Organisation C A

3410 Assurance Engagements on Greenhouse Gas Statements C International Standards on Related Services (ISRSs)

4400 Engagements to Perform Agreed-upon Procedures Regarding Financial Information B

4410 Compilation Engagements (Revised March 2012) B

IFAC Statements

ISQC1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements

C B

Other Guidance

2010/2 (Revised March 2012) Compendium of illustrative Auditors Reports on UK Private Sector Financial Statements

B B

FRC Briefing Paper Professional Scepticism establishing a common understanding and reaffirming its central role in delivering audit quality

C B

Study Guide 23

6 Key resources

Student support team

Our student support team are here to help you as much as possible, providing full support throughout your studies.

T +44 (0)1908 248 250 F +44 (0)1908 248 069 E [email protected]

Student website The student area of our website provides you with information on exam applications, deadlines, results and regulations as well as applying for credit for prior learning (CPL). The study resources section includes advice from the examiners, module syllabi, past papers and sample papers, webinars and study guides. The study guides are designed to help put the learning for each module into context and highlight the practical significance of what youll learn. They also include the syllabus, technical knowledge grids and learning outcomes for each module, enabling you to gain an overview of how your learning links to the qualification. Visit icaew.com/dashboard for these resources and more.

If you are studying for the ICAEW CFAB qualification, you can access exam resources and support at icaew.com/cfab

Online student community The online student community is a forum to ask questions, gain study and exam advice from fellow ACA and ICAEW CFAB students and access our free webinars. There are also regular Ask a Tutor sessions to help you with key technical topics and exam papers. Access the community at icaew.com/studentcommunity

Tuition The ICAEW Partner in Learning scheme recognises tuition providers who comply with our core principles of quality course delivery. If you are receiving structured tuition with an ICAEW Partner in Learning, make sure you know how and when you can contact your tutors for extra help. If you are not receiving structured tuition and are interested in classroom, online or distance learning tuition, take a look at our recognised Partner in Learning tuition providers in your area, on our website icaew.com/dashboard

Faculties and Special Interest Groups Faculties and special interest groups support and develop members and students in areas of work and industry sectors that are particular interest.

Our seven faculties provide knowledge, events and essential technical resources. They cover Audit and Assurance, Corporate Finance, Finance and Management, Financial Reporting, Financial Services, Information Technology and Tax. As an ACA or ICAEW CFAB student, you are entitled to register to receive either complimentary factsheets from the Financial Reporting Faculty or an e-newsletter from one faculty of your choice each year throughout your studies.

Our 12 special interest groups provide practical support, information and representation within a range of industry sectors including Charity and Voluntary, Entertainment and Media, Farming and Rural Business, Forensic and Expert Witness, Healthcare, Insolvency and Restructuring, Interim Management, Solicitors, Tourism and Hospitality, Public Sector, Valuation and Non-Executive Directors. As an ACA student you can receive free provisional membership of one group each year throughout your studies, apart from the Public Sector group, where a subscription charged is required.

Find out more about faculties and special interest groups at icaew.com/facultiesandsigs

The Library & Information Service The Library & Information Service is ICAEWs world-leading accountancy and business library. You have access to online and print facilities which include company information, country and sector resources, economic forecasts and eBooks, with services that include book loans, document delivery and help with research queries. Visit icaew.com/library for more information.


(01)CAAASG_FP1_(Study_guide_contents)(02)CAAASG_FP2_(Study_guide_study_cycle)(03)CAAASG_FP3 landscape (Study guide)(04)CAAASG_FP4_(Study_guide_syllabus)

Audit & Assurance Study Guide 2015

Documents

Transcript of Audit & Assurance Study Guide 2015