ACCA F8 - Audit and Assurance Revision Kit 2016

required to be professionally qualified so staff may not be sufficiently knowledgeable in the industry or the
work of internal audit initially.
Internal auditors can never be completely independent, unlike external auditors, as they are employees of the
company. Independence is therefore impaired, especially if senior management are dominant. Internal
auditors may be unwilling to report serious findings to senior management for fear of losing their jobs.
Internal auditors should report to both senior management and those charged with governance (dual
reporting) but if this is not the case, management could unduly influence the internal audit plan, scope and
reporting responsibilities.
(d)
Additional functions
The internal audit team could undertake value for money reviews, looking at the economy, effectiveness and
efficiency of activities and processes within the company.
The internal auditors could perform IT audits, ie performing tests of controls on the computer systems of
the company.
The internal auditors could carry out financial audits, using substantive procedures and tests of controls in
different areas such as cash, inventory and purchasing for example.
The department could also do operational audits, looking at the operational processes in place.
The internal auditors could also examine compliance with laws and regulations. As the company operates in
the hotel industry, this may be a key area to focus on.
Finally, the internal auditors could carry out customer service reviews. This would most likely be in the form
of analysing the results of customer service surveys.
Chestnut
100 The correct answers are:
Review whether any payments have subsequently been made by this customer since the audit fieldwork was
completed
Discuss with management whether the issue of quality of goods sold to the customer has been resolved, or
whether it is still in dispute
Review the latest customer correspondence with regards to an assessment of the likelihood of the customer
making payment
The audit concern here is that receivables are overstated as the balance from this customer does not appear
to be recoverable. Audit procedures should therefore focus on the valuation of receivables. Vouching the
balance owed by the customer at the year end to sales invoices will provide audit evidence in relation to the
existence, rights and obligations of receivables, but not their valuation.
101 The correct answer is:
Qualified ‘except for’
The customer balance of $350,000 represents 1·2% (0·35/28·2m) of revenue, 6·3% (0·35/5·6m) of
receivables and 7·3% (0·35/4·8m) of profit before tax, and as such is material but not pervasive.
If management refuses to provide against this receivable, the auditor’s opinion will need to be modified. As
the issue is restricted to receivables the error is material but not pervasive so a qualified ‘except for’ opinion
would be necessary.
The opinion paragraph would state that the audit opinion is qualified ‘except for’. A basis for qualified
opinion paragraph would be needed and would include an explanation of the material misstatement in
relation to the valuation of receivables, and of the effect on the financial statements.
166 Answers