LEADER IN NURTURING CHARTERED ACCOUNTANTS · LECTURE 1 LEADER IN NURTURING CHARTERED ACCOUNTANTS 2. Menu 1. Introduction 2. Lectures Outline 3. Code of Professional Conduct 4. Pre-engagement

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CAA ITC BOARD COURSE 2018 – AUDIT & ASSURANCE

LECTURE 1


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Menu

1. Introduction

2. Lectures Outline

3. Code of Professional Conduct

4. Pre-engagement Activities

5. Quality Control

6. Overview of planning

7. Identifying and assessing ROMM

8. Audit strategy and audit plan


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Introduction

Objectives of the board course

• To assist on the exam techniques in preparing for the ITC exams

• To highlight key areas that students need to focus on in preparing for the exam

• Provide guidance on the study approach to be taken in preparing for the exams


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Exam structure

• The ITC examination is made up of 4 papers of 100 marks each written over a 2 day period;

• Each paper is made up of 100 marks, written over 3 hours (including 30 minutes reading time);

• Normally each exam paper integrates different competency areas for e.g. a paper may examine students on financial reporting and taxation principles using the same case study; and

• Candidates are not informed before hand of the topics examinable in each of the 4 papers.

• Exam dates: 24 and 25 January 2018.


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ITC exam regulations

▪ Minimum of 200 marks (thus 50%) are required to pass the ITC; and

▪ Candidates need to demonstrate an appropriate level of competence in ALL areas and disciplines, and therefore the overall pass mark of 50% shall be subject to the candidate achieving a sub-minimum of 40% in at least three of the four professional papers;


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Analysis of how subjects are examined at ITC

Accounting andExternal reporting

Strategy,RiskManagement&Governance

Audit & Assurance

Tax FinancialManagement

Management, Decision making & control

Ethics Comms

100 – 120 marks

40 – 60 marks

60 – 80 marks

60 – 80 marks

40 – 60 marks

40 – 60 marks

0 – 20marks

20 – 40 marks

25 – 30% 10 – 15% 15 – 20% 15 – 20% 10 – 15% 10 – 15% 0 – 5% 5 – 10%

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Analysis of how subjects have been examined at ITC

Accounting andExternal reporting

Strategy,RiskManagement&Governance

Audit & Assurance

Tax FinancialManagement

Management, Decision making & control

Ethics Comms

June 2017 25% 14% 15% 15% 12% 10% 3% 6%

Jan 2017 29% 10% 15% 16% 10% 12% 4% 5%

June 2016 26% 10% 17% 16% 13% 11% 3% 5%

Jan 2016 26% 11% 18% 15% 13% 10% 2% 5%

June 2015 28% 11% 19% 15% 11% 10% 0 6%

Jan 2015 26% 11% 17% 21% 10% 10% 0 5%

June 2014 26% 9% 17% 16% 12% 13% 3% 5%

Jan 2014 26% 12% 19% 15% 11% 11% 1% 5%

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Competence framework: Proficiency levels

Level X – Completes the task

Level I – Initiates the task

Level A ‒ Awareness

• Key ideas and principles

• Technical expertise or detailed knowledge not required

• Identifies & explains significance and relevance

• Performs task on preliminary basis

• Understands requirements of the task

• Identifies & applies the required professional skills

• Intermediate understanding

• Basic quantitative & qualitative analysis (excl. complex calculations)

• Integration straightforward

• Completes all elements of task

• Problem is clearly identified & thoroughly analysed, or situation is evaluated & useful recommendations are made

• Relevant pervasive skills & reflective capacity demonstrated at advanced level

• Advanced understanding

• Technical skills include complex calculations & concluding on an appropriate course of action

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Extract from competence framework1 The competencies Level

IV-1 Analyses, evaluates and advises on an entity’s assurance needs

I

IV-2 Provides assurance services

IV-2.1 Identifies and considers issues related to accepting an engagement

I

IV-2.2 Follows prescribed procedures to accept the engagement X

IV-2.3 Determines which set of criteria to apply to the subject matter being evaluated

I

IV-2.4 Assesses materiality for the engagement I

IV-2.5 Identifies and assesses the key risks in the performance of the engagement

X

IV-2.6 Designs effective and efficient procedures based on the engagement’s scope and the assessed risks

X

IV-2.7 Performs the work plan X

IV-2.8 Documents the work performed and its results X

IV-2.9 Evaluates the evidence and draws conclusions I

IV-2.10 Drafts the report upon completion of the engagement X

IV-2.11 Prepares or interprets information for stakeholders I

IV-3 Provides control-related services

IV-3.1 Identifies and evaluates the risks pertaining to the entity’s financial information systems

X

IV-3.2 Evaluates the entity’s financial information systems, including the related controls

X

IV-4 Designs, implements and manages the quality control system in the firm

A


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How topics have been examined

Topic Years examined

Code of Professional Conduct Jan 2014, Jan 2016, Jan 2017, June 2017

Companies Act Jan 2014, June 2014, June 2015, Jan 2016,

Pre- engagement Activities – Client acceptance Jan 2013, Jan 2015,

Quality Control June 2014,

Planning and risk assessment Jan 2013, June 2013, Jan 2014, June 2014, Jan 2015, June 2017,

Audit strategy and audit plan Jan 2014, June 2017

Corporate governance June 2014, June 2015,


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How topics have been examined

Topic Years examined

Materiality Jan 2013,

Fraud, laws and regulations Jan 2014, Jan 2016,

Controls June 2013, Jan 2014, Jan 2015, Jan 2016, June 2016,

Test of controls June 2015, Jan 2016,

Substantive procedures Jan 2013, June 2013, Jan 2014, June 2014, Jan 2015, June 2015, Jan 2016, June 2016, Jan 2017, June 2017

Sampling

Group Audits Jan 2017

Going concern Jan 2014, Jan 2016, June 2017

Audit reporting Jan 2013,


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Common Issues raised from examiners comments

General

▪ A serious problem experienced throughout the examination was that candidates were unable to apply their knowledge to the scenarios described in the questions;

▪ Regurgitation of theory with limited or no application;

▪ Candidates also do not appear to be able to identify the correct issues in the scenario provided;

▪ Candidates fared better in questions requiring calculations than in discursive questions ( issue major in auditing given the nature of auditing questions);

▪ In addition markers found that candidates used their own abbreviations (smsmessaging style) in their answers;

▪ Marks are awarded for quality, not quantity. Verbosity is no substitute for clear, concise, logical thinking and good presentation; and

▪ Responses, particularly in auditing and Governance areas are often provided by simply repeating the information given in the question


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Preparing study plan

• Perform gap analysis – consider:

– Performance at CTA or past ITC exam;

– Topical issues from an auditing perspective – e.g. Ethics (Guptas, auditor rotation etc.

– Assess how performance in FinAcc affects your auditing.

• Perform focused work on identified areas of weaknesses;


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Audit Lecture OutlineSession Topics

1 • Code of Professional Conduct;• Pre- engagement Activities• Quality Control; • Overview of planning and Obtaining an Understanding of the business• Identifying and assessing risks of material misstatement• Audit Strategy and Audit plan

2 • Audit Strategy and Audit plan• Companies Act• Corporate Governance - King IV;• Materiality in planning and performing an audit• Fraud, laws and regulations • Controls• TOCs• Substantive procedures;


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Audit Lecture Outline

Session Topics

3 • Sampling• CAATs• Audit Evidence using the work of others• Group Audits • Evaluation and concluding• Other Engagements


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Code of Professional Conduct

Sub-Topic Analysis1. To whom does the CPC Apply?

2. General Application of the code

▪ Fundamental principles;

▪ Threats to fundamental principle;

▪ Safeguards to identified threats

3. CA’s in Public Practice

▪ Professional appointments;

▪ Conflict of interest;

▪ Second opinions;

▪ Fees and other types of remunerations;

▪ Marketing professional services;

▪ Custody of client assets;

▪ Gifts and hospitality and

▪ Independence

▪ Non-audit services

4. CA’s in Business

▪ Conflicts of interest; and

▪ Preparation and reporting of information


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Mind map


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Common Student PitfallsNature of questions Examiner’s Expectations Common Pitfalls

With reference to the information provided, discuss any concerns and considerations in terms of the ICAZ Code of Professional Conduct

▪ Students are expected to address the following in their discussion:▪ Identify the infor in the

scenario giving rise to the concern;

▪ Explain the type of threat arising from this infor and how it impacts compliance with independence and the fundamental principles;

▪ Evaluate the significance of the threat; and

▪ Propose safeguards to reduce or eliminate the threat.

▪ Students failing to articulate how the threat impacts compliance with the fundamental principles;

▪ Failing to link the threat to the information in the scenario.


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Common Student Pitfalls

Discuss any ethical and professional concerns arising from the information provided with reference to the ICAZ code of Professional conduct and ISQC1. Your discussion should also provide actions that may be taken to address the identified concerns.

▪ Students are expected to address the following in their discussion:▪ Identify the infor in the

scenario giving rise to the concern;

▪ Explain the type of threat arising from this inforand how it impacts compliance with independence and the fundamental principles;

▪ Evaluate the significance of the threat; and

▪ Propose safeguards to reduce or eliminate the threat.

▪ Students failing to articulate how the threat impacts compliance with the fundamental principles;

▪ Failing to link the threat to the information in the scenario.


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Tutorial Analysis

• Question 4 (a)

• Question 12 (d)

• Question 10 (c) and (e)

• Question 13 (f)


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Questions ?


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Pre-engagement activities

Sub-Topic Analysis

Key topic areas:

1. Applicable ISA’s and frameworks:

a. ISQC 1

b. ISA 220

c. ISA 210

d. ISA 300

e. CPC

2. Client investigation

a. Compliance with ethical requirements; and

b. Business standing

3. Determine skills and competencies

4. Establish the terms of the engagement


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Mind map


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Nature of questions Examiner’s Expectations Common Pitfalls

Discuss the factors that should have been considered prior to accepting the engagement

▪ The examiners will beexpecting students toidentify and discuss onlythose factors that arerelevant to the decisionof whether or not toaccept the engagement;

▪ Students should alsoensure that whateverfactor they consider isrelevant to theinformation as given inthe exam scenario

▪ Students give generic considerations not relevant to the scenario

▪ Wording not in context▪ Students coming up

with considerations not relevant to the decision making process.


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Describe the procedures that should be performed before accepting the engagement

▪ Students should identify and describe those procedures that would enable them to gather evidence relevant to the client acceptance decision making process.

▪ Failure to come up with procedures necessary to gather information when making a client acceptance/continuance decision.

▪ Poorly wordedprocedures


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Critically evaluate the client acceptance procedures as documented in working paper WP/101

▪ These type of questions should be addressed from a reviewer perspective where the students should assess the following:▪ Completeness of

client acceptance procedures performed.

▪ Appropriateness of procedures performed and conclusions reached.

▪ Lack of knowledge of client acceptance procedures resulting in failure to do a proper review.


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Tutorial Analysis

• Question 1 (a)


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Questions ?


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Quality Control

Sub-Topic AnalysisKey topic areas and standards:

1. Quality control at firm level (ISQC 1);

▪ Leadership;

▪ Ethics;

▪ Client acceptance;

▪ Human resources;

▪ Engagement performance and

▪ Monitoring

2. Quality control on an individual audit (ISA 220);

▪ Leadership;

▪ Ethics;

▪ Client acceptance and continuance;

▪ Assignment of engagement teams;

▪ Engagement performance; and

▪ Monitoring


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Mind map


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Common Student PitfallsNature of questions Examiner’s expectations Common Pitfalls

Discuss any quality control concerns you may have and provide recommendations on how these can be addressed

- Use elements of quality control in coming up with concerns;

- Identify information in the scenario which provided evidence of things being done inappropriately -triggers;

- Describe how a quality control element has been contravened based on the evidence from the trigger;

• Most of the recommendations raised by students were backward looking, where students were referring to what should have been done instead of explaining what needs to be done to rectify identified problems going forward.

• Failure by students to link concerns to specific quality control elements


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Nature of questions Examiner’s expectations Common Pitfalls

Nature of questions Examiners expectations Common pitfalls

Comment on the quality control issues raised by the audit manager’s suggestions to improve the audit firm’s profitability.

▪ Candidates will be expected to discuss how the audit managers proposals would impact quality control.

▪ Candidates would also be expected to answer the question with reference to the quality control elements in ISQC1 and ISA 220.

▪ Failure to come up with a adequate points;

▪ Failure to comment how the audit managers proposals would impact quality control.


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Exam technique

Nature of questions

Examiners expectations Common pitfalls

In relation to the audit of the Retriever Group, evaluate the quality control, ethical and other professional matters arising in respect of the planning and performance of the Group audit.

▪ Candidates will be expected to:▪ Identify and discuss infor which is

giving rise quality control concerns;▪ Discuss the concerns arising with

reference to the quality control elements in ISQC 1 and ISA 220

▪ Since its an evaluation students will be expected to conclude on their discussion.

▪ Failure by students to link information provided in the case study to the quality control matters arising.


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Tutorial Analysis

• Question 4 (a)


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Questions ?

Overview of planning

Obtaining an understanding of the business


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Sub-Topic Analysis

• Understanding of the need for planning;

• Identifying the key activities performed at planning stage;


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Key activities performed during planning

1. Obtaining an understanding of the entity and its environment;

2. Obtaining an understanding of the entity's internal control;

3. Identifying and assessing the risk of material misstatements;

4. Determine the audit strategy and approach, and document these in the audit plan and programme; and

5. Setting materiality


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Obtaining an understanding of the business

⁻ Describe the type of information to be gathered as part of understanding of the client;

⁻ Describe the procedures that can be performed in order to gather the information above;


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Comment on the level at which you would set materiality.

▪ The examiners will expect candidates to discuss the basis of the materiality figures/amount chosen by addressing the following:▪ Determine whether

to use BS or IS figures;

▪ Determine whether you are going to use actual, budgeted or prior year figures;

▪ Calculate materiality based on ranges;

▪ Conclude on the materiality figure to be used.

▪ Students simply identifying a thump suck amount with no basis.

Common Student Pitfall


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Explain why analytical procedures are performed as a fundamental part of our risk assessment at the planningstage of the audit.

▪ Candidates would be expected to discuss the relevance of analytical procedures when gathering audit evidence as part of risk assessment;

▪ Explain their understanding of analytical procedures

▪ Failure to articulate how analytical procedures can be used as part of risk assessment.

Common Student Pitfall

Identify and explain the audit risks which should be considered in planning the Group audit. You should ensure that you consider all of the information provided as well as utilising analytical procedures, where relevant, toidentify the audit risks.

▪ Identify both risks that may result in the misstatement of F/S and detection risks;

▪ In explaining the risks clearly articulate ▪ Why they think the

risk exists (link to infor in the scenario)

▪ How the risk will result in the misstatement of the F/S or how it impacts on the ability of the auditor to gather sufficient appropriate audit evidence.

▪ Students coming up with risks that are totally divorced from the information in the scenario;

▪ Failure to identify adequate risks;

▪ Failure to explain how the risk may result in the misstatement of financial statements;

▪ Poor accounting (IFRS) knowledge.


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Tutorial Analysis

• Question 5 (c)


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Questions ?

Identifying and assessing risks of material misstatement


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Sub-Topic Analysis

1. Obtain an understanding of an entity;

2. Identify and assess audit risks at overall financial statements level and at assertion level;

3. Audit plan and audit strategy; and

4. Overall materiality


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Mind map


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Required Examiner’s Expectations Common Pitfalls

a. Discuss the impact of the information on your risk assessment;

• Risks at overall Financial statements level

• Risks at assertion level for inventory, revenue and accounts receivables

Articulate the following:• Description of the risk

trigger from the scenario e.g. introduction of new billing system.

• How the risk trigger impacts risk assessment e.g. errors and mistakes may occur in using the new system as staff are not yet familiar with it which may result in the material misstatement of financial statements.

Struggle with the distinction between risk at overall financial statements level and risk at assertion level.• Describing business

risks instead of audit risk by failing to articulate impact on the audit.

• Simply stating the assertion.


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Common Student PitfallsRequired Examiner’s Expectations Common Pitfalls

Based on your identified risks of material misstatements at overall financial statements level describe the impact on the nature, timing, extent and resources required to perform the year end audit.

Describe responses to identified risks at overall financial statements level

- Coming up with responses for risks identified at assertion level e.g. perform more procedures on the rates used for imported inventories.

- Memory dumping by some students i.ecoming up with responses that were not in any way linked to the risk assessment done in part a.


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Tutorial Analysis

• Question 2 (a), (e) and (f)

• Question 3 (a), (b) and (d)

• Question 8 (d)

• Question 13 (a), (b) and (c)


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Questions ?


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Audit Strategy and Audit Plan

Sub-Topic Analysis

▪ Purpose of an audit strategy and audit plan;

▪ Factors that affect the audit strategy and audit plan;

▪ Principles on scope, timing, direction and resources in coming up with an audit strategy;

▪ Principles on nature, timing and extend in coming up with an audit plan.


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Framework


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Mind map


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Based on your identified risks of material misstatements at overall financial statements level describe the impact on the nature, timing, extent and resources required to perform the 2016-year end audit

Describe responses to identified risks at overall financial statements level

- Coming up with responses for risks identified at assertion level.

- Memory dumping by some students i.ecoming up with responses that were not in any way linked to the risk assessment.


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Tutorial Analysis

• Question 3 (b)

• Question 5 (c)


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Questions ?