Paper 3.1 – Hot Topics for June 2007 exams

Audit and Assurance Services

Paper 3.1 – Hot Topics for June 2007 exams

For 3.1, the hot topics for this coming June 2007 exams include:

a) Business risk identification (see past exam papers from June 2003 to Dec

2005). Prepare for identification of business risks and how the company

should manage the risks or what internal controls will help to reduce those

risks. See June 2003 Q2 and Dec 2004 Q1. Also linking business risks to FS

risks like Dec 2003 Q1a.

b) Almost likely a question on identifying principal audit risks/financial

statement risks. See past papers (plenty of them esp. the ones in 2006). Would

expect maybe the same question for financial statement risk as in June 2006

Q1b)

c) Group audit and acquisition. Impact of an acquisition on the audit (see past

year exam like Pilot Q1, Dec 2001 Q1). Include audit strategies/approaches.

See June 2005 Q2 and June 2006 Q2 on due diligence and what factors to

consider before accepting the engagement. Though appeared recently, may

come back again!

d) Planning is important. Planning issues to consider – See June 2002 Q2a, Dec

2002 Q1a. Calculate planning materiality as in June 2006 Q1a)

e) Auditing prospective financial information, PFI (see Dec 2002 Q2), including

reporting on PFI. Take note!

f) Quality controls – practice management, setting of fees, paying commission

for referrals. See Dec 2001 Q2.

g) Working papers – See article in Feb 2007 student accountant magazine. Very

important. The article already stated the possible question she will ask. My

question is “Explain the reasons for preparing and keeping working papers and

the importance of reviewing them”. Read, understand and memorise!

h) Insurance (define PII and FGI, factors affecting the amount of cover, adv and

disadv of insurance).

i) Accounting problems/issues (the usual Q3) - Important areas include leases,

deferred tax, related parties, earnings per share, provision, government grants,

impairment, investment property, going concern.

j) Ethical issues facing the auditor – practice lots of Q5 and take note of

confidentiality. (Identify circumstances in which the disclosure is permitted or

required and discuss the factors, which may justify disclosure under public

interest)

k) Assurance and other services – review, agreed upon procedures. Explain why

agreed upon and compilation engagements do not (usually) meet the

requirements for an assurance engagement and illustrate the form and content

of a report of factual findings

l) Ownership of documents/books and working papers. Explain the general

principles governing the ownership of and right to access to documents and

papers. Explain the legal right of lien and describe the circumstances in which

it may exercised. The extent to which clients and third party may have access

to documents and papers.

m) Responsibility for summarized financial statements , financial reporting on the

internet (see Dec 2003 Q4bii)

n) Reporting – The usual Q4 audit report. But must also be prepared for

Review/Agreed upon procedures and reporting. (see item k above)

o) Outsourcing of accounting function to service organization and it’s impact on

the conduct of the audit (relying on service organization)

p) Identify circumstances in which auditor may have legal liability and explain

the other criteria for legal liability to be recognized. Distinguish between

liability to client and liability to third party. Lastly, discuss the advantages and

disadvantages of audit liability claims being settle out of court. (this section

never being examined, maybe a Q6 this June??)

q) Environment and the auditor (Pilot Q6). Small company audit exemption. Any

recent article by Kim? If yes, must study that. If no article, do not attempt Q6.

Do Q4 instead.

THE END

Paper 2.6 – Hot Topics for June 2007 exams

Paper 2.6 – Hot Topics for June 2007 exams

Professional ethics including conflict of interests (see June 2003 Q3a) and confidentiality (See

Dec 2003 Q6).

Factors to consider before accepting an engagement (a fairly standard question that every student

must prepare) plus appointment clearance procedures and engagement letter (content, must we

send it every year?) – See new Pilot Paper F8 Q2, June 2004 Q2.

Internal audit (IA) will be featured. The role of IA in risk management and organizational control

(See Dec 2001 exam qn). IA vs External Audit, scope and objectives of IA (See old Pilot Q3)

Probably one question on risk assessment, identify risks and what audit procedures will you

perform to address the risks. Could combine with analytical procedures (see below), given two

years of BS and P&L, use AP to comment on the company’s performance and identify the risks

and then what you will do in response to those risks. (Practice lots of risk questions). See

management of risk – See June 2004 Q1. (can combine with role of IA in risk mgt, Dec 2002 Q6)

The control objectives and internal control procedures you would expect to find in a purchase or

payroll systems. Recommendations for improving weaknesses found. Theory of IC important too!

The substantive tests used to gather audit evidence in respect of major assertions (completeness,

existence, valuation and allocation, accuracy, cutoff), especially in relation to accounts receivable

and creditors/accrual audit. See Pilot F8 Q1 (Important to note Alan’s style of procedures)

Prepare for contingent liability, provision audit. (see June 2003 Q3b)

Review stock audit – see perpetual inventory system, stocktake instruction (See June 2003 Q2

and June 2004 Q3).

Corporate governance (benefits, why the codes are not compulsory) audit committee (functions,

how it increase EA effectiveness).

Review vs Audit (See Dec 2001 Q5).

The use of analytical procedures during the planning, evidence gathering and review stages of the

audit process. (IMPORTANT TOPIC!) – do all past papers with this AP topic.

Working papers (types - permanent vs current file, content of WP, and what makes a good set of

WP, see the latest Feb 07 article on WP).

Responsibilities of auditors and directors over detection of fraud. Actions by auditors if fraud

discovered.

Never give up audit reporting. Must know the types of report and what report to give under

different situations. Link up fraud and audit report. (See June 2002 Q3)

Audit of small company (See Dec 2004 Q5)

Take a look at the entire new Pilot Paper for the new syllabus Paper F8 (it’s set by Alan!)

** LOOK OUT FOR ANY ARTICLES BY ALAN, maybe one more nearer the exam. This is the

fifth exam by Alan. The above topics are just my GUESSES. Use at own risk!

Best Of Luck For the Exams

ACCA Backs EU Review of Audit Liabilit

Any reform should not restrict the rights of shareholder bodies and other legitimate plaintiffs to bring proceedings against a negligent auditor,” added Davies. “It should, rather, aim to ensure that the auditor is not seen as the guarantor of shareholders’ losses, as has effectively been the case in the past. Any EU-wide reform should also be broadly-based and ensure a level playing field for the audits of quoted and unquoted companies alike.”

ACCA accepts the principle of proportionate liability, assuming that an auditor is guilty of negligence, that this causes an economic loss and that the courts uphold a liability responsibility upon the auditor. Proportionate liability is “fairer than a monetary cap”, says the ACCA submission.

Proportionate liability is also consistent with the reality that the auditor is never the only party involved in a financial mis-statement. It must always be remembered, says ACCA, that “the management of the audited company has its own separate legal responsibilities in relation to the preparation of the accounts” and that, inevitably, “the management will be at fault” for any defect in financial statements at least as much as the auditor, if not more so.

“For auditors to be liable not only for their own mistakes but those of others is, in our view, unsustainable,” the submission emphasises. “It has led to the creation of a situation whereby auditors are sued by plaintiffs not because they are the party that is considered to be the party most at fault but because, via the insurance cover that professional rules require them to hold, they are the party that is most likely to be able to pay.” The adoption of proportional liability would not prevent innocent plaintiffs pursuing legal action against others who might also have been negligent and partially responsible for a loss, points out ACCA.

IIA Membership for ACCA Members

ACCA members will be able to enjoy both local and IIA Global benefits including a discount on their first year's membership fee if they reside in the following areas: UK, Ireland, US, Canada, Caribbean and Malaysia. Members residing outside these locations may be eligible to join IIA Affiliates locally orjoin IIA Global if there is not an IIA Affiliate in their region.

In addition, ACCA members will have a unique opportunity to gain certification during 2007. Members based in the UK and Ireland will be eligible to gain the Advanced Diploma in Internal Auditing and Management through a special fast-track exemption route and examinations that will be held in June and November 2007. Members based elsewhere will be eligible to gain the Certified Internal Auditor (CIA) qualification on the basis of successful completion of a challenge exam which will be held in November 2007.

Clare Minchington, ACCA's managing director, education, learning and development, said: “This is an exciting development which will enable ACCA members to register as professional internal auditors with The IIA under one membership model. The IIA and ACCA are truly global organisations, with synergies which make is ideally suited to a joint arrangement such as this. The benefits are clear for ACCA members, and we look forward to working with The IIA in the future.”

Jo-El La Borde, director of membership from The IIA, said: “This new model offers a streamlined approach for IIA enrolment on a global basis delivering robust opportunities for members to join IIA affiliate networks or the option to join IIA Global directly. The IIA looks forward to continuing this relationship as we together enhance the profession of internal audit.”
For further information, click on the link below

IIA Membership for ACCA Members

ACCA Welcomes Commission's Move on Auditor Liability

Roger Adams, Executive Director - Technical, said: "ACCA has consistently made the case for reform of the liability laws to prevent audit firms being potentially wiped out due to a catastrophic claim, which under the concept of joint and several liability they might have to pay the whole amount of, even if others were mostly to blame for a company collapse.

"We disagree strongly with those who say that it is only the threat of litigation that keeps auditors on their toes. Restricting liability will not reduce audit quality - on the contrary, it will in the long-term improve it by ensuring that audit firms do not drop out of the market due to unacceptable risk."

He added: "Ideally, our preferred option from the Commission's alternatives, would be a system of proportionate liability. Contracts entered into under such a system would establish a fairer basis for determining an auditor's liability for negligence since the new arrangements would implicitly provide for the responsibility of all parties involved in causing financial loss to shareholders to be taken into account by the courts. It would also level the global playing field for audit as firms do not have to compete on the level of liability cap.

"It must be remembered that the whole audit process exists to protect the interests of the company's shareholders. In view of this, it is vital that any initiative which would affect shareholders' rights of redress where they have suffered loss be made subject to their explicit approval. It is essential that the two sides enter into a liability limitation agreement freely and without undue influence from either side."