ACCA F8 - Audit and Assurance Revision Kit 2016

achieve the required level of assurance. In this case, further tests of control and/or substantive
procedures would be appropriate.
11 D ISA 450 Evaluation of misstatements identified during the audit states that the auditor has a
responsibility to accumulate misstatements identified during the audit, other than those that are
clearly trivial.
All the accumulated misstatements should be communicated to the appropriate level of management
on a timely basis. The auditor must request management to correct the misstatements.
If management refuses to correct some or all of the misstatements, the auditor must obtain an
understanding of the reasons for not making the corrections, and take these into account when
determining whether the financial statements are free from material misstatement. This may affect
the auditor’s opinion if this results in the financial statements being materially misstated, but the
refusal to correct the misstatements does not affect the opinion.
The auditor should determine whether uncorrected misstatements are material, both individually and
in aggregate.
12 A Audit procedures should focus on determining the extent of research expenditure which has been
incorrectly capitalised.
Whilst it is generally important to authorise expenditure the issue is not authorisation or occurrence
but its classification.
13 C Research expenditure of $2.1m has been capitalised within intangible assets. This accounting
treatment is incorrect, as IAS 38 Intangible assets requires research expenditure to be expensed to
profit or loss.
The error is material as it represents 8% of profit before tax ($2.1m/$26.3m).
Management should adjust the financial statements by reversing it from the research expenditure
from intangibles and debiting the amount to profit or loss.
If management refuse to make the adjustment, the auditor's opinion will need to be modified. As the
error is material but not pervasive, a qualified opinion would seem appropriate.
The basis of opinion section would need to include a paragraph explaining the misstatement and its
effect on the financial statements. The opinion paragraph would be qualified 'except for'.
14 C Two months' worth of wages records have been lost and so audit evidence has not been gained in
relation to this expense. Wages and salaries for the two month period represent 11% of profit before
tax ($1.1m/$10m) and so wages and salaries may be materially misstated.
15 A The auditors should seek alternative audit procedures to audit the wages and salaries account. If no
alternative audit procedures are possible, the loss of data would constitute a lack of sufficient
appropriate audit evidence.
The auditors will need to modify the auditor's opinion on the basis that they are unable to obtain
sufficient appropriate evidence in relation to a material amount in the financial statements. As the two
months' salary and wages are not pervasive, a qualified opinion would seem appropriate.
The basis of opinion section would require an explanation of the insufficient audit evidence in relation
to wages and salaries. The opinion paragraph would be qualified on the grounds of an inability to
obtain sufficient appropriate audit evidence.
Mock exam 1: answers 199