AIMS
To
develop knowledge and understanding of the audit
process from the planning stage through to the
reporting stage and the techniques used in the
conduct of internal and external audits.
OBJECTIVES
On
completion of this paper, candidates should be
able to:
-
explain the rules of professional conduct
relating to the ethics of integrity, objectivity,
independence and confidentiality and undertake
audit procedures accordingly
-
identify control objectives and weaknesses
for an accounting system under review
-
assess audit risks, produce an audit plan
and design appropriate audit procedures
-
carry out appropriate audit procedures in
accordance with an audit plan on the basis
of a validly selected sample
-
draw valid conclusions from the results of
audit tests
-
prepare draft reports relating to an audit
assignment.
POSITION
OF THE PAPER IN THE OVERALL SYLLABUS
Paper
8 requires the knowledge and understanding from
Paper 1,
Recording Financial Transactions
and Paper 3, Maintaining
Financial Records, to provide a basic understanding
of the nature and objectives of an audit and general
audit practice. Candidates will also be expected
to be familiar with Paper 6, Drafting Financial
Statements.
SYLLABUS
CONTENT
1
The business environment
(a)
The nature of accounting records, audit and the
audit report
(b)
Requirements for becoming an auditor
(c)
Duties of an auditor
(d)
Responsibilities of auditors
(e)
Fraud and error
(i
) liability to clients
(ii)
liability to third parties
2
The audit framework
(a)
External audit and internal audit
(b)
Regulatory framework of auditing
(i)
auditing standards
(ii)
requirements of professional bodies
(c)
The audit engagement process
3
Audit personnel
(a)
The audit team
(b)
Liaison with client staff
(c)
Liaison with third parties
(i)
experts
(ii)
internal audit
4
Audit planning
(a)
The nature of an audit plan and programme
(b)
Knowledge of the business
(c)
Risk
(d)
Materiality
(e)
Documentation
(f)
Audit planning meeting
5
Accounting systems and controls
(a)
The nature of accounting systems
(b)
General principles of control
(c)
Techniques to record accounting systems
(i)
narrative notes
(ii)
flowcharts
(d)
Techniques to evaluate accounting systems
(i)
internal control questionnaires
(ii)
internal control evaluation questionnaires
(iii)
checklists
(e)
Major control cycles (manual and computerised)
(i)
income (sales)
(ii)
expenditure (purchases / inventory / non-current
assets / payroll / expenses)
(f)
Tests of control
(g)
Reporting control weaknesses
6
Audit evidence and sampling
(a)
Financial statement assertions
(b)
Audit evidence and procedures
(c)
Verification techniques – physical examination,
reperformance, third party confirmation, documentary
evidence, vouching and analytical review
(d)
Audit sampling
(e)
Types of testing – tests of control and substantive
testing
(f)
Computer assisted audit techniques
(g)
Audit of balance sheet items – existence, completeness,
ownership, valuation and disclosure
7
Audit completion
(a)
Audit review
(i
) events after the balance sheet date
(ii)
going concern
(iii)
opening balances and comparatives
(b)
Analytical procedures
(c)
Recording significant and material errors
(d)
Review by senior audit staff
(e)
Report of audit points arising (report to partner)
(f)
Letter of representation
8
Audit report
(a)
The standard audit report
(b)
Qualifications in audit reports
EXCLUDED
TOPICS
The
following topics are specifically excluded from
Paper 8:
-
group audits
-
corporate governance
detailed understanding of audit requirements relating
to:
–
fraud
–
laws and regulations
–
quality control
–
related parties
–
service organisations
–
reports to those charged with governance
–
reporting to regulators in the financial sector.
KEY
AREAS OF THE SYLLABUS
The
key topic areas are as follows:
-
controls
-
audit planning
-
practical application of audit techniques
-
preparing draft reports.
APPROACH
TO EXAMINING THE SYLLABUS
The
examination is a three-hour written paper. The
paper consists of four compulsory questions of
25 marks each.
ADDITIONAL
INFORMATION
Accounting
and auditing standards will not be examined until
six months after they have been published. The
cut off date for the June examination is 30 November
preceding the June examination. The cut off date
for the December examination is 31 May preceding
the December examination.
RELEVANT
TEXTS
There
are a number of sources from which you can obtain
a series of materials written for the ACCA CAT
examinations.
Wider
reading is also desirable, especially regular
study of relevant articles in ACCA’s student
accountant magazine.
STUDY
SESSIONS
1
The purpose and scope of an external audit and
the audit framework
(a)
Explain the purpose and scope of an external audit
(b)
Outline the requirements governing the appointment
and removal of auditors
(c)
Outline the duties and responsibilities of auditors
(d)
Explain the scope of International Standards on
Auditing
(e)
Outline the fundamental principles of independent
auditing
2
Rules of professional conduct and professional
ethics
(a)
Discuss the fundamental principles of the Rules
of Professional Conduct of ACCA
(b)
Discuss the detailed requirements of, and illustrate
the application of professional ethics in the
context of auditor
independence, objectivity and integrity
(c)
Describe the auditor’s responsibility with regard
to confidentiality
3
Internal audit
(a)
Explain the purpose and scope of internal audit
(b)
Compare and contrast the roles of the internal
audit function and the external audit function
with regard to the detection of fraud and error
(c)
Identify the factors that external auditors should
consider when evaluating the work of internal
auditors
4
& 5 True and fair view, materiality, the auditors’
report
(a)
Explain the concept of a true and fair view
(b)
Explain the concept of materiality and discuss
the factors to be considered when making a judgement
on whether an item is material
(c)
Provide and review an example of an auditors’
report with an unqualified opinion on the financial
statements of an incorporated company
(d)
Discuss the basic elements of the auditors’ report
(e)
Discuss the concept of ‘reasonable assurance’
6
The audit engagement process
(a)
Explain the purpose and content of client acceptance
procedures comprising client screening, professional
clearance and independence checks
(b)
Explain the purpose of an audit engagement letter
(c)
Examine and discuss the contents of an audit engagement
letter
7,
8 & 9 Planning the audit
(a)
Distinguish between a systems approach to an audit
and a direct verification approach
(b)
Explain the concept of audit risk, focusing in
particular on inherent risk and control risk
(c)
Explain how auditors use knowledge of the business,
in audit planning
(d)
Identify sources from which auditors may obtain
knowledge of the business
(e)
Explain the role of audit programmes and summarise
the advantages/disadvantages of using standard
programmes
(f)
Outline planning issues with regard to audit planning
meetings, the timing of audit work, staffing,
training of the audit team, the use of suitable
experts, and liaison with client staff including
internal auditors
(g)
Explain how auditors may plan to use computer
assisted audit techniques
(h)
Illustrate the use of an audit planning memorandum
10
Documenting the audit
(a)
Discuss the reasons for maintaining audit working
papers
(b)
Explain the purpose of the current file and the
permanent file
(c)
Describe the contents of a current file and a
permanent file
(d)
Outline the quality control procedures that should
exist over the review of audit working papers
and in the reporting of important audit points
to the audit engagement partner
(e)
Illustrate how information technology can be used
in the documentation of audit work
11
Internal control I
(a)
Explain the following terms:
(i)
internal control system
(ii)
control environment
(iii)
control procedures
(b)
Describe the objectives of an internal control
system
(c)
Discuss the different types of internal control
(d)
Describe and illustrate the inherent limitations
of internal control systems
(e)
Discuss the importance of internal control to
auditors
12,13
& 14 Internal control II
(a)
Describe and illustrate control procedures to
meet specified objectives for each of the following
functional areas:
(i)
purchases and trade payables
(ii)
sales and trade receivables
(iii)
wages and salaries
(iv)
tangible non-current assets
(v)
inventory
(vi)
bank receipts and payments
(vii)
cash receipts and payments
15
Internal control III
(a)
Distinguish between application controls and general
controls in computer-based systems and identify
the objectives of each control type
(b)
Provide examples of specific general controls
and application controls
(c)
Outline the typical control problems encountered
in small computer-based systems
16
& 17 Internal control IV
(a)
Describe the techniques used by auditors to record
and evaluate manual and computer-based accounting
systems
(b)
Provide examples of, and explain the format and
contents of internal control questionnaires (ICQ’s)
and internal control evaluation questionnaires
(ICEQ’s)
(c)
Explain the purpose of tests of control
(d)
Distinguish between tests of control and substantive
procedures
18,
19 & 20 Audit testing of accounting systems
controls
(a)
Explain the audit approach to testing accounting
system controls over the following functional
areas:
(i)
purchases and trade payables
(ii)
sales and trade receivables
(iii)
wages and salaries
(iv)
tangible non-current assets
(v)
inventory
(vi)
bank receipts and payments
(vii)
cash receipts and payments
(b)
Explain the purpose of a management letter, indicating
when it should be issued
(c)
Provide information on an accounting system in
a functional area and prepare points for inclusion
in a management letter, in the following format:
–
description of weakness
–
implication of weakness
–
recommendation(s) to address weakness
21
Audit sampling
(a)
Explain the relevance of sampling to the auditor
(b)
Outline selection methods, including random selection,
systematic selection and haphazard selection
(c)
Outline the main factors affecting sample size
22
Audit evidence I
(a)
Explain the importance of evidential material
in the audit process
(b)
Identify the factors that influence the reliability
of audit evidence
(c)
Describe and give examples of procedures used
by auditors to obtain audit evidence, including
the use of analytical procedures and computer
assisted audit techniques
23
Audit evidence II
(a)
Explain the importance of financial statement
assertions
(b)
For each area in the financial statements of an
incorporated company, provide examples of the
representations made by directors
(d)
Explain the rationale for designing audit programmes
by reference to audit objectives
(e)
Outline the factors determining the nature, timing
and extent of substantive procedures to be carried
out on an audit
24
& 25 Audit evidence III
(a)
Design audit programmes to meet specific audit
objectives with regard to the following balance
sheet items:
(i)
tangible non-current assets.
(ii)
investments
(iii)
trade receivables
(iv)
prepayments
(v)
bank and cash
(vi)
trade payables
(vii)
accruals
(viii)
provisions
26
& 27 Audit evidence IV
(a)
Explain why the audit of inventory is often an
area of high audit risk
(b)
Describe the audit procedures that should be undertaken
before, during and after attending an inventory
count
(c)
Discuss the extent to which an auditor can rely
on a system of perpetual inventory
(d)
Design an audit programme to meet specific audit
objectives for the audit of inventory
28
& 29 Audit completion
(a)
Explain the purpose and nature of carrying out
an overall review of the financial statements
prior to expressing an audit
opinion and outline the purpose and nature of:
(i)
the application of analytical procedures
(ii)
a review of opening balances and comparatives
(iii)
a review of events after the balance sheet date
(iv)
an evaluation of Going Concern
(b)
Explain the purpose of a letter of representation
(c)
Describe the contents of a letter of representation
and provide examples of typical representations
made in such a letter
30
Audit report
(a)
Revise the form and content of an auditors report
with an unqualified opinion on the financial statements
of an incorporated company (see sessions 4 &
5)
(b)
Outline the circumstances in which an auditor
should issue a report with:
(i)
a qualified opinion
(ii)
an adverse opinion
(iii)
a disclaimer of opinion
31
& 32 Revision |
