Audit Manual Audit Procedures Manual Version Audit Exemption Specialist Assignment Manual

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1 What s changed? Audit Manual Audit Procedures Manual Version 11.0 Audit Exemption Specialist Assignment Manual Version 12.0 We are pleased to issue an update to your Mercia Audit Manual, Audit Procedures Manual and Audit Exemption Specialist Assignment Manual (SAM) (dated 02/15). The principal technical changes in these updates relate to: New UK Generally Accepted Accounting Practice (GAAP) new UK GAAP pro-forma financial statements - we have incorporated pro-forma financial statements for companies adopting FRS 102 and FRSSE 2015 within both the Audit Manual and the Audit Exemption SAM. These compliment disclosure checklists within the manuals that address the disclosure requirements of the new standards; auditing new UK GAAP financial statements - we have incorporated a number of changes within the Audit Manual to help you successfully audit FRS 102 financial statements and the transition adjustments arising from a change of financial reporting framework. Changes include a new engagement letter paragraph, a change of financial reporting framework impact assessment and risk analysis and updated audit programmes. We have also taken the opportunity to make a number of non-technical improvements to the audit programmes. Related changes have been made in the Audit Exemption SAM, including a new impact assessment form and amendments to the audit exemption programmes. Appendix II provides further detail regarding these changes to the Audit Manual and the Audit Exemption SAM. Risk linkage and controls we have made a number of changes to the systems and internal controls, risk assessment and individual area audit plan documentation within the Audit Manual. These changes have resulted from feedback received from subscribers and also from our audit quality monitoring file reviews and aim to improve the quality of documentation of controls, risk and the audit approach at planning. 02/15 1 Audit Manual

2 Appendix III provides further detail regarding these changes and guidance on how to use the updated PF2-3, B32 and B33/X2 forms in the Audit Manual. A full list of all of the changes made in this update can be found in Appendix IV. Assurance The number and proportion of audit exempt companies has been growing since audit exemption was first introduced and with limits likely to increase further there is potential for increased demand for assurance services to bridge the gap between accounts compilation and audit. We have therefore developed a new comprehensive, standalone Assurance SAM for those who are interested in offering assurance review engagements to their clients, in accordance with the International Standard on Review Engagements (ISRE) 2400 (Revised) and other relevant requirements and guidance. As such in the update to the Audit Exemption SAM we have withdrawn the previous documents and guidance referring to the old ICAEW assurance service (Tech AAF 03/06). What s next? Changes to company law and small company accounting standards Over the coming months we anticipate the finalisation of legislation and accounting standards that will affect the financial reporting requirements of companies. These changes will have the most significant effect on requirements for small companies, though will also affect non-small company disclosure requirements in both the Audit Manual and the Audit Exemption SAM. We therefore anticipate issuing a further update to both the Audit Manual and Audit Exemption SAM later this year which will principally affect the small company disclosure checklists and pro-forma financial statements. Help with new UK GAAP For more information on changes in financial reporting affecting small and non-small entities, you might like to visit our new UK GAAP website which includes a number of free downloads that summarise the key changes - including, from February 2015, Changes in financial reporting. Big Changes for Small Entities, discussing the anticipated changes noted above. Contact us We are always pleased to receive feedback on our manuals, including any improvements that you would like to see incorporated. Please contact me or my colleague Jenny Faulkner if you have any comments to make. David Smith FCCA February /15 2 Audit Manual

3 Appendix I How to access the updates The updated manuals are available to download from our online services website: 1. Visit 2. Click on SIGN IN in the top right hand corner of this webpage. 3. Enter your sign in details. Forgotten your username or password? If you have forgotten your username or password click on the link to I have forgotten my username or password and follow the instructions. You will then be able to set up a new password. 4. Once you have signed in, follow the link to View my software and downloads in the My Downloads area and on the next screen click on the Support tab. The updated versions of the manuals are available to download (as a single download - Audit Manual Suite 11.0 (Feb 15)). Click on the link and save the download to your chosen destination. 5. Click on the set up file downloaded to your chosen destination from step 4 above. You can then install the manuals to your chosen destination. The default destination will continue to be your program files, under a Mercia folder: C:\Program Files\Mercia\Audit Manual 11.0 C:\Program Files\Mercia\Audit Procedures Manual 11.0 C:\Program Files\Mercia\SAM - Audit Exemption 12.0 If you wish to store the manuals elsewhere, please browse to your preferred location during the installation process. Where the manuals are installed direct on to your computer you will be able to access them from icons installed on your desktop, as well as through the folder containing program files on your hard drive. Adjusting your macro security settings in Microsoft Word You may find that you have to adjust your macro security settings in Microsoft Word in order to access the manuals. You ll find guidance on how to do this in appendix V. Implementation The updated versions of the manuals should be used with immediate effect. Further implementation guidance is provided in appendix II and appendix III of this document. 02/15 3 Audit Manual

4 Contact us Administration queries: Installation queries: Jessica Butler at David Hirst at or James Herrick at Mercia website login details requests: Audit exemption technical queries: General Audit Manual enquiries: Audit & Accounts Team at David Smith at Telephone: Jenny Faulkner at 02/15 4 Audit Manual

5 Appendix II New UK GAAP (Audit Manual) Pro-forma financial statements, impact assessment and updated audit programmes The move onto new UK GAAP for a majority of entities within the scope of the Audit Manual will have an impact on amounts recognised, measured and presented within the financial statements. This, in turn, will see an effect on the audit approach undertaken. We have incorporated a number of enhancements within this version of the Audit Manual to help address the challenges faced by audit teams as a result of a change of financial reporting framework. This appendix outlines these enhancements, which sit within four general areas: 1. FRS 102 and FRSSE 2015 pro-forma financial statements; 2. Change of Financial Reporting Framework Impact Assessment and Risk Analysis (B32-FRF); 3. General enhancements to audit programmes; and 4. Specific enhancements to audit programmes. Further detail on the application of these enhancements is also provided below (see 5. Audit programme application guidance ). It should also be noted that the ICAEW has published a Technical Release TECH 13/14 AAF Issues for Auditors Arising from the Implementation of FRS 102 (September 2014). It is strongly recommended that teams planning and undertaking engagements are aware of the issues identified within this guidance, many of which are addressed through enhancements within this update. 1. FRS 102 and FRSSE 2015 pro-forma financial statements We have included pro-forma financial statements for a not-small company preparing its financial statements in accordance with FRS 102 in section D of this manual. These pro-forma financial statements compliment the new UK GAAP disclosure checklists previously incorporated within the manual. We have also made minor amendments to the small company pro-forma financial statements and disclosure checklist to ensure compliance with FRSSE (effective January 2015). As noted above, over the coming months we anticipate the finalisation of legislation and accounting standards that will affect the financial reporting requirements of companies. These changes will have the most significant effect on requirements for small companies; though will also affect non-small company disclosure requirements in this manual. 2. Change of Financial Reporting Framework Impact Assessment and Risk Analysis (B32- FRF) We have incorporated an additional form to aid the identification and analysis of factors relevant on a change of financial reporting framework (ie. a move onto FRS 102). This form is split into two areas: Impact assessment The impact assessment is designed to be used to document the areas of an entity s financial statements susceptible to change or material misstatement as a result of fraud or error as a result of a change in financial reporting framework. It is also used to assess the impact of identified changes. The impact assessment should be used to help tailor an appropriate response within the planned audit approach. 02/15 5 Audit Manual

6 Risk analysis Where deemed necessary, this risk analysis is used to identify factors that indicate increased risk in the following areas: independence; general; fraudulent financial reporting; entity and environment, systems and controls; materiality and misstatements; accounting estimates and fair values; availability of evidence; going concern; and groups. The risk analysis also provides guidance as to where indicators of increased risk should be addressed elsewhere on the file. It is also used to help tailor an appropriate response within the planned audit approach. The B32-FRF is designed to be used as part of the risk assessment process to provoke consideration of how the change in financial reporting framework affects the entity s financial statements and how the team plan to address issues within the planned audit approach. Whilst the B32-FRF is designed to be used in the year that a new financial reporting framework is first adopted, teams may choose to complete the form in earlier periods to help plan for the impact of the changes. 3. General enhancements to audit programmes We have taken the opportunity to incorporate a number of general enhancements to the audit work programmes. These enhancements derive from user feedback and the impact of new UK GAAP. Changes include: updated area objectives; inclusion of accounting policy assessment within part A General and Mandatory Tests ; updated part B Tests of Controls and standard test wording; inclusion of procedures relevant to consideration of transition adjustments on a change of financial reporting framework in part C Non-Audit Services and Part E Tests of Detail, including examples; inclusion of enhanced substantive analytical procedures guidance in part D Analytical Procedures and example expectation sources; and other general updates (rewording / reorganisation of tests) within parts A-E of the audit programmes to reflect current practice. Further detail on the application of these enhancements is also noted below (see 5. Audit programme application guidance ). 4. Specific enhancements to audit programmes We have also made a number of specific enhancements to the Part E Tests of Detail section of the audit programmes. A majority of these enhancements are made to ensure that key tests likely in the event of a change of financial reporting framework (ie. a transition onto FRS 102) are included and that examples of tests that become more pertinent (eg. in relation to fair values) are included in the pre-tailored list of tests. 02/15 6 Audit Manual

7 Key enhancements to each area of the file include: Section C - Taxation Enhanced review of tax computation and deferred tax calculation procedures (tests 1 and 9); Assessment of tax allocation / presentation (test 14); and Consideration of transition adjustments (test 12). Section D - Directors and related parties Testing is now split into two main areas: directors remuneration and related party transactions and balances; Review of terms and conditions of agreements (tests 11 and 18); Review of financing transactions (tests 11, 13, 14 and 18); and Consideration of transition adjustments (test 16). Section E - Fixed assets Enhanced intangibles work programme; Enhanced valuation testing (tests 18 to 20 and 34 to 36); Review of accounting exemptions and options applied (tests 21, 22, 37 and 38); and Consideration of transition adjustments (test 45). Section F - Investments Enhanced valuation testing (tests 9-11); Review of accounting exemptions applied (test 15); and Consideration of transition adjustments (test 17). Section G - Stocks Stocktake supplementary programme reformatted to ensure consistency with changes made in part A General and Mandatory Tests in this area; and Consideration of transition adjustments (test 35). Section H - Income and debtors Enhanced factoring / invoice discounting testing (test 7); Enhanced other debtors testing including financing transactions (tests 12 to 16 and 41); Inclusion of testing relating to other financial instruments (eg. derivatives) (tests 17 to 24 and 42); Inclusion of hedge accounting tests (tests 25 to 27); Consideration of transition adjustments (test 56); and Review classification of debtor balances (test 61). Section I - Bank and cash Consideration of transition adjustments (test 11); and Statement of cash flows review (test 21). Section J - Expenditure and creditors Enhanced other creditors testing, including loans and financing transactions (tests 6 and 21-25); Inclusion of testing relating to other financial instruments (eg. derivatives) (tests 7 and 35-42); Enhanced finance lease testing (tests 28 to 34); Inclusion of hedge accounting tests (tests 43-45); Consideration of transition adjustments (test 46); and Review classification of creditor balances (test 61). 02/15 7 Audit Manual

8 Section K - Provisions, contingencies and commitments Part A General and Mandatory Tests includes testing of litigation and claims; Consideration of embedded derivatives and operating lease incentives (tests 17 to 21 and 26); and Consideration of transition adjustments including review of relevant documentation to assess completeness (test 22). Section L - Share capital and reserves Enhanced testing on transfers between reserves, share based payments and hedge accounting (tests 8-10); and Consideration of transition adjustments (test 25). Section M - Wages, salaries and pensions Inclusion of share-based payments testing (tests 13 to 18); Enhanced defined benefit scheme testing including work of experts / accounting estimates tests (tests 22 to 28); Review of accounting exemptions applied (test 29); and Consideration of transition adjustments (test 30). Section N - Trial Balance Consideration of transition adjustments (test 8); and Assessment of presentation of transition adjustments, errors or other prior period adjustments (tests 10 to 11). Section P - Intra group and consolidations Review of financing transactions (tests 4 to 5); Enhanced business combinations and goodwill testing (tests 25 to 36); Review of accounting exemptions applied (test 37); Consideration of transition adjustments (test 38); and Review classification of group balances (test 40). Further detail on the application of these enhancements is also noted below. 5. Audit programme application guidance It is recommended that all audit engagements for new audit clients are planned using the relevant updated programmes, which will need to be tailored as appropriate. For existing audit clients, teams have a number of options for application: a. Run new programmes from this version of the Audit Manual and tailor as appropriate. b. Retain existing tailored programmes (ie. from previous year), review as part of planning and incorporate new testing / guidance as applicable: i) general enhancements - teams may look to incorporate all or some of the general enhancements (ie. 3 above) in instances where, for example, weaknesses have been identified in historic substantive analytical procedures; ii) specific enhancements - teams should look to incorporate relevant specific enhancements (ie. 4 above) where, for example, weaknesses have been identified in historic related tests of detail, or a change of financial reporting framework requires additional testing in affected areas. 02/15 8 Audit Manual

9 The Change of Financial Reporting Framework Impact Assessment and Risk Analysis (B32-FRF) should be used to help identify areas affected and the impact on the audit approach. Where prior period programmes are reviewed and updated (eg. b(ii) above), the B32-FRF and the list of specific enhancements in this document (ie. 4 above) may be used together to help tailor in additional relevant testing. New UK GAAP (Audit Exemption SAM) Pro-forma accounts, disclosure checklists, impact assessment and updated programmes The move onto new UK GAAP for a majority of entities within the scope of the Audit Exemption manual may have an impact on amounts recognised, measured and presented within the financial statements. We have incorporated a number of enhancements within this version of the Audit Exemption SAM to help address the challenges faced as a result of a change of financial reporting framework. This appendix outlines these enhancements, which sit within three general areas: 1. FRS 102 and FRSSE 2015 pro-forma accounts and disclosure checklists; 2. change of Financial Reporting Framework Impact Assessment (B51-FRF); and 3. enhancements to audit exemption programmes. 1. FRS 102 and FRSSE 2015 pro-forma financial statements We have included pro-forma financial statements for a not small company preparing its financial statements in accordance with FRS 102 in section D of this manual. These pro-forma financial statements compliment the new not small FRS 102 disclosure checklist also incorporated within this update. We have also made minor amendments to the small company pro-forma financial statements and disclosure checklist to ensure compliance with FRSSE (effective January 2015). As noted above, over the coming months we are anticipating the finalisation of legislation and accounting standards that will affect the financial reporting requirements of companies. These changes will have the most significant effect on requirements for small companies, though will also affect non-small company disclosure requirements outlined in this manual. 2. Change of Financial Reporting Framework Impact Assessment (B51-FRF) We have incorporated an additional form to aid the identification and analysis of factors relevant on a change of financial reporting framework (eg. a move onto FRS 102). The impact assessment is designed to be used to document the areas of an entity s financial statements susceptible to change as a result of a change in financial reporting framework. It is also used to assess the impact of identified changes. The impact assessment should be used to help tailor an appropriate response within the planned approach. Whilst the B51-FRF is designed to be used in the year that a new financial reporting framework is first adopted, teams may choose to complete the form in earlier periods to help plan for the impact of the changes. 3. Enhancements to audit exemption programmes We have taken the opportunity to incorporate a number of enhancements to the audit exemption programmes. These enhancements derive from user feedback and the impact of new UK GAAP. Changes include: inclusion of procedures relevant to consideration of transition adjustments on a change of financial reporting framework; inclusion of procedures that are more likely under new UK GAAP; and other general updates (rewording / reorganisation of tests) to reflect current practice. 02/15 9 Audit Manual

10 It is recommended that all audit exemption engagements for new clients are planned using the relevant updated programmes which will need to be tailored as appropriate. For existing audit exemption clients, teams have two options for application: a. run new programmes from this version of the audit exemption manual and tailor as applicable; or b. retain existing tailored programmes (ie. from previous year), review as part of planning and incorporate new procedures as applicable. The Change of Financial Reporting Framework Impact Assessment (B51-FRF) should be used to help identify areas affected and the impact on the audit exemption approach. 02/15 10 Audit Manual

11 Appendix III Risk linkage, systems and controls (Audit Manual) Changes to systems, risk and audit plan documentation We have made a number of changes to the systems, internal controls, risk assessment and individual area audit plan documentation within the Audit Manual. These changes are as a result of feedback received from subscribers and also from our audit quality monitoring file reviews. The changes aim to improve the quality of controls, risk and approach documentation at the planning stage. These changes are outlined below. New PF2-3 Key internal controls summary A new form has been added to help ensure that sufficient understanding of internal control is obtained and recorded to identify and assess risk. The form includes prompts to consider the effectiveness of controls to satisfy example key control objectives. In previous versions of the manual, this consideration would have been documented on the audit plans (B33/X2). The form is split into sections which mirror the parts of the audit file and is laid out as follows: a b c Documentation of systems and controls For classes of transaction that are significant to the financial statements an auditor is required to document their understanding of the information system relevant to financial reporting. This will often be contained within systems notes as prompted on PF2-1 Systems overview. The notes will explain the procedures, related accounting records, supporting information and specific accounts by which those transactions are initiated, recorded, processed, corrected (as necessary), transferred to the general ledger and reported in the financial statements. Additionally, the auditor is required to understand control activities relevant to the audit, being those judged as necessary to assess the risks of material misstatement at the assertion level and design further audit procedures responsive to assessed risks. The internal control objectives (a) provide prompts as to the types of objective that the client may put key controls in place to satisfy. This is not an extensive list and should be tailored as appropriate. Documentation of internal controls should note controls that the client has in place to satisfy relevant key internal control objectives. Where the client has relevant controls (b), cross-refer to where this is documented in the detailed systems notes. 02/15 11 Audit Manual

12 Where there are no controls identified that satisfy a relevant key internal control objective, assess the impact of this on B32 and B33 and also consider whether this represents a deficiency in internal control to be communicated to management and those charged with governance as appropriate (A52). The evaluation of design of controls relevant to the audit and assessment of implementation is assessed annually and is prompted both on the B11 planning checklist and included as a test within part A General and Mandatory Tests on each section of the audit programmes. To aid the completion of design and implementation work, PF2-3 also includes a space to summarise key controls that need to be assessed (c) where this is not otherwise clear from the detailed systems notes. It is recommended that the new PF2-3 is used on all engagements to replace documentation previously held on individual area audit plans (B33/PF5/X2) in previous audits. Updated B32 - Risk assessment We have simplified the layout of the B32 Audit plan to encourage clarity in the documentation of key risks and the audit approach to be taken in those areas. The objectives of the form remain unchanged: to assess the risk of material misstatement in the financial statements and to record the resulting planned approach. The form is split into three main sections: Planning and permanent file aide-memoire This section of the updated B32 provides teams with a list of the forms likely to be relevant to risk, similar to the first column in the old B32 form. Teams should indicate that relevant forms have been reviewed / updated as necessary. 02/15 12 Audit Manual

13 Key risks and planned audit approach The scope of this section of the updated B32 is the same as in the predecessor form, however, linkage to the source of risks and responses is documented in a different way and guidance has been presented differently. a b c d e Teams should document the source of each key risk noted on the B32. For example, where a risk has derived from the documented assessment of accounting estimates, the source of the risk (a) would be noted as PF1-8. The nature of the risk should be documented (b). This documentation should include: whether the risk is at the financial statement level and / or the effect at the individual assertion level; the likelihood of misstatement; and the potential magnitude of the misstatement. This is prompted within guidance at the top of the column (b). Teams should indicate whether risks are deemed as significant risks (c). Management override will always be a significant risk and as such is prepopulated on the form with a tick. Revenue recognition is also prepopulated as a significant risk. Where this is not the case, the team should indicate why. Having identified key risks, the team should summarise the effect of individual risks on the planned audit approach (d). This will normally include a brief summary of the planned audit response, with more detail included within the B33/X2 area audit plans and/or tailored audit programmes. Teams may choose to cross-refer to specific testing on tailored audit programmes / work papers that addresses key risks identified at planning (e) to aid clarity and linkage of risks to responses, results and conclusions. 02/15 13 Audit Manual

14 Conclusions The final part of the updated B32, as with the predecessor form, is used to document the assessment of fraud and overall risk at the financial statement level. The updated form includes additional space to justify conclusions drawn, where needed. Updated B33 Audit plan The B33 has been redesigned to provide teams with more white space to document their audit plan for individual areas. The objectives of the updated B33 remain unchanged: to record the risk and the planned audit approach for each individual area of the audit. Where used, the B33 can provide the opportunity to document the rationale for testing tailored into the planned audit procedures. As noted above, information on key internal control objectives has been moved from the B33 Audit plan to a new permanent file form PF3-3 Key internal controls summary. The updated form is therefore split into three main sections: Risks identified To the extent necessary, teams should note any factors which affect risk (including fraud risk) in each area of the file and state where any there are any significant risks identified. The risks factors and risks identified should be considered at the specific audit assertion level. 02/15 14 Audit Manual

15 Audit approach The key assertions for each area of the file are identified to prompt focus at the assertion level when designing an appropriate audit response. The space on the right-hand side of this section (a) should be used to highlight the work to be performed in each individual area and, where necessary, provide justification for the approach included within the tailored audit programmes. The B33 can also be used to indicate which sections of the audit programmes (b) are to be used on each area of the file. a b Sampling approach Where tests of control or other substantive procedures requiring sampling are planned, justification of planned sample sizes should be noted. If a sampling plan is used, teams should cross-refer to the relevant sampling plan. Where judgement is used, space at the bottom of the B33 should be used to justify the planned sample size. Whilst teams may still wish to file copies of planning documentation on the permanent file, reference to this document as a PF5 has been removed from the updated version of the B33. 02/15 15 Audit Manual

16 Appendix IV Detailed list of changes Set out below is a list of all the documents that have been revised in this update, along with a brief explanation of how they have changed. If you keep a hard copy version of the manual, please print and replace the stated pages. If you would like a hard copy of the manual, please contact us on or send an to jessica.butler@mercia-group.co.uk. There is a 35 administration charge for this service. Audit manual Pages to be changed Main reason for change Section A Guidance 1 - Contents - Revised for the changes made in this update. 2 - Getting started for new manual users - Updated for the changes made in this update. 3 - Update 02/15 - What s changed? - A copy of this guidance has been added to the manual. 4 - Creator - getting started - Updated for the changes made in this update. Section B Example letters Covering letter and agreement of terms (company and group) Schedule of professional services - audit (company and group) - Reference to guidance also provided by your Institute / Association added to the guidance at the top of the letter. - Inclusion of optional paragraph in relation to responsibilities on transition to, and application of, new accounting standards. - Minor technical amendments including updated wording removal of (now expired) directors report requirements relating to pre 30 September 2013 year ends. 4 - Terms of business - Minor additions to wording in relation to data protection and confidentiality and minor update to the guidance in endnote Letter of representation - Inclusion of examples of areas where additional representations may be sought where there is a change of financial reporting framework (eg. to FRS 102) Successor / predecessor auditor response letter - Updated hyperlinks to ACCA guidance. Section C Example reports 1, 3, 8 & 9 - Audit reports - References to FRSSE 2015 added, as applicable. 02/15 16 Audit Manual

17 Pages to be changed Main reason for change Section C Example reports (cont) 1, 3, 8 & 9 - Audit reports (cont) - Footnote guidance removed for (now expired) directors report requirements relating to pre 30 September 2013 year ends. 4 - Directors responsibilities statement - Footnote guidance removed for (now expired) directors report requirements relating to pre 30 September 2013 year ends. Section D Proforma accounts 1 - Abbreviated accounts - References to FRSSE 2015 added. 2 - Small accounts - References to FRSSE 2015 added and reference to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed. 3 - Not small accounts - References to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed. 3a - Not small FRS 102 accounts - New pro-forma accounts added for a medium or large company preparing accounts in accordance with FRS 102. See appendix II for additional details. 4 - International example accounts - Updated to reflect annual improvements and other changes made to IFRSs (see section E below). Section E Disclosure checklists 1 - A32 Checklist summary - Reformatted to accommodate new UK GAAP reporting options. 2 - A32 Small checklist (FRSSE 2008 & 2015) - References to FRSSE 2015 added references to goodwill amortisation updated (6.13). - Removal of (now expired) directors report requirements relating to pre 30 September 2013 year ends. 3 - A32 Small summary checklist (FRSSE 2008 & 2015) - References to FRSSE 2015 added and reference to (now expired) charitable donations relating to pre 30 September 2013 year ends removed. 4 - A32 Not small checklist - Removal of (now expired) directors report requirements relating to pre 30 September 2013 year ends. - Other minor technical and typographic amendments. 02/15 17 Audit Manual

18 Pages to be changed Main reason for change Section E Disclosure checklists (cont) 4a - A32 - Not small checklist (FRS 102) - Amendments to reflect hedge accounting disclosure requirements in Amendments to FRS 102 Basic Financial Instruments and Hedge Accounting (July 2014). - Amendments to reflect pension obligation disclosure requirements in Amendments to FRS 102 Pension Obligations (Feb 2015). - Minor technical and typographic amendments including consistency of primary statement and balance sheet item references and moving noncontrolling interest requirements onto groups FRS 102 disclosure checklist. 5 - A32 Not small summary - Reference to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed. 6 - A32 International checklist - Removal of (now expired) IAS 19 Employee Benefits requirements relating to periods commencing before 1 January Amendments to IAS 24 Related Parties requirements for periods commencing on or after 1 February Amendments to IAS 36 Impairment of Assets requirements for periods commencing on or after 1 January Inclusion of IFRS 13 Fair Value Measurement supplementary page. - Inclusion of parent / subsidiary undertakings supplementary pages. - Removal of (now expired) directors report requirements relating to pre 30 September 2013 year ends. - Other minor technical and typographic amendments (including IFRS7 amendments post IFRS 13 implementation). 7 - A32 FRS 101 checklist - Consequential amendments from A32 International checklist. - Amendments to reflect Amendments to FRS 101 (2013/14 Cycle) including: 02/15 18 Audit Manual

19 Pages to be changed Main reason for change Section E Disclosure checklists (cont) 7 - A32 FRS 101 checklist (cont) - clarification on application of exemptions from the requirements to make disclosures in line with IFRS 7 / IFRS 13 for certain financial instruments; and exemption from certain new IAS 36 disclosure requirements. 8 - A33 Abbreviated checklist - References to FRSSE 2015 added and reference to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed. 9 - A34 Groups (small) checklist - References to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed A34 Groups (not small) checklist - References to (now expired) directors report requirements relating to pre 30 September 2013 year ends removed. 10a - A34 Groups (not small FRS 102) checklist - Minor technical and typographic amendments including consistency of primary statement references and moving non-controlling interest requirements from FRS 102 disclosure checklist. Section F Permanent file documents Permanent file dividers - Updated to include reference to new forms (PF2-3) and other minor amendments. PF2-1 - Systems overview - Additional guidance added to the form to prompt the appropriate documentation of systems and controls, including reference to new PF2-3 form and inclusion of all sections of the file for referencing to notes on systems and controls. PF2-3 - Key internal controls summary - A new form has been added to help ensure that sufficient understanding of internal control is obtained and recorded to identify and assess risk. The form includes prompts for consideration of the effectiveness of controls to satisfy example key control objectives. This consideration was previously documented on the area audit plans (B33/X2). For further detail see appendix III above. PF2-4 - Using the work of internal audit - Form re-referenced (previously PF2-3). No changes made to the content of the form. Section G Current file documents (both individual and group versions) Current file dividers - Updated for changes to section names and other minor amendments. 02/15 19 Audit Manual

20 Pages to be changed Main reason for change Section G Current file documents (both individual and group versions) (cont) A Completion - Minor updates to references on A31 and A52-1 to reflect changes to forms in planning and permanent sections of the file. B11 - Planning checklist including freeform version - The following amendments have been made to the planning checklist: references added to Audit Procedures Manual guidance; additional prompt to complete design and implementation work on internal controls; and additional prompt to consider the impact of a change of financial reporting framework (see also B32-FRF). B32-FRF - Change of financial reporting framework impact assessment and risk analysis - New form. Used as part of risk assessment procedures to assess the impact of a change of financial reporting framework (eg. to FRS 102) and shape the audit response to identified risks. See appendix II for additional details. B32 - Risk assessment - The B33 has been redesigned to enable teams to effectively document their consideration of risk and planned audit approach. - The objectives of the form remain unchanged (to assess the risk of material misstatement in the financial statements and to record the resulting planned approach). - The form is split into three main sections: planning and permanent file aide-memoire - to provide teams with a list of the forms that are likely to be the source of risks and space to evidence their review and update; key risks and planned audit approach - the scope of this section is the same as in the predecessor form, however, linkage to the source of risks and responses is documented in a different way and guidance has been presented differently; and conclusions - additional space has been added to the form to summarise the assessment of fraud and overall risk at the financial statement level. See appendix III for additional details. B33 - Area audit plans - The B33 has been redesigned to enable teams to effectively document their audit plan for individual areas. Reference as a PF5 has been removed. Teams may still wish to file copies of planning documentation on the permanent file. 02/15 20 Audit Manual

21 Pages to be changed Main reason for change Section G Current file documents (both individual and group versions) (cont) B33 - Area audit plans (cont) - Information on key control objectives has been moved to a new permanent file form PF3-3 - Key internal controls summary. The objectives of the form remain unchanged (to record the risk and the planned audit approach for this individual area of the audit). See appendix III for additional details. Audit Programmes - The audit programmes have been subject to various enhancements. See appendix II for a list of general and specific enhancements made within each section. - The names of certain sections have been updated to enable the scope of their content to be increased. Names of the affected sections are: G - Stocks H - Income and debtors I - Bank and cash J - Expenditure and creditors M - Wages, salaries and pensions - Part A General and mandatory tests of each audit programme now includes testing specific to application of accounting policies in addition to specific additional procedures indicated in appendix II. - Part B of each audit programme has been renamed Tests of Controls and includes updated guidance and test wording relevant to tests of operating effectiveness of controls. - Part C Non-audit services of each audit programme has been updated to incorporate general amendments to procedures and additional procedures arising on a change of financial reporting framework (eg. FRS 102). See appendix II for additional details. - Part D Analytical procedures of each audit programme has been updated to incorporate additional guidance to aid compliance with ISA This is further to general amendments to procedures and additional procedures arising on a change of financial reporting framework (eg. FRS 102). See appendix II for additional details. - Part E Tests of detail of each audit programme has been updated to incorporate general amendments to procedures and additional procedures arising on a change of financial reporting framework (eg. FRS 102). See appendix II for additional details. 02/15 21 Audit Manual

22 Pages to be changed Main reason for change Section G Current file documents (both individual and group versions) (cont) Proforma working papers - Updated to reflect renamed sections, updated lead schedules and to incorporate enhanced analytical procedures guidance. 02/15 22 Audit Manual

23 Audit Procedures Manual Pages to be changed Main reason for change Part 1 - Guidance notes 1 - Getting started for new manual users - Revised for the changes made in this update. 2 - Update 02/15 - What s changed - A copy of this document. Part 2 - General audit procedures All documents - Terminology revised throughout to refer to financial statements rather than accounts. - References to B33/PF5 /X2 now amended to B33/X2 in line with changes made in the Audit Manual. Chapter 2 - Responsibilities of auditors Chapter 4 - Planning risk assessment procedures - Section reference to POB updated to refer to the FRC (Financial Reporting Council) in relation to procedures when the firm ceases to be the auditor of a major audit. - Section 4.1 highlights that a new form has been added to the Audit Manual: Change of financial reporting framework. This has created a new section 4.8 and previous sections have now moved to Section 4.2 is amended in light of changes to B11 in relation to reviewing the prior year report to management. - Section 4.6: updated to reflect wording amendments made on PF2-1; guidance on where a key control is relevant to the audit is now documented on PF2-3; guidance to confirm that reminders on assessing the design and implementation of controls are included at PF2-3 and section A of the audit programmes; confirmation that there is no requirement to conclude on risk on PF2, as risk assessment is performed on B32 annually; and minor wording amendments. - New section at 4.8 to cover the risk assessment of changes to the financial reporting framework. - Section 4.11 (risk assessment) has been updated to give guidance on completing the revised form B32. Extra guidance on the two identified significant risks has been added. 02/15 23 Audit Manual

24 Pages to be changed Main reason for change Part 2 - General audit procedures (cont) - Appendix cross references to PF5 for tailored audit programmes have been deleted. Chapter 5 - Planning audit approach - Section 5.3 (audit plan): cross reference to audit programmes expanded. - Section 5.4 (risk at the audit assertion level) updated to reflect changes made to B32 in the Audit Manual. - Section 5.7 (analytical procedures) - clarification of what influences the level of tolerance and confirmation that testing is to be performed where non-financial information is used. - Section 5.9 (tailored audit programmes) has been: updated to reflect the name change to all of the audit programme section B s (title change to Controls - tests of operating effectiveness ); deleted references to audit programmes having four standard pages in accordance with changes made in the Audit Manual; cross references to audit programmes changed in relation to more than four standard pages now being used; and confirmation of when the controls - operating effectiveness part of the programme should be selected - Updated appendix guidance on completing the audit plans revised for changes made to the Audit Manual (on B33). Chapter 6 - Planning administration and other procedures - Minor wording changes to para 6.2. Chapter 7 - Controlling and recording - Section 7.2 (control) updated to reflect best practice that the Responsible Individual should approve revisions to planning. - Section 7.3 (recording) updated to reflect: when PF5 will be used (for roll-forward purposes); name changes to relevant sections in the proforma working papers; and minor wording changes. 02/15 24 Audit Manual

25 Pages to be changed Main reason for change Part 2 - General audit procedures (cont) Chapter 8 - Completion - Section 8.2 (completion checklists) expanded on: the checklists available; when to use the full versions of checklists. - Section amended to include wording on best practice for completion of B32. Chapter 9 - Reporting - Section 9.2 (audit report) expanded to give guidance on the options for signing the financial statements which are used for filing purposes. - Section 9.3 minor wording changes. - Section 9.7 minor word change to clarify that the whistleblowing form A43 is not within the Audit Manual. Chapter 10 - Group - Section 10.3 expanded to give further guidance as to define group wide controls. Part 3 - Specific procedures by area All documents - Changed section title from Systems and Control - operating effectiveness to Controls - operating effectiveness. - Minor wording amendments. - Financial reporting framework rather than accounting standards now used throughout. - Terminology revised throughout to refer to entity rather than company (where practical). - References to B33/PF5 /X2 now amended to B33/X2 in line with changes made in the Audit Manual. - Where section names have been amended in the Audit Manual, appropriate changes also made within the Procedures Manual (eg. sales and debtors now income and debtors ). - Clarification that systems notes are held in PF2 with a new internal control summary on PF2-3 to help identify the key controls. Where the operating effectiveness of controls are to be tested confirmation that this will be annotated on B33/X2. - Cross references updated to X3-2 for the non-audit procedures section of the audit programmes. 02/15 25 Audit Manual

26 Pages to be changed Main reason for change Part 3 - Specific procedures by area (cont) All documents (cont) - Cross references updated to X3-3 to X3-4 for the analytical procedures section of the audit programmes and clarification of what influences the level of tolerance. - Paragraphs on analytical procedures (2.6, 3.6, etc.) extended for relevant changes made to tests in the audit programmes in the Audit Manual. - Paragraphs on other substantive procedures (2.7, 3.7, etc.) extended for relevant changes made to tests in the audit programmes in the Audit Manual. Chapter 2 - Taxation - Section 2.4 enhanced for potential key control objectives. - Section 2.7 deleted narrative on the rules within accounting standards. Chapter 3 - Directors / trustees and related party transactions - Section 3.4 enhanced for potential key control objectives. Chapter 4 - Fixed assets - Section 4.4 enhanced for potential key control objectives not just relating to physical controls. Chapter 5 - Investments - Section 5.4 enhanced for potential key control objectives. Chapter 6 - Stocks - Section 6.3 (general and mandatory tests) updated to reflect some of the procedures mandated by ISA+ 501 and to refer to the separate stocktake attendance programme now referenced at G6. - Section 6.4 enhanced for potential key control objectives not just relating to stock quantity controls. Chapter 7 - Income and debtors - Appendix 1 renamed to debtors procedures rather than debtors confirmation procedures and some minor wording changes to reflect best practice. Chapter 10 - Provisions, contingencies and commitments - Section 10.3 (general and mandatory tests) updated to reflect some of the procedures mandated by ISA Section 10.4 enhanced for potential key control objectives. 02/15 26 Audit Manual

27 Pages to be changed Main reason for change Part 3 - Specific procedures by area (cont) Chapter 11 - Capital and reserves - Section 11.4 enhanced for potential key control objectives. Chapter 12 - Wages, salaries and pensions - Section 12.7 updated for RTI forms with now obsolete forms deleted. Part 4 - Ethical Standards Chapter 6 - ES5 - Non audit services provided to audit clients - Section 6.1 (introduction) - reference to new section on valuation services. - Section 6.2 (accounting services) - extra guidance added on implementing a new financial reporting framework. - Section 6.3 (tax services) - extra guidance added on implementing a new financial reporting framework. - Section 6.4 (valuation services) - new section added. Chapter 7 - Provisions available for small entities (PASE) - Table J updated for references to the Co-operative and Community Benefit Societies Act Part 5 - Regulation and quality control A1 - Independence confirmation form for individuals. - Section 7 relating to Industrial and Provident Societies now refers to societies registered under the Co-operative and Community Benefit Societies Act /15 27 Audit Manual

28 Audit Exemption Specialist Assignment Manual Pages to be changed Main reason for change Section A Guidance 1 - Contents - Chapter 4 on assurance and other services deleted as the old ICAEW Assurance service in accordance with Tech AAF 03/06 has been removed from the manual. Consequential renumbering and crossreferences updated. - Chapter 1 - some now expired application dates deleted and guidance on forthcoming expected changes to company law and small company microentity accounting standards added to new paragraph Chapter 3 - reference to the new B51-FRF form (see below) made in paragraph Chapter 5 (now micro-entities) - reference to FRSSE 2015 added and other minor update. 2 - Getting started for new manual users - Updated for the changes made in this update. 3 - Update 02/15 - What s changed? - A copy of this guidance has been added to the manual. 4 - Creator - getting started - Updated for the changes made in this update. Section B Example letters 1 & 4 - Covering letter and agreement of terms (both limited companies and unincorporated) 3 & 6 - Terms of business (both limited companies and unincorporated) 2.1 & Schedule of professional services - compilation (limited companies) Schedule of professional services - assurance (limited companies) Schedule of professional services - taxation (unincorporated) - Reference to guidance also provided by your Institute / Association added to the guidance at the top of the letter. - Minor additions to wording in relation to data protection and confidentiality and minor update to the guidance in endnote 1. - Inclusion of optional paragraph in relation to responsibilities on transition to, and application of, new accounting standards. - Removed from the manual. - Updated hyperlink to new guidance available in respect of legal requirements for distance and off premises contracts. 02/15 28 Audit Manual