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ACCA P7

Advanced Audit and Assurance (AAA)

高级审计与鉴证业务

ACCA Lecturer: Iris Nie

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A Brief Introduction to P7

Review Session for F8

P7 Chapter 1 Contents


Contents of P7 Paper

Part A Regulatory environment

Part B Professional and ethical considerations

Part C Practice management

Part D Audit of historical financial information

Part E Other Assignments

Part F Reporting

Part G Current issues and developments


Main capabilities


Syllabus

P2

(CR)

P7

(AAA)

F8

(AA)


Review of Fundamental Concepts

What is assurance?

Increase

confidence

Reduce

risk


What is Assurance?

The International Framework for Assurance

Engagements states that the objective of an

assurance engagement is:

for a practitioner to evaluate or measure subject

matter against identified suitable criteria that is the

responsibility of another party, so that they can

express an opinion that provides the intended user

with a level of assurance about that subject matter.


The Five Elements

The Three Parties:

Practitioner / Intended Users / Responsible Party

The Subject Matter ----- Subject Matter Information

Suitable Criteria

Sufficient Appropriate Evidence

A Written Report


What is Assurance?

Subject matter

or

Subject matter

information

Responsible

party

Suitable

Criteria

Practitioner

Intended users

Examines

(Evidence)

Report to


Assurance Engagement

Assurance

engagement Reviews （审阅）

Other assurance

engagements

Audit

Internal Audit

External Audit

Other

Related services Compilation（代编报表）

Agree-upon procedures （商定程序）


Audit engagement

The objective of an external audit engagement is to

enable the auditor to express an opinion on whether the

financial statement

give a true and fair view (or present fairly in all

material respects) .

are prepared, in all material respects, in accordance

with an applicable financial reporting framework.


Materiality

Misstatement, including omissions, are

considered to be material if they, individually or in

the aggregate, could reasonably be expected to

influence the economic decisions of users taken

on the basis of the financial statements.

--- ISA320 materiality in planning and performing

an audit


Materiality

½~1% of revenue

5~10% of profit before tax

1~2% of gross assets


Audit Risk

Audit risk

Detection risk Inherent risk Control risk × ×


Audit Risk

Audit risk——the risk that the auditor expresses an

inappropriate opinion when the financial statements

are materially misstated.

Inherent risk——This is the susceptibility of an

assertion to a misstatement that could be material,

either individually or when aggregated with other

misstatements, assuming that there are no related

internal controls.


Audit Risk

Control risk——This is the risk that a misstatement that

could occur in an assertion, and that could be material,

either individually or when aggregated with other

misstatements, will not be prevented, or detected and

corrected, on a timely basis by the entity’s internal

control.

Detection risk——This is the risk that the auditor will

not detect a misstatement that exists in an assertion that

could be material, either individually or when aggregated

with other misstatements.


Past Exam Paper

Jun 2013 Q1(a)

(a) Perform preliminary analytical procedures and

evaluate the audit risks to be considered in planning the

audit of the financial statements, and identify and

explain any additional information that would be

relevant to your evaluation; and (24 marks)

(b) Discuss any ethical issues raised and recommend

the relevant actions to be taken by our firm. (7 marks)


Past Exam Paper

Dec 2013 Q1 (a)

(i) Explain the risks of material misstatement to be

considered in planning the Group audit, commenting

on their materiality to the Group financial statements;

and (12 marks)

(ii) Identify any further information that may be

needed. (4 marks)


Professional Skepticism

A questioning attitude

Being alert to conditions which may indicate

possible misstatement due to fraud and error

A critical assessment of audit evidence


Going Concern

The assumption that the enterprise will continue in

operational existence for the foreseeable future.


Sep & Dec 2015 Q2 Kandinsky Co

Kandinsky Co is a manufacturer of luxury food items including

chocolate and other confectionery which are often sold as gift

items individually or in hampers containing a selection of

expensive items from the range of products. Due to an economic

recession sales of products have fallen sharply this year, and

measures have been implemented to support the company’s cash

flow. You are aware that the company only has $150,000 in cash

at the year end.



Revenue and profitability

The extract financial statements show that revenue has fallen by

38.2%. Based on the information provided, operating profit was

$1,150,000 in 2014 but is only $340,000 in 2015. Operating

margins have fallen from 29.1% to 13.9% during the year and the

fall in revenue and margin has caused the company to become

loss-making this year.



These changes are highly significant and most likely due to the

economic recession which will impact particularly on the sale of

luxury, non-essential products such as those sold by Kandinsky

Co. The loss-making position does not in itself mean that the

company is not a going concern, however, the trend is extremely

worrying and if the company does not return to profit in the 2016

financial year, then this would be a major concern. Few

companies can sustain many consecutive loss-making periods.

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