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ACCA P7 – Advanced Audit and Assurance Exam technique Jana Sequensová, PwC’s Academy

www.pwc.com

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Topics

Syllabus and exam structure Exam technique tips

Ø  Planning your answer Ø  Understanding the verbs Ø  Professional marks Ø  Step by step approach to key types of questions Ø  Preparation tips

Slide 2 ACCA P7 - Adanced Audit and Assurance

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Syllabus and exam structure

Where does it fit Syllabus areas Exam structure

Worldwide pass rates


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Introduction of the paper Where does it fit


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Introduction of the paper Syllabus areas


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Introduction of the paper Syllabus – comparison with F8


No new audit theory in P7, similar areas like ethics, planning, risk assessment, reporting are examinable Difference:

•  Your position – manager, partner level – rather reviewer than doer

•  More complicated set of accounts – knowledge of accounting standards !

•  Assurance element

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Introduction of the paper Exam structure

Section A 2 compulsory questions •  Q1 for 35 marks •  Q2 for 25 marks •  case study style: not necessarily long questions; rather addressing a range of topics,

issues and requirements (e.g. assignments + practice management + current issues) based on audit or assurance

Section B Choice of 2 of 3 questions ( 20 marks each) •  Typically consist of 2 or 3 sub-requirements focused on specific topics (e.g. ‘auditor’s reports’, ‘quality control’ , ‘ethical issues’ ‘evidence and completion’.

•  Current issues will be examined across a number of questions.


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Introduction of the paper

40% Worldwide pass rates


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Exam technique tips

Planning your answer Understanding the verbs Professional marks


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Exam technique tips Keys to success

Coverage

Prof. marks

Verbs


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Exam technique tips Making your point

WHAT?

SO WHAT?

•  facts identified in the scenario •  theoretical knowledge •  limited marks only

•  explanation, analysis •  application to scenario •  more marks available


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Planning your answer

•  requirement verbs •  marks allocation •  compound

requirements

How many ideas? How much to write?

Analyze the requirements


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requirements

How many ideas? How much to write?

•  annotate the question paper

•  relate text to requirements

•  monitor number of points identified

Remember any step by step approach?


Read scenario actively


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requirements

How many ideas? How much to write? Broad or deep?

•  annotate the question paper •  relate text to requirements •  monitor number of points identified

Remember any step by step approach?

•  gain the maximum from each idea

•  focus on presentation

•  Use key words and phrases

Will the markers find and understand your ideas?


Present your answer

Read scenario actively


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Professional marks

Fact: professional marks can turn a fail into a pass Many scripts are marginal fails (47 – 49 marks) Only few candidates score more than 2 of the 5 marks


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Professional marks Section A: up to 5 professional marks •  awarded for the degree of professionalism with which certain parts of the answer are

presented •  requirement of a specific format e.g.: report, briefing notes, e-mail correspondence,

memo). •  following will be assessed:

-  structure and presentation -  clarity of explanation -  use of language appropriate to the addressee -  use of professional judgement -  discussion of both sides of a debate -  appreciation of relevant current professional issues

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Understanding the verbs Marking schemes

Identify and explain - typically 1/2 mark per identification and another 1 to 1,5 mark per explanation Discuss – typically 2 marks per well explained point Read marking schemes to understand the pattern of marks awarded


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Step by step approach to key types of questions Risk analysis and analytic review “Matters and evidence”


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Risk analysis and analytic review

•  Q1 for 35 marks •  Mixture of syllabus areas, most stress put on risk analysis •  Financial extracts given – basic ratio analysis expected in order to

identify risk or support your discussion. You may be asked directly in requirement to provide analytic review.


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•  Necessity to differentiate the style of your answer for: -  Business risk -  Risk of material misstatement -  Audit risk


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Business risk “Put yourself into the shoes of management” Ø Anything which may prevent the Company to reach its objectives Ø  Identify -> state the impact on the Company Ø E.g. Company operating in fast technologically developing

industry -> in case the Company falls behind with development there is a threat of loss of market share, customers and revenue decrease

Slide 21

ACCA P7 - Adanced Audit and Assurance

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Risk of material misstatement “Put yourself into the shoes accountant/auditor” Ø Risk that FS are materially misstated Ø  Identify -> state the impact on the FS Ø Use the formulation “There is a risk that balance XY is over/

understated Ø E.g. Company operating in fast technologically developing

industry -> in case the Company falls behind with development there is a threat that the Company will be left with unsalable inventory. There is a risk that Company will not follow requirements of IAS 2 Inventory and will not value the inventory in lower of cost or NRV. Inventory may be overstated.


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Audit risk “Put yourself into the shoes auditor” Ø Risk that auditor issues inappropriate opinion Ø Similar to RoMM – auditor cares about material misstatement in

FS. Ø On a top of it there is additional risk of not detecting this

misstatement (detection component of audit risk) Ø E.g. There is a pressure from management to complete the audit

in short time period -> this may increase detection risk because auditor will have less time to perform audit procedures and may overlook material misstatement.


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Question 1 Dec 12 Grohl


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•  Format – gain professional marks •  Calculate time available for individual requirements •  Analyze requirements •  How much to write – how many risks?


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Requirement (i) Evaluate -> 2 marks per proper evaluation •  12/2 = 6 business risks should be evaluatedd •  Layout of your answer

Heading for BR 1 Comments in the form of short essay (2 or 3 sentences) Heading for BR 2 Comments in the form of short essay (2 or 3 sentences)

•  Support your answer by numbers /ratios


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Requirement (ii) Identify and explain 4 RoMM

•  The answer has to be derived from the same scenario as (i) but should be different so that maximum marks can be earned. You concentrate on different point of view – management vs. accountant

•  Not necessarily each BR will create RoMM •  On the other hand there may be more than RoMM connected to one

BR •  Explained in answer to Q4a) June 14 Ryder


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The Company is relying on one overseas supplier •  Business risk: There may be delays in supplies due to transportation

issues or disruption in supplier’s operations. As there is no other supplier, this may lead to disruption in client’s production -> behind with supplies -> loss of customer goodwill

•  RoMM: there is a risk that payables denominated in foreign currency will not be treated according to IAS 21 and will therefore be misstated.


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“Matters and evidence”

•  Features in every sitting •  Merges together following steps in audit process: Evidence gathering,

Completion of audit and Reporting •  Knowledge of financial reporting standards (on P2 level) is necessary. •  Examinable documents to be found on

http://www.accaglobal.com/crsh/en/student/exam-support-resources/professional-exams-study-resources/p7/examinabke-documents.html

•  Absolute MUST : IAS 2, IAS 36, IAS 37, IAS 38

Slide 30

ACCA P7 - Adanced Audit and Assurance

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You will be given: •  Short description of your client’s business, y/e date, figures for

materiality calculation •  2-3 short descriptions of accounting issues Typical requirements: •  Comment on the matters that you should consider; and •  State the evidence you expect to find/set out audit procedures to be

performed while reviewing audit working papers.


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Mark allocation Ø  Usually given to each scenario Ø  Usually half of it goes to “matters”, half of it to “evidence” Ø  One mark per well explained “matter” Ø  One mark per specific piece of “evidence”


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Matters 1. Materiality – calculate and state whether the matter is material (by amount, by nature) 2. Accounting treatment •  Generally describe the treatment suggested by the relevant standard

(mention the name of the standard – number not necessary) •  Do not forget requirements on presentation and disclosure 3. Apply to scenario – adjustment needed? Impact on opinion? Do not presume that the treatment proposed in scenario MUST be wrong; it can be perfectly fine Slide 33 ACCA P7 - Adanced Audit and Assurance

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Evidence Ø  In the “matters” section you will state possible accounting problems Ø  Now you have to gather the audit evidence to support the problems found in “matters” section Ø  Evidence described needs to be specific not vague Imagine you are instructing audit junior what to do – you need to say it precisely.


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“Matters and evidence” June 14, Q4


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“Matters and evidence” Answer plan Matters – 4 marks needed FACTORIES 1. Materiality

30 m/240 m = 12.5 % …material

2. Accounting treatment

New government regulation -> indicator of impairment

IAS 36 Impairment of assets applicable

Management should determine recoverable amount of factories, which should be greater of value in use and fair value less cost to sell.

3. Comparison with scenario

If the recoverable amount is materially lower than carrying amount, impairment loss should be booked. If not booked -> material but not pervasive impact on audit opinion (qualified “except for”)


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“Matters and evidence” Answer plan

Matters – 4 marks needed FEASIBILITY STUDY 1. Materiality

1m/240 m -> less than 1% of TA

1m/15 m = 6.7% of PBT -> material

2. Accouting treatment

IAS 38 Intangible assets requires research cost to be expensed

3. Comparison with scenario

If the feasibility study has been capitalized, should be derecognized. If not -> material but not pervasive impact on audit opinion (qualified “except for”)


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Evidence – 4 marks, 1 mark per well explained piece of evidence -> 4 -5 pieces of specific evidence “Gather” evidence for what you have said in Matters


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Preparation tips

Resources Approach to home study and revision


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Practice past exams questions and examiner’s reports

Start from the latest and work backwards http://www.accaglobal.com/crsh/en/student/exam-support-resources/professional-exams-study-resources/p7/past-exam-papers/international-stream.html


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Read technical articles

Start by reading the technical articles http://www.accaglobal.com/crsh/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles.html


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Further ACCA resources

Slide 42 ACCA P1 - Governance, Risk and Ethics

Self study guides http://www.accaglobal.com/gb/en/student/your-study-options/choosing-to-self-study.html

ACCA Learning community https://www.accalearningcommunity.com/

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Approach to home study / revision

Study syllabus topics •  from study text •  from technical articles

Question practice •  analyze the requirements •  plan the answers on your own •  assess quantity / quality

•  check suggested solution and marking scheme •  read examiner’s comments


Good luck with your exams...

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Česká republika, s.r.o., its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PricewaterhouseCoopers Česká republika, s.r.o. All rights reserved. “PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Jana Sequensová PwC’s Academy the. [email protected]

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