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ACCA Fundamentals Level Paper F8 Audit and Assurance (INT) Course Examination 1



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ACCA Fundamentals Level Paper F8 Audit and Assurance (INT) Course Examination 1 Question Paper Time allowed Reading and Planning Writing 7½ minutes 1½ hours ALL questions are compulsory and MUST be attempted
ACCA Fundamentals Level Paper F8 Audit and Assurance (INT) Course Examination 1 Question Paper Time allowed Reading and Planning Writing 7½ minutes 1½ hours ALL questions are compulsory and MUST be attempted During reading and planning time only the question paper may be annotated Instructions: Please attempt this exam under test conditions and attach the frontsheet complete with your name and address to your script. The completed package should be sent to BPP Professional Education. Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now! before attempting this exam. DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS ACF8CE12(J) INT Course Exam 1 Questions Get into good exam habits now! Take a moment to focus on the right approach for this exam. Effective time management Watch the clock, allocate 1.8 minutes to each mark and move on if you get behind. Take a few moments to think what the requirements are asking for and how you are going to answer them. Remember one mark is usually allocated for each valid point you give in a discursive question. Effective planning This paper is half the real exam. It is recommended that you start with Q1, 30 mark question first in the real exam. Read the requirements carefully: focus on mark allocation, question words (see below) and potential overlap between requirements. Identify and make sure you pick up the easy marks available in each question. Effective layout Present your numerical solutions using the standard layouts you have seen. Show and reference your workings clearly. With written elements try and make a number of distinct points using headings and short paragraphs. You should aim to make a separate point for each mark. Ensure that you explain the points you are making i.e. why is the point a strength, criticism or opportunity? Give yourself plenty of space to add extra lines as necessary; it will also make it easier for the examiner to mark. Common terminology Advise Analyse Calculate/compute Compare and contrast Define Describe Discuss Distinguish Evaluate Explain Identify Interpret Justify List Prepare Recommend Summarise To counsel, inform or notify Examine in detail the structure of To ascertain or reckon mathematically Show the similarities and/or differences Give the exact meaning of Communicate the key features of To examine in detail by argument Highlight the differences between To appraise or assess the value of Make clear or intelligible/state the meaning of Recognise, establish or select after consideration Process information to explain its meaning To produce reasons in support of State short pieces of information on separate lines To make or get ready for use To advise on a course of action To express the most important facts of 2 ACF8CE12(J) INT Course Exam 1 Questions All questions are compulsory and MUST be attempted 1 SeaPass (a) List and explain the elements of an assurance engagement. (5 marks) SeaPass is a ferry company which operates daily ferry crossings from the United Kingdom (UK) to France. The company s year end is 30 June 20X9. You are the audit senior and you have started planning the audit. Your audit manager has asked you to have a planning meeting with the client and to identify any relevant audit risks so that the audit plan can be completed. You obtained the following information at the meeting: SeaPass has had a challenging year. The current economic crisis and worries about the future of the Euro currency, has meant that many passengers who might previously have booked ferry crossings to France are now choosing to spend their holiday within the UK. SeaPass is under continual pressure from its shareholders to show consistent performance. In an attempt to win new passengers and generate additional income, SeaPass spent $800,000 on an advertising campaign which featured both in the national press and on national television. The campaign took place in May 20X9 and the company is convinced that this will vastly improve customer numbers during summer 20X9. Consequently the finance director is proposing to match most of the advertising cost against summer revenues and has shown $600,000 of the $800,000 spent as a prepayment at the year end. When customers book their ferry crossing they are required to pay an upfront deposit of 20% of the total cost. In previous years this has been recognised as revenue in the month that the ferry crossing is made. However this year SeaPass have recognised the revenue when the deposit is received. The finance director has explained that this is because the company has spent the money as it was received in order to finance the advertising campaign. The balance of 80% is taken by the company on the day of departure. SeaPass want their customers to have an excellent experience when they travel with them. With this in mind they offer a money back guarantee. If customers are excessively delayed or they are not happy with the service provided by SeaPass, then they can claim compensation under the company s money back guarantee. Despite the company s very best efforts to improve customer satisfaction, compensation payments are made on a regular basis. SeaPass has also found that the price of fuel has risen sharply during the course of the year and they have not been able to pass this price rise on to their customers in the form of higher ticket prices. This has meant that its operating costs have increased considerably, leading to falling profit margins. The company does hold some cash reserves in the form of bank deposits. However, these cannot be accessed for 6 months and so the company has had to take out a short term overdraft. The finance director is pleased that the financial statements will show a net positive cash position as the bank deposits will be greater than the overdraft at the year end. Required (b) Using the information provided, describe FIVE audit risks and explain the auditor s response to each risk in the planning of the audit of SeaPass. (10 marks) ACF8CE12(J) INT Course Exam 1 Questions 3 You have always carried out the audit of SeaPass using substantive procedures because SeaPass internal controls have been relatively limited. However the finance director has told you that the company is considering establishing an internal audit function and as a result he expects a significant improvement in the company s internal controls. The internal audit work will be outsourced to an external consultancy firm. On hearing this news your audit manager mentioned that your firm might be able to change the way it carries out the audit of SeaPass. (c) (d) State the FIVE components of an internal control system and give a brief explanation of each component. (5 marks) Explain why the external auditor needs to obtain an understanding of a client s internal control system (3 marks) (e) Explain how and why the external auditor will try to rely on internal controls wherever possible when carrying out their audit and the implications for the audit if the auditor concludes that controls are not operating effectively. (5 marks) (f) Define a test of control and a substantive procedure. (2 marks) (Total = 30 marks) 4 ACF8CE12(J) INT Course Exam 1 Questions ACCA Fundamentals Level Paper F8 Audit and Assurance (INT) Course Examination 2 Guidance, Commentary, Marking scheme and Suggested solutions ACF8CE12(J) INT Course Exam 2 Solutions AC12 F8 INT (2) Guidance on improving your exam performance To help improve your performance you should focus on these key areas. Which questions to do first? All of the questions in this paper are compulsory so there is no choice to make in terms of which questions you will attempt, but you should give some thought to the order in which you should attempt them. Question 1 is the longest and will always be built around a case study. This may be some detailed narrative about a client company and its systems or it may also include some numerical information. This is the question where you have most to gain from using the reading and planning time so it will probably be a good idea to tackle this question first while the observations you have made are still fresh in your mind. In the real exam candidates leaving question 1 to the end of the examination encounter significant time pressure. The pass rate for these candidates is lower than those where question 1 was attempted first. Strategy Make sure your answers are focused and specific to the organisation in each scenario. Show clear workings for any calculations required and write full sentences in your explanations. Most importantly, apply your skills in a practical context. Time management Use the reading and planning phase to make sure that you get as many of the marks as possible. Write a short plan for each question containing bullet points per mark and use it to write your answer when the writing time begins. Never overrun on any question and once the time is up move on to the next. 2 ACF8CE12(J) INT Course Exam 2 Solutions Commentary Overall, this was a balanced paper testing important areas of the syllabus. The questions were all of a style and standard that you would expect to see on a real examination paper. This paper was fairly time pressured and hence good time allocation was important. Q1 Chingford Potteries This is a very practical question which required candidates to apply their knowledge of auditing inventory to the given scenario. For part (a) you needed to explain the importance of the inventory count and valuation and suggest alternatives to the year end count. You should have been able to score at least 3 of the 4 available marks. Part (b) required candidates to identify deficiencies in the scenario, state the implication of the deficiencies and make recommendations. You should have adopted a columnar approach to answering this question in order to maximise your marks. In part (c) you needed to think about the differences between the report to management prepared by the external auditor and the report of internal controls an internal auditor might prepare. Finally part (d) tested your knowledge of audit procedures relating to the existence, completeness and valuation of inventory. Each well explained procedure will score 1 mark so you needed three procedures for each assertion. Q2 Subsequent events and going concern A knowledge based question on subsequent events and going concern. Time management was key to this question. Look at the mark allocation and write an answer accordingly. Do not be tempted to write too much and over run. Q3 HWG Part (a) requires you to identify audit risks from a given scenario and explain how the auditor would respond to the risks. This is a relatively common requirement in the exam and you must explain both the risk and the response to the risk fully to score well. Part (b) tests your understanding of analytical procedures and your ability to apply them to revenue and payroll expenses. Part (c) asks you to explain the internal controls that should exist in a retail shop and a restaurant. Q4 Battersby Part (a) asked you to identify and explain the threats to independence and suggest appropriate safeguards. This is typical of the ethics questions in the exam. Part (b) matters to consider, other than independence and objectivity when accepting an appointment, required candidates to think practically. The use of headings such as resources, client integrity, professional clearance, etc would provide a structured answer. Part (c) the benefits of one firm providing audit and assurance services should have provided relatively easy marks. Q5 Cremorne This question is quite a difficult question on audit reports as it requires a good understanding of financial reporting to be able to identify the impact of each scenario on the financial statements. It is important to consider materiality, the impact on the financial statements (adjusting or non-adjusting) and disclosure and discuss the audit opinion. ACF8CE12(J) INT Course Exam 2 Solutions 3
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