CHAT SESSION WITH ACCA F8 TUTOR In the past, I revised by going through and doing every paper from the Pilot onwards ACCA Tutor: Seems a good approach. Knowledge is important but, as you know, so is applying that to the question scenarios I tell people to pretend they are explaining things to a 12 year old That forces you to produce detail Can you help me to understand the difference between tests of control and substantive testing? ACCA Tutor: ToC means testing controls: signatures to authorize, reconciliations have been done etc. Substantive tests attack the figures in the FS directly e.g. receivables circularization I'll have to use the kaplan or BPP study text... or just learning the OT enough and practising a lot of questions will be sufficient and appropriate? ACCA Tutor: I think they provide enough basic knowledge, but as I said above it's applying that to questions and for that you need to practice questions. Listen to the OT lectures also and read articles from Student Accountant In June 2010 we had the clarity project? ACCA Tutor: The clarity project won't go away because its results are now embedded in auditing standards, but you won't be asked anything specifically on it I was told that 1) testing the order run of orders to ensure the sequence is complete, 2) matching a sample of del notes to invoices to ensure same customer names and addresses - were all substantive testing when I answered a question on tests of control. I thought they would be testing the computer entered the right details on both and also that it didn't miss out any order numbers - I'm confused ACCA Tutor: If you are doing a ToC then you have to be testing a control. The testing of the run order to ensure completeness is a substantive test unless you do it by testing that someone else ensures the order was complete and they evidenced their check What is the best tactics to understanding scenario based quest? ACCA Tutor: Well, you have to read it a couple of times usually I suggest you read the requirements first to alert you to look out for certain things. Use the 15 minute reading tiome on Q1 to read/reread/annotate 1
When asked about audit procedures (application question) you need to carry out for the purchases of a company, does it mean that we have to stick to the particular audit procedures needed for that company or can we be general about the procedures? ACCA Tutor: You have to direct your answers to any scenario given. So there's no point in going on about receivables in a cash based company What is the diff b/n management letter n management representation letter? ACCA Tutor: Management letter means the letter auditors write to management about control weaknesses, their likely effects and how to correct the weaknesses. Letter of rep is a letter from directors to auditors saying that all liabilities have been included etc, etc, etc Engagement letter is at the very start of becoming auditor - its sets out the contract Bank Confirmation letter is from bank not from auditor & Auditor do circularization ACCA Tutor: Well the auditor writes asking for matters to be specified and the bank responds with their letter Do we need to recite the audit report? ACCA Tutor: Not the whole thing. More likely to be asked the purpose of various paragraphs or you might be given on to criticize pneuminics is where you start breathing rapidly because you've forgotten something Do we really get extra marks for ISA's? ACCA Tutor: No marks given for ISA numbers/names as I understand form the examiner's article Will it be good to draw the stages of an audit in a diagram and explained it...if we are asked to explain the stages of an audit in the exams? ACCA Tutor: Yes - I imagine you have the diagram starting with understand entity etc, splitting between tests of control and substantive What s a purchase reserve account? ACCA Tutor: It's where you have received goods near year end and they are in inventory but you have no invoice you have to Dr Purchases/Cr Purchase reserve to get the cut-off right 2
Is it necessary to state what ISA states or is an understanding enough? ACCA Tutor: Understand. The way to do a good audit is to understand, not to recite numbers What is meant by Professional Scepticism? ACCA Tutor: It means that you have an attitude of not believing what you are told without supporting evidence. Caution is part of it, but caution in what is the real question. It means not accepting anything without evidence Can u differentiate inherent risk and control risk? ACCA Tutor: Inherent risk is the risk of an error occurring in the first place. Control risk is the risk that that error is not picked-up and correct by the client's system and staff. Inherent risk is partly controllable by the client - eg train you staff better. But sometime the nature o the business makes inherent risk high (eg a very complex business) Control risk is mort controllable by the client What are the major components of audit strategy? ACCA Tutor: Strategy id the big picture: e.g. tests of control or substantive, risk areas, important areas, timing, reporting deadlines. I have been made to believe that knowledge alone is insufficient to grant a pass but i have no practical opportunity. how do u advice me to gain the practical required ACCA Tutor: Do question/ read answers. Try to imagine yourself actually doing the audit and describing EVERY step you take and why you are doing it How do we assess the risk of material misstatement? ACCA Tutor: Use the risk approach: RoMM = IH x CR x DR + we have to assess materiality What's Detection Risk? ACCA Tutor: That's the risk the auditors don't pick up the Material Misstatement. The risk they don't detect it because they are inexperienced, the client is new, the audit staff does not have the necessary skills or bad luck with their sampling. What is audit risk? ACCA Tutor: It s the risk that an inappropriate audit opinion is given. 3
Has the auditor duty to detect fraud? if no how do u explain ISA 240? ACCA Tutor: They should detect material fraud because that implies a material misstatement. They have no duty to detect 'little' frauds What is the diff b/n having a duty, n having a responsibility? ACCA Tutor: I don't think there is much difference. Perhaps, in the sense you have no responsibility to detect immaterial frauds, but if you do you have a duty to report them to management. You could reverse the words 'duty' and 'responsibility' and not reality alter the meaning I think we are talking about the number of angels that can dance on the head of a pn. No marker will really care whether you use 'duty' or responsibility' Do auditors have a duty or responsibility to detect n prevent fraud? ACCA Tutor: Only material fraud Generally all errors, innocent or fraudulent, will be reported to management. Why wouldn't you? ONly material errors/problems would make it to the audit report Can we answer the questions in the orders we would like to... for instance 2nd, 3rd, 1st, 4th, 5th? ACCA Tutor: I would always do Q1 first. Get to know it in the reading time and then get it out of the way. If it really scares you, then perhaps do Q2 first How much would you say we need to know about IFAC and IAASB? ACCA Tutor: Just outline - their relationship to each other. No more than 5 marks I should think, ever I fail to recall the audit terminologies, would it be enough to explain in ordinary language? ACCA Tutor: No, try to recall the proper terms. Much more impressive Talk a bit about a non-audit engagement ACCA Tutor: I don't think there's a lot in the exam despite it being called Audit and Assurance. Know the difference between positive and negative assurance. Wages system question this time - good chance? ACCA Tutor: I think there's been quite a lot of those recently. Might favour Purchases myself 4
What underpins FS assertions? n what is assertion in real sense of the word? ACCA Tutor: Assertions: when a figure is printed in the Fs it is proclaimingcertin things. It is shouting qualities such as Accuracy, valuation, completeness cutoff etc. When the auditors give their report, they are reporting on each of thse assertions. They are saying that each figure is complete, valued properly, existing etc. They have to do work to verify all of those qualities What do we mean by lowballing? ACCA Tutor: An audit fee so low that you might make a loss and are relying on keeping friendly with the client to win other work OR thats charging the cleient lower fees than average to get thier business therefore comromising ur ethics. It is very risky, It is, indeed, compromising independence - to stay friendly, you might give a clean audit report when you shouldn't For the low fee may not cover the cost of a good audit and the firm may be looking for other work from the client to cover such a cost If in answering questions can i use abbreviations? for example i say "material misstatements in FS" ACCA Tutor: FS fine, ICQ fine. best to introduce full name eg Internal control questionnnaire (ICQ) then you can use the abbreviation after ACCA Tutor: Look for what could go wrong - transactions lost, arithmetic errors, fraud, etc and see if there are procedures in place to prevent all those nasties. Think seriously about submitting the exam to our marking service http://opentuition.com/acca/freeexam-marking-for-papers-f8-p3/ If you cheat, you are cheating yourself! 5