ACCA F8 - Audit and Assurance Revision Kit 2016

Option B is based on depreciation being applied for a full year instead of for the relevant months.
Option C is based on depreciation not being charged in the month of acquisition (ie seven and four
months).
Option D is based on depreciation for the exercise bikes being divided by the three years instead of
allocated on a monthly basis.
7 A Test 4 is a test for existence and test 3 is for completeness. All other tests are relevant for valuation.
Option A is correct.
8 B While all procedures would be valid in the circumstances, only the written confirmation from the
company's lawyers would allow the auditor to obtain an expert, third party confirmation on the
likelihood of the case being successful. This would provide the auditor with the most reliable
evidence in the circumstances. Therefore B is the correct answer.
9 D As per ISA 505 External Confirmations, the evidence obtained from the trade receivables
circularisation should be reliable as it is from an external source and the risk of management bias and
influence is restricted due to the process being under the control of the auditor. Therefore 1 and 4 are
benefits and option D is therefore correct.
Customers are not obliged to answer and often circularisations have a very low response rate. A
circularisation will not provide evidence over the valuation assertion for receivables and therefore 2
and 3 are drawbacks of a circularisation.
10 B A is incorrect as the balance with Laurel Co would need to be followed up due to the dispute.
C is incorrect as this represents a payment in transit and the payment would need to be agreed to
post year-end bank statements – if the cash was received pre year end this would represent a cut-off
issue as this should no longer be included in receivables.
D is incorrect as the sample chosen should be verified even if there is no response. As per ISA 505,
the auditor should adopt alternative procedures.
Therefore B is the only statement which is true as this does represent a timing difference (invoice in
transit) and should be agreed to a pre year-end invoice.
11 B Addressee – sets out who the report is addressed to – usually the shareholders – and is there to
clarify who can place reliance on the audit opinion. B is therefore the correct option.
12 D Statement 1 is false as not all subsequent events will require an adjustment to the numbers within the
financial statements. IAS 10 Events after the Reporting Period makes a distinction between an
adjusting and non-adjusting event. Only material adjusting events would require an amendment to
the figures within the financial statements.
Statement 2 is false as while a non-adjusting event would not require a change to the numbers within
the financial statements, IAS 10 may require a disclosure to be made. If the non-adjusting event is
material, non-disclosure could still result in a modification to the audit report.
Statement 3 is true as the auditor is required to carry out procedures up to the date of the audit
report to gain sufficient appropriate audit evidence that all relevant subsequent events have been
identified and dealt with appropriately. After the audit report is issued, the auditor does not need to
actively look for subsequent events but is only required to respond to subsequent events which they
become aware of.
Statement 4 is true as ISA 560 Subsequent Events requires the auditor to obtain written confirmation
from management/those charged with governance that all subsequent events have been identified
and dealt with in accordance with the appropriate reporting framework.
D is therefore correct.
13 C The outstanding balance with Pirlo Co is likely to be irrecoverable as the customer is experiencing
financial difficulties.
The balance is material at 7.4% of profit before tax and 2.5% of revenue.
Mock exam 3 (Specimen exam): answers 257