ACCA F8 - Audit and Assurance Revision Kit 2016

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61 C The selection and application of accounting policies is one of the areas in which the auditor is
required to gain an understanding, as part of the auditor's risk assessment procedures. It is not a
component of internal control. The other components of internal control are the risk assessment
process and monitoring of controls.
62 B The fact that raw materials are being ordered without reviewing inventory levels, both stock-outs and
excess obsolescent inventory are likely. The lack of authorisation means that fraudulent purchases
could be made, but there is an approved supplier list and money-laundering risks seem far-fetched.
Likewise, poorer quality goods may be order but the approved supplier list does act as a control here
– and going concern risks are irrelevant.
63 D The fact that GRNs are not sequentially numbered means that GRNs may be omitted from accounting
records and it would be difficult to trace the unrecorded GRNs. As a result, the risk is that payables
(and inventory) is understated.
64 B It is likely that the number of capital purchases in the year will be less than the number of standard
purchases in the year. If the invoices are not segregated, it may not be cost-efficient to test the
controls over this area, in which case substantive testing would have to be undertaken. Although
controls around the non-current assets cycle will probably resemble those around the purchases
cycle, the auditor should still understand how the company's system records capital invoices. The
risk of material misstatement in relation to the non-current assets cycle is high, because orders are
likely to be of a less routine nature, larger amounts may be involved, and there may be an incentive to
account creatively for tax or other purposes.
65 A The direction of the test is important here. If the sample of serial numbers were taken from the noncurrent
assets register, the physical assets which were not assigned serial numbers and/or were not
recorded would not be identified. Reviewing the non-current register to identify duplicate serial
numbers will identify instances when the serial numbers assigned were not unique, making it difficult
to trace the related assets. Observation is a valid audit procedure, but it provides a weak form of audit
evidence, since it does not assure the auditor that the control would be operated when the auditor is
not there to observe it.
66 Chuck
Text references. Chapters 6, 10, 11, 16 and 19
Top tips. As always in the long 30 mark question you should make sure you keep to time for each individual part
and the question as a whole. In part (a) you should notice you are given the deficiency and need to explain the
implications and suggest recommendations. Therefore a two column tabular approach will be appropriate, one
column for implications and one for recommendations. You will find that if you properly explain the implication the
deficiency itself will be evident. There is no need to describe the deficiency - no marks are available for the
deficiencies, although you could have listed them briefly as headings to help structure your answer. The marks are
awarded for implications and recommendations, not identification of the deficiencies already given.
In (b) keep your answers focused on substantive procedures, not tests of control. Also your procedures should
remain relevant to the assertions stated in the question – completeness and accuracy of the payroll charge. Don't
forget simple procedures such as casting the payroll records since this will also help to confirm accuracy and
completeness.
Part (c) was on the auditor's responsibility in relation to laws and regulations. Remember the auditor's opinion will
be on the financial statements, so the auditor's responsibility will be focused on those laws and regulations that
could have a material effect on the financial statements, whether direct or indirect.
There are a number of substantive procedures you could have suggested in (d) in respect of the redundancy
provision, but the most you could gain is four marks so it is important you did not carry on stating more than four
procedures and risk exceeding your time allocation of eight minutes.
Part (e) was relatively straightforward in relation to reliance on internal audit as long as you knew the four key
factors of objectivity, technical competence, due professional care and communication.
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