Summary CPA PROGRAM ADVANCED AUDIT AND ASSURANCE 3ND EDITION

CPA PROGRAM ADVANCED AUDIT AND ASSURANCE 3ND EDITION Contents Subject outline 1 Module 1: Assurance services framework 11 Module 2: General audit principles and auditor responsibilities 93 Module 3: Understanding the entity, assessing risk and responding to risks 179 Module 4: The auditor’s response to assessed risks 275 Module 5: Audit conclusions and reporting requirements 353 Module 6: Performance engagements 429 Module 7: Other assurance services 495 Case study 567 ADVANCED AUDIT AND ASSURANCE Subject outline 2 | ADVANCED AUDIT AND ASSURANCE Contents Before you begin 3 Advanced Audit and Assurance 3 Study guide My Online Learning Study plan Your exam information 6 About the authors 7 SUBJECT OUTLINE | 3 Before you begin The purpose of this subject outline is to: • provide important information to assist you in your studies • define the aims, content and structure of the subject • outline the learning materials and resources provided to support learning • provide information about the exam and its structure. The CPA Program is designed around five overarching learning objectives to produce future CPAs who will: • Be technically skilled and solution driven • Be strategic leaders and business partners in a global environment • Be aware of the social impacts of accounting • Be adaptable to change • Be able to communicate and collaborate effectively. For information on dates, fees, rules and regulations, and additional learning support, please refer to the CPA Australia website: Advanced Audit and Assurance The Advanced Audit and Assurance subject provides a body of knowledge for you to understand the nature and diversity of audit and assurance engagements. The subject provides an insight on audit and assurance processes, methodologies and procedures. It also examines the objectives of assurance engagements and current and future developments in assurance engagements. The environment within which the auditor or assurance practitioner operates and the respective roles of the private and public sector auditors and internal audit are also discussed. In the CPA Program, the professional responsibilities of accountants are discussed in the Ethics and Governance subject. However, this subject emphasises the ethical and professional conduct of auditors. The strategic business analysis techniques in the Advanced Audit and Assurance subject are further discussed in the Strategic Management Accounting and Global Strategy and Leadership subjects in their respective context. This subject and the Contemporary Business Issues subject also cover sustainability reporting and assurance with an emphasis on businesses. Advanced topics in financial reporting that complement the accounting knowledge of audit professionals are covered in the Financial Reporting subject, and accounting for financial instruments is discussed in the Financial Risk Management subject. This subject will introduce you to international pronouncements including the international standards for audit, review and assurance engagements, the standard on quality control for audit firms and the code of ethics. You will be taken through case studies to illustrate the strategic approach in audit engagements. Contemporary developments in assurance engagements are discussed in this subject in the context of future practice management opportunities. 4 | ADVANCED AUDIT AND ASSURANCE On completion of this subject, you should be able to: • understand and apply the framework for assurance engagements in audit and review engagements, and assurance engagements (other than audits or reviews), and discuss the elements of an assurance engagement • discuss the quality control standards for audit and assurance engagements, and the fundamental ethical principles for the auditing profession • explain and apply the requirements of the audit, review and assurance standards that are applicable to audit and review engagements and assurance engagements (other than audits or reviews) • design the audit process to be undertaken by auditors in conducting audit and assurance engagements • apply the relevant auditing standards to the assessment for fraud and going concern in an audit of financial statements • explain the purpose and role of performance audits • identify and describe the various types of assurance engagements • discuss the nature of internal audit. Study guide The Study guide is your primary examinable resource and contains all the knowledge you need to learn and apply to pass the exam. The Advanced Audit and Assurance Study guide is divided into seven modules and includes a number of features to help support your learning. These include: • Objectives—to describe what you are expected to know and be able to do after completing the module, as well as identify what you’ll be assessed on in the exam. • Examples—to demonstrate how concepts are applied to real-world scenarios. • Questions (and suggested answers)—to provide you with an opportunity to assess your understanding of the key learning points. These questions are an integral part of your study and should be fully utilised to support your learning of the module content. • Case studies (and suggested answers)—to help you apply theoretical knowledge to real-life scenarios, requiring a deep understanding of the module content. • Teaching materials—this section of your Study guide will inform you of any additional resources and readings to be referred to in conjunction with the module. Any material that is listed under ‘Readings’ in this section will be examinable. Any readings that are listed as ‘optional’ will not be examined; they are provided if you wish to explore a particular topic in more detail. Case study The Case study illustrates the planning, evidence-gathering and reporting activities performed by the auditor in a financial statement audit. You will be guided through the various stages of the audit process to consolidate your understanding of the audit principles and ethical considerations introduced in Modules 1–5. The concepts covered by the Case study are examinable. My Online Learning My Online Learning is CPA Australia’s online learning platform, which provides you with access to a variety of resources to help you with your study. We suggest you view the video ‘Insights for a great semester of study’ on My Online Learning, which will provide you with some insights on how to plan your semester. It will also take you on a guided tour of My Online Learning to show you how (and when) to access the range of resources available. SUBJECT OUTLINE | 5 You will find a wide range of subject-level and module-level resources on My Online Learning. Subject-level resources are those that apply to the entire subject. These resources can be used at any time but are most useful when you’ve completed all the modules for the entire subject— whereas module-level resources should be used while you work through a particular module in the Study guide. Some of the resources you may find on My Online Learning include: • A PDF version of the complete Study guide, as well as a PDF version of each individual module. • Knowledge checks—these enable you to check your learning for each module and across the entire subject. You can access these Knowledge checks from any device and retake the test multiple times. • Ask the Expert forum—this allows you to post a technical question about the subject content and have it answered by a subject expert. • Interactive resources—to help you understand the concepts covered in an engaging manner. • Exam information—to help you prepare and plan for your exam. • Study group—to allow you to search for a study group in your area or connect with local candidates and form your own study group. You should refer to the journey map located on My Online Learning to see what module resources you can access and in what order you should use them. You can access My Online Learning from the CPA Australia website: Help desk For help when accessing My Online Learning either: • email , or • telephone (Australia) or (international) between 8.30 am and 5.00 pm (AEST) Monday to Friday during the semester. Study plan Total hours of study for this subject will vary depending on your prior knowledge and experience of the course content. Your individual learning pace and style, and your work commitments will need to be taken into consideration. You will need to work systematically through the Study guide and readings and attempt all the in-text questions, Case studies and online Knowledge checks. The workload for this subject is the equivalent of that for a one-semester postgraduate unit. An estimated 15 hours of study per week through the semester is recommended, but additional time may be required for revision. The ‘Weighting’ column in the following table provides an indication of the emphasis placed on each module in the exam, while the ‘Recommended proportion of study time’ column is a guide for you to allocate your study time for each module and the Case study. With our flexible study options, you can complete the CPA Program in your own time with access to national support if you need it. Please refer to the CPA Australia website: 6 The Advanced Audit and Assurance exam is three hours and 15 minutes in duration and comprises only multiple-choice questions. Multiple-choice questions include knowledge, application and problem-solving questions that are designed to assess understanding of Advanced Audit and Assurance principles. The Study guide is your central examinable resource. Where advised, relevant sections of the CPA Australia Members’ Handbook and legislation are also examinable. This is an open-book exam, so you may bring any reference material into the exam that you believe to be relevant and that may assist you in undertaking the exam. This may include, for example, the Study guide, additional materials from My Online Learning, readings and prepared notes. You will have access to an on-screen calculator within the computer-based exam environment. If you are sitting a paper-based exam, we recommend that you bring your own calculator. Please ensure that the calculator is compliant with CPA Australia’s guidelines. The calculator must be a silent electronic calculating device the primary purpose of which is calculation. Calculators with text-storing abilities are not permitted in the exam. As this exam forms part of a professional qualification, the required level of performance is high. You are required to achieve a passing scaled score of 540 in all CPA Program exams. Further information about scaled scores and exam results is available at: SUBJECT OUTLINE | 7 About the authors Brian Clarke PhD, CA, MBA Brian began his career as a CA and auditor with Deloitte in Vancouver. After moving to Australia he worked in higher education at Monash and Deakin Universities, and as a business consultant. At Monash, he taught management accounting and was awarded the Monash prize for team-based educational development for his work on the Multi-disciplinary Industrial Project. At Deakin, he obtained his PhD and taught auditing. He also initiated Deakin’s successful Certificate program in Chartered Accounting. Brian has published auditing, management accounting and education research, and has presented at numerous conferences. He currently works as an education consultant to the accounting profession. David Gilchrist PhD David is a chartered accountant and an economic historian. He is currently Professor of Accounting at the University of Western Australia and a Visiting Professor and Research Chief Investigator at Hebei GEO University, People’s Republic of China. Over a career spanning 25 years, David has held a number of senior roles in the not-for-profit, commercial and public sectors. Prior to joining the University of Western Australia, he was Foundation Director of the Curtin Not-for-profit Initiative for five years. Prior to that, he held the role of Assistant Auditor General for Western Australia and taught accounting and finance at the London School of Economics and Portsmouth University in the United Kingdom, as well as at Curtin University and Edith Cowan University in Australia. David was also Associate Dean of the School of Business, University of Notre Dame Australia and adjunct professor of Not-for-profit Leadership at that institution. He currently holds a number of industry roles, including chairman of Nulsen Disability Services and Director of BaxterLawley, and is a member of Chartered Accountants Australia and New Zealand’s National Not-for-profit Advisory Committee. David has advised a number of Australian governments and authorities relating to human services governance,