HKICPA QP Examination Technique Workshop
HKICPA QP Examination Technique Workshop
HKICPA QP Examination Technique Workshop
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<strong>HKICPA</strong> <strong>QP</strong> <strong>Examination</strong><br />
<strong>Technique</strong> <strong>Workshop</strong><br />
<strong>HKICPA</strong> <strong>QP</strong> Module C<br />
Business Assurance - Section B<br />
By Allan Lee – for June 2012<br />
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About HKCA<br />
• HKCA Learning Media Limited (HKCA) is established<br />
to provide professional accountancy training to<br />
university graduates and working adults who are keen<br />
to pursue an accountancy qualification in Hong Kong<br />
and Mainland China.<br />
• We offer highest standard of accountancy training<br />
through our experienced tutors who will lead our<br />
students towards examination successes in <strong>QP</strong>. Our<br />
tutors are specialists in relevant papers and give you<br />
“IDEAS to Pass”.<br />
• HKCA is here “All for You to Pass”.<br />
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About the Speaker<br />
Allan Lee<br />
Lecturer - HKCA<br />
MSc (UK), BA(Hons.), ACA, ACIS, ACS(PE), AIAS,<br />
CPA, CPA(Aust.), FCCA, M.I.H.R.M.(HK), RCC<br />
o Started his career as an auditor and was a Senior Manager responsible for Business<br />
Assurance professional exam papers of a Big Four firm in HK.<br />
o Left an international accounting firm as the Director of Learning & Development<br />
Division in 2008.<br />
o Currently manages his own training and consulting company<br />
o Has more than 10 years of extensive experience in designing, developing and<br />
delivering various kinds of learning programmes, including technical skills,<br />
leadership skills and exam skills.<br />
o An experienced facilitator and marker of <strong>HKICPA</strong> <strong>QP</strong> Modules C and D<br />
o Is the Co-chairman of the Student Affairs Subcommittee of Professional Body in<br />
Hong Kong.<br />
o As a regular speaker and writer on professional exam papers, Allan wishes to bring<br />
his expertise helping students to pass the professional exams.<br />
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孫子曰 :「知彼知己,百戰不殆。」<br />
孫子兵法《謀攻》<br />
Sun Tsu said, “If you know the enemy<br />
and know yourself, you need not fear the<br />
result of a hundred battles.”<br />
《The Art of War》<br />
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Objectives<br />
Develop your exam techniques in<br />
<strong>HKICPA</strong> <strong>QP</strong> Module C Section B<br />
Review selected exam questions<br />
and answers – December and June<br />
2011<br />
Highlight important points to note in<br />
exams<br />
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Agenda<br />
Introduction<br />
Common Weaknesses – Exam<br />
Panelists’ comment<br />
What’s New?<br />
Exam <strong>Technique</strong>s<br />
Question Analysis<br />
Review of Selected Exam Questions<br />
Keys to Success in Exams<br />
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Questions for You<br />
Have you completed study of your<br />
materials?<br />
Have you started practising past<br />
exam questions?<br />
Have you prepared your critical<br />
files?<br />
Have you read the examination<br />
panelists’ report?<br />
Do you have confidence to pass?<br />
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Exam Panelists’ Comment<br />
Section B (Dec 2011 session)<br />
Generally performed unsatisfactorily<br />
in Section B.<br />
Candidates should stay touch with<br />
current events and be able to apply<br />
business sense to engage more<br />
professionally in dealing with<br />
practical issues.<br />
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Exam Panelists’ Comment<br />
Section B (Dec 2011 session)<br />
Some candidates wasted a lot of<br />
time in copying definitions and<br />
recommendations of auditing<br />
standards, some of which were<br />
irrelevant or were not required by<br />
the questions.<br />
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Exam Panelists’ Comment<br />
Section B (Dec 2011 session)<br />
Candidates should note that marks<br />
are awarded mostly on how well<br />
relevant auditing standards are<br />
applied rather than how precisely<br />
auditing standards are described.<br />
Candidates are also reminded to<br />
read the questions thoroughly in<br />
order to fully understand the exact<br />
requirements.<br />
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Exam Panelists’ Comment<br />
Section B (Dec 2011 session)<br />
Some candidates did not present<br />
their answers in a logical and<br />
structured manner, whilst some<br />
others gave incomplete answers.<br />
Candidates are also reminded to<br />
make a reasonable attempt at<br />
answering each part of the<br />
questions.<br />
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What’s New?<br />
HK Listing Rules Appendix 14 Code<br />
on Corporate Governance (effective<br />
on 1 January 2012 or on 1 April<br />
2012<br />
To encourage better accountability of<br />
issuers and directors<br />
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What’s New?<br />
The Anti-Money Laundering and<br />
Counter-Terriorist Financing<br />
(Financial Institutions) Bill<br />
To improve HK’s anti-money laundering<br />
(AML) regime<br />
Customer due diligence (CDD)<br />
Record keeping requirements for<br />
financial institutions<br />
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What’s New?<br />
HKSAE 3402 Assurance Reports on<br />
Controls at a Service Organisation<br />
Revised HKSIR 400 Comfort Letters<br />
and Due Diligence Meetings on<br />
Financial and Non-Financial<br />
Information (effective on or after 1<br />
January 2012)<br />
Limited assurance approach is now<br />
permitted when reporting subsequent<br />
changes<br />
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Read Requirement<br />
Assess<br />
Comment<br />
Consider<br />
Define<br />
Describe<br />
Determine<br />
Discuss<br />
Do you concur<br />
Draft<br />
Explain<br />
Evaluate<br />
Identify<br />
List<br />
Outline<br />
State<br />
Suggest<br />
What/Why/How?<br />
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Presenting the answers<br />
Use the correct answer booklet –<br />
Section B<br />
Use headings and sub-headings to<br />
give the answer a logical flow<br />
Use paragraphs to answer questions<br />
Use clear handwriting<br />
Start each answer on a new page of<br />
the answer booklet<br />
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Corporate Governance Questions<br />
December 2011 – Audit committee<br />
(14 marks) [Section A]<br />
June 2011 – Corporate governance<br />
improvements (9 marks)<br />
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Corporate Governance<br />
Best Practices<br />
Separation of roles of Chairman &<br />
CEO<br />
Director’s training<br />
Performance review<br />
Balanced composition of board<br />
1/3 of the board are INEDs<br />
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Corporate Governance<br />
Best Practices<br />
Board committees<br />
Audit committee<br />
Nomination committee<br />
Remuneration committee<br />
Corporate governance committee<br />
Internal audit department<br />
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June 2011<br />
Questions 5(a) – 9 marks<br />
Three possible improvements to<br />
corporate governance<br />
Split the roles of chairman and CEO<br />
Lack of audit committee<br />
Balanced compositions of the board<br />
Elaborations in the context of the<br />
entity’s situations<br />
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Ethics Questions<br />
December 2011 – [Section A]<br />
June 2011 – [Section A]<br />
December 2010 – [Section A]<br />
February 2010 – [Section A]<br />
May 2009 - Ethical issues (10<br />
marks)<br />
September 2008 – Independence<br />
issues (10 marks)<br />
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Ethics Questions<br />
February 2008 – [Section A]<br />
May 2007 – Independence<br />
consideration (15 marks)<br />
September 2006 – [Section A]<br />
February 2006 – Professional &<br />
ethical issues (11 marks)<br />
May 2005 – [None]<br />
September 2004 – Independence<br />
(13 marks)<br />
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<strong>HKICPA</strong> COE (Revised)<br />
Fundamental Principles<br />
Integrity<br />
Objectivity<br />
Professional competence & due care<br />
Confidentiality<br />
Professional behaviour<br />
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<strong>HKICPA</strong> COE (Revised)<br />
Threats to Independence<br />
Self-interest threat<br />
Self-review threat<br />
Advocacy threat<br />
Familiarity threat<br />
Intimidation threat<br />
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Dealing with Ethical Issues<br />
Use common sense<br />
Apply rules & guidelines<br />
Identify threats to independence<br />
Evaluate whether threats are<br />
insignificant (Material? Nature? Who?<br />
Role of owner interest?)<br />
If not, identify & apply safeguards<br />
Reduce the threat to acceptable level<br />
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Conceptual Approach<br />
to Independence<br />
Identify and<br />
address threats<br />
Evaluate significance<br />
of threats<br />
Apply safeguards, if<br />
applicable<br />
Accept / resign<br />
significant<br />
No<br />
Reject /Resign<br />
engagement<br />
Safeguards<br />
Threats Threats<br />
Threats<br />
To reduce threats to<br />
an acceptable level<br />
Yes<br />
insignificant<br />
Accept /<br />
Continue<br />
engagement<br />
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Reference: Code of Ethics for Professional Accountants (Revised), <strong>HKICPA</strong>
Risk & Audit Procedures<br />
December 2011<br />
Risk of material misstatements relating to<br />
valuation assertion of goodwill and intangible<br />
assets (13 marks)<br />
Risk of material misstatements of the<br />
financial statements (13 marks)<br />
June 2011<br />
Risk of material misstatements relating to<br />
valuation and allocation assertions of the<br />
overall trade receivables balance (12 marks)<br />
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Risk Assessment<br />
Financial statement level<br />
Assertion level<br />
Inherent risk<br />
Control risk<br />
Internal controls<br />
Client and engagement acceptance<br />
Change in auditors<br />
Opening balances / comparatives<br />
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Audit Responses<br />
Audit strategy<br />
Appendix to HKSA 300 (Clarified)<br />
Audit approach<br />
Control approach<br />
Substantive approach (substantive<br />
analytical procedures & test of details)<br />
Combined approach<br />
Audit procedures<br />
8 types<br />
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Audit Procedures<br />
Analytical<br />
Procedures<br />
Confirmation<br />
Inquiry<br />
Inspection of<br />
documents /<br />
records<br />
Inspection of<br />
assets<br />
Observation<br />
Re-calculation<br />
Re-performance<br />
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December 2011<br />
Question 7 - 13 marks<br />
Evaluate and explain the risk of<br />
material misstatement relating to<br />
the valuation assertion of goodwill<br />
and intangible assets. (4 marks)<br />
Suggest and discuss the audit<br />
procedures on goodwill and<br />
intangible assets in response to the<br />
risk assessment (9 marks)<br />
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December 2011<br />
Question 7 - 13 marks<br />
Specific risks of goodwill and<br />
intangible assets -> Specific<br />
procedures<br />
Accounting treatment of goodwill<br />
and intangible assets<br />
Not just accounting estimates and<br />
experts<br />
Annual impairment test<br />
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December 2011<br />
Question 8 – 13 marks<br />
Re-assess the risk of material<br />
misstatement of financial<br />
statements as a whole (4 marks)<br />
Suggest and explain the audit<br />
procedures in response to the<br />
reassessed risk of material<br />
misstatements [further audit<br />
procedures] (9 marks)<br />
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December 2011<br />
Question 8 – 13 marks<br />
Subsequent event<br />
Potential recoverability problem of<br />
the receivables<br />
Going concern issue<br />
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June 2011<br />
Question 6 – 12 marks<br />
Evaluation of the valuation and<br />
allocation assertions of the overall<br />
trade receivables balance<br />
Carrying value of trade receivables<br />
Combined audit procedures – sales and<br />
trade receivables<br />
Design, implementation and operating<br />
effectiveness of the accounting<br />
procedures and internal controls<br />
Substantive procedures<br />
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Client acceptance procedures<br />
HKSQC 1 (Clarified) Quality Control<br />
for Firms that Perform Audits and<br />
Reviews of Financial Statements,<br />
and Other Assurance and Related<br />
Services Engagements<br />
Three matters for consideration:<br />
Entity’s integrity<br />
Firm’s competence<br />
Ethical considerations<br />
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June 2011<br />
Question 7 – 13 marks<br />
Relevant factors for the CPA firm to<br />
consider before continuing to serve<br />
as the auditor<br />
HKSQC 1 (Clarified)<br />
Three matters for consideration<br />
Elaborate the requirements by<br />
referencing the entity’s situation<br />
Possibility of threat to independence<br />
Importance of documenting the<br />
appropriate procedures and conclusions<br />
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Auditing Standards<br />
December 2011<br />
HKSA 240 (Clarified) – Fraud [Section<br />
A]<br />
June 2011<br />
HKSA 240 (Clarified) - Fraud (16 marks)<br />
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Auditing Standards<br />
December 2010<br />
HKSA 500 (Clarified) Audit Evidence (17<br />
marks)<br />
HKSA 545 Auditing Fair Value (6 marks)<br />
HKSA 620 (Clarified) Auditor’s Expert<br />
(10 marks)<br />
February 2010<br />
HKSA 550 Related Parties (16 marks)<br />
HKSA 560 Subsequent Events (9 marks)<br />
+ Reporting (3 marks)<br />
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Auditing Standards<br />
May 2009<br />
Analytical procedures (6 marks)<br />
HKSA 240 Fraud (20 marks)<br />
September 2008<br />
HKSA 580 Management representations<br />
(10 marks)<br />
Risk management (10 marks)<br />
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Auditing Standards<br />
February 2008<br />
Impairment loss on bad and doubtful<br />
debts (13 marks)<br />
HKSA 240 Fraud (25 marks)<br />
May 2007<br />
HKSA 550 Related Parties (13 marks)<br />
Impact of F/S and audit procedures [HKSA<br />
330] (15 marks)<br />
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Auditing Standards<br />
September 2006<br />
HKSA 530 Audit Sampling (6 marks)<br />
Audit tests (9 marks)<br />
HKSA 580 Management<br />
Representations (10 marks)<br />
HKSA 560 Subsequent Events (13<br />
marks)<br />
February 2006<br />
F/S assertions & Audit evidence (12<br />
marks)<br />
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Auditing Standards<br />
May 2005<br />
Analytical procedures (13 marks)<br />
HKSA 550 (SAS 460) Related Parties (15<br />
marks)<br />
HKSA 545 (SAS 421) Fair Value (12<br />
marks)<br />
September 2004<br />
Fraud (10 marks)<br />
HKSA 560 (SAS 150) Subsequent events<br />
(5 marks)<br />
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Auditing Standards<br />
February 2004<br />
HKSA 570 (SAS 130) Going concern<br />
HKSA 501 (SAS 401) Inventory count<br />
HKSA 505 (SAS 402) Confirmation<br />
HKSA 540 (SAS 420) Accounting<br />
estimate<br />
HKSA 510 & 710 (SAS 450) Opening<br />
balances & comparatives<br />
HKSA 610 (SAS 500A) Internal audit<br />
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Auditing Standards<br />
June 2003<br />
HKSA 505 (SAS 402) Confirmation<br />
HKSA 620 (SAS 520) Using the work of<br />
an expert<br />
October 2002<br />
HKSA 240 (SAS 110) Fraud and error<br />
HKSA 505 (SAS 402) Confirmation<br />
HKSA 550 (SAS 460) Related Parties<br />
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June 2011<br />
Question 5(b) – 6 marks<br />
Auditor’s responsibilities for<br />
preventing and detecting frauds in<br />
financial statements<br />
HKSA 240 (Clarified) The Auditor’s<br />
Responsibilities Relating to Fraud in an<br />
Audit of Financial Statements<br />
Inherent limitations and unavoidable<br />
risks of auditing<br />
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June 2011<br />
Question 5(b) – 6 marks<br />
Three pre-requisites<br />
An incentive or pressure to commit<br />
fraud<br />
A perceived opportunity to commit<br />
fraud<br />
Some rationalization of the fraudulent<br />
act<br />
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June 2011<br />
Question 5(c) – 10 marks<br />
Discuss three fraud risk factors as<br />
improvements to corporate<br />
governance<br />
Desire for a listing<br />
Rapid growth and unusual profitability<br />
Questionable liquidity<br />
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Reporting<br />
December 2011<br />
Auditor’s report – Modified opinion,<br />
REIT [Section A]<br />
June 2011 (None)<br />
December 2010<br />
Audit opinion on disclosure requirement<br />
(small part only)<br />
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Reporting<br />
February 2010<br />
HKSRS 4400 - Report of Factual<br />
Findings (8 marks)<br />
HKSA 701 – Subsequent events (3<br />
marks)<br />
May 2009 (None)<br />
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Reporting<br />
September 2008<br />
Auditor’s report – going concern [HKSA<br />
570] (12 marks)<br />
HKSRE 2410 – Interim financial report<br />
[Section A]<br />
February 2008<br />
Auditor’s report – going concern<br />
[Section A]<br />
May 2007 (None)<br />
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Reporting<br />
September 2006 (None)<br />
February 2006<br />
HKSA 701 (SAS 600) Auditors’ Report<br />
(14 marks)<br />
May 2005 (None)<br />
September 2004<br />
Auditors’ Report – Subsequent events<br />
(8 marks)<br />
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Auditors’ Opinion<br />
Unmodified [HKSA 700 (Clarified)]<br />
Modified [HKSA 705 (Clarified)]<br />
Limitation on scope – qualified /<br />
disclaimer of opinion<br />
Disagreement – qualified / adverse<br />
opinion<br />
Additional Communication [HKSA<br />
706 (Clarified)]<br />
Emphasis of matter paragraphs<br />
Other matter paragraphs<br />
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Computerized Business Systems<br />
Discuss the features of a<br />
computerized business system<br />
Assess and advise on risk on control<br />
frameworks<br />
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Computerized Business Systems<br />
New Learning Outcomes (Enhanced <strong>QP</strong>)<br />
Impact of increasing use and share of<br />
ownership by accountants in corporate<br />
information system<br />
Impact of e-commerce<br />
Opportunities and threats to corporate<br />
information system - capabilities in data<br />
treatment and analysis, data integrity,<br />
system security and issues in access<br />
restriction, and business contingency/<br />
continuity<br />
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Computerized Business Systems<br />
December 2011 – IT controls (6<br />
marks) & audit approach and procedures<br />
on IT (18 marks)<br />
June 2011<br />
December 2010 - System conversion<br />
approaches (5 marks) & Security controls<br />
(12 marks)<br />
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Computerized Business Systems<br />
February 2010 - Internal controls:<br />
software development & management of<br />
IT assets (14 marks)<br />
May 2009 - Use of IT in audit, CAAT (14<br />
marks)<br />
September 2008 - Internal controls:<br />
database environment (8 marks)<br />
February 2008 – E-commerce:<br />
business risks & IC [PN1013] (12 marks)<br />
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Computerized Business Systems<br />
May 2007 – System weaknesses &<br />
recommendations (7 marks)<br />
September 2006 – Impact of IT on<br />
audit (12 marks)<br />
February 2006 – Online system /<br />
standalone PC (13 marks)<br />
May 2005 – Characteristics of online IS<br />
& security measures (10 marks)<br />
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Computerized Business Systems<br />
September 2004 – Tests of controls &<br />
CAAT on inventory balance (14 marks)<br />
February 2004 – CIS environment (10<br />
marks)<br />
June 2003 – System conversion method<br />
& reliability of new system (10 marks)<br />
October 2002 – Disaster recovery plan<br />
(9 marks)<br />
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December 2011<br />
Question 6(a) - 6 marks<br />
Identify and explain the two types<br />
of IT controls that are usually in<br />
place when the system is<br />
computerized.<br />
Basic concepts of computer controls<br />
General IT controls<br />
Application controls<br />
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December 2011<br />
Question 6(b) - 18 marks<br />
Determine the most appropriate<br />
audit approach for testing data<br />
integrity and reliability<br />
Design and explain the audit<br />
procedures for an IT general<br />
controls test and data reliability test<br />
2 cases – 9 marks for each case<br />
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Exam Panelists’ Comment<br />
Overall (Dec 2011 session)<br />
Should pay attention to the question<br />
requirements and structure their answers in<br />
a more systematic manner<br />
Should not copy directly from the study<br />
materials<br />
Need to use their analytical skill-set, digest<br />
and apply the relevant audit standards and<br />
knowledge to the situations in the<br />
questions<br />
Use plain English<br />
Write legibly<br />
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Keys to Success in Exams<br />
Preparation<br />
Study the basics of auditing<br />
Read Exam Panelists’ reports<br />
Practise questions<br />
Manage time well<br />
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Keys to Success in Exams<br />
<strong>Examination</strong><br />
Keep calm<br />
Read the requirements first<br />
Select the order of questions and<br />
allocate time for questions<br />
Attempt all questions and answer<br />
relevantly<br />
Manage time well<br />
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Thank You Very Much!<br />
Good Luck!<br />
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