ACCA F8 - Audit and Assurance Revision Kit 2016

Information source
Prior year financial statements
Systems notes/Internal control questionnaires
Company website
Financial statements or financial information relating
to competitors
Company budgets
Prior year report to management
Discussions with management
Expect to obtain:
Information on the historic performance of the entity
and its accounting policies. Last year’s financial
statements can help the auditor form expectations
for the purposes of performing analytical
procedures.
Information on how each of the key accounting
systems is designed, how it operates and how
robust the internal controls are.
Information on recent developments or press activity
which could impact on the risk assessment.
Information from which the auditor can develop
expectations when undertaking preliminary analytical
procedures and undertaking the risk assessment.
A reference point for expected performance which
can be compared with actual performance.
Information on deficiencies identified last year and
auditor recommendations. If the deficiencies are
unresolved this will impact on the risk assessment.
Information in relation to any important issues
arising or changes to the company during the period
under review.
Note. Only five sources were required.
(b)
Audit risks and responses
Audit risk
The $1.6m spent on refurbishing may have been
incorrectly analysed between non-current assets and
repairs. There is therefore a risk that non-current
assets and expenses are misstated.
The five year loan of $1.5m from the bank may have
been incorrectly analysed between current and
non-current liabilities.
If Sunflower has given the bank a charge over its
assets as security for the loan, the related financial
statement disclosures may be incomplete or
inadequate.
The warehouse disposed of during the year may
have been incorrectly accounted for resulting in a
potential overstatement of non-current assets and
the related profit on disposal.
Response
Obtain and review an analysis of the costs, tracing to
invoices and other supporting documents to
establish the nature of the expenditure. Then
accounting entries should be reviewed to ensure
revenue expenditure has been charged to the
statement of profit or loss and capital expenditure is
included in non-current assets.
The allocation of the loan between current and noncurrent
liabilities and the related disclosures for the
loan should be reviewed to assess whether it is
presented in accordance with IFRSs.
The loan agreement should be obtained and
reviewed for evidence that security has been given. A
bank confirmation should be obtained including
details of any security.
Financial statement disclosures relating to security
should be reviewed to ensure they are complete and
in accordance with IFRSs.
The non-current asset register should be reviewed to
ensure that the asset has been removed. Disposal
proceeds should be agreed to bank statements and
the profit on disposal should be recalculated.
Mock exam 2: answers 237