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“ADVANCED

ADVANCED AUDITING
AUDITING”

ICAP Module – F

Exam specific session

Summer 2010

Presenter: Zaryab Hyder


ACA,
ACA APA
INTRODUCTION

Advanced Auditing of Module F is the practical


expansion Audit exam of Module D i.e.i e more of real
situations in profession. Topics and matters covered
in Module D exam may not be subject to questions straightforwardly, nevertheless it
has to be considered as it take in the essential concepts which is extremely vital for
the examination in Module F.

• It is advisable to the students to revise the concepts they have studied in Module D
and how they have actually applied them all the way through their practical
experience. At this stage they have at least 2.5 years of practical audit experience,
which is also a key to grip the practical situations.

• IIn open book


b k exams, students
t d t are expected
t d to
t have
h grip
i on auditing
diti standards
t d d to t
effectively utilize the handbook i.e. which requirement is written where. Further,
answers require knowledge from other areas which are not covered in ISA handbook.
Open book section is discussed separately.

“Avoid being a Doctor without studying MBBS”


EXAMINER CONCERNS

1. Lacking of professionalism in approaching the answers and selection of words.

2. No use of appropriate words and terms specifically that relates to the given topic.

3. Answers too vague by not grasping the requirements.

4. No understanding of the core points in a particular question thereby losing the crust
of the question.

5. Relying heavily on open book and rote things.

6. Lack of linkage of audit with other areas i.e. IFRS / Local Laws.

7. Candidates should demonstrate that they have the ability to practice as a Chartered
Accountant.
Accountant
KEY TIPS

“If
If you fail to plan,
plan you are planning to fail”
fail

1. Linking
g auditing
g standards with relevant reporting
p g
framework – IFRS and Corporate Laws.

2 Taking
2. T ki mockk exams - best
b t way to
t simulate
i l t exam
situation / pressure.

3. Frequent revisions and use of pass-cards.


UNDERSTANDING REQUIREMENTS
Q
Requirement Meaning

• Identify Pick out a relevant issue / point from the scenario.

• Comment on Offer an opinion, debate a topic, express a reaction.

• Explain Clarify and provide extra details on a subject matter.

• Evaluate/assess Weigh up advantages and disadvantages and make


a judgment.

• Critically discuss Consider a subject in depth and come to an opinion.

• Justify Come to a conclusion and provide a strong


argument for a decision.
UNDERSTANDING REQUIREMENTS
Q cont….

• Selection of words should reflect p


professionalism. Example
p is to use the work “extra
care” which is not appropriate and proper word should be “use professional
skepticism”.

• Understanding the crust of the question.


question Q # 1 Summer 2008.
2008

• Understanding the requirement of a question upfront before reading the question. No


reading time so important to grab core points in first reading. Q # 1 Winter 2009.

• “All ends well which starts well”. Answer those questions, you feel you have well
prepared.

• Every question is not difficult nor lengthy. Try to get atleast 50% marks in difficult
questions and 80% marks in easy question to secure a pass.
DRAFTING THE ANSWERS
“Drafting bears extreme importance”

Lets analyze a situation where candidates are required to verify warranty provision and
were required to write audit procedures.

Too vague Specific


• Discuss with management Compare the current year provision with prior year
and discuss any fluctuation with the person
responsible for preparing the estimated provision.

• Get a representation Review board minutes for management’s discussion


of ongoing warranty claims, and for approval of the
amount provided.

• Check if the accounting treatment Review contracts or orders for the terms of the
is correct warranty to gain an understanding of the obligation
of the company.

• Compare to last year’s figure Compare prior year provision with actual expenditure
on warranty claims in the accounting period.
OPEN BOOK STRATEGY

• Plan from day one. Prepare briefing notes and link other areas of syllabus.

• There is a common perception that in open book exams, candidate will be able to
perform easily in exam.

• Open book can be handful for reproducing rote things i.e. wordings for reports under
ISAs, ISREs etc. BE CAREFUL !!!!

• S t off rules
Set l nevertheless
th l needs
d tto b
be memorized.
i d

• A good example is the Q # 3 (i) of Winter 2009 attempt which asked whether spouse
of a p
partner in firm p
providing
g tax services to one of the audit client p
poses threat to
independence?. The set of rules under ICAP code of ethics describes that overall tax
services are allowable. It required application of knowledge as those candidates who
understood the reasons for allowing tax services to audit clients were able to produce
the correct answer.
OPEN BOOK STRATEGY cont….
Lets consider ISA 550 “Related Parties” and analyze what difference can open book make in
preparations:

• Understand the objectives underlying this ISA.

• Only paragraph 8 can be capitalized in case of open book, which require listing of audit
procedures to identify completeness of related parties.

• Other requirements require practical application. Example is paragraph 11 which discusses


indications of existences of previously unidentified related parties. E.g. would be “transactions
processed in unusual manner”. Now what is unusual dependent
p p on a p
particular case in exam,
which candidates need to identify and answer.

• Requirements of IAS 24. Most important is the definition and disclosures. Link with fraud.

• CCG clauses including the recent changes on which there is ICAP circular 9/2009 dated Aug 11,
2009 to change the review report of CCG.

• p
Relevant sections of Companies Ordinance, 1984 including
g section 3, 195 and 208. Further there
th th
are disclosure requirements in 4 and 5 schedule relating to related parties which candidates
must consider.
STUDY MATERIAL

• International Standards on Auditing (ISAs) – IAASB.


• Audit TRs issued by ICAP.
• Members handbook containing CA Ordinance and Bye-Laws.
• p
Selected Opinions by
y ICAP.
• Circulars relevant to the audit.
• Members Information and Education Series (MIES).
• Relevant articles from Student Accountant (ICAP)
(ICAP).
• Accounting TRs issued by ICAP.
• Relevant requirements of Corporate and Local Laws.
• Relevant requirements of IFRS.
• Current issues and articles. (From IAASB, ACCA or ICAEW).
PRACTICE MATERIAL

• Past ICAP papers. Last 4 to 5 attempts atleast.

• ACCA P7 ethical and quality control / professional


matters.

• ICAEW for specific practice i.e. going concern etc.

• Practical issues i.e. Satyam / Enron for weaknesses.

• Matters raised at ICAP for discrepancies in the audit /


matters raised by SECP.
KEY AREAS

S.N Marks asked in past papers


Key areas
O Win09 June09 Win08 June08

Ethical requirements including


#1 22 marks 22 marks 22 marks 25 marks
quality control considerations.

Requirements of all the ISAs other


#2 53 marks 30 marks 58 marks 32 marks
than reporting.

Reporting requirements for audits


#3 and special audits. 12 marks 10 marks 10 marks 14 marks

Other areas including: ISRE,


ISRS, ISAE, IAPS and reports
#4 12 marks 38 marks 10 marks 29 marks
relating
g to them. C
Corporate
p Laws
and TRs.
# 1. ETHICAL REQUIREMENTS INCLUDING
QUALITY CONTROL CONSIDERATIONS
i) Important areas of code of ethics:
- Independence (Link with ISQC requirements on ethics)
- Confidentiality
- Fees and related matters
- Professional appointments (Link with ISQC – client acceptance)
- Ethical conflicts

ii) Major areas of quality control are:


- Client acceptance and continuance requirements
- Engagement performance

iii) Study the above topics from:


a) Code of ethics
b) ISQC-1 + ISA 220
c) Companies Ordinance 1984, CA bye-laws and CCG + ICAP QCR related circulars.
d) Selected Opinions and audit TRs relevant to above topics.

iv) Practice them from:


a) ICAP past papers
b) ACCA P7 questions
c) ICAEW part A questions
d) Ethical lapses in Satyam or Enron scandals etc.
# 2. Requirements of ISAs

i. Specific requirements of a particular ISA i.e. going concern or management


representations.
p

ii. The manner in which a particular ISA can be tested.

iii
iii. Practical issues regarding particular ISA and implications.
implications

iv. In case of open book, prepare summaries of core requirements of ISAs and
link with the related matters given in IFRS or local laws + SO / TRs of ICAP.

v. Correlation is extremely important here, which can never be achieved by


merely studying the ISAs.

vi
vi. Remember the matters right from planning till the conclusion,
conclusion including issues
encountered and its resolution throughout practical exposure with the firm.
# 3. Reporting under ISAs

i. Reporting can be asked in three manners:

a) One requires reports to be drafted. (Easy marks. Q # 7 (b) of Summer 2008


required to write report on projection. Many candidates wrote report on
forecast and lost simple 04 marks).

b) Others which
Oth hi h requires
i opinion
i i on specific ifi matters
tt and
d itits iimpactt on th
the audit
dit
report. (Use materiality of the matter, rules of IFRS and able to draft
qualification. For modifications it is extremely important to quantify the matter,
in which candidates struggle. Q # 7 of Winter 2009).

c) Reporting to management. (Management letter or letter to Audit Committee).

ii. ISA 700 to 720 and ISA 800. Other reporting responsibilities are mentioned in
Corporate Laws,
Laws which may or may not be asked.
asked Example would be auditor
certificates on free reserves or dividend remittance.

iii. Students should be good at drafting. Watch your grammar, punctuation,


g and spelling.
handwriting p g
# 4. ISRE, ISRS, ISAE, IAPS AND REPORTS.
CORPORATE / LOCAL LAWS

i. Specific standards and question can be set on specific requirements. Not knowing
a particular standard can cause a whole question loss in the exam.

ii. Important to understand the scope of questions. Example would be a particular


scenario requiring procedures and subsequently report. Students need to
understand whether assurance is required? If yes at which level.

iii. Example is the Q # 5 of Summer 2009 in which report can be produced from ISAE
3000 or ISRS 4400.

iv. IAPS general understanding is required. No need to make synopsis of IAPS.


Knowing the core requirements will be enough except IAPS relating to small
companies and compliance with IFRS, which have very few requirements.

v. Example would be in case of IAPS relating to bank audits, knowledge of risks


p
relevant to banks or specific p
procedures will ensure p
passing
g marks in the exam.

vi. Example of local law question is Q # 9 of Summer 2009 requiring to prepare Audit
Program on dividend, in which students also required to mention local laws
requirements.
ANALYSIS OF JUNE 2009 EXAM
Level of
Q# Key areas Answer considerations
difficulty
1 Average #2&#3 i) Allocate marks to four parts. ii) Consider materiality upfront. iii)
Consider individual part & based on materiality describe course of
10 marks action. iv) Consider the application of IFRS. v) In part four ICAP TR
was tested. vi)) Format of answer should be considered.
2 Average #2#3 i) Requirement of IAS 1 and ISA 570. ii) Knowledge of liquidation
basis of accounting. iii) Reproduce adverse opinion from ISA 570.
10 marks Open Book
3 Difficult #2 i) Warrant is an accounting estimate. ii) Consideration of ISA 540. iii)
Part A required inquiries to be made and B audit procedures
procedures.
15 marksk
4 Easy #2 i) Format of the answer. ii) Risk indicators given, therefore only
comment on implications. iii) Knowledge of group audit considerations
9 marks including foreign operations.
5 Average #2#4 i) Knowledge of ICAP accounting TR TR. ii) Reproduce report from open
book. iii) Scope of the report is very imp as students can answer it
15 marks Open Book from ISAE or ISRS.
6 Easy #1 i) Simple marks from confidentiality. ii) Application of rules tested.
10 marks
7 Easy #4 i) Compilation report. Ii) Reproduce report from ISRS 4410.
7 marks Open Book
8 Average #1 i) ISQC considerations. ii) Code of ethics independence. iii) ICAP
Ordinance and bylaws
bylaws.
12 marks
9 Difficult #4 i) Knowledge of local laws. ii) Audit experience to prepare Audit
Program considering all relevant assertions.
12 marks
ANALYSIS OF WINTER 2009 EXAM
Level of
Q# Key areas Answer considerations
difficulty
1 Average #2 i) knowledge of ISA 315 with knowledge of implication of matters. ii)
Consider application of IFRS i.e. IAS 21. iii) Consider fraud risk factors. iv)
25 Marks Opening balances. v) Group audit risk factors. vi) For verification of foreign
loan and capex requirements of local laws and relevant IAS.
2 (a) Average #2&#3 i) Audit procedures regarding a contingent amount. ii) Implications i.e.
provisions of contract, subsequent events, confirmations. iii) Implication on
12 Marks audit report.
2 ((b)) Easy
y #2&#3 i) As per IAS 37 disclosure is required. ii) Emphasis of matter due to material
uncertainty.
04 Marks
3 Easy #1 i) Application of rules from ICAP code of ethics. ii) CCG requirements.
11 Marks
4 Difficult
Diffi lt #1&#2 i) Practical sit
situation
ation req
required
ired kno
knowledge
ledge of steps to be taken
taken. ii) Can not be
answered from specific ISA. iii) Application of experience iv) Code of ethics
12 Marks conflict of rules.
5 Easy #1 i) ISQC requirements. ii) Audit documentation.
11 marks Open book
6 Average #4 i) Knowledge of CCG. ii) Must understand the mandatory and preferable
clauses. iii) Review report so opinion wording from ISRE.
12 marks

7 Difficult #3 i)) Qualification wording


g from open
p book. ii)) Knowledge
g of consolidation. iii))
Ability to quantify the effects.
11 marks Open Book
CONCLUSION

Q
Questions
ti are appreciated
i t d !!!

Thank you….

Best of luck for your exams !!!

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