Acca P7 Notes

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ACCA Paper P7 (INT)

Advanced Audit & Assurance

Class Notes December 2011

Lecturer:

Contents

INTRODUCTION TO THE PAPER2
CHAPTER 1 – REGULATORY ENVIRONMENT3
CHAPTER 2 – PROFESSIONAL AND ETHICAL CONSIDERATIONS8
CHAPTER 3 – PRACTICE MANAGEMENT13
CHAPTER 4 – ASSIGNMENTS I: THE AUDIT OF FINANCIAL STATEMENTS16 CHAPTER 5 – ASSIGNMENTS II: GROUP AUDITS42
CHAPTER 6 – AUDIT REPORTS AND OTHER REPORTS45
CHAPTER 7 – ASSIGNMENTS III: OTHER ASSIGNMENTS57
CHAPTER 8 – CURRENT ISSUES AND DEVELOPMENTS63

INTRODUCTION TO THE PAPER

AIM OF THE PAPER

The aim of the paper is to apply relevant knowledge, skills and exerciseprofessional judgement in analysing, evaluating and concluding and reporting onthe assurance engagement and other audit and assurance issues in the context of best practice and current developments.In simpler terms, this means a very practical exam, in which students need to lookat real situations and identify relevant issues to an auditor (or other assuranceprovider), and how those issues may be addressed.

OUTLINE OF THE SYLLABUS

1. Regulatory Environment
2. Professional and Ethical Considerations
3. Practice Management
4. Audits of Historical Financial Statements
5. Other Assignments
6. Reporting
7. Current Issues and Developments

FORMAT OF THE EXAM PAPER
The syllabus is assessed by a three hour paper-based examination, with 15 minutesof reading time.The examination consists of: ● two compulsory questions, totalling 50-70 marks, and covering several areasof the syllabus within a single scenario, and ● a choice of two from three questions totalling 30-50 marks, which are each likely to focus mostly on a single syllabus area.

CHAPTER 1 – REGULATORY ENVIRONMENT

EXAM QUESTIONS

●Define “Money Laundering”, and explain the auditor’s responsibilities. ●Comment on the need for ethical guidance for accountants on money laundering. (Pilot Paper Q5 ) ●Explain the auditor’s responsibilities relating to the laws and regulations that apply to a client’s business.

INTERNATIONAL REGULATORY FRAMEWORKS

Regulatory framework
In each country, regulation comes from a number of sources. Since this is largely arevision area from F8, and is not examined very often on P7, the Notes here aredeliberately brief.Regulation is necessary in many industries, and audit/assurance is no exception.So many people rely on the information produced by organisations, and as a resultthose who give assurance on that information fulfil a vital role. If work was notregulated, there would be too much variety in how work was done, and a majorthreat to quality control.

Summary of regulators

The ACCA
To be an auditor, you need to be authorized in your country to audit. In the UK(and throughout Europe) this is done by requiring you to be a member of aRecognised Supervisory Body (RSB) and ACCA is one of these.The ACCA ensures auditors are suitably qualified, monitors behaviour, and qualitycontrol. The IAASB

The International Audit & Assurance Standards Board sets International AuditStandards (ISA). Many countries have either adopted these in full, or based theirown national audit standards very closely on them.The IAASB is part of the International Federation of Accountants (IFAC). The FRC

The Financial Reporting Council in the UK regulates UK financial reporting, includingcorporate governance. Its various bodies set UK accounting standards and the UKCorporate Governance Code. Most countries have their own version of the FRC. Public Oversight Board

Given recent corporate scandals, there has been a trend for setting up independentbodies to oversee the “experts”. IFAC has an oversight board, but individualcountries also have their own (in the UK, the POB). Accountants and auditors usedto be self-regulating, but too many failures (e.g. Enron) have put a stop to this. Corporate governance

Corporate Governance now appears on many of the ACCA exam papers, with mostof the detail on...
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