hkicpa qp examination technique...

HKICPA QP Examination

Technique Workshop

www.hkcaexam.com Copyright reserved

HKICPA QP Module C

Business Assurance - Section B

By Allan Lee – for June 2012

About HKCA

• HKCA Learning Media Limited (HKCA) is established to provide professional accountancy training to university graduates and working adults who are keen to pursue an accountancy qualification in Hong Kong and Mainland China.


• We offer highest standard of accountancy training through our experienced tutors who will lead our students towards examination successes in QP. Our tutors are specialists in relevant papers and give you “IDEAS to Pass”.

• HKCA is here “All for You to Pass”.

About the Speaker

Allan LeeLecturer - HKCA

MSc (UK), BA(Hons.), ACA, ACIS, ACS(PE), AIAS, CPA, CPA(Aust.), FCCA, M.I.H.R.M.(HK), RCC

o Started his career as an auditor and was a Senior Manager responsible for Business Assurance professional exam papers of a Big Four firm in HK.


Assurance professional exam papers of a Big Four firm in HK. o Left an international accounting firm as the Director of Learning & Development

Division in 2008. o Currently manages his own training and consulting company o Has more than 10 years of extensive experience in designing, developing and

delivering various kinds of learning programmes, including technical skills, leadership skills and exam skills.

o An experienced facilitator and marker of HKICPA QP Modules C and Do Is the Co-chairman of the Student Affairs Subcommittee of Professional Body in

Hong Kong.o As a regular speaker and writer on professional exam papers, Allan wishes to bring

his expertise helping students to pass the professional exams.

孫子曰 :「知彼知己，百戰不殆。」孫子兵法《謀攻》

Sun Tsu said, “If you know the enemy


Sun Tsu said, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

《The Art of War》

Objectives

� Develop your exam techniques in HKICPA QP Module C Section B

� Review selected exam questions and answers – December and June


and answers – December and June 2011

� Highlight important points to note in exams

Agenda

� Introduction

� Common Weaknesses – Exam Panelists’ comment

What’s New?


� What’s New?

� Exam Techniques

� Question Analysis

� Review of Selected Exam Questions

� Keys to Success in Exams

Questions for You

� Have you completed study of your materials?

� Have you started practising past exam questions?


exam questions?

� Have you prepared your critical files?

� Have you read the examination panelists’ report?

� Do you have confidence to pass?

Exam Panelists’ Comment

Section B (Dec 2011 session)

� Generally performed unsatisfactorily in Section B.

� Candidates should stay touch with current events and be able to apply


current events and be able to apply business sense to engage more professionally in dealing with practical issues.



� Some candidates wasted a lot of time in copying definitions and recommendations of auditing standards, some of which were


standards, some of which were irrelevant or were not required by the questions.



� Candidates should note that marks are awarded mostly on how well relevant auditing standards are applied rather than how precisely


applied rather than how precisely auditing standards are described.

� Candidates are also reminded to read the questions thoroughly in order to fully understand the exact requirements.



� Some candidates did not present their answers in a logical and structured manner, whilst some others gave incomplete answers.


others gave incomplete answers.

� Candidates are also reminded to make a reasonable attempt at answering each part of the questions.

What’s New?

� HK Listing Rules Appendix 14 Code on Corporate Governance (effective on 1 January 2012 or on 1 April 2012


2012

� To encourage better accountability of issuers and directors

What’s New?

� The Anti-Money Laundering and Counter-Terriorist Financing (Financial Institutions) Bill

� To improve HK’s anti-money laundering


� To improve HK’s anti-money laundering (AML) regime

� Customer due diligence (CDD)

� Record keeping requirements for financial institutions

What’s New?

� HKSAE 3402 Assurance Reports on Controls at a Service Organisation

� Revised HKSIR 400 Comfort Letters and Due Diligence Meetings on


and Due Diligence Meetings on Financial and Non-Financial Information (effective on or after 1 January 2012)

� Limited assurance approach is now permitted when reporting subsequent changes

Read Requirement

� Assess

� Comment

� Consider

Define

� Explain

� Evaluate

� Identify

List


� Define

� Describe

� Determine

� Discuss

� Do you concur

� Draft

� List

� Outline

� State

� Suggest

� What/Why/How?

Presenting the answers

� Use the correct answer booklet –Section B

� Use headings and sub-headings to give the answer a logical flow


give the answer a logical flow

� Use paragraphs to answer questions

� Use clear handwriting

� Start each answer on a new page of the answer booklet

Corporate Governance Questions

� December 2011 – Audit committee (14 marks) [Section A]

� June 2011 – Corporate governance improvements (9 marks)


improvements (9 marks)

Corporate Governance

Best Practices

� Separation of roles of Chairman & CEO

� Director’s training

Performance review


� Performance review

� Balanced composition of board

� 1/3 of the board are INEDs

Corporate Governance

Best Practices

� Board committees

� Audit committee

� Nomination committee

� Remuneration committee


� Remuneration committee

� Corporate governance committee

� Internal audit department

June 2011

Questions 5(a) – 9 marks

� Three possible improvements to corporate governance

� Split the roles of chairman and CEO

� Lack of audit committee


� Lack of audit committee

� Balanced compositions of the board

� Elaborations in the context of the entity’s situations

Ethics Questions

� December 2011 – [Section A]

� June 2011 – [Section A]

� December 2010 – [Section A]


� February 2010 – [Section A]

� May 2009 - Ethical issues (10 marks)

� September 2008 – Independence issues (10 marks)

Ethics Questions

� February 2008 – [Section A]

� May 2007 – Independence consideration (15 marks)

September 2006 – [Section A]


� September 2006 – [Section A]

� February 2006 – Professional & ethical issues (11 marks)

� May 2005 – [None]

� September 2004 – Independence (13 marks)

HKICPA COE (Revised)

Fundamental Principles

� Integrity

� Objectivity


� Professional competence & due care

� Confidentiality

� Professional behaviour

HKICPA COE (Revised)

Threats to Independence

� Self-interest threat

� Self-review threat


� Advocacy threat

� Familiarity threat

� Intimidation threat

Dealing with Ethical Issues

� Use common sense

� Apply rules & guidelines

� Identify threats to independence

Evaluate whether threats are


� Evaluate whether threats are insignificant (Material? Nature? Who? Role of owner interest?)

� If not, identify & apply safeguards

� Reduce the threat to acceptable level

Conceptual Approach

to Independence

Safeguards

ThreatsThreatsThreatsThreats

significant

insignificant

Identify and address threats

Evaluate significance


Safeguards

To reduce threats to an acceptable level

YesNo

Reject /Resign engagement

Accept / Continue

engagement

Evaluate significance

of threats

Apply safeguards, if

applicable

Accept / resign

Reference: Code of Ethics for Professional Accountants (Revised), HKICPA

Risk & Audit Procedures

� December 2011

� Risk of material misstatements relating to valuation assertion of goodwill and intangible assets (13 marks)

Risk of material misstatements of the


� Risk of material misstatements of the financial statements (13 marks)

� June 2011

� Risk of material misstatements relating to valuation and allocation assertions of the overall trade receivables balance (12 marks)

Risk Assessment

� Financial statement level

� Assertion level

� Inherent risk

� Control risk


� Control risk

� Internal controls

� Client and engagement acceptance

� Change in auditors

� Opening balances / comparatives

Audit Responses

� Audit strategy

� Appendix to HKSA 300 (Clarified)

� Audit approach

Control approach


� Control approach

� Substantive approach (substantive analytical procedures & test of details)

� Combined approach

� Audit procedures

� 8 types

Audit Procedures

� Analytical Procedures

� Confirmation

Inquiry

� Inspection of assets

� Observation

Re-calculation


� Inquiry

� Inspection of documents / records

� Re-calculation

� Re-performance

December 2011

Question 7 - 13 marks

� Evaluate and explain the risk of material misstatement relating to the valuation assertion of goodwill and intangible assets. (4 marks)


and intangible assets. (4 marks)

� Suggest and discuss the audit procedures on goodwill and intangible assets in response to the risk assessment (9 marks)

December 2011

Question 7 - 13 marks

� Specific risks of goodwill and intangible assets -> Specific procedures

� Accounting treatment of goodwill


� Accounting treatment of goodwill and intangible assets

� Not just accounting estimates and experts

� Annual impairment test

December 2011

Question 8 – 13 marks

� Re-assess the risk of material misstatement of financial statements as a whole (4 marks)

� Suggest and explain the audit


� Suggest and explain the audit procedures in response to the reassessed risk of material misstatements [further audit procedures] (9 marks)

December 2011


� Subsequent event

� Potential recoverability problem of the receivables

Going concern issue


� Going concern issue

June 2011


� Evaluation of the valuation and allocation assertions of the overalltrade receivables balance

� Carrying value of trade receivables


� Carrying value of trade receivables

� Combined audit procedures – sales and trade receivables

� Design, implementation and operating effectiveness of the accounting procedures and internal controls

� Substantive procedures

Client acceptance procedures

� HKSQC 1 (Clarified) Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related


and Other Assurance and Related Services Engagements

� Three matters for consideration:

� Entity’s integrity

� Firm’s competence

� Ethical considerations

June 2011


� Relevant factors for the CPA firm to consider before continuing to serve as the auditor

� HKSQC 1 (Clarified)


� HKSQC 1 (Clarified)

� Three matters for consideration

� Elaborate the requirements by referencing the entity’s situation

� Possibility of threat to independence

� Importance of documenting the appropriate procedures and conclusions

Auditing Standards

� December 2011

� HKSA 240 (Clarified) – Fraud [Section A]

� June 2011


� June 2011

� HKSA 240 (Clarified) - Fraud (16 marks)

Auditing Standards

� December 2010

� HKSA 500 (Clarified) Audit Evidence (17 marks)

� HKSA 545 Auditing Fair Value (6 marks)


� HKSA 545 Auditing Fair Value (6 marks)

� HKSA 620 (Clarified) Auditor’s Expert (10 marks)

� February 2010

� HKSA 550 Related Parties (16 marks)

� HKSA 560 Subsequent Events (9 marks) + Reporting (3 marks)

Auditing Standards

� May 2009

� Analytical procedures (6 marks)

� HKSA 240 Fraud (20 marks)

September 2008


� September 2008

� HKSA 580 Management representations (10 marks)

� Risk management (10 marks)

Auditing Standards

� February 2008

� Impairment loss on bad and doubtful debts (13 marks)

� HKSA 240 Fraud (25 marks)


� May 2007

� HKSA 550 Related Parties (13 marks)

� Impact of F/S and audit procedures [HKSA 330] (15 marks)

Auditing Standards

� September 2006

� HKSA 530 Audit Sampling (6 marks)

� Audit tests (9 marks)

� HKSA 580 Management


� HKSA 580 Management Representations (10 marks)

� HKSA 560 Subsequent Events (13 marks)

� February 2006

� F/S assertions & Audit evidence (12 marks)

Auditing Standards

� May 2005

� Analytical procedures (13 marks)

� HKSA 550 (SAS 460) Related Parties (15 marks)


marks)

� HKSA 545 (SAS 421) Fair Value (12 marks)

� September 2004

� Fraud (10 marks)

� HKSA 560 (SAS 150) Subsequent events (5 marks)

Auditing Standards

� February 2004

� HKSA 570 (SAS 130) Going concern

� HKSA 501 (SAS 401) Inventory count

� HKSA 505 (SAS 402) Confirmation



� HKSA 540 (SAS 420) Accounting estimate

� HKSA 510 & 710 (SAS 450) Opening balances & comparatives

� HKSA 610 (SAS 500A) Internal audit

Auditing Standards

� June 2003


� HKSA 620 (SAS 520) Using the work of an expert


an expert

� October 2002

� HKSA 240 (SAS 110) Fraud and error


� HKSA 550 (SAS 460) Related Parties

June 2011

Question 5(b) – 6 marks

� Auditor’s responsibilities for preventing and detecting frauds in financial statements

� HKSA 240 (Clarified) The Auditor’s


� HKSA 240 (Clarified) The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

� Inherent limitations and unavoidable risks of auditing

June 2011

Question 5(b) – 6 marks

� Three pre-requisites

� An incentive or pressure to commit fraud

� A perceived opportunity to commit


� A perceived opportunity to commit fraud

� Some rationalization of the fraudulent act

June 2011

Question 5(c) – 10 marks

� Discuss three fraud risk factors as improvements to corporate governance

� Desire for a listing


� Desire for a listing

� Rapid growth and unusual profitability

� Questionable liquidity

Reporting

� December 2011

� Auditor’s report – Modified opinion, REIT [Section A]

� June 2011 (None)


� June 2011 (None)

� December 2010

� Audit opinion on disclosure requirement (small part only)

Reporting

� February 2010

� HKSRS 4400 - Report of Factual Findings (8 marks)

� HKSA 701 – Subsequent events (3


� HKSA 701 – Subsequent events (3 marks)

� May 2009 (None)

Reporting

� September 2008

� Auditor’s report – going concern [HKSA 570] (12 marks)

� HKSRE 2410 – Interim financial report


� HKSRE 2410 – Interim financial report [Section A]

� February 2008

� Auditor’s report – going concern [Section A]

� May 2007 (None)

Reporting

� September 2006 (None)

� February 2006

� HKSA 701 (SAS 600) Auditors’ Report (14 marks)


(14 marks)

� May 2005 (None)

� September 2004

� Auditors’ Report – Subsequent events (8 marks)

Auditors’ Opinion

� Unmodified [HKSA 700 (Clarified)]

� Modified [HKSA 705 (Clarified)]

� Limitation on scope – qualified / disclaimer of opinion


disclaimer of opinion

� Disagreement – qualified / adverse opinion

� Additional Communication [HKSA 706 (Clarified)]

� Emphasis of matter paragraphs

� Other matter paragraphs

Computerized Business Systems

� Discuss the features of a computerized business system

� Assess and advise on risk on control frameworks


frameworks


� New Learning Outcomes (Enhanced QP)

� Impact of increasing use and share of ownership by accountants in corporate information system


� Impact of e-commerce

� Opportunities and threats to corporate information system - capabilities in data treatment and analysis, data integrity, system security and issues in access restriction, and business contingency/ continuity


� December 2011 – IT controls (6

marks) & audit approach and procedures on IT (18 marks)

� June 2011


� June 2011

� December 2010 - System conversion

approaches (5 marks) & Security controls (12 marks)


� February 2010 - Internal controls:

software development & management of IT assets (14 marks)

� May 2009 - Use of IT in audit, CAAT (14


� May 2009 - Use of IT in audit, CAAT (14

marks)

� September 2008 - Internal controls:

database environment (8 marks)

� February 2008 – E-commerce:

business risks & IC [PN1013] (12 marks)


� May 2007 – System weaknesses &

recommendations (7 marks)

� September 2006 – Impact of IT on

audit (12 marks)


audit (12 marks)

� February 2006 – Online system /

standalone PC (13 marks)

� May 2005 – Characteristics of online IS

& security measures (10 marks)


� September 2004 – Tests of controls &

CAAT on inventory balance (14 marks)

� February 2004 – CIS environment (10

marks)


marks)

� June 2003 – System conversion method

& reliability of new system (10 marks)

� October 2002 – Disaster recovery plan

(9 marks)

December 2011

Question 6(a) - 6 marks

� Identify and explain the two types of IT controls that are usually in place when the system is computerized.


computerized.

� Basic concepts of computer controls

� General IT controls

� Application controls

December 2011

Question 6(b) - 18 marks

� Determine the most appropriate audit approach for testing data integrity and reliability

� Design and explain the audit


� Design and explain the audit procedures for an IT general controls test and data reliability test

� 2 cases – 9 marks for each case


Overall (Dec 2011 session)

� Should pay attention to the question requirements and structure their answers in a more systematic manner

� Should not copy directly from the study materials


materials

� Need to use their analytical skill-set, digest and apply the relevant audit standards and knowledge to the situations in the questions

� Use plain English

� Write legibly

Keys to Success in Exams

Preparation

� Study the basics of auditing

� Read Exam Panelists’ reports


� Practise questions

� Manage time well

Keys to Success in Exams

Examination

� Keep calm

� Read the requirements first


� Select the order of questions and allocate time for questions

� Attempt all questions and answer relevantly

� Manage time well


Thank You Very Much!

Good Luck!

www.hkcaexam.com Copyright reserved66

Contact

� Email: [email protected]

� Website: www.hkcaexam.com


� Tel: (852) 3107-0088


hkicpa qp examination technique...

Documents