DECEMBER 2014 AND JUNE 2015
SUPPLEMENT
Qualification Programme
Module C
Business Assurance
Published by BPP Learning Media Ltd.
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©
HKICPA and BPP Learning Media Ltd 2014
ii
Changes at a glance
Changes at a glance
Amended on Learning Pack and Flashcards
Chapter Name
Supplement
Page
Technical Updates
Learning Pack
1
Scope of corporate governance
1
4
Code of ethics
2
5
Framework for assurance engagements
4
Audit related services and other assurance engagements
6
19
Flashcards
5
19
Appendix 1
Framework for assurance engagements
18
Audit related services and other assurance engagements
18
Revised Flashcards: Chapter 19: Audit related services and
other assurance engagements
19
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Business Assurance
Reminder of the examination
cut-off rule
HKICPA operates a 'cut-off' rule whereby students will only be examined on standards and
legislation that had been released on or before 31 May each year.
The same examinable contents applies to the December session of 2014 and the June
session of 2015. Examinable contents are applicable to both module and final examinations.
In determining what is examinable, reference must be made to both the release date of the
pronouncements (or the enactment date of the legislation) and their corresponding effective date.
Legislation and the Institute's pronouncements that meet the following conditions will be examined:
Condition 1: Have been released/enacted six months prior to the reference date of 1 December
2014 (cut-off being 31 May 2014) AND
Condition 2: Have been effective/will be effective on or before the 13th month from the
reference date i.e. 1 January 2016.
Examinable standards
You will find a list of the standards that are examinable in your examination session by logging onto
the HKICPA online QP Learning Centre.
iv
Introduction
Introduction
This Supplement has been produced for those candidates preparing for the December 2014 and
June 2015 examination sessions of the HKICPA Qualification Programme.
It is designed to be used in conjunction with the fourth edition of the Learning Pack, and it will bring
you fully up to date for developments that have occurred in the period since publication of the
Learning Pack and 31 May 2014, the cut-off date for examinable standards and legislation for the
December 2014 and June 2015 examinations.
The Supplement comprises a technical update on developments that will be examinable in
December 2014 and June 2015 examination sessions that are not currently covered in the
Learning Pack. The topics covered are listed on the contents page, and are covered in chapter
order.
In each case the text in the Supplement explains how the Learning Pack is affected by the change,
for example whether the new material should be read in addition to the current material in the
Learning Pack, or whether the new material should be regarded as a replacement.
Good luck with your studies!
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December 2014 and June 2015 Supplement
Technical Update – Learning Pack
Chapter 1
Scope of corporate governance
A Guide on Better Corporate Governance Disclosure
In February 2014 HKICPA issued A Guide on Better Corporate Governance
Disclosure. The following information should be read in conjunction with
section 1.6 Chapter 1 of the Learning Pack.
The aim of this Guide is to encourage meaningful corporate governance
disclosures by Hong Kong listed companies under the revised Code which took
effect in 2012. It contains four sections and within each section a number of
'themes' are addressed. The themes are key areas that disclosures should
address. These are as follows:
(1)
The board: its role, what it did during the year and how
Theme A: The board's key roles are setting the issuer's strategy and
monitoring the management’s performance.
Theme B: A good board process facilitates the operation of the board.
Theme C: The board’s work during the year and how it is linked to the
issuer’s strategy.
(2)
Accountability and audit: internal controls – sound and effective controls
Theme A: The issuer has to maintain a sound internal controls system.
Theme B: The board is responsible for the issuer's maintaining a sound
internal controls system and should acknowledge this in the Corporate
Governance report.
Theme C: The board has to review the system’s effectiveness and report
to the shareholders at least on an annual basis.
Theme D: Report users, including investors, would also appreciate a high
level description of key risks facing the company, their impact and the
mitigating measures taken.
(3)
Accountability and audit: audit committee – rigorous and effective
oversight
Theme A: Audit committee members, in particular its chairman, must
possess the right skills and experience to effectively carry out their
responsibilities.
Theme B: A good process facilitates the working of the audit committee.
Theme C: The audit committee should carry out its responsibilities in an
objective and conscientious manner, to effectively monitor the integrity of
the company's financial reporting and maintain oversight of its internal
control and risk management systems and other relevant internal
processes, as stated in its terms of reference.
Theme D: In fulfilling its responsibilities, the audit committee should
engage with and assess the effectiveness of the work of external and
internal auditors.
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Business Assurance
Theme E: In addition, investors would also be interested to know how the
audit committee's focus, including new areas of focus, during the year link
to the issuer’s strategy, development and changing risks.
(4)
Communication with shareholders: encouraging participation by
shareholders
Theme A: The board should maintain effective on-going dialogue with
shareholders.
Theme B: AGMs are a special focus of the shareholders' communication
policy and should be treated as an opportunity to enhance two-way
communication with shareholders.
Directors' Duties
Add the text below to Chapter 1 section 4.1 of the Learning Pack.
The new Companies Ordinance has introduced a statutory statement to provide
clear guidance to directors on their duty of skill, care and diligence. The old
ordinance did not contain any provisions on this area, and the common law
position in Hong Kong was not entirely clear. The Companies Ordinance now
states that a director must exercise reasonable care, skill and diligence, and it
sets out a mixed objective and subjective test to be applied in determining the
standard required. The objective test refers to the general degree of knowledge,
skill and experience that may reasonably be expected of a person carrying out
the functions of the director in question.
Chapter 4
Code of ethics
A number of changes have been made to the Code of Ethics for Professional
Accountants.
These include the following:

A change to the definition of those charged with governance as follows:
The person(s) or organizations(s) (for example, a corporate trustee) with
responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity. This includes overseeing the financial
reporting process. For some entities in some jurisdictions, those charged with
governance may include management personnel, for example, executive
members of a governance board of a private or public sector entity, or an ownermanager.

A revision of the requirements dealing with breaches resulting in a more
robust framework for dealing with these situations.

More specific requirements and comprehensive guidance regarding the
identification and managing of conflicts.
As a result of the changes to guidance on conflicts of interest sections 4.1 and
4.2 of Chapter 4 should be replaced with the following text.
Conflicts of interest
A conflict of interest may be created when:
The professional accountant provides a professional service related to a
particular matter for two or more clients whose interests with respect to that
matter are in conflict; or
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December 2014 and June 2015 Supplement
The interests of the professional accountant with respect to a particular matter
and the interests of the client for whom the professional accountant provides a
professional service related to that matter are in conflict.
Examples of situations in which conflicts of interest may arise provided by the
Code of Ethics (s. 220) include the following:

Providing a transaction advisory service to a client seeking to acquire an
audit client of the firm, where the firm has obtained confidential
information during the course of the audit that may be relevant to the
transaction

Advising two clients at the same time who are competing to acquire the
same company where the advice might be relevant to the parties'
competitive positions

Providing services to both a vendor and a purchaser in relation to the
same transaction

Representing two clients regarding the same matter who are in a legal
dispute with each other

Providing strategic advice to a client on its competitive position while
having a joint venture or similar interest with a major competitor of the
client

Advising a client on the acquisition of a business which the firm is also
interested in acquiring
Evaluating potential issues
One of the key principles that the professional accountant must consider when
evaluating issues relating to conflicts of interest is whether a reasonable and
informed third party would be likely to conclude that compliance with the
fundamental principles of the Code have not been compromised.
The Code requires that an effective conflict identification process should be in
place. The nature of this process will depend on factors including:

The nature of the professional service provided

The size of the firm

The size and nature of the client base

The structure of the firm, for example the number and geographic
location of the offices
Identified conflicts of interest
If a conflict of interest is identified the professional accountant is required to
evaluate:


The significance of the relevant interests or relationships
The significance of the threats created by performing the service
Safeguards
It may be necessary to apply safeguards in order to eliminate threats or reduce
them to an acceptable level. The Code provides the following examples of
relevant safeguards:

Implementing procedures to prevent unauthorised disclosure of
confidential information. This could include:
-
Using separate teams
-
Creating separate areas of practice for speciality functions within the
firm
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Business Assurance
-
Establishing policies and procedures to limit access to client files,
the use of confidentiality agreements and/or the physical and
electronic separation of confidential information

Regular review of the application of safeguards by a senior individual not
involved in the engagement

Review of the work performed by an individual not involved in the
engagement

Consulting with third parties, such as a professional body, legal counsel
or another professional accountant
In addition, the nature of the conflict of interest and the related safeguards if any,
should be disclosed to the clients affected, and when safeguards are required,
their consent must be obtained to the professional accountant performing the
service.
If explicit consent is requested from a client and the consent is refused, the
professional accountant should decline the engagement or discontinue the
service (or terminate other relationships which are the cause of the conflict).
Safeguards insufficient
If safeguards cannot reduce the threat created by the conflict of interest to an
acceptable level the professional accountant must decline the engagement or
discontinue the service. Alternatively the relationship/interest causing the conflict
could be terminated/disposed of.
Conflicts of interest – professional accountant in business
More comprehensive guidance is also provided for the professional accountant in
business (s.310).
Chapter 5
Framework for assurance engagements
Hong Kong Standards on Auditing
The table in section 1 of Chapter 5 which lists the Hong Kong Standards in issue
should be amended as follows:
Hong Kong Framework for Assurance Engagements (Amended)
HKSA 610 (Revised 2013) Using the Work of Internal Auditors
HKSAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews
of Historical Financial Information
A new standard, HKSIR 500 Reporting on Profit Forecasts, Statements of
Sufficiency of Working Capital and Statements of Indebtedness was issued in
April 2014 and has an effective date of 1 July 2014.
Hong Kong Framework for Assurance Engagements
An amended Framework was issued in March 2014 to take in to account
conforming amendments resulting from the release of HKSAE 3000 (Revised)
Assurance Engagements other than Audits or Reviews of Historical Financial
Information.
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December 2014 and June 2015 Supplement
All references to HKSAE 3000 in Chapter 5 should be to HKSAE 3000 (Revised).
Section 2.2 of Chapter 5 should be replaced with the following material:
2.2 Elements of an assurance engagement
Key term
An assurance engagement is an engagement in which a practitioner aims to
obtain sufficient appropriate evidence in order to express a conclusion designed
to enhance the degree of confidence of the intended users other than the
responsible party about the outcome of the measurement or evaluation of an
underlying subject matter against criteria (Framework para 10).
The following changes should be made to section 2.3.
2.3.1 A three party relationship
The reference to a direct reporting engagement should be deleted.
2.3.4 Sufficient appropriate evidence
This section should be replaced with the following text.
The practitioner plans and performs an assurance engagement with professional
scepticism in order to obtain sufficient appropriate evidence in the context of the
engagement about the reported outcome of the measurement or evaluation of
the underlying subject matter against criteria. The practitioner considers
materiality assurance engagement risk (see section 2.3.6 below) and the quantity
and quality of evidence when planning and performing the engagement, in
particular when determining the nature, timing and extent of evidence gathering
procedures.
Sufficiency is about the quantity of evidence.
Appropriate is about quality of evidence (relevance and reliability).
2.3.5 Written assurance report
This section should be replaced with the following text.
In a reasonable assurance engagement the practitioner’s conclusion is
expressed in the positive form that conveys the practitioner’s opinion on the
outcome of the measurement or evaluation of the underlying subject matter.
In a limited assurance engagement, the practitioner’s conclusion is expressed
in a form that conveys whether, based on the engagement performed, a
matter(s) has come to the practitioner’s attention to cause the practitioner to
believe the subject matter information is materially misstated.
(This is discussed further in section 2.4 and Chapter 19.)
2.4 Types of assurance engagement
The text in this section should be replaced with the following.
In accordance with the amended Framework and HKSAE 3000 (Revised)
Assurance Engagements other than Audits of Historical Financial Information an
assurance engagement will be classified on two dimensions:
An assurance engagement will be either a reasonable assurance engagement
or a limited assurance engagement (Framework paras 14 –15).
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Business Assurance
An assurance engagement will be either an attestation engagement or a direct
engagement (Framework paras 12 – 13).
Attestation engagements and direct engagements are discussed further in
Chapter 19.
2.4.2 Limited level of assurance
The text in this section should be replaced with the following.
Engagement risk must be reduced to an acceptable level under the
circumstances but that risk will be greater than for a reasonable assurance
engagement.
For example: A review performed in accordance with HKSRE 2400 (Revised)
Engagements to Review Historical Financial Statements is a limited assurance
engagement.
The conclusion is expressed in 'negative terms' for example:
'Based on the procedures performed and evidence obtained, nothing has come
to our attention that causes us to believe that the entity has not complied, in all
material respects with XYZ law' (Framework para 86).
Section 4.3 Investment circular reporting engagements
The reference to HKSIR 300 Accountants’ Reports on Pro Forma Financial
Information in Investment Circulars should be deleted as it has been replaced by
HKSAE 3420.
Chapter 19
Audit-related services and other assurance engagements
Section 2.1 of Chapter 19 of the Learning Pack should be replaced with the
following material.
HKSAE 3000 (Revised) Assurance Engagements other than Audits or
Reviews of Historical Financial Information
HKSAE 3000 (Revised) Assurance Engagements other than Audits or Reviews
of Historical Financial Information was issued in March 2014 and is effective for
assurance reports dated on or after 15 December 2015. This revised standard
has also resulted in an Amended Framework (see Chapter 5) and conforming
amendments to:
HKSAE 3402 Assurance Reports on Controls at a Service Organisation
HKSAE 3410 Assurance Engagements on Greenhouse Gas Statements
HKSAE 3420 Assurance Engagements to Report on the Compilation of Pro
Forma Financial Information Included in a Prospectus
Assurance engagements
As seen in Chapter 5 an assurance engagement is defined as:
'An engagement in which a practitioner aims to obtain sufficient appropriate
evidence in order to express a conclusion designed to enhance the degree of
confidence of the intended users other than the responsible party about the
subject matter information (that is, the measurement or evaluation of an
underlying subject matter against criteria).' (HKSAE (Revised) 3000.12)
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December 2014 and June 2015 Supplement
An assurance engagement will be classified on two dimensions.
An assurance engagement will be either:
(i)
A reasonable assurance engagement – an engagement in which the
practitioner reduces engagement risk to an acceptably low level in the
circumstances of the engagement as the basis for the practitioner’s
conclusion. The practitioner’s conclusion is expressed in a form that
conveys the practitioner’s opinion on the outcome of the measurement or
evaluation of the underlying subject matter against criteria.
(ii)
A limited assurance engagement – an assurance engagement in which
the practitioner reduces engagement risk to a level that is acceptable under
the circumstances of the engagement but where that risk is greater than for
a reasonable assurance engagement as the basis for expressing a
conclusion in a form that conveys whether, based on the procedures
performed and evidence obtained, a matter(s) has come to the practitioner’s
attention to cause the practitioner to believe the subject matter information is
materially misstated. The nature, timing and extent of procedures performed
in a limited assurance engagement is limited compared to that necessary in
a reasonable assurance engagement but is planned to obtain a level of
assurance that is, in the practitioner’s professional judgment, meaningful. To
be meaningful, the level of assurance obtained by the practitioner is likely to
enhance the intended users’ confidence about the subject matter information
to a degree that is clearly more than inconsequential.
An assurance engagement will be either:
(i)
An attestation engagement – an assurance engagement in which a
party other than the practitioner measures or evaluates the underlying
subject matter against the criteria. A party other than the practitioner also
often presents the resulting subject matter information in a report or
statement. In some cases however, the subject matter information may
be presented by the practitioner in the assurance report. In an attestation
engagement, the practitioner’s conclusion addresses whether the subject
matter information is free from material misstatement.
(ii)
A direct engagement – an assurance engagement in which the
practitioner measures or evaluates the underlying subject matter against
the applicable criteria and the practitioner presents the resulting subject
matter information as part of, or accompanying, the assurance report. In
a direct engagement, the practitioner’s conclusion addresses the
reported outcome of the measurement or evaluation of the underlying
subject matter against the criteria.
Examples of an attestation engagement include the following:

Providing assurance on a sustainability performance report prepared by
management/management’s expert

Providing assurance on a statement by another party of compliance with
law or regulations

Providing assurance on a value for money assessment made by another
party
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Business Assurance
Acceptance and continuance
In accordance with HKSAE 3000 (Revised) the practitioner is required to comply
with relevant ethical requirements. In addition the pre-conditions for an
assurance engagement must exist (HKSAE (Revised) 3000.24) in order to
determine whether this is the case the practitioner must discuss the following
with the appropriate party:
(a)
Whether the roles and responsibilities of the appropriate parties are
suitable in the circumstances, and
(b)
Whether the engagement exhibits all of the following characteristics:
(i)
The underlying subject matter is appropriate
(ii)
The criteria that the practitioner expects to be applied in the
preparation of the subject matter information are suitable for the
engagement circumstances, including that they exhibit the
characteristics of relevance, completeness, reliability, neutrality
and understandability
(iii)
The criteria that the practitioner expects to be applied in the
preparation of the subject matter information will be available for
the intended users
(iv)
The practitioner expects to be able to obtain the evidence
needed to support the practitioner’s conclusion
(v)
The practitioner’s conclusion is to be contained in a written report
(vi)
A rational purpose including in the case of a limited assurance
engagement, that the practitioner expects to be able to obtain a
meaningful level of assurance
If the preconditions for an assurance engagement do not exist and changes are
not made, the practitioner should not accept the engagement as an assurance
engagement.
Quality control
The engagement partner is responsible for quality control. He must ensure that
he has sufficient competence to accept this responsibility and must ensure that
the engagement team is sufficiently competent and capable. Where law or
regulation requires it, quality control reviews must be conducted.
Planning and performing the engagement
HKSAE 3000 (Revised) requires the practitioner to plan and perform the
engagement with professional scepticism and to exercise professional judgment.
The practitioner is also required to plan the engagement so that it will be
performed in an effective manner and will achieve the practitioner’s objectives.
Examples of the main matters that may be considered include (HKSAE (Revised)
3000.A86-89):
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
The circumstances of the engagement that define its scope

The expected timing and nature of the communications required

The results of engagement acceptance activities
December 2014 and June 2015 Supplement

The engagement process

The practitioner’s understanding of the appropriate party and their
environment, including the risks that the subject matter information may
be materially misstated

Identification of the intended users and their information needs, and
consideration of materiality and the components of engagement risk

The extent to which fraud is relevant

The nature, timing and extent of resources necessary to perform the
engagement, such as personnel and expertise requirements, including
the nature and extent of expert’s involvement

The impact of the internal audit function on the engagement
If the practitioner discovers, after the engagement has been accepted that not all
the preconditions for the assurance engagement are present, the practitioner
must assess whether the matter can be resolved. The practitioner must decide
whether they should continue with the engagement and whether the matter
should be reported in the assurance report, and if so how (HKSAE (Revised)
3000.42).
The practitioner may also discover after the engagement has been accepted that
some of the applicable criteria are unsuitable or some or all of the underlying
subject matter is not appropriate. In this situation the practitioner will consider
withdrawing from the engagement (if this is allowed by law or regulation). If the
practitioner continues the impact of these issues on the assurance report must be
considered. A qualified or adverse conclusion must be expressed or a disclaimer of
conclusion depending on the circumstances (HKSAE (Revised) 3000.43).
Materiality
The practitioner must consider materiality in order to determine the nature, timing
and extent of procedures and to determine whether the subject matter is free
from material misstatement. HKSAE (Revised) 3000.A92 states that materiality is
not affected by the level of assurance provided by the engagement because
materiality is based on the information needs of the intended users. This means
that materiality for a reasonable assurance engagement is the same as for a
limited assurance engagement.
Understanding the underlying subject matter and other engagement
circumstances.
The practitioner must obtain an understanding of the underlying subject matter.
The extent of the work and the nature of the procedures performed will depend of
whether the engagement is a limited or reasonable assurance engagement
(HKSAE (Revised) 3000.45).
Obtaining evidence
The practitioner must consider the following:

Risk consideration and responses to risk

Relevance and reliability of information used as evidence

Whether the work of a practitioner’s expert is expected to be used
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
Whether the work of another practitioner, a responsible party’s or
measurer’s or evaluator’s expert or an internal auditor is expected to be
used
Written representations from appropriate parties will also be sought.
Subsequent events
When relevant the practitioner is required to consider the effect of events up to the
date of the assurance report and must also act appropriately where facts become
known after the date of the assurance report which may have caused the report to
be amended had they been known at the time. The practitioner does not have a
responsibility, however, to perform any specific procedures regarding the subject
matter after the date of the assurance report (HKSAE (Revised) 3000.61).
Assurance report
HKSAE (Revised) 3000.69 requires that the assurance report contains the
following basic elements at a minimum:
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(a)
A title that clearly indicates that the report is an independent assurance
report
(b)
An addressee
(c)
An identification or description of the level of assurance obtained by the
practitioner, the subject matter information, and when appropriate, the
underlying subject matter. When the practitioner’s conclusion is phrased
in terms of a statement made by the appropriate party, that statement
shall accompany the assurance report, be reproduced in the assurance
report or be referenced therein to a source that is available to the
intended users
(d)
Identification of the applicable criteria
(e)
Where appropriate, a description of any significant inherent limitations
associated with the measurement or evaluation of the underlying subject
matter against the applicable criteria
(f)
When the applicable criteria are designed for a specific purpose, a
statement alerting readers to this fact and that, as a result, the subject
matter information may not be suitable for any other purpose
(g)
A statement to identify the responsible party and the measurer or
evaluator if different, and to describe their responsibilities and the
practitioner’s responsibilities
(h)
A statement that the engagement was performed in accordance with
HKSAE 3000 or where there is a subject-matter specific HKSAE, that
HKSAE
(i)
A statement that the firm of which the practitioner is a member applies
HKSQC 1, or other professional requirements, or requirements in law or
regulation, that are at least as demanding as HKSQC 1.
(j)
A statement that the practitioner complies with the independence and
other ethical requirements of the Code, or other professional
requirements, or requirements imposed by law or regulation, that are at
least as demanding as Parts A, B and D of the Code related to
assurance engagements.
December 2014 and June 2015 Supplement
(k)
(l)
An informative summary of the work performed as a basis of the
practitioner’s conclusion. In the case of a limited assurance engagement,
an appreciation of the nature, timing, and extent of procedures
performed is essential to understanding the practitioner’s conclusion. In a
limited assurance engagement, the summary of the work performed shall
state that:
(i)
The procedures performed in a limited assurance engagement
vary in nature and timing from, and are less in extent than for, a
reasonable assurance engagement; and
(ii)
Consequently, the level of assurance obtained in a limited
assurance engagement is substantially lower than the assurance
that would have been obtained had a reasonable assurance
engagement been performed.
The practitioner’s conclusion:
(i)
When appropriate, the conclusion shall inform the intended users
of the context in which the practitioner’s conclusion is to be read.
(ii)
In a reasonable assurance engagement, the conclusion shall be
expressed in a positive form.
(iii)
In a limited assurance engagement, the conclusion shall be
expressed in a form that conveys whether, based on the
procedures performed and evidence obtained, a matter(s) has
come to the practitioner’s attention to cause the practitioner to
believe that the subject matter information is materially
misstated.
(iv)
The conclusion in (ii) or (iii) shall be phrased using appropriate
words for the underlying subject matter and applicable criteria
given the engagement circumstances and shall be phrased in
terms of (a) the underlying subject matter and applicable criteria,
(b) the subject matter information and the applicable criteria, or
(c) a statement made by the appropriate party.
(v)
When the practitioner expresses a modified conclusion, the
assurance report must contain a section that provides a
description of the matter(s) giving rise to the modification and a
section that contains the practitioner’s modified conclusion.
(m)
The practitioner’s signature
(n)
The date of the assurance report
(o)
The location in the jurisdiction where the practitioner practices
An example of a conclusion expressed in a form appropriate for a reasonable
assurance engagement would be:
'In our opinion, the entity has complied, in all material respects, with XYZ law.'
An example of a conclusion expressed in a form appropriate for a limited
assurance engagement would be:
'Based on the procedures performed and evidence obtained, nothing has come
to our attention that causes us to believe that the entity has not complied, in all
material respects, with XYZ law.'
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Business Assurance
The assurance report may also include an Emphasis of Matter paragraph or an
Other Matter paragraph (HKSAE (Revised) 3000.73).
Modified conclusions
Where a scope limitation exists and the effect of the matter could be material the
practitioner must express a qualified conclusion or a disclaimer of conclusion.
Where the subject matter information is materially misstated the practitioner must
express a qualified conclusion or an adverse conclusion.
Conforming amendments
Conforming amendments have been made to a number of other HKSAEs as a
result of the issue of HKSAE 3000 (Revised).
HKSAE 3402 Assurance Reports on Controls at a Service Organisation
The following should be read in conjunction with section 2.1.3 of Chapter 19.
The conforming amendments are effective for assurance engagements where
the assurance report is dated on or after 15 December 2015. The following
points should be noted:

There are a number of changes in terminology:
Old terminology
New terminology
Professional accountant in public practice
Practitioner
Assertion-based engagement
Attestation engagement
Direct reporting engagement
Direct engagement
Assertion
Statement

All references to HKSAE 3000 are replaced with references to HKSAE
3000 (Revised).

The definition of the internal audit function has been revised as follows:
'A function of an entity that performs assurance and consulting activities
designed to evaluate and improve the effectiveness of the entity’s
governance, risk management and internal control procedures.'

The content of the service auditor’s assurance report has been revised
to include a statement that the firm of which the practitioner is a member
applies HKSQC 1 or other professional requirements, or requirements in
law or regulation, that are at least as demanding as HKSQC 1. A
statement must also be included that the practitioner complies with
independence and other ethical requirements of the Code or other
professional requirements that are equally demanding.
HKSAE 3410 Assurance Engagements on Greenhouse Gas Statements
The following should be read in conjunction with section 2.1.4 of Chapter 19.
The conforming amendments are effective for assurance engagements where
the assurance report is dated on or after 15 December 2015. The following
points should be noted:

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As above, 'assertion-based' engagement has been replaced with
'attestation engagement' and 'direct-reporting engagement' is now 'direct
engagement'.
December 2014 and June 2015 Supplement

All references to HKSAE 3000 are replaced with references to HKSAE
3000 (Revised).

Guidance on the practitioner’s responsibilities to read other information
have been clarified.

The content of the assurance report has been revised. It must now
include an identification and description of the level of assurance
(reasonable or limited) obtained by the practitioner. A statement must be
made that the firm of which the practitioner is a member applies HKSQC
1 or other professional requirements, or requirements in law or
regulation, that are at least as demanding as HKSQC 1. A statement
must also be included that the practitioner complies with independence
and other ethical requirements of the Code or other professional
requirements that are equally demanding.

The conforming amendments remove the reference to a negative form of
conclusion for a limited assurance engagement. This has been reworded
as follows:
'In a limited assurance engagement, the conclusion shall be expressed in a form
that conveys whether, based on procedures performed and evidence obtained, a
matter(s) has come to the practitioner’s attention to cause the practitioner to
believe that the GHG statement is prepared, in all material respects, in
accordance with the applicable criteria.'

Also a point has been added stating that where a modified conclusion is
given, the matters giving rise to the modification must be described.
HKSAE 3420 Assurance Engagements to Report on the Compilation of Pro
Forma Financial Information Included in a Prospectus
The following should be read in conjunction with section 3 of Chapter 19.
The conforming amendments are effective for assurance engagements where
the assurance report is dated on or after 15 December 2015. The following
points should be noted:

The content of the assurance report has been revised. It must now
include an identification and description of the level of assurance
(reasonable or limited) obtained by the practitioner. A statement must be
made that the firm of which the practitioner is a member applies HKSQC
1 or other professional requirements, or requirements in law or
regulation, that are at least as demanding as HKSQC 1. A statement
must also be included that the practitioner complies with independence
and other ethical requirements of the Code or other professional
requirements that are equally demanding.

The following additional paragraphs should be added to the example
report in section 3.3.1 of Chapter 19 above the Practitioner’s
Responsibilities section.
'Our independence and quality control
We have complied with the independence and other ethical requirements of
the Code of Ethics for Professional Accountants issued by the Hong Kong
Institute of Certified Public Accountants, which is founded on fundamental
principles of integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour.
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Business Assurance
The firm applies Hong Kong Standard on Quality Control 1 and accordingly
maintains a comprehensive system of quality control including documented
policies and procedures regarding compliance with ethical requirements,
professional standards and applicable legal and regulatory requirements.'
HKSIR 300 Accountants report on pro forma financial information in
investment circulars
Section 3.4 of Chapter 19 should be deleted as HKSIR 300 is replaced by
HKSAE 3420.
HKSIR 500 Reporting on profit forecasts, statements of sufficiency and
statements of indebtedness
This is a new standard which was issued in April 2014 and is effective where the
investment circular is dated on or after 1 July 2014. The following material should
be added to Chapter 19.
1 Introduction
HKSIR 500 Reporting on Profit Forecasts, Statements of Sufficiency and
Statements of Indebtedness provides guidance for accountants when reporting
on specific types of information included in an investment circular. An investment
circular is issued by an entity for the use of third parties to assist them in making
investment decisions, for example when there is a new listing of equity securities.
Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong
Limited (Listing Rules) and the Rules Governing the Listing of Securities on the
Growth Enterprise Market Operated by the Stock Exchange of Hong Kong
Limited (GEM Rules) set out the reporting requirements that companies must
follow:
Profit forecasts
There is no specific requirement that an investment circular should incorporate a
profit forecast, however where it is included it must be clear, unambiguous and
presented in an explicit manner. The principal assumptions on which it is based
must be stated and it must be prepared on a basis that is consistent with the
accounting policies normally adopted by the entity (HKSIR 500.4).
Statement of sufficiency of working capital
The Listing Rules and GEM Rules require that an investment circular relating to a
new listing of equity securities must include a statement by the directors that in their
opinion the working capital available to the group is sufficient for the group’s present
requirements (that is for at least the next 12 months from the date of publication of
the investment circular) or if not, how the directors propose to provide that additional
working capital required (HKSIR 500.9).
Statement of indebtedness
The Listing Rules and GEM Rules require that an investment circular relating to a
new listing of equity securities must include a statement as at the most recent
practicable date (normally no more than two months before the issue of the
investment circular) of the total amount of debt securities, borrowings,
indebtedness, mortgages, charges, contingent liabilities and guarantees (HKSIR
500.13).
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December 2014 and June 2015 Supplement
2 Directors' responsibilities
HKSIR 500 makes it clear that the directors are solely responsible for the
preparation of the profit forecast, working capital statement and indebtedness
statement (HKSIR 500.16).
3 Reporting accountant's responsibilities: Profit forecasts
The reporting accountant is required to report (normally in a letter) on the
accounting policies and the calculations used for the forecast. In order to do this
the accountant must plan and perform the work in accordance with HK SIR 500
and HKSAE 3000. Typically the following procedures will be required:

Obtain the board memorandum prepared by the directors.

Review the issuer’s recent history regarding the general nature of its
activities, its main products, markets, customers, suppliers and so on.

Discuss the plans, strategic and risk analysis with the directors.

Consider the consistency of underlying assumptions with the business
analysis of the directors and assess the source and reliability of the
evidence supporting management’s best-estimate assumptions.

Establish which accounting policies have been adopted by the issuer in
published financial statements so as to ensure that they are acceptable
and have been consistently applied in the preparation of interim
accounts and the profit forecast.

Consider the assumptions on which the profit forecast has been based in
the course of their work to determine that the profit forecast is consistent
with and has been properly compiled on the basis of the assumptions
made by the directors.

Read the minutes of the board and of other important management
meetings which contain key factors that might affect the forecast.

Check the arithmetical accuracy of the forecast and the supporting
information.

Obtain written representations from the board of directors regarding the
intended use of the profit forecast, the completeness of significant
management assumptions and management’s acceptance of its
responsibility for the profit forecast.
Reporting accountant’s letter
The letter is addressed to the directors and the sponsors and would normally
include the following:

A specific identification of the profit forecast and documents to which the
letter refers

The fact that the directors are solely responsible for the profit forecast

The fact that the reporting accountants have reviewed the accounting
policies and calculations used in arriving at the profit forecast

If, as will frequently be the case, the reporting accountants have not
carried out an audit of results for the expired period, a statement to that
effect
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Business Assurance

Whether in the opinion of the reporting accountant the profit forecast, so
far as the accounting policies and calculations are concerned, has been
properly compiled on the basis of the assumptions made by the
directors, as set out in the document, and is presented on a basis
consistent with the accounting policies normally adopted by the issuer
An example of a letter on a profit forecast is provided in HKSIR 500 Appendix 1.
4 Reporting accountant’s responsibilities: Reporting on statements of
sufficiency of working capital
The reporting accountant is required to plan and perform work in accordance
with HKSIR 500 and HKSAE 3000. The degree of work required will in part
depend on the reliability of forecasts made in the past and the extent of the
surplus of resources over those required. The approach adopted will be similar to
that for the profit forecast together with the following procedures:

Comparing the forecast with the group’s existing financing facilities and
cash resources, or that are to become available to the group;

Independently obtaining direct confirmation from the appropriate third party
of the extent of financing facilities and resources available to the group;

Considering adjustments for items such as capital expenditure and
prepayments which exert no impact on the profit forecast but may
significantly impact the working capital forecast; and

Considering management’s sensitivity analysis and the extent of any
margin or headroom.
Letter on statement of sufficiency of working capital
The following is an extract from a letter on a statement of sufficiency of working
capital as provided by HKSIR 500 Appendix 2.
'Opinion
On the basis of our procedures, we report that:
(a)
In our opinion, the statement has been made by the directors of the
company after due and careful enquiry; and
(b)
The persons or institutions providing finance have confirmed in writing the
existence of such facilities as of (date) that are shown to be required by
the company’s working capital forecast.'
5 Reporting accountant’s responsibilities: Reporting on statements of
indebtedness
When issuing a letter on a statement of indebtedness the reporting accountant
will perform a range of agreed upon procedures which are agreed with the entity
issuing the information. The work is performed in accordance with HKSIR 500
and HKSRS 4400. Typically procedures would include the following:
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
Obtaining the schedule of indebtedness prepared by the directors
including a complete list of bankers and other lenders of the group;

Agreeing amounts to the issuer’s records;

Obtaining bank reconciliations;
December 2014 and June 2015 Supplement

Checking that cash book figures are included in the schedule of
indebtedness;

In respect of debt securities, checking the amounts to underlying
agreements;

Comparing amounts disclosed in respect of mortgages and charges to
bank confirmations received directly by the reporting accountants or, in
the absence of such, to loan agreements or similar documents;

Obtaining direct confirmation from banks and other lenders and finance
providers regarding the amounts of term loans and other borrowings or
indebtedness in the nature of borrowing outstanding at the relevant date
and whether the amounts are secured or if such confirmation has not
been received, setting out the alternative evidence in support of the
amount; and

Obtaining written representations from the issuer’s directors regarding
the completeness and accuracy of the amounts disclosed in the
schedule of indebtedness.
Letter on a statement of indebtedness
Appendix 3 of HKSIR 500 includes an example of a letter on a statement of
indebtedness. The precise detail will depend on the nature of the procedures
agreed with the entity.
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Business Assurance
Technical Update – Flashcards
Chapter 5
Framework for assurance engagements
On page 32 replace text describing an assurance engagement as follows:
An assurance engagement is an engagement in which a practitioner aims to
obtain sufficient appropriate evidence in order to express a conclusion designed
to enhance the degree of confidence of the intended users other than the
responsible party about the outcome of the measurement or evaluation of an
underlying subject matter against criteria.
On page 33 replace the text under the heading 'Assurance given' as
follows:
An assurance engagement can be a reasonable assurance engagement or a
limited assurance engagement. Absolute assurance cannot be given.
On page 33 change the second bullet point in the 'Reporting' box as
follows:
Limited assurance is expressed in negative terms.
On page 37 First bullet point
Reference to HKSAE 3000 should be changed to HHSAE 3000 (Revised).
On page 37 Second bullet point
Delete reference to HKSIR 3000.
Chapter 19
Audit-related services and other assurance engagements
Replace pages 158 and 161 (see Appendix)
Page 163
Add: Reporting on profit forecasts, statements of sufficiency of working capital
and statement of indebtedness (HKSIR 500)
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December 2014 and June 2015 Supplement
Appendix 1
Revised Flashcards: Chapter 19: Audit related services and other assurance engagements
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