View Full Version : F8 STUDY GROUP #1- Today 28th Feb 09 at 5:00pm UK Time
ptty_noel
28-02-09, 10:42 AM
Today will be our first discussion an Audit Framework and Regulation.
Looking foward to discuss with you.
Please note: We will be discussing in this thread.
that will be noon my time. I would join you guys if you are still active in discussion when I get back home from work.
Suze
Hello everyone!
I've been waiting for this day.Thank God for the lives of everyone of you.God bless you all and God bless GTG
Shall we start with this simple one 'What would you say is the purpose of an External audit?
Let's start pouring out ideas!
to give a rasonable assurance/opinion that fin.stat are giving true and fair view with respect of material misstatements..
Is to express an independent opinion on on the truth and fairness of the financial statements of a company.
Ext auditor never give gurantee/100% assurance only reasonable assurance
True = information is factually correct and conforms with reality..
Fair = information is free from discrimination and bias
I got these other to from my text and it's would be great to look at these too
1.What are the objectives, characteristics and responsibilities of internal audit, external audit and assurance.
2) Explain the difference between negative and positive assurance in the context of the external audit and review engagements. State some of the limitation of the external audit
i can give u example only
e.g u got leased car ie it is operating lease
now you present this car in your books as leased asset it is true..
and fair is that u represnt in operating lease head not as finance lease
Ext auditor never give gurantee/100% assurance only reasonable assurance
What kind of assurance is reasonable?
Audits give reasonable assurance that accounts are free from material misstatements.
How simply can we define material misstatements?
When Financial accounts are prepared, they take a year to complete, as such the Auditors cannot be expected to check every single entry in the books. therefore they have to use their professional judgment, and test certain aspects of the FS. The other point is that some information in the FS is based on estimates.
This is why the assurance level given is reasonable which really is a high level of assurance
to judge materialy it is on next chapters
ie sales 10 %
assets 5 % i do noit know exatly but on next chapters
Material misstatments are when the inclusion or omission would reasonably influence the decisions of the intended users of the accounts.
Materiality is defined in the planning stages of an audit.
materiality of wal-mart is 10 % of sales
ie thir sales are $1000,0000
then upill 10% or below 10% it is not material for thir auditors
Gimvie i like your practical explanations, really cool.. I wish I could do that!!
def of mat:
info is mat i its ommission or misstatemnt inluence the economic decision of user taken on the basis of these info
So what factors will determine the degree of assurance given by the impartial professional?
I know that the nature of the exercise being carried out is one of them.what other factors are there?
If it were an audit the degree of assurance is high and if it were a review engagement it would be low right?
Gimvie I'm in love with your example on materiality
Another one like that pls:smile:
kaypee remeber i do not know exact % it is in book for profit it is .5% or assets it is 1-2 and for profits it is 10%
but remember i do not know real %%s
I've been struggling with this concept of materiality and I think the practical example you have given is just great!
and if exam as defination of mater then do not write %% just write def as above
and it in scenario figures are given then derive % and explain
The factors that determine the degree of assurance id the scope of the audit.. i.e. External audit is conducted annually, usually a legal requirement. The scope of this is the Balance sheet, the statement of comprehensive income, statement of cashflows, and all underlying books, records and transactions that make up the accounts.
(I'm not sure if that is the correct answer)
A review engagement gives a lower level of assurance, this is expressed in a negative form. i.e. that nothing has come to the auditors attention that suggests the accounts have not been prepared in accordance with a recognised regulatory framework.
Let's me check from my text so are we expected to memorize these percentages in the text and do they ever change?
I guess the concept of materiality is ok for now we shall meet those percentages later chapters.
Unless of course anyone has s'thing else to say abt materiality?
I just found this...
A matter is considered material
1/2 - 1% of revenue
1 - 2% of total assets
5 - 10% of profit before tax.
The factors that determine the degree of assurance id the scope of the audit.. i.e. External audit is conducted annually, usually a legal requirement. The scope of this is the Balance sheet, the statement of comprehensive income, statement of cashflows, and all underlying books, records and transactions that make up the accounts.
(I'm not sure if that is the correct answer)
A review engagement gives a lower level of assurance, this is expressed in a negative form. i.e. that nothing has come to the auditors attention that suggests the accounts have not been prepared in accordance with a recognised regulatory framework.
so that sends us into another crucial area Negative assurance Vs.Positive assurance?
so u've define negative assurance how then do we define positive assurance(my text says it is reasonable assurance)
negative assurance and reasonable asurances gain the almost last topic of audit
this time only focuses on start of audit
The materiality topic will not die.So can we all search our texts to see whether we can get some detailed illustration to 'kill' the ghost' of materiality which will not just go away.
indeed I hear this concept is very difficult for most students to explain.
Negative ass( nting has to come to our attention)
positive assurance ( fin statements are not resented according to standards or everything is not absolutely correct)
auditor give these 2 tyes of assurance as above
buy name negative sounds bad but in reality its mean accounts are representing fair and true view
Kaypee, Materiality is disussed more in the chapter about risk assessment.
Ok negative and positive assurance:we will come across these later right?
So there just the 3 of us.Where are the rest.
Anyway I'm still looking around for a more comprehensive illustration of materiality.
But Gimvie do they expect us to memorise those percentages or what?
Materiality must be designed buy auditor before conducting audit
kaypee i have solution of your problem
i know already these 5 just kidingso u will ask this question how to memorise them
auditor give these 2 tyes of assurance as above
buy name negative sounds bad but in reality its mean accounts are representing fair and true view
Negative assurance is not given in external audit, it is only given in a review engagement.
This one states that nothing has come to attention
Reasonable assurance is given in external audit.
This one states that FS give a true and fair view. (Unqualified report)
what is max figure in any company
its of course its sales so sales % are max (5-100
then assets are usually 2nd largest figues
then lease one probits so thir % are at least
sorrt sales 5-10 typing mistakes
sales figures are high so % are high etc etc
My text talks about other types of assurance engagements like :
Agreed-upon procedures:the auditor simply provides a report of the actual findings,so no assurance is expressed.Users of the report must instead judge for themselves the auditor's procedures and findings and draw their their own conclusions.
Compilation engagements: users of the compiled info gain some benefits from the accountant's (as opposed to auditor's) involvement,but no assurance is expressed in the report.
What is the difference between these two?
in reasonable assurance engagements audior gives positive assurance
take example::statutory audit
Sorry I did not see we were still talking abt materiality.
I like this point that you make that the materiality has to be designed by the auditor b4 the audit.
But I guess in the course of the audit it can be reviewed and revised too right?
siddharth
28-02-09, 06:03 PM
hey friends
nice to join you
in limites assu engagements audior gives negative assurance
take example::: review of fin statements, risk assessment report, bestvale/valur for money audit, system reliability report erc
siddharth
28-02-09, 06:05 PM
In agreed upon procedures reports are restricted to those parties that have agreed to procedures to be performed since others, unaware of the reasons for the procedures, may misintepret the results
Materiality ::: do u really want to clear that point
Kaypee,
I have the same text book.
The Agreed up-on procedures, just report on facts. E.g. It could be just an inventory check, goods received against GRN, despatched, and invoiced. Only facts to report.
Compilation engagements, I'm guessing is information compiling and results in the report, but the accountant gives no opinion.
do u know audit formulas
AR=IR*CR*DR?
do u know implementation of that formula or let me explain??
siddharth
28-02-09, 06:09 PM
can some one give an example for agreed upon procedures, under what circumstances it is carried out?
i also want to know that!!
AR-Audit Risk
IR-Inherent risk
CR-Control risk
DR-Detection risk
I guess we can go into detail when we are looking at 'Risk' as a topic
Agreed-upon procedures is when the AUDITOR/ACCOUNTANT is hired to issue a report of findings based on specified financial statement items. The users of the report agree upon the procedures to be conducted by the accountant/auditor that the user believes are suitable
siddharth
28-02-09, 06:15 PM
The difference is
agreed upon procedures
1. procedures carried out by auditor are audit in nature.
compilations
a. procedures are carried out by accounting expertise rather than auditing expertise to collect, classify and summarise financial information.
[B]the user takes responsibility for the adequacy of the procedures in this engagement, the auditor does not express an opinion or negative assurance. instead, the report should be in the form of procedures and findings ,A representation letter is prepared that depends on the nature of the engagement and the specified users.
[B]
Kelly,
The Agreed up-on procedures, j
Compilation engagements,
In both cases no assurance are expressed.
I think examples will do.
I agree with u Kelly on the example(Agree-upon procedures)just report on facts. E.g. It could be just an inventory check, goods received against GRN, despatched, and ...
But still can't get a clear distinction between the two ..the note given is so scanty
siddharth
28-02-09, 06:17 PM
Hi,
can anyone give example for compilations as well?
copilation:
Identify the activities required to perform basic compilations and reviews of financial statements, draft the accountant’s report, and document the engagement in accordance with professional standards
The difference is
agreed upon procedures
1. procedures carried out by auditor are audit in nature.
compilations
a. procedures are carried out by accounting expertise rather than auditing expertise to collect, classify and summarise financial information.
If I get you right Sid,
With the agreed-upon procedure:auditing procedures are followed by an auditor abut in the final analysis he expresses no opinion but in the latter an accountant just does some compilation right?
hey we are making some progress!:chatterbox:
I believe a compilation report may cover not only FS but any other aspect of the company aswell, for example a compilation report of the efficiency and effectiveness of the HR dept.
So would I be right in saying a situation where the an accountant who reports to the chief accountant at the factory goes for a month-end inventory count at the Raw and packaging material warehouse would that be ''Compilation engagement''?
siddharth
28-02-09, 06:27 PM
Hey Kaypee,
In agreed upon procedures auditor just carries out the procedures which is agreed upon between auditor, entity and any appropriate third party and report its actual findings through that procedures agreed. No assurance is provided by auditor because he just carries out what he is asked to do.
I think we have compilation procedures sussed now!!!
Doing well aren't we??
siddharth
28-02-09, 06:33 PM
I understand what it is. but if someone explain with few examples it would be better. isn't it?
So an end of month stock count and compilation by an accountant is a ''compilation engagement' right?
siddharth
28-02-09, 06:39 PM
I am not sure kaypee, i dont have any experience in agreed upon procedures and compilation. i think we can listen to kelly's words
Hey guys,
Thankyou very much for this study session, it has really helped - reeally good idea,
I must go now.
Talk again soon
Okay kelly
I'll be in here for a while so you can come in later to see the other posts
Bye see u later
siddharth
28-02-09, 06:43 PM
bye kelly, i will see you soon.............
I did that lots of times as a Jnr Accountant with a multi-national and I guess it's a good example of the compilation engagement by an accountant(at least based on the explanation of what a compilation engagement is)
i guess we can come back to this some other time.
siddharth
28-02-09, 06:45 PM
Ok kaypee, what are the topics to be discusses further
The Chronology of an audit?
Kelly we have similar texts right?
Do you get this topic the 'chronology of an audit'' especially the diagram in the passcard.
these are the steps right and the auditor goes in these steps right?
1.Assess risk
2.Plan procedures
3.Conduct procedures
4.Assess results
5.Express an opinion.
siddharth
28-02-09, 06:48 PM
So we conclude for agreed upon procedures and compilations. we understood the theoritical meaning and we need few examples to support it. i think we can put in open query after this session. do you agree with this kaypee? shall we go to next topic or shall we stop with this
Sorry Sid
Let's talk abt 'chronology of an audit'
siddharth
28-02-09, 06:49 PM
Ya its chronology order is correct kaypee
Ok...put it on query
and let's move to 'The chronology of an audit'
siddharth
28-02-09, 06:51 PM
is there any problem with it kaypee
Got any mnemonics to memorize those steps?
In there's a diagram in my pocket notes which has additional steps an make it complicated
siddharth
28-02-09, 06:55 PM
i dont have, i think its very simple we can remember it.
siddharth
28-02-09, 06:58 PM
i dont have pocket notes kaypee
siddharth
28-02-09, 07:00 PM
is there anything else kaypee. or shall we close this session
Hi Sid
If you do not have any mnemonics can we look at a few questions on Regulatory environment and Corporate Governance.
siddharth
28-02-09, 07:03 PM
is there specific agenda for this session kaypee
Auditors' responsibilities
The auditors' detailed responsibilities with regard to reporting on the requirements of the Combined Code are out in an APB bulletin.
Can you explain list one or two of these requirements?
Yeah Sid we are supposed to Look at the whole of Section A of the syllabus and finish it so that next week we can move on to the next section.
So for today we are trying to tackle whatever difficult areas people encountered in their readings.
siddharth
28-02-09, 07:10 PM
what is apb bulletin yar? can you be more specific
But never mind if you have some other duties to attend to.
siddharth
28-02-09, 07:13 PM
I dont have much work now. we can continue further.
I quoted from my Text....I checked APB's website and they release Newsletters.
Anyway my difficulty here is ''The Combined Code'' spells out best practice for UK companies especially the listed one and those seeking listing to follow in the area of corporate governance.
My question is in the text I quoted when they say ''the auditors' responsibilities with regard to reporting on the requirements of the code what are they referring to.Kindly give me just two egs
Ok...i guess I'm satisfied with this statements.
The text continues to spell out what the auditor should do:
It says the auditor should review the statements made concerning internal control in the annual report to ensure that they appear true and are not in conflict with the audited financial statements...I guess i'm ok with the further explanation
Do you have any difficult areas of your own you can post them and let's try our hands on them.If we can't resolve them immediately we can always come back to them b4 thenext session
siddharth
28-02-09, 07:24 PM
there should be clear division of responsibility between chairman and executive.
for this audior should see whether there is clear division of responsibilty between them in writing and the same is agreed by the board.
Under what circumstance will the IAASB issue a new ISA
siddharth
28-02-09, 07:29 PM
I understand kaypee. but i am in office now. i am not getting anything for doubt.
siddharth
28-02-09, 07:30 PM
its a good question kaypee, but i have to go now. shall we meet later.?
siddharth
28-02-09, 07:31 PM
nice meeting you kaypee, kelly. i hope same effective participation comes for next session also.
siddharth
28-02-09, 07:32 PM
cheers kaypee. bye. may be you can post your doubts, we can discuss later.
Okay Sid thanks for coming in here.
You made an impact on me. See you later
Cheers
Hello folks,
For those of you who missed this first session.You can continue to post difficult areas you come across in your reading of Section of the Syllabus.
I believe we shall all make it a point to come back between now and our next session on the 7th March to answer people's questions and posts any further difficulties we might encounter.
Keep Posting.Let's try to finish Section A and move to Section B.
My text talks about other types of assurance engagements like :
Agreed-upon procedures:the auditor simply provides a report of the actual findings,so no assurance is expressed.Users of the report must instead judge for themselves the auditor's procedures and findings and draw their their own conclusions.
Compilation engagements: users of the compiled info gain some benefits from the accountant's (as opposed to auditor's) involvement,but no assurance is expressed in the report.
What is the difference between these two?
Agreed upon procedures: the auditor will not express his opinion, instead he will only give the factual finding and they will no assurance given by the auditor.
Compilation:Its an engagement which required more accounting expertise than auditing expertise. It doesn't provide assurance but it only gives compiled information.
The accountant's report in a compilation should state that the accountant has not been audited/reviewed, the accountant disclaims an opinion and gives no assurance on the Financial statements.
Therefore they are both no assurance. For Agreed upon procedures its about factual finding such as finding data of accounts receivable. Example of compilation is prepare financial statements.
ptty_noel
28-02-09, 09:33 PM
Lets review:
What is an Audit? And why is it needed?
ptty_noel
28-02-09, 09:38 PM
Lets review:
What is an Audit? And why is it needed?
By the way can we please keep the discussion on The Concept of Audit and other Assurance Engagements for now so that no one will get lost and be able to understand what is being discussed.
dragoon_alex
01-03-09, 10:01 AM
Hi, everyone, firstly I'd like to make appologize, I can't join the discussion last night.
I had read through the discussion, I had seen lots of key points and answers, however, I think the objective for our discussion is not so clear, everyone have their own topic, and just talk in the board, and some topics only have incompleted answer.
I'd like to suggest that we need set an objective before start the discussion, and make a plan for one or two topics in each discussion; them set the questions 3-5 days before the discussion day, eveyone can try to do the question after it has set. Finally, we can collect the better answer from each member on discussion day.
Anyway, it's only my suggestion, if anyone have better idea, please share with us.
Thanks
The Chronology of an audit?
Kelly we have similar texts right?
Do you get this topic the 'chronology of an audit'' especially the diagram in the passcard.
these are the steps right and the auditor goes in these steps right?
1.Assess risk
2.Plan procedures
3.Conduct procedures
4.Assess results
5.Express an opinion.
Hi Kaypee,
Yes I believe that when an external audit is planned these are the chronological steps to be followed.
Within the Planning process of an Audit, the understanding of the entity and its business should be understood to enablethe auditors cto carry out an effective audit.
Within the Risk Assessment, materiality is established, and the test controls and procedures to be followed.
Any weaknesses should be reported to management.
Any unsatisfactory test controls should be reported to management.
If necessary further substantive procedures should be carried out.
Evidence obtained to support documentation.
Explanations received.
Report written in formal set format giving opinion of Financial Statements, and reported to the members.:chatterbox:
What is Audit ?
Audit is the process where an auditor gives his opinion that the financial statements presents fairly, in all material respects the financial position of the company as at year ended...in accordance with the IAS.
why is audit needed?
Audit is needed to give users assurance that the financial statements are free from material misstatements.
Why should auditors plan an audit ?
Hey Suze it looks like you are far ahead of the entire group.
Your question is answered by ISA 300 Planning an audit of financial statements..ISA 300 states' The auditor should plan the audit so that the engagement will be performed in an effective manner'.
The auditor has to plan so that he can direct the audit based on an assessment of risks relevant to the entity being audited.
Audits are planned so that the audit work is carried out in a timely and efficient manner( i.e.plan so that your work is well organized and you can see your way clear,things won't be done in a haphazard manner)
-At the end of the day the auditor can ensure that he paid attention to the problematic areas.
-Planning the audit also helps the auditor determine the quantum of work involved in a particular audit so he can allocate resources available(time and personnel) well.
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