CAF 09 Presentation Autumn 2020 Abdus Salam Jan FCA, FPFA Faculty - - PowerPoint PPT Presentation

CAF 09 Presentation

Autumn 2020

Abdus Salam Jan – FCA, FPFA Faculty Member PAC – Khyber Campus - Peshawar

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Certificate in Accounting & Finance

Audit & Assurance

CAF - 09

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ICAP’s Grids & Weightings for CAF -09

SN GRIDS WEIGHTINGS 1 General concepts and principles of audit 15-20 2 Performance of audit and reporting 25-35 3 Specific areas 20-25 4 Computer programming and IT controls 10-15 5 Professional Ethics 10-15 100

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Syllabus Topic List 30 to get CAF 09

A - General Concepts & Principles of Audit C - Specific Areas

A1 Intro - IFAC C1 External Confirmations A2 Intro – IAASB C2 Subsequent Events A3 Objective & General Principles C3 Written Representation A4 Responsibility of Financial Statements C4 Related Parties A5 Auditor’s responsibility to consider Fraud C5 Using the work of Internal Auditors & Experts A6 Appointment & Removal of Auditors C6 Review Engagements A7 Terms of Audit Engagements

B - Performance of Audit & Reporting D - Computer Programming & IT Controls

B1 Planning an Audit D1 Benefits and limitations of Flow charts B2 Assessment of Audit Risk D2 Types of Flow charts B3 Audit Materiality D3 General & Application in IT System B4 Audit Evidence D4 Preventative, Detective & Corrective Controls B5 Audit Sampling D5 Logical Access Controls B6 Substantive Procedures B7 Test of Controls

E - Professional Ethics

B8 Analytical Procedures

E1 Fundamental Principles

B9 Documentation

E2 Client & Engagement Acceptance

B10 Auditors Report & Going Concern

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Syllabus Topic List 30 to get CAF 09

A - General Concepts & Principles of Audit C - Specific Areas

A1 Intro - IFAC C1 External Confirmations A2 Intro – IAASB C2 Subsequent Events A3 Objective & General Principles C3 Written Representation A4 Responsibility of Financial Statements C4 Related Parties A5 Auditor’s responsibility to consider Fraud C5 Using the work of Internal Auditors & Experts A6 Appointment & Removal of Auditors C6 Review Engagements A7 Terms of Audit Engagements

B - Performance of Audit & Reporting D - Computer Programming & IT Controls

B1 Planning an Audit D1 Benefits and limitations of Flow charts B2 Assessment of Audit Risk D2 Types of Flow charts B3 Audit Materiality D3 General & Application in IT System B4 Audit Evidence D4 Preventative, Detective & Corrective Controls B5 Audit Sampling D5 Logical Access Controls B6 Substantive Procedures B7 Test of Controls

E - Professional Ethics

B8 Analytical Procedures E1 Fundamental Principles B9 Documentation E2 Client & Engagement Acceptance B10 Auditors Report & Going Concern

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Topic List

• 1 -
• 2 & 13 -
• 3 -
• 3 -
• 4 -
• 5 & 6 -
• 5 -
• 7 8 9 &10 -
• 14 -
• 11 12 14 & 15 -
• 1. Introduction to audit & assurance
• 2. Ethics and acceptance
• 3. Risk
• 4. Planning
• 5. Evidence
• 6. Internal Control
• 7. IT Controls
• 8. Substantive Procedures
• 9. Review & Reporting

10.Specific Areas

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Approach for Coverage

ASJ Slides Coverage Slide presentation and teacher’s fuller explanation of the topic by the teacher Text Book Coverage Book Coverage of all the topic in the class Practice by the Teacher

• Practicing the Theory Based Questions – TBQs including the methodology
• Practicing the Scenario Based Questions – SBQs including the methodology

Practice by the Student

• Covering all the topics on regular basis
• Written practice of Theory Based Questions - TBQs
• Written practicing of Scenario Based Questions – SBQs

Revision by the teacher

• Discussion of yesterday’s topics in the class before starting new topics
• Review of the section before starting the new one
• Revision of all topics prior to going for prep for mid mock and final mock

Testing at college

• Weekly test covering both TBQs and SBQs related to topic well prepared by the students
• Mid Term Mock Examinations
• Final Mock Examinations

Resources

• Slides downloadable from website [soft form]
• ICAP Study Text & ICAP Question Bank 2018 [both soft & hard form]
• Student Pack – Vol 5 - Compiled by me -Available at College [hard form]

Section 1

Introduction to Audit & Assurance

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What is the difference between Financial Accounting & Financial Reporting?

Financial Accounting

Financial accounting is preparing financial data of a company's financial performance, financial position and cash flows for an accounting period.

Financial Reporting

Financial reporting is presenting financial data to the users, of a company's financial performance, financial position and cash flows for an accounting period.

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I

INVESTORS

C

CUSTOMERS

S

SUPPLIERS

L

LENDERS

E

EMPLOYEES

P

PUBLIC

G

GOVT.

M

MANAGEMENT

Users of financial statements

Primary Users Secondary Users

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Informational Needs of Users

Investors

• are interested in their

potential profits and the security of investment.

Suppliers

• need to know if they will

be paid.

Lenders

• need to know if they will

be paid.

Employees

• need to know if an

employer can offer secure employment pay rises.

Customers

• need to know that a

company can continue to supply them.

Government

• The tax authorities also

use financial statements to assess tax.

Public

• may wish to assess the

effect of the company on the economy.

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Management’s Informational Needs

Management can also use financial statements, however, they would predominantly use monthly management accounts as their main source of financial information and not the financial accounts. As a preparer of financial statements they have to cater the needs of other external users.

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Ownership Management

Separation of Ownership from Management

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Ownership Management

Audit & Assurance Services by independent auditor become vital when MANAGEMENT

• f business is separated from

OWNERSHIP to ensure more transparency in financial reporting.

Separation of Ownership from Management

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Ownership Management

Audit & Assurance Engagement by independent auditor become vital when MANAGEMENT

• f business is separated from

OWNERSHIP to ensure more transparency in financial reporting.

Separation of Ownership from Management

Auditor

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What is an Assurance?

“Assurance engagement” means an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users

• ther than the responsible party about the outcome of

the evaluation or measurement of a subject matter against criteria.

Audit & Review of Financial Statements are two types of Assurance Engagements included in our Syllabus.

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Audit & Assurance enhances the

CONFIDENCE

• f users of financial statements and reduces

the risk.

What Audit & Assurance do?

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Types of Assurance

Reasonable Limited

There are two types of assurance engagement a practitioner is permitted to perform: A reasonable assurance engagement (positive but not absolute) & = Audit of Financial Statements A limited assurance engagement. (moderate & negative). = Review of Financial Statements

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Conclusion Practitioner Subject Matter Intended User Responsible Party Evidence Criteria

Element of Assurance Engagement

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Elements of Assurance Engagement

An assurance engagement performed by a practitioner will consist of the following five elements:

• A three party relationship:
• Practitioner – the individual providing professional services that will review the subject matter and provide the assurance. E.g. the

audit firm in a statutory audit

• Responsible party – the person(s) responsible for the subject matter. E.g. the Directors are responsible for preparing the financial

statements to be audited

• Intended users – the person(s) or class of persons for whom the practitioner prepares the assurance report. E.g. the shareholders in

a statutory audit

• Subject matter: This is the data such as the financial statements that have been prepared by the responsible

party for the practitioner to evaluate. Another example might be a cash flow forecast to be reviewed by the practitioner.

• Suitable criteria: This can be thought of as ‗the rules‘ against which the subject matter is evaluated in order to

reach an opinion. In a statutory audit this would be the applicable reporting framework (e.g. IFRS and company law).

• Evidence: Information used by the practitioner in arriving at the conclusion on which their opinion is based. This

must be sufficient (enough) and appropriate (relevant).

• Assurance Report: The report (normally written) containing the practitioner‘s opinion. This is issued to the

intended user following the collection of evidence.

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The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

An audit of financial statements is a type of an assurance engagement.

Objective of An Audit Engagement

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The objective of a review of financial statements is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial statements are not prepared, in accordance with an applicable financial reporting framework.

A review of financial statements is a type of an assurance engagement.

Objective of Review Engagement

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International Standards on Auditing (ISAs) Company & Other Corporate Laws Codes of Ethics (IFAC)

Conduct of Audit is governed by Three sets of rules: Governments have tried to ensure that audits are conducted by people who are suitably qualified and whose work is of satisfactory quality.

Conduct of Audit

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Why International Auditing Standards – ISAs ?

International Standards on Auditing (ISAs) are professional standards for the performance of financial audit of financial information. ISA guides the auditor to add value to the assignment hence building confidence of investors. These standards are issued by International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).

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International Auditing Standards Setting

IFAC

IAASB

ISAs ISQC

IFAC

Code of Ethics

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International Federation of Accountants - IFAC

History

IFAC is the global organization for the accountancy profession. It is dedicated to serving the public interest by strengthening the profession. IFAC has 175 members in 130 countries around the world, representing app. 3 Millions accountants in public practice, education, government service, and industry.

Values

• Integrity - Expertise & - Transparency

Vision

That the global accountancy profession be recognized as a valued leader in the development of strong and sustainable

• rganizations, financial markets and economies.

Mission

That is to serve the public interest by:

• Development of high-quality international standards and guidance,
• Development of strong professional accounting firms, & high quality practices by professional accountants,
• Promoting the value of professional accountants worldwide,
• Speaking out on public interest issues where the accountancy profession’s expertise is most relevant.

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International Auditing & Assurance Standards Board - IAASB

Objective

To serve the public interest by:

• Setting high-quality auditing and assurance standards - ISAs,
• Facilitating the convergence of standards,
• Enhancing the quality of practice throughout the world, and
• Strengthening public confidence in the global auditing profession.

Functions

• Producing New ISAs through due process
• Providing help to auditors in implementing ISAs through IAPS,
• Producing New ISREs, ISAEs, ISRS, & ISQCs through due process.

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Limitations of an audit

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• Use of estimation in financial information
• Inherent limitations of control used as audit evidence
• Evidence is persuasive not conclusive
• Can not review 100% of the transactions
• Representation from management as only evidence.

Professional Skepticism

It refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error

• r fraud, and a critical assessment of audit evidence.

However, it does not mean that the auditors should disbelieve everything they are told, but they should view what they are told with a skeptical attitude.

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Expectation Gap

The term ‘expectation gap’ refers to the fact that the public perception of the role and responsibilities of the external auditor is different from his statutory role and responsibilities. Examples

• The public believes that the audit opinion amounts to a ‘certificate’ that the

financial statements are correct.

• The public believes that the auditor has a duty to prevent and detect fraud.
• The public believes that the auditor tests 100% of the transactions during

audit.

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I F R Ss

Extras

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Fair Presentation & Compliance with IFRSs

Extras Application of IFRSs is presumed to result in FS that achieve a fair presentation. An entity shall not describe FS as complying with IFRSs unless they comply with ALL the requirements

• f IFRSs.

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Quick Revision – Topics Covered

1.

Difference between financial accounting & reporting

2.

Users of FS & their informational needs

3.

Separation of ownership from management

4.

What is Assurance engagement & types of assurance engagement

5.

Elements of an assurance engagement

6.

Objective of audit & review engagements

7.

IFAC – history, vision & mission

8.

IAASB – objective & functions

9.

Limitation of an audit

• 10. Professional skepticism
• 11. Expectation gap
• 12. Fair presentation & compliance with IFRS
• 13. Practiced 6 TBQs & 2 SBQs

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