ACCA F8 - Audit and Assurance Revision Kit 2016

(d)
(e)
Substantive procedures – Redundancy provision
– Obtain an analysis of the redundancy calculations (cost by employee) and cast it to ensure
completeness.
– Obtain written representation from management confirming the completeness of the provision.
– In order to establish that a present obligation exists at the year end, ask the directors whether they
formally announced their intention to make the sales ledger department redundant during the year.
– If the redundancies have been announced pre-year end, review any documentation corroborating that
the decision has in fact been formally announced.
– Review the board minutes to assess the probability the redundancy payments will be paid.
– Recalculate the redundancy provision to confirm completeness and agree components of the
calculation to supporting documents.
– Confirm whether any redundancy payments have been made post year end and compare any
amounts paid to amounts provided to assess the adequacy of the provision.
– Review the disclosure of the redundancy provision to ensure it complies with IAS 37 Provisions,
contingent liabilities and contingent assets.
(Note: Only five procedures were needed to gain full marks.)
Factors to consider – Reliance on work performed by internal audit
The following important criteria will be considered by the external auditors when determining if the work of
internal auditors is likely to be adequate.
Extent to which its objectivity is supported
The auditor must consider the extent to which the internal audit function's objectivity is supported by its
organisational status, relevant policies and procedures. Considerations include to whom internal audit
reports, any conflicting responsibilities, any constraints or restrictions, whether those charged with
governance oversee employment decisions regarding internal auditors and whether management acts on
recommendations made.
Level of technical competence
The auditor must consider whether internal auditors are members of relevant professional bodies, have
adequate technical training and proficiency and whether there are established policies for hiring and training.
Whether a systematic and disciplined approach is taken
The auditor must also consider whether internal audit activities are systematically and properly planned,
supervised, reviewed and documented; and whether suitable audit manuals, work programs and internal
audit documentation exist. The auditor must also consider whether the function has appropriate quality
control procedures in place.
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