ACCA F8 - Audit and Assurance Revision Kit 2016

Control
The receivables ledger should be reconciled to the
receivables ledger control account on at least a
monthly basis. The reconciliation should be
reviewed by a responsible official and anomalies
investigated.
Management should consider establishing an
internal audit department to assess and monitor the
effectiveness of controls, identify any deficiencies,
and carry out specific fraud investigations.
Explanation of how risk is mitigated by control
This will increase the chance of discovering errors
in the receivable balances and help to create a
strong control environment likely to deter fraud.
The presence of an internal audit department would
help to deter employees committing fraud and
identification of fraud would be more likely due to
ongoing monitoring of internal controls.
(d)
Substantive procedures to confirm Tinkerbell's revenue
– Compare the total revenue with that reported in previous years and the revenue budgeted, and
investigate any significant fluctuations.
– For a sample of customer orders, trace the details to the related despatch notes and sales invoices
and ensure there is a sale recorded in respect of each (to test the completeness of revenue).
– For a sample of sales invoices for larger customers, recalculate the discounts allowed to ensure that
these are accurate.
– Select a sample of despatch notes in the month immediately before and month immediately after the
year end. Trace these through to the related sales invoices and resultant accounting entries to ensure
each sale was recorded in the appropriate period.
Top tips: Four procedures such as those shown above would have been sufficient to gain full marks on this
part of the question. However other procedures are given below.
– Obtain an analysis of sales by major categories of toys manufactured and compare this to the prior
year breakdown and discuss any unusual movements with management.
– Calculate the gross profit margin for Tinkerbell for the year and compare this to the previous year and
expectations. Investigate any significant fluctuations.
– Recalculate the sales tax for a sample of invoices and ensure that the sales tax has been correctly
applied to the sales invoice.
– Select a sample of credit notes issued after the year end and trace these through to the related sales
invoices to ensure sales returns were recorded in the proper period.
70 Trombone
Text references. Chapters 7, 9 and 10.
Top tips. Part (a) asks you to identify deficiencies in the control system for payroll, to recommend improvements
and to describe a relevant test of control. Make sure that your answer addresses all three requirements. A tabular
format is a particularly useful way of presenting your answer.
Part (c) tests you knowledge of the difference between an interim audit and a final audit. You should find this
relatively straightforward.
Easy marks. Easy marks can be found in part (b).
Examination Team's comments. The first two parts of part (a) were answered satisfactorily by candidates, however
the tests of controls proved challenging for many.
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