F8: Audit and Assurance

F8: Audit and Assurance

Designed to give you knowledge and application of:

Section A: Audit Framework and Regulation

Section B: Internal audit

Section C: Planning and risk assessment

Section D: Internal control

Section E: Audit evidence

Section F: Review

Section G: Reporting

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Section A: Audit Framework and Regulation

Designed to give you knowledge and application of:

A1. The concept of audit & other assurance engagements

A2. Statutory audits

A3. The regulatory environment & corporate governance

A4. Professional ethics & ACCA’s Code of Ethics and Conduct

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A4: Professional Ethics & ACCA’s Code Of Ethics And Conducts

Learning Outcomes

 Define and apply the fundamental principles of professional ethics of integrity,

objectivity, professional competence and due care, confidentiality and
professional behaviour.[1]

 Define and apply the conceptual framework, including the threats to the
fundamental principles of self-review, advocacy, familiarity and intimidation. [1]

 Discuss the safeguards to offset the threats to the fundamental principles. [1]

 Discuss the auditor’s responsibility with regard to auditor’s independence,

conflict of interest and confidentiality. [1]

 Discuss the preconditions, requirements of professional ethics and other

requirements in relation to the acceptance of new audit engagements. [1]

 Discuss the process by which an auditor obtains an audit engagement. [1]

 Explain the importance of engagement letters and state their contents. [1]

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Five main principles that members should comply at all times are as
follows
These are required for the best interests of their clients / employees, the accounting profession &
the public at large.
Straightforward & honest in all professional & business
Integrity relationships

Findings & judgments should be based on sound research

Objectivity
i.e. form an opinion on facts alone.

Professional
competence & due Keep knowledge & skill up-to-date, work diligently
care

Never disclose confidential information of

Confidentiality
clients to any third party

 Avoid any action that discredits the profession & towards

Professional behaviour all with whom they come into contact in a professional
capacity
 Behave with courtesy & consideration

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The Conceptual framework

Help members identify, evaluate & take action to mitigate the risk that
threaten compliance with ethical principles
Self interest threats Personal / financial interest in an organisation

Example:
1. Financial interest: ownership in equity / financial instruments / joint venture of client
2. Personal interest: personal relationship with senior member of client company
3. Probable employment with client
4. Excessive dependence on client’s fees
5. Apprehension about losing professional assignment

Self review
An accountant has to review & re-evaluate his previous judgments
threats

Example:
1. Reviewing results of an earlier assignment carried out by the auditor
2. Member of assurance team is a former employee of the client
3. Member of assurance team has been a director in the client’s company

Continued…
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Continued…

Advocacy A position / opinion to the point that subsequent objectivity may be

threats compromised

Example:
1. Auditor acts as advocate for / against client
2. Auditor involved in corporate finance services
3. Company secretary position can lead to advocacy threat

Relationship with client stops being a purely

Familiarity threats
professional one
Example:
1. Assurance team member has a longstanding business relationship with the client
2. Assurance team member is a close friend of the assurance client
3. Director of assurance client is former partner / senior employee of audit firm

deterred from acting objectively by threats, actual / perceived

Intimidation threats
dismissal / replacement, being sued & reducing scope of audit
Example: Refer to Test
1. Client threatens to remove auditor yourself 3 on
2. Reduction in fees if scope of audit is not reduced page 69
3. Recruitment of senior management of assurance client onto the audit team

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Conceptual framework outlines safeguards

fall into 3
groups

Testing all professional accountant on the importance of

By the profession ethics
/ legislation /
regulation Investigate & take disciplinary action - ethical misconduct

Implementing a system of internal control

In the work
environment Regular training programmes - ethics & corporate
governance

Attend regular training & professional development

programmes
By the individual
Take advice from appropriate legal / regulatory body in
situations of uncertainty e.g. whether he can take up a job

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Requirements of professional ethics & other requirements in
relation to the acceptance of new audit engagements

Act ethically & in best interest of clients / profession

Consider ethical responsibilities before signing

Requirements of
engagement letter
professional ethics
for acceptance of new Be objective & independent in work
audit engagements

Ensure professional competence & diligence

Obey all relevant rules & regulations & do not

engage in any activities that may bring profession
into disrepute

Refer to Test Yourself 6 on page 73

Refer to Self Examination Question 1 on page 79 9

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 Process by which an auditor obtains an audit engagement

New client approaches for audit, describes audit work it would like to be conducted
& discussions, negotiations begin
Yes
Is there a threat to the fundamental principles?
No
Can safeguards be
implemented to Yes Is the firm competent enough to No Reject the
perform a particular engagement? / can
eliminate / reduce the engagement
the competence be developed?
threats?
Yes
No
Decide the terms of Send an etiquette letter to
Reject the
engagement the former auditor (if any)
engagement
No reply within
Report to the disciplinary authorities
reasonable given time

Obtain a signed copy Send an engagement Reply contains no

from the client letter to the client issues worth attention
Proceed with the audit

Discuss and resolve serious issues raised by

Adverse reply
former auditor with management
Reject the engagement
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Recap

 Define and apply the fundamental principles of professional ethics of integrity,

objectivity, professional competence and due care, confidentiality and
professional behaviour.[1]

 Define and apply the conceptual framework, including the threats to the
fundamental principles of self-review, advocacy, familiarity and intimidation. [1]

 Discuss the safeguards to offset the threats to the fundamental principles. [1]

 Discuss the auditor’s responsibility with regard to auditor’s independence,

conflict of interest and confidentiality. [1]

 Discuss the preconditions, requirements of professional ethics and other

requirements in relation to the acceptance of new audit engagements. [1]

 Discuss the process by which an auditor obtains an audit engagement. [1]

 Explain the importance of engagement letters and state their contents. [1]

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