Carving your path to Success
A practical Approach
Introduction to Audit and Assurance
F8 Audit and Assurance introduces students to the regulatory framework behind the process of audit and assurance. It deals with both external and internal audit. The main scope behind Audit and Assurance is to give comfort to stakeholders about the reliability of financial information and the internal control environment within an organisation.
Audit and Assurance is a theory based subject with very minimal computations, this in itself gives it an element of subjectivity. Global pass rates for F8 are highlighted hereunder:
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Preparing for your Exam
- Enhance your Knowledge Base
A colleague of mine once said, “ipsa scientia potestas es”. Information is power. Look for information and use it to your advantage. What sort of information? The ACCA webportal (www.accaglobal.com) has a section dedicated to “Technical Articles”. These articles are expertly designed by audit area and are a very good read to you as students. Make sure to find time, print one or two articles and read through them.This paper also makes reference to a number of International Accounting Standards (IAS). You need to be familiar with these standards. I have prepared a table outlining the IASs and the chapters in which you need to apply them.
International Accounting Standard (IAS) F8 Chapter IAS 1 – Presentation of Financial Statements All chapters IAS 2 – Inventories Chapter 13 – Inventory IAS 10 – Events after the reporting period Chapter 18 – Review and Subsequent Events IAS 16 – Property Plant and Equipment Chapter 19 – Audit Report IAS 38 – Intangible Assets Chapter 12 – Non-Current Assets IAS 37 – Provisions, Contingent Liabilities and Contingent Assets Chapter 16 – Liabilities, Capital and Directors Emoluments
- Strong Command of English
At this day and age, when correcting mock exams I still come across poor use of vocabulary or even worse, sentence structures, where students present literal translations from Maltese to English. Yes, it is a reality.I strongly recommend you use chapters 8, 12, 13, 14, 15, 16 from the BPP published material to help you build up your dictionary of audit jargon. Chapter 8 outlines audit assertions (what to test) and audit procedures (how to test). Assertions refer to attributes which the auditor intends to test for classes of transactions (Income Statement), Account Balances (Statement of Financial Position) and Disclosures (Notes to the accounts).A very helpful acronym to help you remember assertions is the word ACCACOVER; accuracy, completeness, cut-off, allocation, classification, occurrence, valuation, existence, rights and obligations.The following mnemonic will help you memorise audit procedures; AEIOU; analytical procedure, enquire and confirmation, inspection, observation, recalculation.
- Study All the Chapters
The study text has 19 Chapters, specifically designed to take you through the Audit and Assurance cycle and the relevant regulatory framework.All chapters have an equal chance of being examined. Chapters 1 to 4 cover the Audit Framework and Regulation. Chapter 5 covers Internal Audit. Chapters 6 to 8 tackle Planning and Risk Assessment. Chapters 9 to 10 deal with Internal Controls. Chapters 11 to 17 discuss in great detail Audit Evidence and Testing. Chapters 18 and 19 cover Review and Reporting.After revising a chapter, work out questions from your study packs. This will ensure you have a good grasp of the chapter just covered. Do this for all the chapters in your study text.Selective revision will limit the number of questions you can answer and hence reduce your chances of passing this paper.
The Moment of Truth – D-Day
- Time Discipline
In this paper, you should allocate 1.8 minutes for every 1 mark. Therefore, if you have a 20 mark question, you should not spend more than 36 minutes in total.The 15 minutes reading time should be carefully utilised. Go through the questions in the paper so that you familiarise yourselves with what is waiting for you – jot down short notes or keywords next to each question, this will help you focus and put things into perspective when you get to actually answering the question in full. You can also plan the order in which you are going to address the questions.Always start by reading the Requirements of the question first and underline or highlight what the examiner is asking out of you – this way you will know what to look for without having to read through the question 3 or 4 times!
The examiner is your friend and requires your collaboration – How? In the way you present your answers.Never use chunky, lengthy paragraphs or long breath-taking sentences. Be aware of the meaning of the key verbs used in the paper. Here is a table summarising the verbs used in the question requirements so that you can assess the level of input the examiner is expecting from you.
Verb Definition and Mark Allocation Explain Make a point clear, justify a point of view Describe Give an account of something Define Give the meaning of Recommend Advise the appropriate actions to pursue Discuss Critically examine the issue List Provide a list – straight to the point Illustrate Explain by using examples Audit procedures / tests Actions Enquiries Questions Evidence Source (eg. Document) and what it proves
Now that we have analysed the requirements, let us go through some typical examiner-friendly answers:
Required Presentation List six audit procedures 6 bullet points – 1 sentence long Discuss the advantages and disadvantages of outsourcing 2 columns – with headers “Advantages” – “Disadvantages” Identify and explain threats to independence… briefly explain how each threat should be mitigated 2 columns – with headers “Threats” – “Safeguards” Identify inefficiencies in internal controls, their implication and suggest recommendations 3 columns – with headers – “Inefficiencies” – “Implication” – “Recommendation”
In the exam, you may be asked to produce a report to Management, highlighting deficiencies identified in a specific scenario. This can give you a maximum of 2 marks for correctly presenting your answer in the form of a report. A sample of the report can be found in Chapter 10 of your Study Text. Two marks are not worth losing!
- Wear the Hat of an Auditor
When tackling questions, put yourselves in the auditor’s shoes. A typical question which can put students off track is the following:”Identify and describe 6 audit risks from the scenario and explain the auditor’s response to each risk” The scenario would state that the company had expanded the number of warehouses it uses to store inventory. Let me illustrate a wrong and right answer to this:
Wrong Right Management should monitor and control warehouses in different locations – [business risk] Higher Auditor detection risk due to inventory counts taking place at multiple locations – [audit risk]
This attribute is also essential when dealing with Professional Ethics (Chapter 4) questions, where you are presented with scenarios and you need to indicate any threats to independence. Make sure you disassociate yourselves from Management – think of what will impose a threat to independence to you in performing your assurance engagement.
- Stay Composed
Your exam paper is waiting in front of you. Your faces start getting hot from the inside out. Next, beads of sweat start rolling down your forehead. STOP!Stay composed! You have studied hard and feel confident with the subject. You have mastered skills to tackle these questions. The last thing you need is to get all agitated. Now is your time to shine!
Audit and Assurance will be further examined in one of the Professional Papers – P7. It is therefore imperative that you get the basics right and excel in this Foundation Paper. As a final word of advice – Believe in Yourselves!