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Financial Training Institute (FTI) is dedicated to fostering intellectual growth, aesthetic appreciation, and character development in our students. The Financial Training Institute (FTI) College community thrives on the principles that knowledge is acquired through discipline, competence is established when knowledge is tempered by experience, and character is developed when competence is exercised for the benefit of others.


F8 June 2015 |



FTI

Audit and Assurance (International) – F8

Important Topics for June 2015 (Muhammad Naeem Nawaz)

nawazn14@yahoo.com(00971-56-2065513)

Main topics

 

 

Ø Identify the Weaknesses in Purchasecycle and Substantive procedures on Payable .100 %

 sure(20 Marks)

 

Ø Identify the threats to independence and Safeguards to reduce those risks to low level. 100

 % sure(10 Marks)

 

Ø Identify the Audit Risk and Responses to Audit Risk with analytical procedures100 % sure

(10 Marks)

 

Ø Auditor responsibility with regard to Going concern (ISA 570) and Impact on the auditor report

 (Adverse Opinion & Qualified Opinion)

(10 Marks)

Ø Substantive procedures on Inventory.(V.Important) Go through December (2007 Question

 1) very good question (10 Marks)

 

Ø Weakness in the Cash system , segregation of duties and how to write a bank confirmation

 letter (10 Marks)

 

Ø Placing on the reliance on the work of Internal Auditor and Different assignments

 performed by Internal Auditor Go through the examiner latest article(V.Important).

Ø Audit sampling (Method of Sampling) ISA 530( 4 Marks)

Ø Auditor responsibility regarding fraud ISA 240(4 Marks)

Ø Why audit documentation is necessary (4 Marks)

Ø Assertions on Class of Transactions or on Account balances (Receivable mostly) (4 Marks)

Ø Components of Internal controls (4 Marks)

Ø Written representation (ISA 580) Go through the past papers.(5 Marks)

Ø Audit procedure on the Provision(5 marks)

 

List of Most important question relevant to guess question

 

Topics

Past Papers

Questions

Purchase cycle

June 2013

Question 1(Exactly same question now

Question 1

Audit Risk and Responses

 

June 2008

Question 3 part (b)

Question 3 part (c)

Dec 2012 part (b)

Audit sampling

Dec 2012

Question 2 part (b)

Auditor Resp Regarding Fraud

June -2009

Question 5 part b(1)

Understanding the entity

And its environment

Dec – 2009

Question 3 part (1)

Code of ethics and Threats

June 2010

Question 4 part (1)

Benefits of audit planning

Dec 2009

Question 1 part (1)

Assertion on Trade payable

Dec 2009

Question 5 part(1)

Audit procedures on Provisions

Audit procedures on receivables

Dec 2009

 

June 2011

Question 5 part (4)

 

Question 1 part (b)

Components of internal controls

Dec -2011

Question 2 part (1)

Placing reliance on Internal auditor

Dec -2009

Question 4 part(b)

Benefits of audit committee

 

 

Assignments performed by internal auditor

Dec 2010

Question 1 part (d)

Inventory Procedures

Dec-2007

Question 1

General Question to practice

Dec- 2008

Question 4

 

There would be 12 MCQs for those MCQs just read the question carefully and think it from a wider prospective. They carry 20 marks and I am hoping those MCQs to be very easy and will improve f8 global passing result. (Just read the few standards)

MUST READ:

 

***Past Papers from Dec-2007 to Dec 2013... along with examiners’ answers(Key to Success to pass the exam ,I assure that if you do read the answer of past papers carefully and learn how to write a audit procedures you will pass any audit exam)

 

***Read each important topic given in guess from (the relevant questions in the) past papers

SOLVING EXAM PAPER:

 

**Please read each exam Question for the number of tasks (action words) in it;

e.g. 'Explain and Distinguish' are two different tasks carrying separate mark scheme

 

Please try to attempt all questions, starting each question on a new page, preferably the right

 side page, even if you have to leave a page blank. Do not write beyond the allotted time. Get to

 the point immediately and do not write for which no marks have been allocated. Do not write

 bullets, instead use short comprehensible plain complete English sentences.

 

 

Approx.90% of the Examination Paper would be from the above selected topics. Insha’Allah! You should therefore get fully prepared for these during your revisions.

 

 

Tips

Put yourself in the auditor shoes …. Just imagine that you are investigator…

 you have to verify something.

 

If you need evidence just think from where you can get the answers of your

 quires…

 

 

Ø Make inquiries from management ask them how they did this, what they think

 about the future of the organization , what are their intentions , what are their plans to

 obtain bank , what are their plans to increase the sales , how they will deal with the

 provisions , how they will deal to pay the loan on maturity date , how they will deal

 with the customer who is facing difficulties to pay off the money he owe to the

 company , how they prepare bank reconciliation , how they deal with substantive

 procedures , … this is just a random list think about more questions which you can ask

from management relating to financial statements.

 

 

Ø Make inquiries from internal auditor, from those charged with governance, from

 audit committee, from employees.

 

Ø Make inquiries from the company lawyers, solicitor about the matter involving

 litigation and claims.

 

Ø Make inquiries from the bank about the bank balance entity has , whether bank

 have given them any overdraft facility , whether bank has given any guarantee on the

 behalf of company , what the assets which are pledged by the bank , whether bank will

 continue to support the entity in the future or not.

 

Ø Just get the confirmation from the customer how much they have to pay to the

 entity and check the orders from the customer, see whether they are happy or not.

 

Ø Just get confirmation from the payable whether they will continue to provide goods

 to the entity on credit in the future.

 

 

Documents will provide lot of assurance and confirmation to the auditor…

 

ü Sale invoices, sales order, goods dispatch notes, debit notes , sales agreement with

 the customer , control accounts , list of balances.

 

ü Purchase invoice, purchase order, goods received notes, credit notes , purchase

 agreements , payable control accounts , list of payable

 

ü Lease agreement , vehicle registration documents , land registry certificate , invoices

 of assets purchased , loan agreements , debentures , share certificates , bank

 statements , bank reconciliation , bank despot slips, inventory sheets , inventory stock

 take documents.

 

Analytical procedures are very important in practical life.

 

Calculate the ratios, perform the trend analysis and compare with:

 

1) Prior years

2) Budgets

3) Forecast for next year

4) Industry averages

5) Competitor results

 

This will help you to understand the entity and its environment and about the

 performance of the company and strong and weak areas.

 

 

Audit risk is very important and most of the people struggle to answer that

 question in the exam;

 

Ø Audit risk is the risk of overstatement of assets

Ø Audit risk is the risk of overstatement of income

Ø Audit risk is the risk of understatement of expenses

Ø Audit risk is the risk of understatement of liabilities

 

 

Audit response is what you will do to verify that the above four are not

 overstated and understated…

 

 

ü Audit risk is the overstatement of receivable , response would be write a letter to

 customer and confirm the balance , verify the allowance is made for irrecoverable debts.

 

ü Audit risk is the risk of overstatement of PPE… Response would be to obtain the

 breakup of cost incurred during the year and verify that capital expense is capitalized in

 the balance sheet and revenue expense is expensed in the income statement.

 

ü Audit risk the risk of overstatement of inventory … After the year end, check the

 selling price of inventory whether it was sold at the amount which was recorded at the

 year end.

 

ü Audit risk is the risk of understatement of provision … Response would be to obtain

 the written representation from the management, consult with the lawyers, see the

 judgment that was given against the company.

 

 

Ethics is the most important areas in auditing and accounting field….

 

Remember ACCA code of ethics and 5 threats to independence and objectives and

 how to safeguard/ reduce those threats to independence.

 

Audit is usually carried after the year end (Feb or March if the yearend is December)

 

 

So think about post year end transactions…. (Subsequent events)

 

v Receivable might have paid the money..

v Restructuring programs might have been implemented

v Inventory might have been sold at lower or cost or NRV

v Provision might have been paid off

v New assets might have been purchased, liabilities might have been paid off.

v Major contracts might have been renewed

 

 

Most of the student struggle to understand what is Cut-Off…. Which can

 verify 5 items … Sales, purchases , inventory , receivable and payable ….

These 4 procedures are the best one to understand what is cut off.

 

 

* I would select a sample of Pre-yearendGRN and verify that the transaction is

 

 included in the inventory, purchase and payable.

 

 

* I would select a number of Post-yearendGRN and verify that the transaction is

 

 excluded from inventory, purchase and payable.

 

 

* I would select a sample of Pre-yearendGDN and verify the transaction is

 

 recorded in sales and receivables and excluded from inventory.

 

 

* I would select a sample of Post-yearendGDN and verify that transaction is

excluded from sale and receivable but Included in the inventory.

 

____________________________________________________________________________

Outline of Graphical Layout

Invited to become auditor > Do you wish to accept appointment? > Send letter to outgoing auditor > Send engagement letter to directors > Plan the audit

....

Assessment of accounting and internal control system s and level of audit risk > Testing of internal control > Reduced testing of transactions and balances

> Overall review of financial statements > Audit report

 

     Assessment of accounting and internal control systems and level of audit risk > Extensive

     testing of transaction and balances