ACCA F8 - Audit and Assurance Revision Kit 2016

(c)
Marks
Event 2 – Explosion
– Provides evidence of conditions that arose subsequent to the year
end
– Non-adjusting event, requires disclosure if material
– Calculation of materiality
– Obtain schedule of damaged property, plant and equipment and
agree values to asset register
– Obtain latest inventory records to confirm damaged inventory
levels
– Discuss with the directors if they will make disclosures
– Discuss with directors why no insurance claim will be made 6
Up to 1 mark per well explained valid point
– Disclosure required in 20X3 financial statements and adjustment
to the assets in 20X4 financial statements
– Material but not pervasive misstatement, modified audit report,
qualified opinion
– Basis for qualified opinion paragraph required
– Opinion paragraph – except for 3
20
(a)
(b)
Elements of an assurance engagement
There are five elements of an assurance engagement and these are explained below.
A three party relationship
The three parties are the intended user, the responsible party and the practitioner. Intended users are the
person, persons or class of persons for whom the practitioner prepares the assurance report. The
responsible party is the person (or persons) responsible for the subject matter (in a direct engagement) or
subject matter information of the assurance engagement.
The practitioner is the individual providing professional services that will review the subject matter and
provide the assurance.
A subject matter
This is the data to be evaluated that has been prepared by the responsible party. It can take many forms
including financial performance (eg historical financial information), non-financial performance (eg key
performance indicators), processes (eg internal control) and behaviour (eg compliance with laws and
regulations).
Suitable criteria
The subject matter is evaluated or measured against criteria in order to reach an opinion.
Evidence
Sufficient appropriate evidence needs to be gathered to support the required level of assurance.
Assurance report
A report containing the practitioner's opinion is issued to the intended user.
Event 1: Defective chemicals
A batch of chemicals produced before the year-end, costing £0.85m to produce, has been found to be
defective after the year-end. Its scrap value is £0.1m. Inventory should be valued at the lower of cost and net
realisable value in accordance with IAS 2 Inventories. This is an adjusting event in accordance with IAS 10
Events after the reporting date. As it stands, the inventory is overstated by £0.75m. This represents 13.4%
of profit before tax and 1.4% of revenue and is therefore material to the financial statements.
Answers 153