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.
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