Paper F8 - ACCA Global

1 Fundamentals Level Skills ModuleTime allowedReading and planning: 15 minutesWriting:3 hoursThis Paper is divided into two sections:Section A ALL 12 questions are compulsory and MUST beattemptedSection B ALL SIX questions are compulsory and MUST beattemptedDo NOT open this Paper until instructed by the reading and planning time only the question Paper may be annotated. You must NOT write in your answer booklet untilinstructed by the question Paper must not be removed from the examination F8 Audit and AssuranceThursday 4 December 2014 The Association of Chartered Certified AccountantsSection A ALL 12 questions are compulsory and MUST be attemptedPlease use the space provided on the inside of the Candidate Answer Booklet to indicate your chosen answer to eachmultiple choice Which TWO of the following should be included in an audit engagement letter?

2 (1) Objective and scope of the audit(2) Results of previous audits(3) Management s responsibilities(4) Need to maintain professional scepticismA1 and 2B1 and 3C2 and 4D3 and 4(2 marks)2 Auditors have a professional duty of confidentiality under ACCA s Code of Ethics and Conduct; voluntary disclosure ofinformation may be necessary in certain which TWO of the following situations should an auditor make VOLUNTARY disclosure?(1) If an auditor knows or suspects his client is engaged in money laundering(2) Where disclosure is made to non-governmental bodies(3) Where it is in the public interest to disclose(4) If an auditor suspects his client has committed terrorist offencesA1 and 4B1 and 3C2 and 4D2 and 3(2 marks)3 ISA 580 Written Representationsrequire auditors to obtain written representations to support other which of the following matters would a written representation NOT be suitable as audit evidence?

3 AThat all deficiencies in internal control known to management have been communicated to the auditorBThat subsequent events requiring adjustment or disclosure in the financial statements have been dealt withappropriatelyCThat the payroll charge for three months of the year when the accounting records were unavailable is correctlystated DThat management has fulfilled their responsibility for the preparation and presentation of the financial statements(2 marks)24 Which TWO of the following substantive procedures provide evidence over the EXISTENCE of trade receivables? (1) Agreeing a sample of goods despatched notes to sales invoices and to the sales ledger(2) Undertaking a receivables circularisation(3) Review of post year-end cash receipts, if these relate to year-end receivables follow through to the sales ledger(4) Recalculating the allowance for uncollectible accountsA1 and 3B2 and 4C2 and 3D1 and 4(2 marks)5 Which of the following is NOT a responsibility of the auditor?

4 ATo provide an opinion on the truth and fairness of the financial statementsBTo conduct an audit in accordance with International Standards on AuditingCTo express an opinion on the company s going concern status(1 mark)6 Which of the following procedures are TESTS OF CONTROL an auditor should perform in testing the inventorycycle of their client whilst attending the inventory count?(1) Observe whether the client s staff are following the inventory count instructions(2) Review inventory present in the warehouse for evidence of damage or obsolescence(3) Obtain a sample of the last goods received notes and goods despatched notes and follow through to ensureinclusion in the correct accounting period(4) Inspect and review management s inventory count instructionsA2 and 3B1 and 4C1 and 2D3 and 4(2 marks)7 Which of the following is NOT an advantage of a company outsourcing its internal audit function?

5 AThere will always be a reduction in costsBProvides access to specialist skillsCCan provide access to an internal audit team immediately(1 mark)3[ Which of the following is NOT an audit software technique?AUsing computer programs to extract a sample for a receivables circularisationBRunning a computer program to test the addition of the cash bookCUsing a computer to perform an analytical review comparison of administration expenses against the prior yearDEntering a sample of dummy sales orders through the computer system which takes customers over their creditlimit to ensure the system rejects the orders(2 marks)9 Which of the following is a DISADVANTAGE of recording accounting and control systems using internal controlquestionnaires?]

6 AThey may contain a large number of irrelevant controlsBIt can be difficult to identify missing controlsCThey are time consuming to complete (1 mark)10 Which of the following statements, if any, is/are correct?(1) Internal auditors should report to the finance director as they understand internal controls and are best placed toimplement any recommendations in a timely manner(2) Companies are not required to establish and maintain an internal audit functionA1 onlyB2 onlyCBoth 1 and 2 DNeither 1 nor 2(2 marks)11 Is the following statement true or false?Audit risk is a function of two components, inherent risk and control (1 mark)12 Which of the following statements, relating to the auditor s reporting responsibilities for going concern, if any,is/are correct?

7 (1) Where management is unwilling to make their assessment of the company s ability to continue as a goingconcern, the auditor should include an emphasis of matter paragraph in the audit report(2) Where the use of the going concern assumption is inappropriate, the auditor should include a qualified opinionin the audit report A1 onlyB2 onlyCBoth 1 and 2 DNeither 1 nor 2(2 marks)4 Section B ALL SIX questions are compulsory and MUST be attempted1 (a)ISA 300 Planning an Audit of Financial Statementsprovides guidance to auditors. Planning an audit involvesestablishing the overall audit strategy for the engagement and developing an audit plan. Adequate planningbenefits the audit of financial statements in several :Explain the importance of audit planning.

8 (5 marks)(b)You are the audit senior in charge of the audit of Swandive Co (Swandive), and have been informed by your auditmanager that during the year a fraud occurred at the client. A payroll clerk set up fictitious employees and thewages were paid into the clerk s own bank account. This clerk has subsequently left the company, but the auditmanager is concerned that additional frauds have taken place in the wages :Describe procedures which should be undertaken during the audit of wages as a result of the manager sassessment of the increased risk of fraud.(5 marks)(10 marks)2 You are the audit supervisor of Seagull & Co and are currently planning the audit of your existing client, Eagle HeatingCo (Eagle), for the year ending 31 December 2014.

9 Eagle manufactures and sells heating and plumbing equipmentto a number of home improvement stores across the has experienced increased competition and as a result, in order to maintain its current levels of sales, it hasdecreased the selling price of its products significantly since September 2014. The finance director has informed youraudit manager that he expects increased inventory levels at the year end. He also notified your manager that one ofEagle s key customers has been experiencing financial difficulties. Therefore, Eagle has agreed that the customer cantake a six-month payment break, after which payments will continue as normal. The finance director does not believethat any allowance is required against this October 2014 the financial controller of Eagle was dismissed.

10 He had been employed by the company for over 20 years, and he has threatened to sue the company for unfair dismissal. The role of financial controller has not yetbeen filled and so his tasks have been shared between the existing finance department team. In addition, thepurchase ledger supervisor left in August and a replacement has been appointed in the last week. However, for thisperiod no supplier statement reconciliations or purchase ledger control account reconciliations were have undertaken a preliminary analytical review of the draft year to date statement of profit or loss, and you aresurprised to see a significant fall in administration expenses. Required:Explain FIVE audit risks, and the auditor s response to each risk, in planning the audit of Eagle Heating Co.