Dear All
As I was in oversea and was not able to access to blogspot
therefore if you still wish to follow my blog, kindly search under www.sina.com.cn of which i shall set up one by end of March
cheers
Thursday, February 25, 2010
Sunday, April 26, 2009
Part 6 The misunderstanding of AEIOU
There is always an issues for students when it come to the understanding of AEIOU or how to answer question related to the audit work, audit testing or audit procedure that need to be carry out.
When such type of question is asked what the examiner wanted to know is probably as an auditor you are given an accounting area to “check and investigate” so as to ensure that you can obtain reasonable assurance that there is no material misstatement in the particular area.
Therefore remember the accounting area is there and all control elements and financial assertion should exist when the audit client record any transaction into the financial records. You as the auditor should assume all the above is in place and your present is to present an assurance to the 3rd party whom are also the person who appointed you- the shareholder (and sometimes the stakeholders)
So how do you carry out? As mentioned in previous post there are many ways that you can do it. But for exam purpose and an easy way for you as a student to start with maybe you can take AEIOU as a guide.
I shall now provide in this post some common solution to it before I get into more specific area in the next post. Let take AEIOU as a guide and I would like to mention again as this is just a guide to you. If you are clear of what audit procedure is all about do it “Your Way”
For easy start we should look at financial statement first before we get into the control system.
Analytical review (AR)
What is analytical review? In simple it is the comparison of data. What data ? it can be financial data and even non financial data. We should look at financial data for now. Well as an auditor you should at the start of the “field audit “perform analytical on some key data for example the Cost for property plant and equipment.
If there is no different between current year figure and previous year figure meaning that there is no movement in PPE. However such comparison should be carry out by class of PPE like land, building, motor vehicles and others.
If there is an movement the next audit procedure that an auditor should do is compare (which is also part of AR) on the differences. This is also part of an investigation. Remember auditor is the to give assurance and highlight any “audit issues” you are not an executor to do any work that a company finance team should do.
From this point on ward you might see that AEIOU is a continuous process whether it is inter related when it comes to the flow of audit checking.
From the AR you might then go to other audit testing method such as “EIOU”
Enquiries
What It mean by enquiries? To me it is simple, it mean discussion ask and probably meeting. Any conversation with another person will be considered as enquiries. Of course it must be related to the audit. Or in audit term it must be relevance.
Discussion with the Account staff, accountant financial controller and the director are considered as part of the evidence collection too. However it must be properly documented and some important area should be in formal communication method ie letters and memo.
Inspection of documents
This is the easiest process as auditor is checking on the relevant documents to collect evidence. This can include Company’s internal documents or external documents. Internal documents like those invoices, minutes of meeting and external documents like bank statement and valuations reports are all considered as related documents where auditor could collect evidence from.
Observation
This could probably be the hardest way for student to interpret during exam. What to observe and how observation can help in audit? This I shall leave it to the actual scenario as it is hard to explain!
Calculation
Well this is the easiest. Arithmetical checking make sure right calculation and right valuationGet yourself familiar with the above as this is key part of the exam. Leave a comment if you have a question
When such type of question is asked what the examiner wanted to know is probably as an auditor you are given an accounting area to “check and investigate” so as to ensure that you can obtain reasonable assurance that there is no material misstatement in the particular area.
Therefore remember the accounting area is there and all control elements and financial assertion should exist when the audit client record any transaction into the financial records. You as the auditor should assume all the above is in place and your present is to present an assurance to the 3rd party whom are also the person who appointed you- the shareholder (and sometimes the stakeholders)
So how do you carry out? As mentioned in previous post there are many ways that you can do it. But for exam purpose and an easy way for you as a student to start with maybe you can take AEIOU as a guide.
I shall now provide in this post some common solution to it before I get into more specific area in the next post. Let take AEIOU as a guide and I would like to mention again as this is just a guide to you. If you are clear of what audit procedure is all about do it “Your Way”
For easy start we should look at financial statement first before we get into the control system.
Analytical review (AR)
What is analytical review? In simple it is the comparison of data. What data ? it can be financial data and even non financial data. We should look at financial data for now. Well as an auditor you should at the start of the “field audit “perform analytical on some key data for example the Cost for property plant and equipment.
If there is no different between current year figure and previous year figure meaning that there is no movement in PPE. However such comparison should be carry out by class of PPE like land, building, motor vehicles and others.
If there is an movement the next audit procedure that an auditor should do is compare (which is also part of AR) on the differences. This is also part of an investigation. Remember auditor is the to give assurance and highlight any “audit issues” you are not an executor to do any work that a company finance team should do.
From this point on ward you might see that AEIOU is a continuous process whether it is inter related when it comes to the flow of audit checking.
From the AR you might then go to other audit testing method such as “EIOU”
Enquiries
What It mean by enquiries? To me it is simple, it mean discussion ask and probably meeting. Any conversation with another person will be considered as enquiries. Of course it must be related to the audit. Or in audit term it must be relevance.
Discussion with the Account staff, accountant financial controller and the director are considered as part of the evidence collection too. However it must be properly documented and some important area should be in formal communication method ie letters and memo.
Inspection of documents
This is the easiest process as auditor is checking on the relevant documents to collect evidence. This can include Company’s internal documents or external documents. Internal documents like those invoices, minutes of meeting and external documents like bank statement and valuations reports are all considered as related documents where auditor could collect evidence from.
Observation
This could probably be the hardest way for student to interpret during exam. What to observe and how observation can help in audit? This I shall leave it to the actual scenario as it is hard to explain!
Calculation
Well this is the easiest. Arithmetical checking make sure right calculation and right valuationGet yourself familiar with the above as this is key part of the exam. Leave a comment if you have a question
Monday, April 20, 2009
part 5
After understanding the objectives for both internal control and financial statements, it is time now to get to know how to audit it.
First of all let get some phrase right. Many students are confused of the phrase audit test, audit work and audit procedure. Actually they are all the same meaning. It means the audit evaluation carry out by auditor.
So how do auditors carry out audit evaluation? It can be in many ways but it must meet its objectives which we have mentioned in the previous articles
However students find it hard to start with the question on audit evaluation. So let us start with some basic principles.
Auditor can carry out audit evaluation by using the principles of (but not limited to) AEIOU
A: Analytical review
E: Enquiries
I: Inspection of documents
O: observation
U: Calculation
(Remember the above is just a guide to help student to start off a question if you understand audit evaluation well you can do it your way)
Let have a simple explanation of the above
1. A: Analytical review: comparison of data to evaluate the differences. This become a lead to the start of audit evaluation.
2. E: Enquiries: means discussion or obtaining the audit evidence through oral form
3. I: Inspection of documents: checking of hard evidence or written evidence
4. O: observation: observed the situation in order to confirm certain evidence
5. U: Calculation: to ensure right valuation.
Oh definitely the above sound simple. When applying into the question, it never click as question will never be direct to it.
Now let crease some question on the question
A: Analytical review: What should we compare and why should be compare?
E: Enquiries: who should we discuss and what should we discuss
I: Inspection of documents: what documents should we inspect and why should we inspect?
O: observation: what should we observe and why should we observe?
U: Calculation: this sound simple but what are the area that we should set the valuation right?
Let think about it before we continue
First of all let get some phrase right. Many students are confused of the phrase audit test, audit work and audit procedure. Actually they are all the same meaning. It means the audit evaluation carry out by auditor.
So how do auditors carry out audit evaluation? It can be in many ways but it must meet its objectives which we have mentioned in the previous articles
However students find it hard to start with the question on audit evaluation. So let us start with some basic principles.
Auditor can carry out audit evaluation by using the principles of (but not limited to) AEIOU
A: Analytical review
E: Enquiries
I: Inspection of documents
O: observation
U: Calculation
(Remember the above is just a guide to help student to start off a question if you understand audit evaluation well you can do it your way)
Let have a simple explanation of the above
1. A: Analytical review: comparison of data to evaluate the differences. This become a lead to the start of audit evaluation.
2. E: Enquiries: means discussion or obtaining the audit evidence through oral form
3. I: Inspection of documents: checking of hard evidence or written evidence
4. O: observation: observed the situation in order to confirm certain evidence
5. U: Calculation: to ensure right valuation.
Oh definitely the above sound simple. When applying into the question, it never click as question will never be direct to it.
Now let crease some question on the question
A: Analytical review: What should we compare and why should be compare?
E: Enquiries: who should we discuss and what should we discuss
I: Inspection of documents: what documents should we inspect and why should we inspect?
O: observation: what should we observe and why should we observe?
U: Calculation: this sound simple but what are the area that we should set the valuation right?
Let think about it before we continue
Part 4
My apology, I was real busy and real sick over the weather here. Can you imagine snowing in April? What a day and I have sick for the past 2 weeks. Anyway it is time to follow up with the blog commitments.
Let look the 5 monsters –COVED how do we put it in simple and provide a good example?
As we know financial assertion is the assertion that a recorded must ascertain before they record a “BUSINESS TRANSACTION” into the financial records. For your information, the financial records comprise of
1. The book of prime entry
2. The Ledger book
3. The trial balance and
4. The financial statements
Your question: How can the two be correlated?
Completeness: Is to ensure that the business transaction is properly recorded, ie: A car. When a car is being purchased it should properly be record in
1. The book of prime entry : the journal voucher and the Fixed asset register
2. The Ledger book : Cost account, depreciation account and accumulated depreciation
3. The trial balance : Debit side for cost and credit side for cash or credit
4. The financial statements: the income statement for depreciation the balance sheet for cost and accumulated depreciation
Ownership/obligation: you need to prove that you own the car before you can record in the financial record above. So how you prove it? That is what required auditor to counter check in the exam. Audit client need to prove the ownership to the auditor and auditor need to get the evidence.
For the above and the following, bear in mind it is for the audit client to assure the financial assertion and the auditor to obtain reasonable assurance (evidence).
Valuation: the Audit Client need to ensure that the right valuation is being recorded! For example: Inventory cost it should be at the lower of cost or NRV! That is valuation, the client put in a valuation and the auditor obtains evidence that the valuation is right.
Existence: The recorder need to ensure that those business transactions actually exist and auditor obtain evidence on that. There are three key areas where auditor needs to obtain evidences!
Disclosure: All business transaction needs to be properly disclosed.
FOR All COVED, the Company need to ensure that it exist and auditor is to obtain evidence on that
On that basis the COVED become the objectives for the auditor to carry their audit on financial statement.
So let reverse the statement for the Auditor.
1. Auditor need to obtain reasonable assurance that “business transaction” is completely recorded in the financial records for examples:………………………………………….
2. Auditor need to obtain reasonable assurance that the “business transaction” is own by the company or company is obliged with. For example……………………………….
3. Auditor need to obtain reasonable assurance that “business transaction” is properly valued. For example…………………………………………
4. Auditor need to obtain reasonable assurance that business transaction exist for example………………..
5. Auditor need to obtain reasonable assurance is properly disclosed for example………………….
For the next post we look at the audit testing. Take care
Let look the 5 monsters –COVED how do we put it in simple and provide a good example?
As we know financial assertion is the assertion that a recorded must ascertain before they record a “BUSINESS TRANSACTION” into the financial records. For your information, the financial records comprise of
1. The book of prime entry
2. The Ledger book
3. The trial balance and
4. The financial statements
Your question: How can the two be correlated?
Completeness: Is to ensure that the business transaction is properly recorded, ie: A car. When a car is being purchased it should properly be record in
1. The book of prime entry : the journal voucher and the Fixed asset register
2. The Ledger book : Cost account, depreciation account and accumulated depreciation
3. The trial balance : Debit side for cost and credit side for cash or credit
4. The financial statements: the income statement for depreciation the balance sheet for cost and accumulated depreciation
Ownership/obligation: you need to prove that you own the car before you can record in the financial record above. So how you prove it? That is what required auditor to counter check in the exam. Audit client need to prove the ownership to the auditor and auditor need to get the evidence.
For the above and the following, bear in mind it is for the audit client to assure the financial assertion and the auditor to obtain reasonable assurance (evidence).
Valuation: the Audit Client need to ensure that the right valuation is being recorded! For example: Inventory cost it should be at the lower of cost or NRV! That is valuation, the client put in a valuation and the auditor obtains evidence that the valuation is right.
Existence: The recorder need to ensure that those business transactions actually exist and auditor obtain evidence on that. There are three key areas where auditor needs to obtain evidences!
Disclosure: All business transaction needs to be properly disclosed.
FOR All COVED, the Company need to ensure that it exist and auditor is to obtain evidence on that
On that basis the COVED become the objectives for the auditor to carry their audit on financial statement.
So let reverse the statement for the Auditor.
1. Auditor need to obtain reasonable assurance that “business transaction” is completely recorded in the financial records for examples:………………………………………….
2. Auditor need to obtain reasonable assurance that the “business transaction” is own by the company or company is obliged with. For example……………………………….
3. Auditor need to obtain reasonable assurance that “business transaction” is properly valued. For example…………………………………………
4. Auditor need to obtain reasonable assurance that business transaction exist for example………………..
5. Auditor need to obtain reasonable assurance is properly disclosed for example………………….
For the next post we look at the audit testing. Take care
Sunday, March 29, 2009
Exam focus - ACCA F8 June 2009 (3)
I received many complains, why the next post is so slow? Why answer is simple, I am too busy too tired and of course lazy.
Well no excuse as I have promised to do so. Let continue to the journey of June 2009 examination. However I may skip the internal control apart as promised earlier and go on to another important area namely financial statement assertion. We shall do it in a layman way, MY WAY!
What is financial statement assertion? This is an area where students always misunderstand. Financial Statement assertions are assertion where company must observed when recording a business transaction into the Financial Statement.
In your student text there are seven assertions namely:
Existence
An asset or liabilities exist at given date
Right and obligation
An asset or liabilities pertain to the entity at a given date
Occurrence
A transaction or events took place which pertain to the entity during the relevant period
Completeness
There are unrecorded assets, liabilities or events or disclosure items
Valuation
An asset or liabilities is recorded at an appropriate carrying value
Measurement
A transaction or events is recorded in the proper amount and revenue or expenses is allocated to the proper periods
Disclosure
An items is disclosed, classified and describe in accordance with the applicable reporting framework
However usually we will summarized it into 5 category namely
Completeness
ownership/obligation
valuation
existence
disclosure
So how to make it relevant in exam?
When a Company records a business transaction (BT) in the financial statement the need to ensure that:
1. The Company need to ensure that the BT is properly recorded in the Financial statement to ensure completeness or
2. To ensure completeness the company needs to ensure that BT is properly record in the financial statements.
3. To ensure ownership or obligation, the company need to ensure that they own or obliged toa business transaction.
4. To ensure valuation, the Company need to ensure that the BT has the right valuation when recorded into the financial statement
5. The ensure existence, company need to ensure that the BT actually exist
6. To ensure proper disclosure, company need to ensure that all BT are properly disclosed in the financial statements
Practice Can you provide example for the above?
Stay tune with layman
Well no excuse as I have promised to do so. Let continue to the journey of June 2009 examination. However I may skip the internal control apart as promised earlier and go on to another important area namely financial statement assertion. We shall do it in a layman way, MY WAY!
What is financial statement assertion? This is an area where students always misunderstand. Financial Statement assertions are assertion where company must observed when recording a business transaction into the Financial Statement.
In your student text there are seven assertions namely:
Existence
An asset or liabilities exist at given date
Right and obligation
An asset or liabilities pertain to the entity at a given date
Occurrence
A transaction or events took place which pertain to the entity during the relevant period
Completeness
There are unrecorded assets, liabilities or events or disclosure items
Valuation
An asset or liabilities is recorded at an appropriate carrying value
Measurement
A transaction or events is recorded in the proper amount and revenue or expenses is allocated to the proper periods
Disclosure
An items is disclosed, classified and describe in accordance with the applicable reporting framework
However usually we will summarized it into 5 category namely
Completeness
ownership/obligation
valuation
existence
disclosure
So how to make it relevant in exam?
When a Company records a business transaction (BT) in the financial statement the need to ensure that:
1. The Company need to ensure that the BT is properly recorded in the Financial statement to ensure completeness or
2. To ensure completeness the company needs to ensure that BT is properly record in the financial statements.
3. To ensure ownership or obligation, the company need to ensure that they own or obliged toa business transaction.
4. To ensure valuation, the Company need to ensure that the BT has the right valuation when recorded into the financial statement
5. The ensure existence, company need to ensure that the BT actually exist
6. To ensure proper disclosure, company need to ensure that all BT are properly disclosed in the financial statements
Practice Can you provide example for the above?
Stay tune with layman
Letter to Miss S
I have read your answer and I must say that the answer is not wrong but not up to standards.
Definitely with this level of writing and interpretation in examination, no examiner can pass you.
You need to get more in-depth to the answer writing. You must write in a way where you assume that the examiner or the marker does not know anything about audit. You must write in a way to convince and explain what is the subject about.
It is like a Children asking for their parent to buy a toy. The Child if shout and scream that he want a toy like “I want the toy, I want the toy…………………..” it does not convince the parent the need for the toy. However if a reason being given like, like the child telling the parent by buying the toy it mark a very important memory in his childhood, will the parent be touched?
It is like watching a movie. Who wants to go into the cinema watching a movie where from beginning to the end, you need to guess what the movie is talking about? Or till the end of the movie you also not sure what the movie is talking about. How can a movie does not express an objective and do not express a contents that viewer willing to see.
Going for the exam is just like making a movie, you can take 1 year to film it but usually you have only 3 hrs to present it. You might take a year to complete a subject but at each time you only have 3 hrs to proof you worth.
You now need to build up the quality of your contents. How to make it? Practice Practice Practice
Best wishes
Layman
Definitely with this level of writing and interpretation in examination, no examiner can pass you.
You need to get more in-depth to the answer writing. You must write in a way where you assume that the examiner or the marker does not know anything about audit. You must write in a way to convince and explain what is the subject about.
It is like a Children asking for their parent to buy a toy. The Child if shout and scream that he want a toy like “I want the toy, I want the toy…………………..” it does not convince the parent the need for the toy. However if a reason being given like, like the child telling the parent by buying the toy it mark a very important memory in his childhood, will the parent be touched?
It is like watching a movie. Who wants to go into the cinema watching a movie where from beginning to the end, you need to guess what the movie is talking about? Or till the end of the movie you also not sure what the movie is talking about. How can a movie does not express an objective and do not express a contents that viewer willing to see.
Going for the exam is just like making a movie, you can take 1 year to film it but usually you have only 3 hrs to present it. You might take a year to complete a subject but at each time you only have 3 hrs to proof you worth.
You now need to build up the quality of your contents. How to make it? Practice Practice Practice
Best wishes
Layman
Saturday, March 14, 2009
Exam focus- June 2009 ACCA F8 (2)
I am tired with work and life, time to divert to write a posting for you. I really hope you did your own revision before following this guide. Bear in mind that this is not a full lecture as I can’t conduct a lecture through blog but at least I can give you a simple guide and show you the hidden part of the examination to help you pass your examination.
Last posting we talk about “Control Elements”. This as far as I am concern is a very important area for examination as understanding the control elements can help you answer many “types” of examination question involving internal control system.
How?
A favorite exam question; what is the “control objective” of “internal control” system. I am not surprise that lot of students still confuse with this area. So let look this part of the exam favorite.
An objective mean what you wanted to achieve; control objective mean what type of control you wanted to achieve. Well in common in order to implement control into a system we aimed to achieve the following:
Objective of having internal control system.
The financial records are accurate and complete
Fraud does not occur
The company is efficiently managed
Business in conducted in orderly and efficient
Timely preparation of information for decision making purposes.
However if a student were to take the above as their answer, something is still lacking which I regards as the lacking of audit reasons. How to fill the gap and have an answer with substance? Well bring in the control elements as the element is indirectly your objective or purpose in implementing control.
For example a bank and cash system:- What is the objectives or purpose of having such control?
I will always standardized the answer by using the word reasonable assurance or ensure as a start.
For example: to obtain reasonable assurance or to ensure………………………………………………..
The Answer: - sample
The control objectives or purposes are
1. To obtain reasonable assurance that there are proper physical security measure in cash
handling system so that asset of the company is not lost due to lack of safeguarding
2. To obtain reasonable assurance that proper authorization procedure on cash or bank payment to avoid fraud
3. To obtain reasonable assurance that operation of bank and cash are efficient through proper supervisory
4. To obtain reasonable assurance that there is no arithmetical mistake to avoid inaccuracy in financial records
From the above I am using very simple illustrations to give answers to your examiner and the answer is surrounding two parts: the control elements and the general objectives to internal control. Understanding of control elements could actually help more in the internal control system questions.
You might want to practice further or probably refer back to the past year question for some practice you will find that the above topic is common in exam and the answer might not be so complicated.
In the next post we shall discuss further on internal control system and your foundation on control elements is important as that will be our base for further discussion for your 2009 examination.
Layman will be back to work and my dear buddy stay tune with layman
Last posting we talk about “Control Elements”. This as far as I am concern is a very important area for examination as understanding the control elements can help you answer many “types” of examination question involving internal control system.
How?
A favorite exam question; what is the “control objective” of “internal control” system. I am not surprise that lot of students still confuse with this area. So let look this part of the exam favorite.
An objective mean what you wanted to achieve; control objective mean what type of control you wanted to achieve. Well in common in order to implement control into a system we aimed to achieve the following:
Objective of having internal control system.
The financial records are accurate and complete
Fraud does not occur
The company is efficiently managed
Business in conducted in orderly and efficient
Timely preparation of information for decision making purposes.
However if a student were to take the above as their answer, something is still lacking which I regards as the lacking of audit reasons. How to fill the gap and have an answer with substance? Well bring in the control elements as the element is indirectly your objective or purpose in implementing control.
For example a bank and cash system:- What is the objectives or purpose of having such control?
I will always standardized the answer by using the word reasonable assurance or ensure as a start.
For example: to obtain reasonable assurance or to ensure………………………………………………..
The Answer: - sample
The control objectives or purposes are
1. To obtain reasonable assurance that there are proper physical security measure in cash
handling system so that asset of the company is not lost due to lack of safeguarding
2. To obtain reasonable assurance that proper authorization procedure on cash or bank payment to avoid fraud
3. To obtain reasonable assurance that operation of bank and cash are efficient through proper supervisory
4. To obtain reasonable assurance that there is no arithmetical mistake to avoid inaccuracy in financial records
From the above I am using very simple illustrations to give answers to your examiner and the answer is surrounding two parts: the control elements and the general objectives to internal control. Understanding of control elements could actually help more in the internal control system questions.
You might want to practice further or probably refer back to the past year question for some practice you will find that the above topic is common in exam and the answer might not be so complicated.
In the next post we shall discuss further on internal control system and your foundation on control elements is important as that will be our base for further discussion for your 2009 examination.
Layman will be back to work and my dear buddy stay tune with layman
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