ACCA. Paper F8. Audit and assurance

506 Pages·2015·6.558 MB·English

by  Association of Chartered Certified Accountants (Great Britain);BPP Learning Media (Firm)

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FOR EXAMS FROM 1 SEPTEMBER 2015 TO 31 AUGUST 2016
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ii
Contents
Page
Introduction
Helping you to pass v
Studying F8 vii
The exam paper xii
Syllabus and study guide xiii
Part A Audit framework and regulation
1 Audit and other assurance engagements 3
2 Statutory audit and regulation 17
3 Corporate governance 35
4 Professional ethics 51
5 Internal audit 83
Part B Planning and risk assessment
6 Risk assessment 105
7 Audit planning and documentation 135
8 Introduction to audit evidence 149
Part C Internal control
9 Internal control 161
10 Tests of controls 185
Part D Audit evidence
11 Audit procedures and sampling 217
12 Non-current assets 247
13 Inventory 257
14 Receivables 275
15 Cash and bank 289
16 Liabilities, capital and directors' emoluments 299
17 Not-for-profit organisations 317
Part E Review and reporting
18 Audit review and finalisation 333
19 Reports 351
Practice question bank 375
Practice answer bank 405
Index 465
Review form 477

Contents i ii
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iv
Helping you to pass
BPP Learning Media – Approved Content Provider
As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use study
materials reviewed by the ACCA examination team. By incorporating the examination team’s comments
and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study
Text provides excellent, ACCA-approved support for your studies.
The PER alert
Before you can qualify as an ACCA member, you have to not only pass all your exams but also fulfil a three
year practical experience requirement (PER). To help you to recognise areas of the syllabus that you
might be able to apply in the workplace to achieve different performance objectives, we have introduced
the 'PER alert' feature. You will find this feature throughout the Study Text to remind you that what you
are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement.
Your achievement of the PER should now be recorded in your online My Experience record.
Tackling studying
Studying can be a daunting prospect, particularly when you have lots of other commitments. The different
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whilst studying and improve your chances of exam success.
Developing exam awareness
Our Texts are completely focused on helping you pass your exam.
Our advice on Studying F8 outlines the content of the paper, the necessary skills you are expected to be
able to demonstrate and any brought forward knowledge you are expected to have.
Exam focus points are included within the chapters to highlight when and how specific topics were
examined, or how they might be examined in the future.
Using the Syllabus and Study Guide
You can find the syllabus and Study Guide on page xiii of this Study Text.
Testing what you can do
Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can
recall what you have learnt.
We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as
Quick Quizzes at the end of each chapter to test your knowledge of the chapter content.

Introduction v
Chapter features
Each chapter contains a number of helpful features to guide you through each topic.
Topic list
Topic list Syllabus reference What you will be studying in this chapter and the relevant
section numbers, together with ACCA syllabus references.

Puts the chapter content in the context of the syllabus as
Introduction
a whole.
Study Guide
Links the chapter content with ACCA guidance.
Highlights how examinable the chapter content is likely to
Exam Guide
be and the ways in which it could be examined.
What you are assumed to know from previous
Knowledge brought forward from earlier studies
studies/exams.
Summarises the content of main chapter headings,
FAST FORWARD
allowing you to preview and review each section easily.
Demonstrate how to apply key knowledge and
Examples
techniques.
Definitions of important concepts that can often earn you
Key terms
easy marks in exams.
When and how specific topics were examined, or how
Exam focus points
they may be examined in the future.
Formulae that are not given in the exam but which have to
Formula to learn
be learnt.
Gives you a useful indication of syllabus areas that
closely relate to performance objectives in your Practical

Experience Requirement (PER).

Gives you essential practice of techniques covered in the
Question
chapter.

Case Study Real world examples of theories and techniques.

Chapter Roundup A full list of the Fast Forwards included in the chapter,
providing an easy source of review.

A quick test of your knowledge of the main topics in the
Quick Quiz
chapter.

Found at the back of the Study Text with more
Practice Question Bank
comprehensive chapter questions. Cross referenced for
easy navigation.

vi Introduction
Studying F8
The F8 Audit and Assurance exam tests students' knowledge of auditing and assurance theory but also,
very importantly, their ability to apply that knowledge to scenarios that they might well come across in
their auditing careers.
The examination team's approach interview is available on the F8 area of the ACCA website, along with an
examiner's analysis interview looking at student performance in various exam sittings, which highlights
how students can improve their performance.
All questions on this paper are compulsory so any topic from across the syllabus could be examined. As
stated above, it is essential that students possess both knowledge of auditing and assurance and the
ability to apply that knowledge to situations that could arise in real life.
1 What F8 is about
The purpose of the F8 syllabus is to develop knowledge and understanding of the process of carrying out
the assurance engagement and its application in the context of the professional regulatory framework.
The syllabus is divided into five main sections:
(a) Audit framework and regulation
The syllabus introduces the concept of assurance engagements, such as the external audit and the
different levels of assurance that can be provided. You need to understand the purpose of an
external audit and the respective roles of auditors and management. This part of the syllabus also
explains the importance of good corporate governance within an entity. The regulatory framework
is also explained, as well as the key area of professional ethics.
Also in the context of the audit framework, we explain the nature of internal audit and describe its
role as part of overall performance management and good corporate governance within an entity.
It is essential that you understand the differences between internal and external audit at this stage.
(b) Planning and risk assessment
Planning and risk assessment are key stages of the external audit because it is the information
and knowledge gained at this time that determine the audit approach to take. We also develop
further the concept of materiality which was introduced briefly in the first part of the syllabus.
(c) Internal control
In this part of the syllabus you need to be able to describe and evaluate information systems and
internal controls to identify and communicate control risks and their potential consequences to the
entity's management, making appropriate recommendations to mitigate those risks. We cover key
areas of purchases, sales, payroll, inventory, cash and non-current assets.
(d) Audit evidence
Audit conclusions need to be supported by sufficient and appropriate audit evidence. This area of
the syllabus assesses the reliability of various types and sources of audit evidence and also
examines in detail the audit of specific items (non-current assets, inventory, receivables, bank and
cash and payables). We also look at the special considerations for the audit of not-for-profit
organisations such as charities, which could come up in a scenario-based question.
(e) Review and reporting
Towards the end of an external audit, the auditor needs to consider the concept of going concern
and subsequent events which could impact on the financial statements. We also look at the audit
evidence provided by written representations from management and consider the impact of any
uncorrected misstatements on the accounts.
Introduction v ii
This section concludes on the important topic of audit reporting. The outcome of the external audit
is the audit report which sets out the auditor's opinion on the financial statements. This section of
the syllabus looks at the various types of audit report that can be issued and what each of them
means. It also looks at reports to management, which are a by-product of the audit but
nevertheless very important for highlighting deficiencies in internal control to management.
2 What skills are required?
F8 builds on the knowledge and understanding gained from Paper F3 Financial Accounting.
You must possess good technical knowledge of audit and financial reporting but one of the key skills you
will need is to be able to apply your knowledge to the question.
Section A of the exam will consist of multiple choice questions. These questions can cover any part of the
syllabus, so it is important to gain a precise knowledge of each of the syllabus areas.
Section B of the exam will comprise four 10-mark written questions and two 20-mark questions. It is
important to read the question requirements carefully and make sure that you answer the question set.
Another important skill you will need is to be able to explain key ideas, techniques or approaches.
Explaining means providing simple definitions and including the reasons why these approaches have been
developed. Your explanations need to be clearly focused on the particular scenario in the question.
3 How to improve your chances of passing
 There is no choice in this paper; all questions have to be answered. You must therefore study the
entire syllabus; there are no shortcuts.
 The first section of the paper consists of 12 multiple choice questions, eight of which are worth 2
marks each and four of which are worth 1 mark each. These will inevitably cover a wide range of
the syllabus.
 Practising questions under timed conditions is essential. BPP's Practice & Revision Kit contains
10 mark and 20 mark questions on all areas of the syllabus.
 Questions will be based on simple scenarios and answers must be focused and specific to the
organisation.
 Answer plans will help you to focus on the requirements of the question and enable you to manage
your time effectively.
 Answer all parts of the question. Even if you cannot do all of the calculation elements, you will still
be able to gain marks in the discussion parts.
 Make sure your answers focus on practical applications of management accounting, common
sense is essential!
 Keep an eye out for articles, as the examination team will use Student Accountant to
communicate with students.
 Read journals etc to pick up on ways in which real organisations apply management accounting
and think about your own organisation if that is relevant.
4 Brought forward knowledge
The F8 syllabus assumes knowledge brought forward from F3 Financial Accounting. It's important to be
comfortable with your financial reporting studies because such aspects are likely to come up in scenario-
based questions, such as subsequent events. ACCA therefore recommends that you sit papers in order so
that you have the knowledge from Paper F7 Financial Reporting which will also be an advantage when
taking Paper F8. However, please note that you do not have to have passed F7 in order to sit F8.
viii Introduction