ACCA F8 - Audit and Assurance Revision Kit 2016

Deficiency and explanation
Damaged or old inventory quantities are crossed
out and those items are given a nil quantity. This
means all record of these items is lost and they
may still have a value – they need to be assessed
by more senior staff members.
Count sheets are to be discarded once the
inventory system is updated. This means there will
be no audit trail for inventory quantities and no
way to verify how accurately the data has been
entered.
Possible solution
Damaged or old inventory quantities should be
maintained. They may be highlighted on the list.
However, an appropriate independent senior staff
member should carry out a separate review for
damaged or old items and identify those which
may need to included as part of an inventory
provision.
Count sheets should be retained and, for a sample
of inventory items, an independent person should
verify that the quantities on the count sheets have
been entered correctly.
95 Panda
Text reference. Chapter 1, Chapter 18 and Chapter 19.
Top tips. Part (a) is knowledge-based on the elements of assurance engagements and you should be able to score
the full five marks here. In part (b), you first need to assess whether each of the issues is material or not so make
sure you use the figures provided in the question for revenue and profit before taxation to make your assessment.
Remember also to consider whether these are adjusting events or not. Each issue is worth six marks so assume
there are three marks for explaining whether an amendment is required and three marks for the audit procedures. In
part (c), you must fully explain how the non-disclosure/amendment relating to the explosion might affect the
auditor’s report – it is not enough to say that the opinion will be modified, for example; you must explain the basis
of any modification and whether it is material or pervasive. Note that in this part you are only asked to discuss the
explosion – you must not include a discussion of the defective chemicals as this has not been asked for.
Easy marks. Part (a) offers easy marks for explaining the elements of an assurance engagement.
Marking scheme
Marks
(a)
Up to 1 mark per well explained element
– Intended user, responsible party, practitioner
– Subject matter
– Suitable criteria
– Appropriate evidence
– Assurance report 5
(b)
Up to 1 mark per valid point, overall maximum of 6 marks per event
Event 1 – Defective chemicals
– Provides evidence of conditions at the year end
– Inventory to be adjusted to lower of cost and net realisable value
– Calculation of materiality
– Review board minutes/quality control reports
– Discuss with the directors, adequate inventory to continue to
trade
– Obtain written representation re going concern
– Obtain schedule of defective inventory, agree to supporting
documentation
– Discuss with directors basis of the scrap value 6
152 Answers