[AA/F8: Tài liệu ôn thi] Part A: Audit Framework and Regulation

Part A sẽ ôn lại 3 dạng bài tập quan trọng môn Audit & Assurance (F8) với chủ đề Audit Framework and Regulation.

1. Tổng quan

Topic	Question types	Question index
		MCQ	Case
Audit Framework and Regulation	1. Corporate Governance	Câu 2,4,5,6	Câu 1,3,7
	2. Professional ethic	Câu 8,9,10,11
	3. Assurance engagement	Câu 12,13,14	Câu 15,16, 17
Reference: BPP ACCA F8 - Audit & Aussurance StudyText

2. Dạng bài tập chi tiết

2.1. Dạng 1: Corporate Governance

Ref: Tóm tắt kiến thức Dạng 1: Corporate Governance

Mức độ: Quan trọng

OTQ & OT case

Câu 1: (Dễ)

Learning outcome: Hiểu được khái niệm và tầm quan trọng của Corporate governance

Question:

Explain what is meant by ‘corporate governance’ and why it is important.

Guidance:

Corporate governance is the system by which companies are directed and controlled.

Answer:

Corporate governance is the system by which companies are directed and controlled [Explanation].

It is important for companies to consider good corporate governance principles because it helps shareholders to ensure that their needs are taken into account [Topic sentence]. It is the management or those charged with governance, not shareholders - owners of the company, which are involved directly in the running of the business [Supporting sentences – Reason]. Therefore, shareholders use corporate governance, which considers the responsibilities of directors or how the board of directors should be running and structured to ensure their needs are taken into account [Supporting sentences - Consequence].  

Reference:

• F8 BPP chapter 3: Corporate Governance phần 1.1 The importance of corporate governance
• SAPP Knowledge base

Câu 2: (Trung bình)

Learning outcome: Hiểu được các principles of the UK Corporate Governance Code

Question:

Which of the following is NOT a principle of the UK Corporate Governance Code?

A.  (1) and (2)

B.  (1), (2), and (3)

C.  (2), (3), and (4)
D.  (1), (3), and (4)

Answer: C

(2) is false because the chair and chief executive role should be performed by one person will lead to one person have too much power of decision.

(3) is false because if the non-executive chairman can set his own remuneration, remuneration can be too high and it will not promote the long-term success of the company.

(4) is false because it will not maintain the independence of NEDs

(1) is true because they improve the effectiveness of the UK corporate governance code.

Guidance:

The UK Corporate Governance Code requirements are:

Leadership	●     Each company should have an effective board who take collective responsibility for the long-term success of the company. ●     There should be a clear division of responsibilities between running the board and the running of the company. No one should have unlimited powers of decision. ●     The chairman should lead the board and ensure it is effective. ●     Non-executive directors should constructively challenge and help develop a strategy.
Effectiveness	●    The board should have the appropriate balance of skills, experience, independence, and knowledge of the company. ●    Appointment of directors should be made through a formal, transparent and rigorous process. ●    Directors should allocate sufficient time to discharge their responsibilities. ●    All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge. ●    The board should be supplied with timely information in an appropriate form and quality. ●    The board should undertake formal and rigorous evaluation of its performance and that of its committees and individual directors. ●    All directors should be submitted for re-election at regular intervals subject to satisfactory performance.
Accountability	●    The board should present a balanced and understandable assessment of the company's position and prospects. ●    The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. ●    The board should maintain sound risk management and internal control systems. ●    The board should establish formal and transparent arrangements for maintaining an appropriate relationship with the company's auditor.
Remuneration	●    Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required but should not pay more than necessary. ●    Remuneration should be designed to promote the long-term success of the company. ●    The board should establish formal and transparent procedures for developing the policy for executive directors' remuneration. ●    No director should be involved in setting his own pay.
Relations with shareholders	●    There should be dialogue with shareholders based on a mutual understanding of objectives. ●    The board as a whole has responsibility for ensuring satisfactory dialogue with shareholders takes place. ●    The board should use general meetings to communicate with investors and encourage their participation.

Make sure you learn the principles in the table above. You may be presented with a scenario in which you are asked to identify corporate governance deficiencies and make recommendations to improve corporate governance.

Reference:

• F8 Kaplan Chapter 3: Corporate governance phần 2: Corporate governance code
• SAPP knowledge base

Câu 3: (Dễ) (Đọc thêm)

Learning outcome: Hiểu được tầm quan trọng của việc giao tiếp với those charged with governance và các vấn đề thường được communicate với those charged with governance.

Question:

Explain why it is important that auditors communicate throughout the audit with those charged with governance, and describe THREE examples of matters that the auditors may communicate to those charged with governance.

Guidance + Answer (You just need to describe 3 examples of matters)

References:

• F8 BPP Chapter 3: Corporate Governance phần 4 Communication with those charged with governance
• SAPP Knowledge base

Câu 4, 5, 6: (Trung bình)

Conoy designs and manufactures luxury motor vehicles. It is not a listed company, but its board has recently decided that it would like to improve its corporate governance in order to apply best practices. The board is considering establishing an audit committee. The proposed membership of the audit committee is:

• Adrian Muse (chief internal auditor)
• Penny Dinty (existing executive director with some financial expertise)
• Sharon Header (proposed new non-executive director)
• Fredrick Rowe (proposed new non-executive director)

The board is also considering a significant expansion of the company. However, the company's bank is concerned by the standard of financial reporting as Conoy's finance director recently left the company. The board is delaying providing the bank with financial information until a new finance director has been appointed.

Câu 4.

Learning outcome: Hiểu được điểm mạnh của audit committee

Question:

Conoy's internal audit department is currently not well understood or supported by the board. Which TWO of the following statements describe the main advantages of establishing an audit committee?

A.  The position of the internal audit department will be strengthened within the organization.
B.  Corporate governance will be enhanced as the board of directors will report to the audit committee.
C.  The effectiveness of the internal audit department will be improved as the audit committee will monitor and review its performance on a regular basis.
D.  The workload of the internal audit department will be better managed as the audit committee will be able to minimize the extent to which the external auditors rely on the work of the internal auditors.

Guidance:

Benefits of establishing an audit committee come from their function:

According to the scenario, you can explain benefits base on these functions.

Example: With scenario in question 4, the audit committee can help affect internal audit function by monitoring and reviewing the effectiveness of the internal audit function, which helps to strengthen the position of the internal audit department and increase the effectiveness of the internal audit department

Answer: A + C

Establishing an audit committee will strengthen the position of the internal audit department by providing a greater degree of independence from management à A is True

The effectiveness of the internal audit department will be improved as the audit committee will monitor and review its performance on a regular basis. à C is True

The audit committee should report to the board as it undertakes tasks on behalf of the board, as opposed to the board reporting to the audit committee à B is False

Although the audit committee provides an independent channel of communication between the external auditor and the board, it is not involved in planning the external audit in any way.

→ D is False

References:

• F8 BPP Chapter 3: Corporate Governance phần 2 Audit committee
• SAPP Knowledge base

Câu 5.

Learning outcome: Ứng dụng được đặc điểm của audit committee để xác định việc bổ nhiệm có hợp lý hay không.

Question:

In relation to the proposed membership of the audit committee, state whether each proposed member should be included or not.

Guidance:

You need to compare the characteristics of each person with those of the audit committee’s members base on the UK Corporate Governance Code, then select individuals with suitable characteristics. 

Answer:

Proposed member	Include in audit committee	Do not include in audit committee
Adrian Muse		X
Penny Dinty		X
Sharon Header	X
Fredrick Rowe	X

One of the characteristics of the audit committee’s members is independence, so Adrian Muse and Penny Dinty should not be part of the audit committee because:

• Adrian Muse is the chief internal auditor so he manages the team that will report to the audit committee. It means he is not independent.
• Penny Dinty is already an executive director. It means she is not independent.

The two new non-executive directors should be appointed to the audit committee provided that they are sufficiently independent and have the relevant skills.

References:

• F8 Kaplan Chapter 3: Corporate Governance phần 4: Audit committee
• SAPP Knowledge base

Câu 6: (3.6m) (Trung bình)

Learning outcome: Hiểu được chức năng của audit committee

Question:

Which of the following statements best describes why having an audit committee could help Conoy raise additional finance by addressing the concerns of the bank?

A.  The independent non-executive members of the audit committee can provide guarantees to the bank concerning Conoy's financial viability.
B.  The audit committee will have at least one member who has relevant financial experience. This person will be able to stand in as Conoy's finance director before a new finance director is appointed.
C.  The audit committee will have at least one member who has relevant financial experience, so that they can monitor the integrity of the financial statements.
D.  The audit committee will review all the available evidence to substantiate information in financial reporting, thus improving the credibility of the financial statements.

Guidance:

Tương tự question 4

References:

• F8 BPP Chapter 3: Corporate Governance phần 2.1: Role and function of audit committees
• SAPP Knowledge base

Answer: C

The company's bank is concerned by the standard of financial reporting as Conoy's finance director recently left the company. So audit committee which has function to “monitor the integrity of the financial statements” could help to monitor the integrity of financial statements.→ C is true.

The independent non-executive members of the audit committee can not provide guarantees to the bank because the audit committee can only help to increase the credibility and objectivity instead of providing guarantees of published financial information → A is false

The independent non-executive members of the audit committee can stand in as Conoy's finance director because he will lose the independence → B is false

The audit committee has no responsibility to review all the available evidence to substantiate the information in financial reporting → D is false

Câu 7: (Trung bình) (Đọc thêm)

Learning outcome: Ứng dụng được đặc điểm của audit committee để xác định việc bổ nhiệm có hợp lý hay không.

Question:

Cameron Co has recently become a listed company. Cameron Co is required to comply with corporate governance principles in order to maintain its listed status. The finance director, Lindsay Lewis has undertaken a review of compliance with corporate governance regulations.

Cameron Co’s board of directors comprises five members:

Name	Role(s)	Length of service at Cameron Co
Ola Osbourne	Chief executive and chair	5 years
Lindsay Lewis	Finance director	10 years
Hayden Huq	Sales director	5 years
Karie Khan	Human resources director	7 years
Jules Jardine	Independent non‐executive	10 years

Directors were the last subject to re‐election three years ago.

Which of the following can be a member of the audit committee once it is established?

(1)   Ola Osbourne
(2)   Lindsay Lewis
A.  1 only
B.  1 and 2
C.  2 only
Neither 1 nor 2

Guidance: Tương tự câu 5 dạng 1: Corporate governance

Answer: D

The audit committee must comprise independent NEDs. In addition, the board chair cannot be
a member of the audit committee. Therefore neither can be members of the audit committee.

CRQ Case: Xác định điểm yếu corporate governance và đưa ra recommendation.

Freesia Co is a company listed on a stock exchange. It manufactures furniture which it supplies to a wide range of retailers across the region. The company has an internal audit (IA) department and the company’s year-end is 30 June 20X9. You are an audit supervisor with Zinnia & Co, preparing the draft audit programs and reviewing extracts from the internal controls documentation in preparation for the interim audit.

The listing rules of the stock exchange require compliance with corporate governance principles and the directors of Freesia Co are confident that they are following best practices in relation to this. However, the chairman recently received correspondence from a shareholder, who is concerned that the company is not fully compliant. The company’s finance director has therefore requested a review of the company’s compliance with corporate governance principles.

Freesia Co has been listed for over eight years and its board comprises four executive and four independent non-executive directors (NEDs), excluding the chairman. An audit committee comprised of the NEDs and the finance director meets each quarter to review the company’s internal controls.

The directors’ remuneration is set by the finance director. NEDs are paid a fixed fee for their services and executive directors are paid an annual salary as well as a significant annual bonus based on Freesia Co’s profits. The company’s chairman does not have an executive role and so she has sole responsibility for liaising with the shareholders and answering any of their questions.

Required: Describe TWO corporate governance weaknesses faced by Freesia Co and provide a recommendation to address each weakness to ensure compliance with corporate governance principles.

Guidance:

Step 1: Identify corporate governance deficiencies

Sequence: Identify corporate governance deficiencies (Topic sentences) => State relating requirement of UK Corporate Governance (Supporting sentences) => state risks occur from this weakness (Supporting sentences).

Candidates can identify corporate governance deficiencies based on requirements of the UK Corporate Governance Code. Make sure you understand all requirements of the UK Corporate Governance Code and you can easily get ½ marks.

When explaining the weakness, you should state the relating requirement of UK Corporate Governance and risks that occur from this weakness

Avoid relying on explanations such as “this is not good corporate governance”. This was not sufficient to score the extra ½ marks available for each point. Candidates needed to be able to explain HOW THESE WEAKNESSES IMPACTED THE COMPANY.

Example: In paragraph 3, it is mentioned that “An audit committee comprised of the NEDs and the finance director”. It is a weakness we can describe it as below:

Topic sentence: Identify corporate governance deficiencies

“The finance director is a member of the audit committee”

Supporting sentence 1: State the relating requirement of UK Corporate Governance

“The audit committee should be made up entirely of independent NEDs.”

Supporting sentence 2: State the risks that occur from this weakness

“Audit committee will not maintain objectivity if the finance director is a member of the committee as the finance director will be responsible for the preparation of the financial statements.”

Step 2: Provide a recommendation

You need to provide a recommendation to solving the deficiency. You can also base on the requirement of the UK Corporate Governance Code to design a recommendation.

Candidates often give an insufficient answer or give corporate governance objectives rather than recommendations, such as, “the board should be balanced between the executive and non-executives”.

This is an objective; the recommendation should have been to “appoint additional non-executive directors to ensure a balanced board”.

Example: For the weakness, we found in Step 1, we can give a recommendation as:

“The finance director should resign from the committee”

Answer:

Weakness	Requirements violated	Recommendation
Topic sentence: Identify corporate governance deficiencies “The finance director is a member of the audit committee.” Supporting sentence 1: State the relating requirement of UK Corporate Governance “The audit committee should be made up entirely of independent NEDs.” Supporting sentence 2: State the risks occur from this weakness “Audit committee will not maintain objectivity if the finance director is a member of the committee as the finance director will be responsible for the preparation of the financial statements.”	Leadership	Provide recommendation The finance director should resign from the committee.
Topic sentence: “The remuneration for directors is set by the finance director.” Supporting sentence 1+2: “However, no director should be involved in setting their own remuneration as this may result in excessive levels of pay being set.”	Remuneration	There should be a fair and transparent policy in place for setting remuneration levels. The NEDs should form a remuneration committee to decide on the remuneration of the executives. The board as a whole should decide on the pay of the NEDs.
Topic sentence: “Executive remuneration includes a significant annual profit related bonus.” Supporting sentence 1+2: “Remuneration should motivate the directors to focus on the long-term growth of the business, however, annual targets can encourage short-term strategies rather than maximising shareholder wealth.”	Remuneration	The remuneration of executives should be restructured to include a significant proportion based on long-term company performance. For example, executives could be granted share options, as this would encourage focus on the longer term position.
Topic sentence: “The chairman has sole responsibility for liaising with the shareholders and answering any of their questions.” Supporting sentence 1 “However, this is a role which the board as a whole should undertake.” Supporting sentence 2 If only the chairman has sole responsibility for liaising with the shareholders and answering any of their questions, directors, especially non-executive directors can not understand the shareholders’ views, and can not work for a wealth of shareholders.	Relation with shareholders	All members of the board should be involved in ensuring that satisfactory dialogue takes place with shareholders, for example, all should attend meetings with shareholders such as the annual general meeting. The board should state in the annual report the steps they have taken to ensure that the members of the board, and in particular the non-executive directors, develop an understanding of the views of major shareholders about the company.

2.2. Dạng 2: Professional ethic

Ref: Tóm tắt kiến thức Dạng 2: Professional ethic

Mức độ: Quan trọng

OTQ & OT case

Câu 8: (3.6m) (Trung bình)

Learning outcome: Hiểu được các tình huống auditor nên disclosure thông tin mà vẫn đảm bảo professional duty of confidentiality

Question:

Auditors have a professional duty of confidentiality under ACCA’s Code of Ethics and Conduct; voluntary disclosure of information may be necessary for certain situations.

For which TWO of the following situations should an auditor make a VOLUNTARY disclosure?

A.  1 and 4
B.  1 and 3
C.  2 and 4
D.  2 and 3

Guidance:

The auditor will not disclosure acquired in the course of professional work except obligation disclosures and voluntary disclosure.

Obligatory disclosure

Voluntary disclosure

When auditors know or suspect their client to have committed money-laundering, treason, drug trafficking or terrorist offenses

Be applicable in the following situations: ·        Disclosure is reasonably necessary to protect the member's interests, for example, to enable them to sue for fees or defend an action for, say, negligence. ·        Disclosure is authorized by statute. ·        Where it is in the public interest to disclose, say, where an offense has been committed which is contrary to the public interest. ·        Disclosure is to non-governmental bodies which have statutory powers to compel disclosure.

Reference:

• F8 BPP Chapter 4: Professional ethics and quality control procedures phần 1.2: Confidentiality
• SAPP Knowledge base

Answer: D

In the case of situations 1 and 4, the auditor has an obligation to disclose details of their client's affairs to third parties.

Situations 2 and 3 are ones where voluntary disclosure should be made.

Câu 2-4 (3.6m/câu) (TB)

You are an audit manager at Horti & Co and you are considering a number of ethical issues which have arisen on some of the firm’s long-standing audit clients.

Tree Co

Horti & Co is planning its external audit of Tree Co. Yesterday, the audit engagement partner, Charlie Thrower, discovered that a significant fee for information security services, which were provided to Tree Co by Horti & Co, is overdue. Charlie hopes to be able to resolve the dispute amicably and has confirmed that he will discuss the matter with the finance director, Percy Marsh, at the weekend, as they are both attending a party to celebrate the engagement of Charlie’s daughter and Percy’s son.

Plant Co

Plant Co is a large private company, with a financial year to 30 June, and has been an audit client of Horti & Co for several years. Alan Marshlow, a partner of Horti & Co, has acted as the engagement quality control reviewer (EQCR) on the last two audits to the year ended 30 June 20X8. At a recent meeting, he advised that he can no longer be EQCR on the engagement as he is considering accepting an appointment as a non-executive director and will sit on the audit committee of Plant Co.

The board of directors has also asked Horti & Co if they would be able to provide internal audit services to the company.

Weed Co

Weed Co, a listed company, is one of Horti & Co’s largest clients. Last year the fee for audit and other services was $1·2m and this year it is expected to be $1·3m which represents 16·6% and 18·1% of Horti & Co’s total income respectively.

Câu 9:

Learning outcome:

Biết cách xác định safeguards

Question:

Which of the following statements correctly explains the possible threats to Horti & Co’s independence and recommends an appropriate safeguard in relation to their audit of Tree Co?

A.  1, 2 and 3
B.  1 and 2 only
C.  2 only
D.  3 only

Guidance:

You need to distinguish all 5 types of threats and understand when it arise

Threat	When threat arise
Self-interest	Auditor has financial or other interest that can inappropriately influence their judgment or behavior
Familiarity threats	The auditor becomes too sympathetic or too trusting of a client and loses professional skepticism, or where the relationship between the auditor and client goes beyond professional boundaries.
Self-review threats	Members review their own work or advice as part of an assurance engagement
Advocacy threats	·         The audit firm promotes a position or opinion to the point that subsequent objectivity is compromised; or ·         The firm promoted shares in a listed audit client
Intimidation threats	Actual or perceived pressures from the client, or attempts to exercise undue influence over the assurance provider

References:

• F8 Kaplan Chapter 4: Ethics and acceptance phần 4: Threats and safeguards
• SAPP Knowledge base

Answer: D

In line with ACCA’s Code of Ethics and Conduct, a self-interest threat would arise as a result of the overdue fee → Statement (3) is true

Overdue fee can not lead to pressures from the client or attempts to exercise undue influence so it is not intimidation threats → Statement (1) is false

Because information security services is a non-audit work, it is unlikely that a self-review threat would arise → Statement (2) is false

Câu 10:

Learning outcome:

Biết cách xác định threats

Question:

Which of the following correctly identifies the threats to Horti & Co’s independence and proposes an appropriate course of action for the firm if Alan Marshlow accepts an appointment as a non-executive director of Plant Co?

Guidance:

Tương tự câu 2

Answer: B

If Alan Marshlow accepts the position as a non-executive director for Plant Co, self-interest and self-review threats are created which are so significant that no safeguards can be implemented.

Further, as per ACCA’s Code of Ethics and Conduct, no partner of the firm should serve as a director of an audit client, and as such, Horti & Co would need to resign as auditor.

Alan Marshlow has acted as the engagement quality control reviewer (EQCR) on the last two audits, not long enough to lead to familiarity threat → Option A, C and D is false.

Câu 11:

Learning outcome:

Xác định safeguards

Question:

Which of the following actions should Horti & Co take to maintain their objectivity in relation to the level of fee income from Weed Co?

A.  1 and 4 only
B.  3 and 4 only
C.  2 and 3 only
D.  1, 2, 3 and 4

Guidance:

Do this type of question, you need to identify threat occur and choose the action that eliminates or reduce it to an acceptable level.

References:

• F8 Kaplan Chapter 4: Ethics and acceptance phần 4: Threats and safeguards
• SAPP Knowledge base

Answer: A

Weed Co is a listed company and the fees received by Horti & Co from the company have exceeded 15% of the firm’s total fees for two years. It is a self-interest threat (Fee dependency) As per ACCA’s Code of Ethics and Conduct, this should be disclosed to those charged with governance and a pre-issuance review should be carried out prior to issuing the audit opinion for the current year à Statement (1) and (4) is true.

Using a separate team is safeguard for self-review threat à Statement (2) is false

Request payment of the current year’s audit fee in advance of any work being performed is safeguarded for intimidation threat à Statement (3) is false

2.3. Dạng 3: Assurance engagement

Ref: Tóm tắt kiến thức Dạng 3: Assurance engagement

Mức độ: Ít quan trọng

BASIC LEVEL

Câu 12: (3.6m/câu) (Dễ)

Learning outcome: Hiểu được đặc điểm của external audit.

Question:

Which of the following statements best defines the external audit?

Answer: A

The external audit is carried out by external auditors who can provide an independent opinion on whether the company's financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework → Option A is true

The principal aim of the audit is not in relation to the control system so external auditors don’t need to give an opinion on the effectiveness of a company's internal control system and identify areas of deficiency within a company and to make recommendations. Deficiencies and recommendations may be suggested by the external auditors as a by-product of the external audit → Option B and C are false

The external audit provides positive assurance (reasonable assurance) which provides comfort that the financial statements present fairly in all material respects (or are true and fair) and are free of material misstatements → Option D is false

References:

• F8 BPP Chapter 1: Audit and other assurance engagements
• SAPP Knowledge base

Câu 13:

Learning outcome: Hiểu được đặc điểm của review engagements

Question:

Which of the following statements relate to review engagements?

A.  1 and 3
B.  2 and 4
C.  2 and 3
D.  1 and 4

Guidance:

Type of assurance	Definition	Level of engagement
Audit engagement	An audit engagement is an arrangement that an auditor has with a client to perform an audit of the client's accounting records and financial statements	Reasonable
Review engagement	A review engagement is conducted to provide assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the financial reporting framework.	Limited

References:

• F8 BPP Chapter 1: Audit and other assurance engagements
• SAPP Knowledge base

Answer: A

Statement (1) and (3) is the characteristics of review engagements

Statement (2) and (4) is the characteristics of audit engagements

Câu 14: (3.6m) (TB)

Question:

Which of the following statements relating to the different types of assurance engagements is correct?

Answer: C

Option A	This is incorrect as a review engagement provides limited assurance and not reasonable assurance.
Option B	This is incorrect as the level of assurance engagement risk is higher in a limited assurance engagement than in a reasonable assurance engagement because of differences in the nature, timing or extent of evidence that is collected.
Option C	This is correct as reasonable assurance provides a positive form of expression while limited assurance provides a negative form of expression.
Option D	This is incorrect as the evidence-gathering procedures are much more limited for a limited assurance engagement compared with a reasonable assurance engagement.

References:

• F8 BPP Chapter 1: Audit and other assurance engagements
• SAPP Knowledge base

Câu 15: (Đọc thêm)

Learning outcome: Hiểu được đặc điểm và các giới hạn của external audit

Question:

State THREE rights and THREE limitations of external auditor, excluding those related to resignation and removal

Answer:

Auditors’ rights:

• Right of access at all times to the company’s books, accounts and vouchers.
• Right to require from an officer of the company such information or explanations as they think necessary for the performance of their duties as auditors.
• Right to receive all communications relating to written resolutions.
• Right to receive all notices of, and other communications relating to, any general meeting which a member of the company is entitled to receive.
• Right to attend any general meeting of the company.
• Right to be heard at any general meeting which an auditor attends on any part of the business of the meeting which concerns them as auditor.

Limitations of external audits

An external audit has a number of limitations which reduce its usefulness:

• Sampling – The auditor can make error when select item for testing because it is not practical for an auditor to test 100% of transactions and they have to apply sampling methodologies in selecting balances/transactions to test
• Subjectivity – The auditor is required to use their judgement in assessing whether the financial statements are true and fair because financial statements include judgemental and subjective areas.
• Inherent limitations of internal control systems – The auditor relies on the internal control systems, which can reduce the usefulness of the audit because of inherent limitations of the internal control system. It is operated by people and hence is liable to human error. In addition, there is the possibility of controls override by management and of collusion and fraud.
• Evidence is persuasive not conclusive – Auditor cannot give a definite conclusion because the opinion is based on audit evidence gathered; however, while this evidence can indicate possible issues affecting the audit opinion, evidence involves estimates and judgements.

• Audit report format – Users may not actually understand the audit opinion given because the format of the opinion is determined by International Standards on Auditing. However, the terminology used is not usually understood by non-accountants.
• Historic information – the audit opinion may no longer be relevant as it is out of date because the audit report is often issued some time after the year end, and so the financial information can be quite different to the current position.

Reference:

• F8 BPP Chapter 1: Audit and other assurance engagements phần 4.2 Limitations of audit and materiality và Chapter 2: Statutory audit and regulation phần 1.3.2 Rights
• SAPP Knowledge base

Câu 16: (Đọc thêm)

Learning outcome: Phân biệt 2 levels của assurance engagements

Question:

Describe the level of assurance provided by external audits and review engagements

Answer:

The level of assurance provided by audit and review engagements is as follows:

• External audit – A high but not absolute level of assurance is provided, this is known as reasonable assurance. This provides comfort that the financial statements present fairly in all material respects (or are true and fair) and are free of material misstatements.
• Review engagements – where an opinion is being provided, the practitioner gathers sufficient evidence to be satisfied that the subject matter is plausible; in this case negative assurance is given whereby the practitioner confirms that nothing has come to their attention which indicates that the subject matter contains material misstatements.

Reference:

• F8 BPP Chapter 1: Audit and other assurance engagements phần 4.3 Levels of assurance
• SAPP Knowledge base

Câu 17: (Đọc thêm)

Question:

Explain the five elements of an assurance engagement

Answer:

Element	In relation to the engagement
Three party involvement	●     The intended user; ●     The practitioner; ●     The responsible party.
Subject matter	The data to be evaluated that has been prepared by the responsible party
Suitable criteria	Criteria that can assess and evaluate or measured subject matter in order to reach an opinion
Evidence	Sufficient appropriate evidence needs to be gathered to support the required level of assurance.
Report	The opinion that is given by the practitioner to the intended user and the responsible party.

Reference:

• F8 BPP Chapter 1: Audit and other assurance engagements phần 2.3.1 Elements of an assurance engagement
• SAPP Knowledge base