LEADER IN NURTURING CHARTERED ACCOUNTANTS

Transcription

1 1

2 CAA ITC BOARD COURSE 2018 AUDIT & ASSURANCE LECTURE 1 2

3 Menu 1. Introduction 2. Lectures Outline 3. Code of Professional Conduct 4. Pre-engagement Activities 5. Quality Control 6. Overview of planning 7. Identifying and assessing ROMM 8. Audit strategy and audit plan 3

4 Introduction Objectives of the board course To assist on the exam techniques in preparing for the ITC exams To highlight key areas that students need to focus on in preparing for the exam Provide guidance on the study approach to be taken in preparing for the exams 4

5 Exam structure The ITC examination is made up of 4 papers of 100 marks each written over a 2 day period; Each paper is made up of 100 marks, written over 3 hours (including 30 minutes reading time); Normally each exam paper integrates different competency areas for e.g. a paper may examine students on financial reporting and taxation principles using the same case study; and Candidates are not informed before hand of the topics examinable in each of the 4 papers. Exam dates: 24 and 25 January

6 ITC exam regulations Minimum of 200 marks (thus 50%) are required to pass the ITC; and Candidates need to demonstrate an appropriate level of competence in ALL areas and disciplines, and therefore the overall pass mark of 50% shall be subject to the candidate achieving a sub-minimum of 40% in at least three of the four professional papers; 6

7 Analysis of how subjects are examined Accounti ng and External reporting marks Strategy, Risk Manage ment & Governa nce marks Audit & Assurance marks Tax at ITC marks Financial Manage ment marks Manage ment, Decision making & control marks Ethics 0 20 marks Comms marks 25 30% 10 15% 15 20% 15 20% 10 15% 10 15% 0 5% 5 10% 7

8 Analysis of how subjects have been Account ing and External reportin g examined at ITC Strategy, Risk Manageme nt & Governance Audit & Assuran ce Tax Financial Managem ent Manage ment, Decision making & control Ethics Com ms June % 14% 15% 15% 12% 10% 3% 6% Jan % 10% 15% 16% 10% 12% 4% 5% June % 10% 17% 16% 13% 11% 3% 5% Jan % 11% 18% 15% 13% 10% 2% 5% June % 11% 19% 15% 11% 10% 0 6% Jan % 11% 17% 21% 10% 10% 0 5% June % 9% 17% 16% 12% 13% 3% 5% Jan % 12% 19% 15% 11% 11% 1% 5% 8

9 Competence framework: Proficiency Level A Awareness Key ideas and principles Technical expertise or detailed knowledge not required Identifies & explains significance and relevance levels Level I Initiates the task Performs task on preliminary basis Understands requirements of the task Identifies & applies the required professional skills Intermediate understanding Basic quantitative & qualitative analysis (excl. complex calculations) Integration straightforward Level X Completes the task Completes all elements of task Problem is clearly identified & thoroughly analysed, or situation is evaluated & useful recommendations are made Relevant pervasive skills & reflective capacity demonstrated at advanced level Advanced understanding Technical skills include complex calculations & concluding on an appropriate course of action (c) Chartered Accountants Academy - 9

10 Extract from competence framework 1 The competencies Level IV-1 Analyses, evaluates and advises on an entity s assurance I needs IV-2 Provides assurance services IV-2.1 Identifies and considers issues related to accepting an engagement I IV-2.2 Follows prescribed procedures to accept the engagement X IV-2.3 Determines which set of criteria to apply to the subject matter being evaluated I IV-2.4 Assesses materiality for the engagement I IV-2.5 Identifies and assesses the key risks in the performance of the engagement X IV-2.6 Designs effective and efficient procedures based on the engagement s scope and the assessed risks X IV-2.7 Performs the work plan X IV-2.8 Documents the work performed and its results X IV-2.9 Evaluates the evidence and draws conclusions I IV-2.10 Drafts the report upon completion of the engagement X IV-2.11 Prepares or interprets information for stakeholders I IV-3 Provides control-related services IV-3.1 Identifies and evaluates the risks pertaining to the entity s financial information systems X IV-3.2 Evaluates the entity s financial information systems, including the related controls X IV-4 Designs, implements and manages the quality control system in the firm A 10

11 How topics have been examined Topic Code of Professional Conduct Companies Act Years examined Jan 2014, Jan 2016, Jan 2017, June 2017 Jan 2014, June 2014, June 2015, Jan 2016, Pre- engagement Activities Client acceptance Jan 2013, Jan 2015, Quality Control June 2014, Planning and risk assessment Jan 2013, June 2013, Jan 2014, June 2014, Jan 2015, June 2017, Audit strategy and audit plan Jan 2014, June 2017 Corporate governance June 2014, June 2015, 11

12 How topics have been examined Topic Years examined Materiality Jan 2013, Fraud, laws and regulations Jan 2014, Jan 2016, Controls June 2013, Jan 2014, Jan 2015, Jan 2016, June 2016, Test of controls June 2015, Jan 2016, Substantive procedures Sampling Group Audits Jan 2017 Jan 2013, June 2013, Jan 2014, June 2014, Jan 2015, June 2015, Jan 2016, June 2016, Jan 2017, June 2017 Going concern Jan 2014, Jan 2016, June 2017 Audit reporting Jan 2013, 12

13 Common Issues raised from examiners General comments A serious problem experienced throughout the examination was that candidates were unable to apply their knowledge to the scenarios described in the questions; Regurgitation of theory with limited or no application; Candidates also do not appear to be able to identify the correct issues in the scenario provided; Candidates fared better in questions requiring calculations than in discursive questions ( issue major in auditing given the nature of auditing questions); In addition markers found that candidates used their own abbreviations (sms messaging style) in their answers; Marks are awarded for quality, not quantity. Verbosity is no substitute for clear, concise, logical thinking and good presentation; and Responses, particularly in auditing and Governance areas are often provided by simply repeating the information given in the question 13

14 Preparing study plan Perform gap analysis consider: Performance at CTA or past ITC exam; Topical issues from an auditing perspective e.g. Ethics (Guptas, auditor rotation etc. Assess how performance in FinAcc affects your auditing. Perform focused work on identified areas of weaknesses; 14

15 Session Topics Audit Lecture Outline 1 Code of Professional Conduct; Pre- engagement Activities Quality Control; Overview of planning and Obtaining an Understanding of the business Identifying and assessing risks of material misstatement Audit Strategy and Audit plan 2 Audit Strategy and Audit plan Companies Act Corporate Governance - King IV; Materiality in planning and performing an audit Fraud, laws and regulations Controls TOCs Substantive procedures; 15

16 Audit Lecture Outline Session Topics 3 Sampling CAATs Audit Evidence using the work of others Group Audits Evaluation and concluding Other Engagements 16

17 Code of Professional Conduct 17

18 Sub-Topic Analysis 1. To whom does the CPC Apply? 2. General Application of the code Fundamental principles; Threats to fundamental principle; Safeguards to identified threats 3. CA s in Public Practice Professional appointments; Conflict of interest; Second opinions; Fees and other types of remunerations; Marketing professional services; Custody of client assets; Gifts and hospitality and Independence Non-audit services 4. CA s in Business Conflicts of interest; and Preparation and reporting of information 18

19 Mind map 19

20 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls With reference to the information provided, discuss any concerns and considerations in terms of the ICAZ Code of Professional Conduct Students are expected to address the following in their discussion: Identify the infor in the scenario giving rise to the concern; Explain the type of threat arising from this infor and how it impacts compliance with independence and the fundamental principles; Evaluate the significance of the threat; and Propose safeguards to reduce or eliminate the threat. Students failing to articulate how the threat impacts compliance with the fundamental principles; Failing to link the threat to the information in the scenario. 20

21 Common Student Pitfalls Discuss any ethical and professional concerns arising from the information provided with reference to the ICAZ code of Professional conduct and ISQC1. Your discussion should also provide actions that may be taken to address the identified concerns. Students are expected to address the following in their discussion: Identify the infor in the scenario giving rise to the concern; Explain the type of threat arising from this infor and how it impacts compliance with independence and the fundamental principles; Evaluate the significance of the threat; and Propose safeguards to reduce or eliminate the threat. Students failing to articulate how the threat impacts compliance with the fundamental principles; Failing to link the threat to the information in the scenario. 21

22 Tutorial Analysis Question 4 (a) Question 12 (d) Question 10 (c) and (e) Question 13 (f) 22

23 Questions? 23

24 Pre-engagement activities 24

25 Sub-Topic Analysis Key topic areas: 1. Applicable ISA s and frameworks: a. ISQC 1 b. ISA 220 c. ISA 210 d. ISA 300 e. CPC 2. Client investigation a. Compliance with ethical requirements; and b. Business standing 3. Determine skills and competencies 4. Establish the terms of the engagement 25

26 Mind map 26

27 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls Discuss the factors that should have been considered prior to accepting the engagement The examiners will be expecting students to identify and discuss only those factors that are relevant to the decision of whether or not to accept the engagement; Students should also ensure that whatever factor they consider is relevant to the information as given in the exam scenario Students give generic considerations not relevant to the scenario Wording not in context Students coming up with considerations not relevant to the decision making process. 27

28 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls Describe the procedures that should be performed before accepting the engagement Students should identify and describe those procedures that would enable them to gather evidence relevant to the client acceptance decision making process. Failure to come up with procedures necessary to gather information when making a client acceptance/continuanc e decision. Poorly worded procedures 28

29 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls Critically evaluate the client acceptance procedures as documented in working paper WP/101 These type of questions should be addressed from a reviewer perspective where the students should assess the following: Completeness of client acceptance procedures performed. Appropriateness of procedures performed and conclusions reached. Lack of knowledge of client acceptance procedures resulting in failure to do a proper review. 29

30 Tutorial Analysis Question 1 (a) 30

31 Questions? 31

32 Quality Control 32

33 Key topic areas and standards: Sub-Topic Analysis 1. Quality control at firm level (ISQC 1); Leadership; Ethics; Client acceptance; Human resources; Engagement performance and Monitoring 2. Quality control on an individual audit (ISA 220); Leadership; Ethics; Client acceptance and continuance; Assignment of engagement teams; Engagement performance; and Monitoring 33

34 Mind map 34

35 Common Student Pitfalls Nature of questions Examiner s expectations Common Pitfalls Discuss any quality control concerns you may have and provide recommendations on how these can be addressed - Use elements of quality control in coming up with concerns; - Identify information in the scenario which provided evidence of things being done inappropriately - triggers; - Describe how a quality control element has been contravened based on the evidence from the trigger; Most of the recommendations raised by students were backward looking, where students were referring to what should have been done instead of explaining what needs to be done to rectify identified problems going forward. Failure by students to link concerns to specific quality control elements 35

36 Common Student Pitfalls Nature of questions Examiner s expectations Common Pitfalls Nature of questions Examiners expectations Common pitfalls Comment on the quality control issues raised by the audit manager s suggestions to improve the audit firm s profitability. Candidates will be expected to discuss how the audit managers proposals would impact quality control. Candidates would also be expected to answer the question with reference to the quality control elements in ISQC1 and ISA 220. Failure to come up with a adequate points; Failure to comment how the audit managers proposals would impact quality control. 36

37 Exam technique Nature of questions In relation to the audit of the Retriever Group, evaluate the quality control, ethical and other professional matters arising in respect of the planning and performance of the Group audit. Examiners expectations Candidates will be expected to: Identify and discuss infor which is giving rise quality control concerns; Discuss the concerns arising with reference to the quality control elements in ISQC 1 and ISA 220 Since its an evaluation students will be expected to conclude on their discussion. Common pitfalls Failure by students to link information provided in the case study to the quality control matters arising. 37

38 Tutorial Analysis Question 4 (a) 38

39 Questions? 39

40 Overview of planning Obtaining an understanding of the business 40

41 Sub-Topic Analysis Understanding of the need for planning; Identifying the key activities performed at planning stage; 41

42 Key activities performed during planning 1. Obtaining an understanding of the entity and its environment; 2. Obtaining an understanding of the entity's internal control; 3. Identifying and assessing the risk of material misstatements; 4. Determine the audit strategy and approach, and document these in the audit plan and programme; and 5. Setting materiality 42

43 Obtaining an understanding of the business Describe the type of information to be gathered as part of understanding of the client; Describe the procedures that can be performed in order to gather the information above; 43

44 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls Comment on the level at which you would set materiality. The examiners will expect candidates to discuss the basis of the materiality figures/amount chosen by addressing the following: Determine whether to use BS or IS figures; Determine whether you are going to use actual, budgeted or prior year figures; Calculate materiality based on ranges; Conclude on the materiality figure to be used. Students simply identifying a thump suck amount with no basis. 44

45 Common Student Pitfall Nature of questions Examiner s Expectations Common Pitfalls Explain why analytical procedures are performed as a fundamental part of our risk assessment at the planning stage of the audit. Candidates would be expected to discuss the relevance of analytical procedures when gathering audit evidence as part of risk assessment; Explain their understanding of analytical procedures Failure to articulate how analytical procedures can be used as part of risk assessment. 45

46 Common Student Pitfall Identify and explain the audit risks which should be considered in planning the Group audit. You should ensure that you consider all of the information provided as well as utilising analytical procedures, where relevant, to identify the audit risks. Identify both risks that may result in the misstatement of F/S and detection risks; In explaining the risks clearly articulate Why they think the risk exists (link to infor in the scenario) How the risk will result in the misstatement of the F/S or how it impacts on the ability of the auditor to gather sufficient appropriate audit evidence. Students coming up with risks that are totally divorced from the information in the scenario; Failure to identify adequate risks; Failure to explain how the risk may result in the misstatement of financial statements; Poor accounting (IFRS) knowledge. 46

47 Tutorial Analysis Question 5 (c) 47

48 Questions? 48

49 Identifying and assessing risks of material misstatement 49

50 Sub-Topic Analysis 1. Obtain an understanding of an entity; 2. Identify and assess audit risks at overall financial statements level and at assertion level; 3. Audit plan and audit strategy; and 4. Overall materiality 50

51 Mind map 51

52 Common Student Pitfalls Required Examiner s Expectations Common Pitfalls a. Discuss the impact of the information on your risk assessment; Risks at overall Financial statements level Risks at assertion level for inventory, revenue and accounts receivables Articulate the following: Description of the risk trigger from the scenario e.g. introduction of new billing system. How the risk trigger impacts risk assessment e.g. errors and mistakes may occur in using the new system as staff are not yet familiar with it which may result in the material misstatement of financial statements. Struggle with the distinction between risk at overall financial statements level and risk at assertion level. Describing business risks instead of audit risk by failing to articulate impact on the audit. Simply stating the assertion. 52

53 Common Student Pitfalls Required Examiner s Expectations Common Pitfalls Based on your identified risks of material misstatements at overall financial statements level describe the impact on the nature, timing, extent and resources required to perform the year end audit. Describe responses to identified risks at overall financial statements level - Coming up with responses for risks identified at assertion level e.g. perform more procedures on the rates used for imported inventories. - Memory dumping by some students i.e coming up with responses that were not in any way linked to the risk assessment done in part a. 53

54 Tutorial Analysis Question 2 (a), (e) and (f) Question 3 (a), (b) and (d) Question 8 (d) Question 13 (a), (b) and (c) 54

55 Questions? 55

56 Audit Strategy and Audit Plan 56

57 Sub-Topic Analysis Purpose of an audit strategy and audit plan; Factors that affect the audit strategy and audit plan; Principles on scope, timing, direction and resources in coming up with an audit strategy; Principles on nature, timing and extend in coming up with an audit plan. 57

58 Framework 58

59 Mind map 59

60 Common Student Pitfalls Nature of questions Examiner s Expectations Common Pitfalls Based on your identified risks of material misstatements at overall financial statements level describe the impact on the nature, timing, extent and resources required to perform the 2016-year end audit Describe responses to identified risks at overall financial statements level - Coming up with responses for risks identified at assertion level. - Memory dumping by some students i.e coming up with responses that were not in any way linked to the risk assessment. 60

61 Tutorial Analysis Question 3 (b) Question 5 (c) 61

62 Questions? 62