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For Examinations to June 2015
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Revision Essentials
ACCA
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Paper F8 | AUDIT AND ASSURANCE
(INTERNATIONAL)
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ACCA
PAPER F8
AUDIT AND ASSURANCE
(INTERNATIONAL)
REVISION ESSENTIALS
SA
For Examinations to June 2015
®
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No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this
publication can be accepted by the author, editor or publisher.
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This training material has been published and prepared by Becker Professional Development International Limited
ISBN-13: 978-1-78566-039-9
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These are condensed notes focusing on key issues for those of you who lead busy, mobile lives or for those of you who
want to revise in a more focused fashion.
CONTENTS
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CONTENTS
Syllabus
0101
Audit and other assurance engagements
0201
Corporate governance
0301
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External audit
0401
Professional codes of ethics, conduct and professional appointment
0501
Documentation
0601
Planning
0701
Risk assessment procedures
0801
Internal control and assessing control effectiveness
0901
Fraud & error, Laws & Regulations
1001
Audit evidence
1101
Analytical procedures
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Audit sampling
1201
1301
Using the work of experts
1401
Computer-assisted audit techniques
1501
Statement of financial position audit
1601
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(i)
CONTENTS
1701
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Subsequent events, going concern and audit finalisation
Auditor’s report
1801
Internal audit
1901
2001
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Additional reading
Students’ frequently asked questions
2101
Analysis of past questions
2201
Examiner’s feedback
Examination technique
2301
2401
These are condensed notes focusing on (and offering guidance on) key issues as part of your
revision programme. To be effective, you are required to have completed the study system
and question banks. It is essential that you have completed the full study programme and do
not just rely on these précised notes.
WARNING: YOUR EXAMINATION HEALTH MAY BE IN DANGER!!!
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A KEY FACTOR AS TO WHY SO MANY STUDENTS FAIL IS THE LACK OF QUESTION
PRACTICE INCLUDING ATTEMPTING FULL QUESTIONS UNDER EXAMINATION
CONDITIONS
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(ii)
SYLLABUS
To develop knowledge and understanding of the process of
carrying out the assurance engagement and its application in
the context of the professional regulatory framework.

Objectives

On completion of this paper, candidates should be able to:


Explain the concept of audit and assurance and the
functions of audit, corporate governance, including
ethics and professional conduct, describing the scope
and distinguishing between the functions of internal and
external audit.
Evaluate findings and modify the audit plan as
necessary
Explain how the consideration of subsequent events and
the going concern principle can inform the conclusions
from audit work are reflected in different types of audit
report, written representations and the final review and
report.
Position within syllabus
Demonstrate how the auditor obtains and accepts audit
engagements, obtains an understanding of the entity and
its environment, assesses the risk of material
misstatement (whether arising from fraud or other
irregularities) and plans an audit of financial statements
Describe and evaluate internal controls, techniques and
audit tests, including IT systems to identify and
communicate control risks and their potential
consequences, making appropriate recommendations
SA

Identify and describe the work and evidence required to
meet the objectives of audit engagements and the
application of the International Standards on Auditing
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
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Aim
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0101
CL (F4)
PA (P1)
AAA (P7)
FA (F3)
AA (F8)
SYLLABUS
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Rationale
Audit framework and regulation (A)
The Audit and Assurance syllabus is essentially divided into
five areas.

It then leads into planning and risk assessment

The syllabus then covers a range of areas relating to an
audit of financial statements including the scope of
internal control. These include evaluating internal
controls, audit evidence and a review of the financial
statements.
The final section then deals with reporting, including
statutory audit reports, management reports, and
internal audit reports.
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
Planning and risk assessment (B)
The syllabus starts with the nature, purpose and scope
of assurance engagements, including the statutory audit,
its regulatory environment, and introduces professional
ethics relating to audit and assurance.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Internal control (C)
Audit evidence (D)
Review and reporting (E)
Detailed syllabus
A.
Audit Framework and Regulation
1.
2.
3.
4.
The concept of audit and other assurance engagements
External audits
Corporate governance
Professional ethics and ACCA’s Code of Ethics and
Conduct
Internal audit and governance and the differences
between external and internal audit
The scope of the internal audit function, outsourcing
and internal audit assignments
5.
6.
0102
SYLLABUS
1.
2.
3.
4.
5.
6.
Obtaining and accepting audit engagements
Objective and general principles
Assessing audit risks
Understanding the entity and its environment
Fraud, laws and regulations
Audit planning and documentation
C.
Internal control
1.
2.
3.
4.
Internal control systems
The use of internal control systems by auditors
Tests of control
Communication on internal control
D.
Audit evidence
1.
2.
3.
4.
5.
6.
7.
Financial statement assertions and audit evidence
Audit procedures
Audit sampling and other means of testing
The audit of specific items
Computer-assisted audit techniques
The work of others
Not-for-profit organisations
E.
Review and Reporting
1.
Subsequent events
2.
3.
4.
5.
Going concern
Written representations
Audit finalisation and the final review
Audit reports
E
Planning and risk assessment
Approach to examining the syllabus
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B.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
The syllabus is assessed by a three-hour paper-based
examination. All questions are compulsory.
Section A of the exam comprises 8 two mark questions and
four one mark multiple choice questions giving a total of 20
marks for that section.
Section B of the exam comprises four 10 mark questions and
two 20 mark questions. The 20 mark questions will
predominantly examine one or more aspects of audit and
assurance from planning and risk assessment to internal
control or audit evidence, although topics from other syllabus
areas may also be included.
Additional information
Candidates need to be aware that questions will only be set
on new regulations issued prior to the 30th September of the
preceding year.
0103
AUDIT AND OTHER ASSURANCE ENGAGEMENTS

The objective of an audit of financial statements is to
enable the external auditor to express an independent
opinion whether the financial statements are prepared,
in all material respects, in accordance with an identified
financial reporting framework.
Although the auditor’s opinion enhances the credibility
of the financial statements, users cannot assume that the
opinion is an assurance as to the future viability of the
entity nor the efficiency or effectiveness with which
management has conducted the affairs of the entity.
True and fair

The auditor’s opinion is expressed in terms of “true and
fair”.

Truth relates to factual accuracy (bearing in mind
materiality). Fairness relates to presentation of
information and the view conveyed to the reader.
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Materiality


In the exam, always recall that it is material items,
material errors, material factors that the auditor is
primarily interested in.
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
Omissions or misstatements of items are material if they
could, individually or collectively, influence the
decisions of users taken on the basis of the financial
statements.
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
EXTERNAL AUDIT

Responsibilities

Management is responsible for preparing and fairly
presenting the financial statements (i.e. in accordance
with the applicable financial reporting framework). The
exact detail of this is recorded in the engagement letter,
management representations and the auditor’s report.

Oversight of management’s responsibilities is provided
by those charged with governance.

Auditors form and express an opinion on financial
statements. In doing so they plan and perform the audit
to obtain reasonable assurance whether the financial
statements are free from material misstatement.
Materiality is an expression of relative significance or
importance of a matter in the context of the financial
statements as a whole.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Also remember, for example, that IFRS only applies to
material items.
0201
AUDIT AND OTHER ASSURANCE ENGAGEMENTS
An audit of financial statements does not relieve
management or those charged with governance of their
responsibilities.
The audit process (audit cycle)
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
Agree terms
of
engagement
Form opinion
(Auditor’s
report)
Principles
Ethics, application of auditing standards (ISAs) and
professional scepticism.
Professional scepticism

Obtain
management
representations
An audit should be planned and performed
(“conducted”) with an attitude of “professional
scepticism” recognising that circumstances may exist
that will cause a material misstatement in the financial
statements.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Plan
Assess risk
and internal
control
Review
Substantiate
assets, liabilities,
transactions &
disclosures
“Professional scepticism” is an attitude that includes a
questioning mind and a critical assessment of evidence.
In planning, conducting and reviewing the audit, an
auditor should assume neither dishonesty nor
unquestioned honesty of management.
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
Documentation
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
Understand the
entity and its
environment
Reliance on
control
effectivenes
Inherent limitations

0202
Limitations within the audit approach impact upon the
auditor’s ability to be able to detect all material
misstatements, for example:

Testing is on a sample basis

Internal control systems have inherent limitations
(e.g. manual application of controls; segregation
of duties; control override by management)
AUDIT AND OTHER ASSURANCE ENGAGEMENTS

Specific limitations may affect the persuasiveness
of available audit evidence (e.g. related party
transactions).

Basic role covers understanding the key business risks,
and assessing the adequacy of the processes by which
these risks are identified, evaluated and managed.
Approach
An independent (as much as it can be), objective
assurance and consulting activity designed to add value
and improve an organisation’s operations.
Helps an organisation accomplish its objectives by
bringing a systematic, disciplined approach to evaluate
and improve the effectiveness of risk management,
control and governance processes.
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


Thus an audit is not a guarantee that the financial
statements are free of material misstatement. Auditors
cannot provide absolute (100%) assurance, only
reasonable assurance (because of the inherent
limitations of an audit) through their report.
INTERNAL AUDIT
Role
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
Most audit evidence is persuasive rather than
conclusive (e.g. physical presence of an asset may
not mean the entity has control over that asset).
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
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0203
The general framework in which internal auditors will
approach their assignments is not that dissimilar to the
approach used by external auditors:

Terms of reference for work carried out

Understand the entity, its environment and controls

Plan and document work carried out

Brief, supervise and review audit team

Apply strong quality control procedures

Report findings
AUDIT AND OTHER ASSURANCE ENGAGEMENTS
An engagement in which a practitioner expresses a
conclusion designed to enhance the degree of
confidence of the intended users, other than the
responsible party, about the outcome of the evaluation
or measurement of a subject matter against.


RESPONSIBLE
PARTY
Prepares
SUBJECT
MATTER
eg financial statements
prepared under IFRS
(the criteria)

PRACTITIONER
Assures
eg auditor
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eg shareholders

Assertion based engagement

The evaluation or measurement of the subject matter is
performed by the responsible party.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
An audit under ISAs is an example of an assertionbased engagement in that the directors of an entity
make certain assertions about the financial statements
and the auditor’s report to the shareholders on those
assertions. In this case, the directors are also
responsible for the financial statements.
Direct reporting engagement
Evaluates (eg using ISA)
INTENDED
USER
That assertion is then tested by the practitioner who
reports to the intended user.
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
An assertion is then made about the subject matter, by
the responsible party, that is made available to the
intended users.
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
ASSURANCE SERVICES
0204
Assurance engagements where the practitioner either:

directly performs the evaluation or measurement
of the subject matter;

or obtains a representation (that is not available to
the intended users) from the responsible party that
has performed the evaluation or measurement.
The practitioner reports on issues that have come
directly to his attention during the course of his work.
AUDIT AND OTHER ASSURANCE ENGAGEMENTS

In effect, the subject matter information is provided
directly to the intended users in the assurance report
given by the practitioner

An example of a direct reporting engagement would be
where the practitioner is requested to report on the
“issues arising” from, for example, the recent
implementation of a new computerised system.

The objective of a reasonable assurance engagement is
a reduction in assurance engagement risk to an
acceptably low level in the circumstances of the
engagement as the basis for a positive form of
expression of the practitioner’s conclusion for example:


Obtaining an understanding of the engagement
circumstances;
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
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


“In our opinion, internal control is effective, in all
material respects, based on XYZ criteria.”
Evidence gathering procedures include:

Performing further procedures using a combination
of inspection, observation, confirmation,
recalculation, reperformance, analytical procedures
and inquiry
Such further procedures involve substantive
procedures, including , where applicable, obtaining
corroborating information, and depending on the
nature of the subject matter, tests of the operating
effectiveness of controls, and
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Reasonable assurance

In audit engagements under ISAs, the auditor provides
reasonable assurance through obtaining sufficient
appropriate audit evidence to be able to draw
conclusions on which to base his opinion. This is
expressed positively in the audit report as “reasonable
assurance”.
Limited assurance

Assessing risks and responding to those risks
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Evaluating the evidence obtained.
0205
For a limited assurance engagement, whilst the
assurance engagement risk is acceptable in the
circumstances of the engagement, it is greater than that
for a reasonable assurance engagement. This is the
basis for a negative form of expression of the
practitioner’s conclusion, for example:
AUDIT AND OTHER ASSURANCE ENGAGEMENTS
“Based on our work described in this report,
nothing has come to our attention that causes us to
believe that internal control is not effective, in all
material respects, based on XYZ criteria.”
Evidence gathering procedures are deliberately limited
relative to a reasonable assurance engagement.

Confirmations, recalculations, reperformance, test of
controls and testing existence for example, are not
considered necessary to achieve the user’s
requirements.

A financial statement review under ISRE 2400 is a
limited assurance engagement because of the limited
nature of the work carried out and the assurance
obtained.
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
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
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0206
EXTERNAL AUDIT

A non-profit, non-governmental, non-political
international organisation of 167 member accountancy
organisations (with 2.5m professional accountants)
from 127 countries.

establishing and promoting adherence to highquality professional standards;

furthering the international convergence of such
standards; and
In tern ation al A u d iting
an d A ssurance
S tan d ard s B o ard
T ransnation al
A u d itors
C om m ittee
F oru m of
F irm s
speaking out on public interest issues where the
profession’s expertise is most relevant.
Facilitates collaboration and cooperation among
member bodies – to ensure the competence and
integrity of accountants worldwide and to support
accountants in their efforts to provide high quality
services.
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
IF A C B o ard
Serves the public interest through strengthening the
worldwide accountancy profession and contributing to
the development of strong international economies by:


IF A C C o u n cil
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
Structure
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INTERNATIONAL FEDERATION OF
ACCOUNTANTS (IFAC)
C o m p liance
A d viso ry P an el
In tern atio n al
A ccou n tin g E d u catio n
S tan d ards B o ard
S m all an d
M ed iu m
P ractices
C om m ittee
D evelo pin g
N atio ns
C om m ittee
In ternatio n al P u blic
S ector A ccou n ting
S tand ard s B o ard
P rofession al
A ccou n tants in
B u sin ess
C om m ittee
P u blic In terest
O versigh t B o ard
(P IO B )
INTERNATIONAL AUDITING AND ASSURANCE
STANDARDS BOARD (IAASB)

IFAC is the primary spokesperson for the international
profession on a wide range of public policy issues.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
In tern ation al E thics
S tand ard s B o ard for
A cco un tan ts
0301
Role is to improve the uniformity of auditing practices
and related services throughout the world by issuing
pronouncements (e.g. ISAs) on audit and assurance
functions and promoting their acceptance worldwide.
EXTERNAL AUDIT
Structure
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Operating procedures
Project is proposed and input sought from Consultative
Advisory Group
IFAC Code of Ethics for Professional Accountants
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Services coved by IAASB Pronouncements
If approved, project assigned to a Task Force
ISQCs International Standards on Quality Control
International Framework for Assurance Engagements
Research carried out and Exposure Draft prepared
Audit and Reviews of
Historical Financial
Information
ED placed on IFAC website and widely distributed for
comment to member bodies, interested parties and
general public
ISAs 100+
International
Standards on
Auditing
Comments received are considered, ED revised and reissued if substantive changes made
SA

Revised ED approved and issued as a Standard

The Standards contain basic principles and essential
procedures with related guidance (explanatory and other
material, including appendices) for their application.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0302
Assurance Engagements
other than Audits or
Reviews of Historical
Financial Information
ISREs 2000+
International
Standards on
Review
Engagements
ISAEs 3000+
International
Standard on
Assurance
Engagements
Related Services
ISRSs 4000+
International
Standards on
Related Sevices
In exceptional circumstances, a professional accountant
may judge it necessary to depart from a basic principle
or essential procedure of a Standard to achieve more
effectively the objective of the engagement. When such
a situation arises, the professional accountant must
justify the departure.
EXTERNAL AUDIT
The requirements of the Standards do not override local
regulations governing audit and assurance in a
particular country.



Most jurisdictions require that to be a statutory auditor
(only recognised statutory auditors may carry out
statutory audits, e.g. of companies) a person or firm
(usually a partnership, but may be a company) must be
appropriately qualified.
obtaining a minimum number of years of practical
and post-qualified relevant audit experience (to
obtain a practicing certificate and statutory auditor
status);
To receive notice of any intention to remove them as
auditors

To bring matters concerning their resignation or
removal as auditors to the attention of members and
creditors (e.g. if the auditor is removed because he
gives a qualified audit opinion, or if he resigns because
he is not given access to necessary information).
Duties

To report to the company’s members on whether the
financial statements show a true and fair view and have
been prepared in accordance with a reference
framework (e.g. IFRS)

To form an opinion as to whether, for example:
continuous application of ethical criteria;
SA


continuous relevant practical experience; and

continuous professional education.
Rights

To attend and be heard at the general meeting of the
company on business which concerns them as auditor

Being “appropriately qualified” not only means having
passed examinations of a recognised body, but also:

To require from officers of the company any
information and explanations considered necessary for
the purposes of the audit
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AUDITORS
Eligibility

E

Of access at all times to the books and records
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0303

Proper accounting records have been kept

Appropriate returns have been received from any
locations not visited
EXTERNAL AUDIT

The financial statements are in agreement with the
accounting records

All information and explanations have been
received from the officials of the entity

The Directors’ Report is consistent with the
financial statements
Removal – self imposed


In some jurisdictions, these matters are assumed unless
specifically referred to within the auditor’s report when
not in place (e.g. qualified report because proper
accounting records had not been kept).
In other jurisdictions, all (or parts) are specifically
mentioned within the auditor’s report (e.g. that the
Directors’ Report is consistent with the financial
statements).
Appointment

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Audit Committees often take on the role of appointing
auditors and fixing their remuneration.

Do not offer themselves for re-election

Provide a statement to members and appropriate
authorities that there are no circumstances that need to
be brought to the attention of members.
Removal – resignation

Give written notice to the client, which is sent to the
appropriate regulatory authorities.

A “statement of circumstances” (or a statement that
there are no circumstances) must also be sent to
regulatory authorities and the members/shareholders of
the entity (and others who are entitled to receive a copy
of the financial statements).

May have the right to require the directors to call a
special meeting of members to discuss the
circumstances of their resignation.
Usually required, within law, by shareholders but may
be allowed to be delegated to directors. Would then be
approved by shareholders.
SA

Remuneration is fixed by those who appoint them.
Again may be delegated to directors, but approved at
the AGM by the shareholders.
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

Appointment is usually for one year. Auditors then
“offer themselves for re-appointment” at the AGM.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0304
EXTERNAL AUDIT

In some circumstances, consideration must be given to
the legal ramifications of resigning (e.g. when fraud or
money laundering is suspected).
Removal – by directors
The directors must inform the auditors in writing of
their intention to remove them as auditors of the entity.

A special meeting of members must be held to
discuss/vote upon the directors’ resolution to remove
the auditors.

The auditors should be informed of the meeting and be
able to make representations at the meeting as to why
they should stay in office (if they so wish).

They may also require the directors to include such
representations within the notice to members of the
meeting.

Replacement auditors must be appointed.
Recognised Supervisory Body (RSB)

An RSB is a professional body (e.g. ACCA) whose
rules, regulations and procedures have been reviewed
(and approved by government) and whose members are
recognised by statute as being eligible (after having met
appropriate criteria) to sign audit reports on companies
and public interest entities. That is, whilst statute lays
down the “day to day management” requirements, the
RSB implements them.

RSBs must have rules to ensure that:
If the auditors are removed, the directors must inform
the regulatory authorities.
SA


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
If there are no matters the auditors wish to bring to the
attention of the members, a statement to this effect
should be given to members and the regulatory
authorities.
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
The auditors must produce a “statement of
circumstances” concerning their removal which must be
given to the entity and also to the regulatory authorities.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0305

A person is not eligible unless “appropriately
qualified” (e.g. ACCA including the higher level
auditing paper).

Only “fit and proper” persons are appointed as
company auditors (e.g. have meet all appropriate
criteria).
EXTERNAL AUDIT
Company audit work is conducted “properly and
with integrity” (e.g. following ISAs including
ethical requirements).
Monitoring of RSBs and auditors

E

The basic functions of monitoring are:

Technical standards are applied to company audit
work (e.g. quality control procedures and ISAs).

Competence of company auditors is maintained
(e.g. continuing professional development).

Compliance with rules is effectively monitored
and enforced (e.g. quality control procedures and
reviews).

Admission and expulsion of members is “fair and
reasonable”.

Investigation of complaints against members
promptly and thoroughly conducted.

Company auditors take steps to ensure that they
can meet monetary claims against them for
penalties and damages (e.g. they carry appropriate
level insurance – Professional Indemnity
Insurance (PII)).
to ensure that the RSB and firms are in compliance
with the statutory (and IFAC) audit requirements;
and
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
to assist in the raising of standards within the
profession.

In the UK, the monitoring and oversight of the RSBs is
carried out by an independent body, the Professional
Oversight Board for Accountancy (POBA) which is
part of the Financial Reporting Council (FRC). The
FRC is a unified, independent regulator.

Firms who audit public interest companies are directly
monitored by the Audit Quality Review team (AQR) of
the FRC. All other firms are monitored by an RSB (e.g.
the ACCA).
0306
CORPORATE GOVERNANCE

Objective

To increase long-term shareholder value by enhancing
economic performance through:

integrity in business activity;

compliance with law and regulation, and

securing reputation and confidence in attracting
inward investment.
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Is reflected by how those charged with governance
provide stewardship in order to:

achieve corporate objectives;

balance corporate objectives with the expectations
of society; and

provide appropriate accountability to stakeholders.
SA
Meaning

Something that everybody knows what it is, but finds
difficult to describe!

The system by which business corporations are
directed and controlled. The corporate governance
structure specifies the distribution of rights and
responsibilities among different participants in the
corporation … and spells out the rules and
procedures for making decisions on corporate
affairs. By doing this, it also provides the structure
through which the company objectives are set, and
the means of attaining those objectives and
monitoring performance. (OECD)
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CORPORATE GOVERNANCE

Broadly it may be defined as “the relationship of a
company to society…”.
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
Corporate governance is about “promoting
corporate fairness, transparency and
accountability”.

A general term which describes how rights and
responsibilities are shared between management,
shareholders and other stakeholders.

The ethical corporate behaviour by directors or
others charged with governance in the creation of
wealth for all stakeholders.
Governance responsibilities involve a number of
oversight activities, including matters relating to:

0401
entity strategy development and implementation;
CORPORATE GOVERNANCE

appointment of professional operating
management executives;

compensation of executives;

formation of adequate accounting systems and
related internal controls over financial reporting,
operations and compliance with laws and
regulations; and

engaging independent auditors.
OECD principles


Ensuring that timely and accurate disclosure
(transparency) is made on all material matters regarding
the corporation, including the financial situation,
performance, ownership, and governance of the
company.
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economic development, including mergers and
acquisitions;
Ensuring the strategic guidance of the company, the
effective monitoring of management by the board, and
the board’s accountability to the company and its
shareholders (the responsibilities of the board).
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Protection of shareholders’ rights and key ownership
functions.

Ensuring the equitable treatment of all shareholders,
including minority and foreign shareholders.

Recognising the rights of stakeholders (including
employees) as established by law and encouraging
active co-operation between corporations and
stakeholders in creating wealth, jobs, and the
sustainability of financially sound enterprises.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
UK Corporate Governance Code

0402
Listed companies should have:

an effective board with clear division of duties
between Chairman and CEO (they cannot be the
same individual);

a balance of executive and non-executive directors
(so that no one group is dominant), with relevant,
up to date information (so that the board and nonexecutive directors can constructively challenge
the executive); and

a formal, transparent and independent appointment
process with directors submitting themselves
regularly for re-election.
CORPORATE GOVERNANCE

There should be appropriate levels of remuneration with
a formal and transparent process for fixing that
remuneration (i.e. use of an independent remuneration
committee) and full details disclosed in the company’s
annual report.


The company should present a balanced and
understandable assessment of its position, maintain a
sound system of internal control and establish formal
and transparent arrangements for the review of financial
reporting, internal control principles and for
maintaining an appropriate relationship with the
external auditors.
AUDIT COMMITTEES (UK CORPORATE
GOVERNANCE CODE)

Monitor the integrity of the financial statements of the
company and review significant financial reporting
judgements contained in them.

An audit committee of at least three, independent nonexecutive directors must be established, with at least
one member having recent, relevant financial
experience.

Review the company’s internal controls and risk
management systems, including those relating directly
to the financial statements.

The effectiveness of internal control (including
financial, operational, compliance and risk management
systems) must be reviewed at least once each year.

Monitor and review the effectiveness of the company’s
internal audit function.

If there is no internal audit, consider annually if there is
a need for internal audit and make that recommendation
to the board.

Recommend to the board, for approval by the
shareholders, the appointment, re-appointment and
removal of the external auditor.
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SA

Institutional shareholders should make considered use
of their votes, be ready to enter into a dialogue with
companies and should give due weight to all factors
when evaluating a company’s governance
arrangements.
Companies need to enter into a dialogue with
institutional shareholders and use the annual general
meeting to communicate with private investors.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Role and responsibilities
0403
CORPORATE GOVERNANCE
Approve the remuneration and terms of engagement of
the external auditor.


Review and monitor the external auditor’s
independence and objectivity and the effectiveness of
his audit process.


Develop/implement policy on the engagement of the
external auditor to supply non-audit services.

Establish “whistle-blowing” procedures within the firm
and ensure the proportionate and independent
investigation of such matters and appropriate follow-up
action.
Meet with the head of internal audit at least once a year
without the presence of management.
Monitor and assess the role and effectiveness of the
internal audit function in the overall context of the
company’s risk management system.
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Review and monitor management’s responsiveness to
the internal auditor’s findings and recommendations.
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
Responsibilities for internal audit
Approve the appointment or termination of the head of
internal audit.

Ensure that the internal auditor has direct access to the
board chairman and to the Audit Committee and is
accountable to the Audit Committee.
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

Review and assess the annual internal audit work plan.

Receive reports on the results of the internal auditor’s
work on a periodic basis.
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Responsibilities for external audit

Approve the terms of engagement and the remuneration
to be paid in respect of audit services provided.

Ensure that the external auditors are independent of the
company.

Ensure that appropriate plans are in place for the audit
(e.g. reviewing with auditors the overall strategy, risk
assessment, materiality, resources and work plans).

Review, with the external auditors, the findings of their
work, for example:
0404

discussing major issues that arose during the audit
(both resolved and unresolved);

key accounting and audit judgements;

levels of error identified during the audit; and
CORPORATE GOVERNANCE


discussing with management and auditors why
certain errors remain unchanged.
Review the audit representation letters (before signing
by management).
Review the management letter and monitor
management’s actions taken on its recommendations.

Assess the effectiveness of the audit process, for
example:



was the agreed audit plan met and where changes
were made, understand the reasons for such
changes, including changes in perceived audit
risks and the work undertaken address those risks;
whether the skills and experience of the audit firm
make it a suitable supplier of the non-audit
service;

obtain feedback about the conduct of the audit
from key people involved (e.g. the finance director
and the head of internal audit).
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
whether there are safeguards in place to ensure
that there is no threat to objectivity and
independence in the conduct of the audit.
ISA 260
consider the robustness and perceptiveness of the
auditors in their handling of the key accounting
and audit judgements identified and in responding
to questions from the audit committees, and in
their commentary, where appropriate, on the
systems of internal control;
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Ensure that the provision of other services does not
impair the external auditor’s independence or
objectivity, for example:
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
Note that most of the Corporate Governance points
above relating to the external auditor are the same as
required by ISA 260 Communications with Those
Charged with Governance.







Two way communication
Understanding the business
Planning, strategy, work programme
Significant findings
Management letter, representation letter
Adjusted and unadjusted errors
Audit report
It is just that under corporate governance, the scope of
what the auditor must discuss is specifically laid out.
0405
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For Examinations to June 2015
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ACCA syllabus aim and main capabilities
Core topics checklist
Summary of essential facts and theory
Further reading
Relevant articles
Comprehensive analysis of past examinations
Examiners' feedback for the last exam session
Exam technique
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