http://freeaccastudymaterial.blogspot.com/ / t.c om sp o og bl ter ial dy ma Study Text stu ACCA Approved Look inside ac ca Paper P7 Advanced Audit and Assurance (International) Study Text for exams up to June 2015 Free access to our Exam Success site htt p:/ June 2014 £32.00 For exams up to June 2015 BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book Study Text Contact us In addition to ACCA examining team reviewed material you get: /fr ee Paper P7 Advanced Audit and Assurance (International) This ACCA Study Text for Paper P7 Advanced Audit and Assurance (International) has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage Advanced Audit and Assurance (International) BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA P7 ACCA approved content provider ACCA APPROVED CONTENT PROVIDER http://freeaccastudymaterial.blogspot.com/ ACP7(INT)ST14 (HO).indd 1-3 27/05/2014 17:43 co m/ http://freeaccastudymaterial.blogspot.com/ log sp o t S T U D Y ria ym (INTERNATIONAL) ate ADVANCED AUDIT AND ASSURANCE l.b PAPER P7 tud BPP Learning Media is an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this ACCA examination-team reviewed Study Text, we:  Highlight the most important elements in the syllabus and the key skills you need as  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam cc  Emphasise key points in regular fast forward summaries  Test your knowledge in quick quizzes ea  Examine your understanding in our practice question bank  Reference all the important topics in our full index /fr e BPP's Practice & Revision Kit and i-Pass products also support this paper htt p:/ FOR EXAMS IN DECEMBER 2014 AND JUNE 2015 http://freeaccastudymaterial.blogspot.com/ T E X T log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ All our rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd First edition 2007 Seventh edition June 2014 ISBN 9781 4727 1091 (Previous ISBN 9781 4453 9660 6) e-text ISBN 9781 4453 6747 We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless where otherwise stated British Library Cataloguing-in-Publication Data l.b A catalogue record for this book is available from the British Library ria Published by ate BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia tud Polestar Wheatons Hennock Road Marsh Barton Exeter EX2 8RP ym Printed in the United Kingdom by © BPP Learning Media Ltd 2014 htt p:/ /fr e ea cc as Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources ii http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Contents Page Introduction log sp o t Helping you to pass v Studying P7 vii Syllabus and study guide xiii The exam paper xxiii Part A Regulatory environment International regulatory environments for audit and assurance services Part B Professional and ethical considerations Code of ethics and conduct 33 Professional liability 67 Part C Practice management l.b Quality control 97 Obtaining and accepting professional appointments 111 Part E Other assignments Audit-related services and other assurance services 349 Prospective financial information (PFI) 379 Forensic audits 393 Social, environmental and public sector auditing 405 Internal audit and outsourcing 431 Part F Reporting Reporting 449 as 17 tud 12 13 14 15 16 ate Planning and risk assessment 135 Evidence 183 Evaluation and review (I) 217 Evaluation and review (II) – matters relating to specific accounting issues 251 Evaluation and review (III) – matters relating to specific accounting issues 277 Group audits and transnational audits 315 ym 10 11 ria Part D Audit of historical financial information Part G Current issues and developments Current issues 475 cc 18 List of articles by the examining team 489 ea Practice question and answer bank 493 Index 575 htt p:/ /fr e Review form Contents http://freeaccastudymaterial.blogspot.com/ iii http://freeaccastudymaterial.blogspot.com/ co m/ A note about copyright Dear Customer What does the little © mean and why does it matter? log sp o t Your market-leading BPP books, course materials and e-learning materials not write and update themselves People write them: on their own behalf or as employees of an 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We update for a reason.) But the e-products are sold on a single user licence basis: we not supply ‘unlock’ codes to people who have bought them second-hand htt p:/ /fr e ea cc as tud ym ate ria And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Helping you to pass – the BPP Learning Media Study Text reviewed by the ACCA examining-team! log sp o t BPP Learning Media – ACCA Approved Learning Partner – content As ACCA’s Approved Learning Partner – content, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert ria l.b Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your on-line My Experience record ate Tackling studying ym Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success tud Developing exam awareness Our Study Texts are completely focused on helping you pass your exam Our advice on Studying P7 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have as Exam focus points are included within the chapters to highlight when and how specific topics have been examined, or how they might be examined in the future cc Using the Syllabus and Study Guide ea You can find the Syllabus and Study Guide on page xiv to xxiii of this Study Text /fr e Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt htt p:/ We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction http://freeaccastudymaterial.blogspot.com/ v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Tells you what you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Syllabus reference log sp o t Topic list Introduction Puts the chapter content in the context of the syllabus as a whole Study guide Links the chapter content with ACCA guidance Exam guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily ria l.b Knowledge brought forward from earlier studies Demonstrate how to apply key knowledge and techniques Examples ate Definitions of important concepts that can often earn you easy marks in exams Key terms ym Exam focus points as Question tud Formula to learn cc Case Study Tell you when and how specific topics have been examined, or how they may be examined in the future Formulae that are not given in the exam but which have to be learnt This is a new feature that gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) Essential practice of techniques covered in the chapter Real world examples of theories and techniques A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation /fr e ea Chapter Roundup htt p:/ vi co m/ http://freeaccastudymaterial.blogspot.com/ Introduction http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Studying P7 As the name suggests, this paper examines advanced audit and assurance topics Paper P7 is one of the professional level Options papers and as such candidates must consider carefully whether they have the required competencies The P7 examination team log sp o t The examination team expects you to demonstrate a highly professional approach to all questions – not just presenting information in a professional manner, but also integrating knowledge and understanding of topics from across the syllabus The examination team is also very keen for students to demonstrate evidence of wider reading and to demonstrate an understanding of current issues as they affect audit and assurance At the absolute minimum you should read Student Accountant The examination team often examines topics that it has written about in Student Accountant Syllabus update The P7 syllabus has been updated for the December 2014 sitting onwards The full syllabus and study guide can be found in this Study Text on pages xiv to xxiii l.b What P7 is about ria The aim of the syllabus is to analyse, evaluate and conclude on the assurance engagement and other audit and assurance issues in the context of best practice and current developments ate The paper builds on the topics covered in Paper F8 Audit and Assurance but as an advanced paper it tests much more than just your knowledge of ISAs and your ability to list standard audit procedures You must be able to apply your knowledge to more complex audit and assurance scenarios, identifying and formulating the work required to meet the objectives of audit and non-audit assignments and to evaluate the findings and results of work performed Accounting knowledge examined in Paper P2 Corporate Reporting is also assumed Therefore, candidates studying for P7 should refer to the Accounting Standards listed under P2 (a) Regulatory environment ym The syllabus is divided into SEVEN main sections: (b) tud This section introduces the legal and regulatory environment including corporate governance issues It also examines the topics of money laundering and the consideration of laws and regulations Professional and ethical considerations (c) cc as The details of the various ethical codes should be familiar to you from your earlier studies, however the importance of this topic should not be underestimated The examination team has indicated that ethical and professional issues are likely to feature in every sitting This section also covers fraud and professional liability, both of which are topical issues Practice management ea This part of the syllabus covers quality control, tendering and professional appointments It also covers advertising, publicity, obtaining professional work and fees (d) Audit of historical financial information /fr e This is the largest section of the syllabus looking in detail at the procedures involved in a range of audit and assurance assignments The examination team has indicated that evidence gathering is a key part of the syllabus and is likely to feature at each sitting Requirements are likely to focus on specific assertions, balances or transactions htt p:/ (e) Other assignments This section also covers a range of audit-related and assurance services The examination team has stressed the need for candidates to be able to tackle these types of scenario Introduction http://freeaccastudymaterial.blogspot.com/ vii http://freeaccastudymaterial.blogspot.com/ Reporting co m/ (f) The detail of audit reports should be familiar to you from your earlier studies At this level you will be expected to apply this knowledge to more complex scenarios The examination team has also stressed the importance of the relationship between financial reporting and auditing This will be particularly important when forming an appropriate audit opinion This section of the syllabus also includes reports to management and other reports Current issues and developments log sp o t (g) Current issues and developments includes a wide range of topics including the IAASB clarity project, professional, ethical and corporate governance, information technology, going concern, transnational audits and social and environmental auditing The examination team has indicated that this is likely to be examined at each sitting, and that candidates are expected to have read around the issues for themselves You will need to be able to discuss current issues topics in the context of a client scenario Skills you have to demonstrate l.b 2.1 Knowledge and application ria Even with exams you’ve previously taken, you'll remember that passing didn't only mean reproducing knowledge You also had to apply what you knew At Professional level, the balance is tilted much more towards application You will need a sound basis of technical knowledge The exams will detect whether you have the necessary knowledge However you won't pass if you just spend your time acquiring knowledge Developing application skills is vital ate 2.2 Skills A thorough understanding of the relevant audit, assurance and financial reporting regulations that fall within the syllabus  The ability to apply knowledge to specific client scenarios  The ability to have an independent opinion, backed by reasoned argument  An appreciation of commercial factors which influence practice management  An appreciation of fast-moving developments in audit and assurance practices tud ym  The P7 examination team made very similar comments in a number of recent examiner’s reports which is so important that we will quote it here: cc Failing to answer the specific question requirements Not applying knowledge to question scenarios Not explaining or developing points in enough detail Lack of knowledge on certain syllabus areas Illegible handwriting’ ea      as ‘Similar factors as detailed in previous examiner’s reports continue to contribute to the unsatisfactory pass rate: (Examiner’s Report, June 2011) htt p:/ /fr e ‘As seen in previous sittings, what makes the difference between a pass and a fail script is usually the level of application skills which have been demonstrated Candidates who answer the specific question requirement, and tailor their answers to the scenarios provided are likely to well.’ viii Introduction http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ How to pass 3.1 Study the whole syllabus log sp o t Study the entire syllabus Although Section B of the paper contains an optional element, the two questions in Section A are compulsory and could cover a range of topics from across the syllabus Question spotting at this level is unwise and not recommended 3.2 Focus on themes, not lists There are quite a number of lists in the texts This is inevitable because corporate governance guidance quoted as best practice is often in list form Lists are also sometimes the clearest way of presenting information However the examination team has stressed that passing the exam is not a matter of learning and reproducing lists Good answers will have to focus on the details in the scenario and bring out the underlying themes that relate to the scenario The points in them will have more depth than a series of single-line bullet points 3.3 Read around l.b Read the financial press and relevant websites for real life examples – the examination team is specifically looking for evidence of wider reading ate 3.4 Lots of question practice ria Read Student Accountant (the ACCA's student magazine) regularly – it often contains technical articles written either by or on the recommendation of the examination team which can be invaluable for future exams You can develop application skills by attempting questions in the Exam Question Bank and later on in the BPP Learning Media Practice and Revision Kit ym Answering questions tud Practise as many questions as you can under timed conditions – this is the best way of developing good exam technique Make use of the Question Bank at the back of this text BPP’s Practice and Revision Kit contains numerous exam standard questions (many of them taken from past exam papers) as well as three mock exams for you to try as Section A questions will be the case study type of question – make sure you relate your answers to the scenario rather than being generic Answers that are simply regurgitated from texts are unlikely to score highly cc Present your answers in a professional manner – there are between four and six professional marks available for setting answers out properly and for coherent, well structured arguments and recommendations You should be aiming to achieve all of these marks Consider the question requirement carefully so that you answer the actual question set ea Answer plans will help you to focus on the requirements of the question and enable you to manage your time effectively htt p:/ /fr e Answer the question that you are most comfortable with first – it will help to settle you down if you feel you have answered the first question well Introduction http://freeaccastudymaterial.blogspot.com/ ix htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t co m/ http://freeaccastudymaterial.blogspot.com/ Notes http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Review Form – Paper P7 Advanced Audit and Assurance (6/14) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Address: log sp o t Name: During the past six months you recall seeing/receiving any of the following? 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Text Kit tud Passcards ym None of the above Home Study Package i-Pass Your ratings, comments and suggestions would be appreciated on the following areas Chapter introductions Key terms Quality of explanations Very useful Useful Not useful Good Adeqate Poor Yes No as Introductory section cc Case studies and other examples Exam focus points Questions and answers in each chapter ea Fast forwards and chapter roundups Quick quizzes /fr e Question Bank Answer Bank Index Overall opinion of this Study Text Excellent Do you intend to continue using BPP products? htt p:/ On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The BPP Learning Media ACCA Range Manager of this edition can be e-mailed at: pippariley@bpp.com Please return this form to: Pippa Riley, ACCA Range Manager, BPP Learning Media Ltd, FREEPOST, London, W12 8AA http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ TELL US WHAT YOU THINK htt p:/ /fr e ea cc as tud ym ate ria l.b log sp o t Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? http://freeaccastudymaterial.blogspot.com/ ... http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Helping you to pass – the BPP Learning Media Study Text reviewed by the ACCA examining-team! log sp o t BPP. .. study text xii Introduction http://freeaccastudymaterial.blogspot.com/ Syllabus and Study Guide The P7 syllabus and study guide can be found below Syllabus MAIN CAPABILITIES co m/ http://freeaccastudymaterial.blogspot.com/... http://freeaccastudymaterial.blogspot.com/ http://freeaccastudymaterial.blogspot.com/ co m/ Studying P7 As the name suggests, this paper examines advanced audit and assurance topics Paper P7 is one