Presentation 1- mandatory FS audits, audit vs review

(a) Discuss the pros and cons of having mandatory financial statement audits for private companies in
Singapore.
Pros
Provides assurance that management has presented a true and fair view of a companys financial
performance and position.
An independent audit is crucial to good corporate governance and essential to an effective internal financial
control function.
Greater confidence and trust by the various stakeholders in the financial information provided.
Lowers information asymmetry risk which translates to higher returns. (Ability to secure higher loan or cheaper
debt pricing)
Cons
Loss of signaling benefit from allowing audits to be voluntary where theory predicts that the companys
decision on whether to be audited conveys valuable information to outsiders about its borrowing
characteristics
Increases fixed costs to the company to comply with regulatory requirements
(b) Explain the proposed change in the requirement for mandatory financial statement audits in Singapore.
Discuss how does the new audit exemptions compare to the audit requirements in other countries.
Past
Proposed
Exempted from having
small company concept
its accounts audited if
To be exempted, a company must be a private company that fulfils at least 2
it is an exempt private
of the following 3 quantitative criteria:
company with annual
(a) Total annual revenue < $10 million;
revenue of < $5 million
(b) Total assets < $10 million
(c) Total number of employees < 50
Proposed change
Notably, company no longer needs to be an EPC to be exempted from audit.
A company qualifies as a small company in a particular financial year if it is a private company and meets at
least 2 of the 3 quantitative criteria in each of the previous 2 FY.
Rationale
Regulatory burden on small companies is reduced 25,000 companies will benefit.
Maintain consistency with existing IFRS standards for SMEs (same criteria)
Move further towards a risk-based approach
Existing safeguards
All companies to keep proper accounting records
Shareholders with >5% voting rights can require a company to prepare audited accounts
Singapore
UK
Australia
Hong Kong
Revenue
< S$10m
< 6.5m
< AUD25m
< HK100m
Assets
< S$10m
< 3.26m
< AUD12.5m
< HK100m
Employees
< 50
< 50
< 50
< 100
Must meet at least 2 out of the 3 requirements
Notes
Need to meet criteria As of 24 Oct 2014,
Cannot be owned by
If company is a
in each of the
proposing to change
foreign entities
standalone entity, no
preceding 2 years
to 10.2m and 5.1m
size requirements
(c) Discuss how the change will impact the audit profession.
A company no longer needs to be an Exempt Private company to be exempted from audit
o Implications to the Audit Profession
o For existing external auditors of the benefitting companies: Loss of clients when they qualify for audit
exemption
o For potential external auditors of the benefitting companies: Smaller pool of prospective private
companies for consideration as clients
Under the Small Companies regime, a private company with a corporate S/H may qualify for exemption, even
if it is a member of a group
o Implications to the Audit Profession
o Where the parent company of a group is required to be audited, complications may arise in the
absence of audited financial statements of the subsidiaries if the subsidiaries are exempted
Requirement for the entire group, to which a Small Company (thats also a subsidiary) belongs, to qualify on a
consolidated basis for audit exemption under the small company criteria for that Small Company to qualify for
audit
o Implications to the Audit Profession

For existing external auditors of the benefitting companies: Cascading effect of the exemption results
in significant losses in clients when the entire group qualifies for audit exemption and the auditor
renders audit services for multiple members in the group under the current regime
Small Companies concept in Companies Act consistent with Small Companies concept introduced in the
SFRS for Small Entities. Private Companies qualifying as Small Companies will be motivated to prescribe to
SFRS for Small Entities for financial reporting
o Implications to the Audit Profession
o In the Voluntary audit of a Small Company using SFRS for Small Entities, the relevant criteria guiding
the preparation of the financial statements would be different from the commonly used SFRS
o Auditors must become professionally competent in the understanding and application of the criteria
provided for in the SFRS for Small Entities for the purpose of audit
(d) Briefly explain the key differences between an audit and a review engagement
Audit
Review
Guiding standards
Singapore Standards on Auditing (SSA)
Singapore Standards on Review Engagements (SSRE)
Level of assurance and opinion
SSA 200. 5
SSRE 2400. 5
Reasonable level of assurance
Limited level of assurance
High level of assurance obtained when auditor
Risk is greater than that of a reasonable
has obtained sufficient appropriate audit evidence
assurance engagement
to reduce audit risk to an acceptably low level
SSA 200. 5
SSRE 2400. 17(f)
Reasonable assurance that financial info and statements, The combination of nature, timing and extent of evidence
as a whole, gives a true and fair view, or is presented
gathering procedures is at least sufficient for practitioner
fairly, in all material respects, in accordance with an
to obtain a meaningful level of assurance in order to
applicable financial reporting framework
enhance intended users confidence about financial
statements
Materiality calculation
SSA 200. 6
SSRE 2400. 43
Financial statements as a whole
The practitioner shall determine materiality for the
financial statements as a whole, and apply this materiality
in designing the procedures and in evaluating the results
obtained from those procedures.
SSA 320. A12
Performance materiality
Performance materiality is set to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements in the
financial statements exceeds materiality for the financial
statements as a whole
Understanding of entity
SSA 200. A50
SSRE 2400.45
Sufficient to identify and assess the risk of material
Sufficient to identify areas in the financial statements
misstatement at the financial statement and assertion
where material misstatements are likely to arise
levels
identify areas in the financial statements where
Have a basis for the identification and assessment of
material misstatements are likely to arise and thereby
risks of material misstatement at the financial statement
provide a basis for designing procedures to address
and assertion levels by performing risk assessment
those areas.
procedures and related activities
SSA 200. 7
SSRE 2400. A26
Obtain understanding of entitys internal control and
Understanding information systems and the role and
assess fraud risk
limitations of internal control
Work effort
SSA 200. A48
SSRE 2400. 8
there is an expectation by users.. auditor will form an
If the practitioner becomes aware of a matter that
opinion within a reasonable period of time and at a
causes the practitioner to believe the financial statements
reasonable cost, recognizing that it is impracticable to
may be materially misstated, the practitioner designs and
address all information
performs additional procedures, as the practitioner
that may exist or to pursue every matter exhaustively on
considers necessary in the circumstances, to be able to
the assumption that information is in error or fraudulent
conclude on the financial statements in accordance with
until proved otherwise.
this SSRE.
Standard establishes work effort based on components
significance:
o Size
o Specific risks
o

Design of assurance procedures

Plan and perform sufficient procedures to reduce the risk
of material misstatements in the financial statements to
an appropriately low level
SSA200. 17
To obtain reasonable assurance, the auditor shall
obtain sufficient appropriate audit evidence to reduce
audit risk to an acceptably low level ...
SSA 200. A36
Risks of material misstatement at the assertion level are
assessed in order to determine the nature, timing, and
extent of further audit procedures necessary to obtain
sufficient appropriate audit evidence
Common assurance procedures
SSA 200. A50
Have a basis for the identification and assessment of
risks of material misstatement at the financial statement
and assertion levels by performing risk assessment
procedures and related activities.
SSA 200. A50
Use testing and other means of examining populations in
a manner that provides a reasonable basis for the auditor
to draw conclusions about the population.
(Test of controls, Analytical & Substantive procedures)
Uncorrected misstatements
SSA 450. 5
The auditor shall accumulate misstatements identified
during the audit, other than those that are clearly trivial.

SSRE 2400. 47
In obtaining sufficient appropriate evidence as the basis
for a conclusion on the financial statements as a whole,
the practitioner shall design and perform inquiry and
analytical procedures:
(a) To address all material items in the financial
statements, including disclosures; and
(b) To focus on addressing areas in the financial
statements where material misstatements are likely to
arise.
SSRE 2400. 49
In designing analytical procedures, the practitioner shall
consider whether the data from the entitys accounting
system and accounting records are adequate...
SSRE 2400. 7
... performs primarily inquiry and analytical procedures to
obtain sufficient appropriate evidence as the basis for a
conclusion on the financial statements as a whole...
SSRE 2400. 8
Additional procedures if deemed necessary under the
circumstances.

SSRE 2400. 70
The practitioner shall consider the impact of: (a)
Uncorrected misstatements identified during the review,
and in the previous years review of the entitys financial
statements, on the financial statements as a whole

SSA 450. 10 & 11

Prior to evaluating the effect of uncorrected
misstatements, the auditor shall reassess materiality
determined in accordance with SSA 320 to confirm
whether it remains appropriate in the context of the
entitys actual financial results.
The auditor shall determine whether uncorrected
misstatements are material, individually or in aggregate
considering the size and nature of the misstatements,
particular circumstances of their occurrence and effect of
uncorrected misstatements related to prior periods
Presentation 2- key changes in code of ethics, practical challenges
(a) Outline the key changes to the ACRAs Code of Professional Conduct and Ethics (the 2015 Singapore
Code) from the extant 2009 Singapore Code in the following areas:
(b) Discuss the practical challenges that audit firms and auditors will face in implementing the above changes
in the 2015 Singapore Code.
Changes to drafting convention and structure of the code
The word should has been replaced by the word shall to force the professionals to comply with the specific
provision.
Usage of the words consider, evaluate and determine
o Consider Professional to think of the various issues of the matter
o Evaluate Professional to appraise and weigh the significance of the matter on hand
o Determine Professional to make a decision on the matter
Review and audits of financial statements will be subjected to the same independence requirements specified
in s290
Independence requirements for assurance engagements besides reviews and audits are listed in s291
Challenges
o Ambiguity
o Prescription-based Principle-based
Provision of non-assurance services
Changes that apply to all Audit Clients

Management Responsibilities
New section introduced in the code (291.141-291.145)
Clear prohibitions on firms assuming management responsibilities for an audit or review client
Corporate Finance Services
Enhanced discussion of nature of Corporate Finance Services, the threats created, factors to consider and
potential safeguards.
Introduced prohibition where the effectiveness of corporate finance advice depends upon a particular
accounting treatment or presentation and there is a reasonable doubt thereon, and the effect on the financial
statements is material.
Taxation Services
2009 SG Code
2015 SG Code
290.180 Taxation services ... are generally not seen to
290.179 Performing certain tax services creates selfcreate threats to independence.
review and advocacy threats
Practical Challenge:
o Audit firms may lose clientele/revenue stream when they have to cease the performance of these
taxation services
Changes that apply to PIEs
Prohibited under revised code:
o Recruiting services
o Tax calculations for purpose of preparing accounting entries material to FS (except in emergency
situations)
o Valuation services
Challenge: Firms may lose revenue streams
Internal Audit services
2009 SG Code
2015 SG Code
290.180A A public
290.197 ... a firm shall not provide internal audit services that relate to:
accountant, firm or network (a) A significant part of the internal controls over financial reporting;
firm must not provide
(b) Financial accounting systems that generate information that is, separately or in the
internal audit services to a
aggregate, significant to the clients accounting records or financial statements on which
financial statement audit
the firm will express an opinion; or
client that is a listed entity
(c) Amounts or disclosures that are, separately or in the aggregate, material to the
or public company.
financial statements on which the firm will express an opinion.
Practical challenge:
o Exercising same level of professional skepticism when the internal audit work is used
o Difficulty in determining the significance and materiality of the service provided
Accounting and bookkeeping services
2009 SG Code
2015 SG Code
290.172 ...would not be seen as
290.170 may provide accounting and bookkeeping servicesif the personnel
impairing independence
providing the services are not members of the audit team and:
provided that :
(a) The divisions or related entities for which the service is provided are
(c) The fees to the firm, or
collectively immaterial to the financial statements on which the firm will express
network firm, from such services
an opinion; or
are collectively clearly
(b) The services relate to matters that are collectively immaterial to the financial
insignificant.
statements of the division or related entity.
Practical challenge to auditors:
o Managing self interest threat arising from financial interests
o Difficulty in interpreting provision and determining if service is collectively immaterial
Design/ Implement IT systems
2009 SG Code
2015 SG Code
SG290.186A must not provide services
290.203 shall not provide services involving the design or
that involve:
implementation of IT systems that
(a) design and implementation ; or
(a) form a significant part of the internal control over financial
(b) either the design or the implementation of
reporting or
financial IT systems used to generate
(b) generate information that is significant to the clients accounting
information forming part of a clients FS.
records or FS on which the firm will express an opinion.
Practical challenge:
o Confining IT systems to areas which do not impact the FS due to pervasiveness of IT systems
o Difficulty in interpreting the provision and determining how much constitutes a significant part of
internal controls and financial statements.
Long association with audit clients
First key change: Expanding the coverage of additional provision from Listed Entities to include all Public
Interest Entities (PIEs)
o Additional provision is a set of stricter guidelines to maintain a higher level of independence

Change is made to recognise the need for higher level of public confidence in the financial statements
of all PIEs

Definition of PIE
IESBA
A) All listed Entities
B) Any entities----i) Defined by regulations or legislation as a public
interest entity

2015 Singapore Code

SG290.25A:
a) Any entity that is listed or is in the process of issuing
debt or equity instrument for trading in Singapore.
b) Any entity that is incorporated in Singapore and
securities of which are listed outside of Singapore.
c) Any financial institution
SG290.25B:
Large Charities
Large Institutions of a Public Character

ii) For which the audit is required by regulation or

legislation in compliance with the same independence
requirements that apply to the audit of listed entities.
Second key change:
2009 Singapore Code
2015 Singapore Code
290.154 Using the same engagement partner or the
290.149 In respect of an audit of public interest entity, an
same individual responsible for the engagement quality
individual shall not be a key audit partner for more than
control review on a financial statement audit over a
seven years
prolonged period may create a familiarity threat.
o Expansion of partner rotation requirement to include all key audit partners.
Key Audit Partner: Engagement Partner; Individual responsible for engagement quality control
review; Other Audit Partners (Any on the engagement team, who make key decisions or
judgments on significant matters with respect to the audit of the financial statement)
Third key change:
o Tougher requirement for exception in partner rotation
2009 Singapore Code
2015 Singapore Code
290.156 Allow for some degree of flexibility over rotation timing for
290.150 Key audit partner, whose continuity is
certain circumstances, which include: a. Situations when persons
especially important to audit quality may, in rare
continuity is especially important to the financial statement audit
cases due to unforeseen circumstances outside
client b. Situations when, due to the size of the firm, rotation is not
the firms control, can be permitted an additional
possible or does not constitute an appropriate safeguard.
year on the audit team
Challenges in implementation:
o The additional provision now includes more entities
Listed entities in Singapore or other countries, large charities, financial institutions
o May not have enough partners with specialized knowledge in these industries for partner rotation
Fees matters
Fees from one client significantly contribute to a firms fees
2009 SG Code
2015 SG Code
Reason/Challenge
Section
290.206, SG290.206A
290.217, 290.219
Threshold
PIE: 5%
PIE: 12% for 2 consecutive
International benchmarks
years
Non-PIE: 15%
Non-PIE: a large proportion
Subjective, Difficult to Implement
Safeguards Safeguards that must be
Safeguards must be applied
More time and cost needed
considered and applied as
E.g. Reviews, Disclosures
necessary
Non-audit services are high relative to fees for audit (Listed/Public Companies only)
2009 SG Code
2015 SG Code
Reason
Section
290.206, SG290.206B
Removed SG290.206B(b)
Threshold
50% or more, compared to
Retained
Clarity
annual audit fees from client
Or
The total size of annual nonRemoved
audit fees from FS audit client is
significant
Fees from one client are significant to a partner (or office)
2009 SG Code
2015 SG Code
Reason/Challenge
Section
SG290.207A
Removed SG290.207A
Threshold
50% or more of individual public Firm to monitor allocation of
accountants annual total fees
partners portfolio
Safeguards Should be considered
Applied when necessary
Time and cost
Significance Should be evaluated
Factors provided for evaluation
Guidelines to follow
of threat
Fees on a predetermined basis relating to outcome/transaction result/result of work performed

2015 SG Code
Reason
Removed SG290.210A
290.223
Threshold
Complete ban on contingent fee
Non-assurance service is
More developed concept of
basis
allowed (Subject to factors for
materiality
(Listed/public companies)
significance of independence
Concerns: Self-Interest threat
threat)
(c) An auditor cannot be truly independent when payment of audit fees is dependent on the management of
the client. Suggest ways to reduce this perceived lack of independence.
Set fixed fees
Set by outside of management
Have regulators appoint auditors
Rotation of audit firms
Section

2009 SG Code
SG290.210A

Presentation 3- IESBA ED long association w client, mandatory rotation,

(a) Outline the key changes proposed in IESBA exposure draft on Proposed Changes to Certain Provisions
of the code Addressing the Long Association of Personnel with an audit or Assurance Client.
Strengthening the General Provisions
Providing more guidance regarding the threats which may be created by long association
Providing an additional safeguard of considering changing the individuals role on the audit if the familiarity
threat relates to association with audit client management.
Establishing a requirement that, if a firm decides rotation of an individual on the audit team is a necessary
safeguard, the firm determines an appropriate period during which the individual shall not participate in the
audit engagement or exert direct influence on the outcome of the audit engagement.
Limiting the application of the provisions to assurance engagements of a recurring nature and nature of the
assurance engagement should be taken into account when evaluating the significance of any threats created.
The general provisions should apply to evaluating the potential threats created with respect to all individuals
on the audit team on all audit engagements. The IESBA proposes replacing references to senior personnel
with personnel.
Rotation Requirements for KAPs on the Audits of PIEs
Length of Time-On Period: No change
Length of Cooling-Off Period: Increase in mandatory cooling-off period from two to five years
Applicability Listed Companies or PIEs: Changes Applies to both PIEs and Listed Companies
Which KAPs Should be Subject to a Longer Cooling-Off Period: Increase in Cooling-Off period only applies to
Audit Engagement Partner (5 years for cooling off), other KAPs have no increase in cooling-off period (still
remain as 2 years for cooling-off)
Engagement partner is subject to five years of cooling off even if the engagement is less than seven years
Restrictions on Activities During the Cooling-Off Period
During the cooling-off period the rotated partner shall not:
o Be responsible for leading or coordinating the firms professional services to the audit client or
overseeing the firms relationship with the audit client (sometimes referred to as the relationship
partner); or
o Undertake any other role, including the provision of non-assurance services, that would result in:

Significant or frequent interaction with senior management or TCWG; or

An ability to exert direct influence on the outcome of the audit engagement.

The provisions are not intended to prevent an individual from assuming a leadership role in the firm, such as
that of Senior or Managing Partner.
Obtaining the Concurrence of TCWG Regarding Application of Certain Exceptions to the Rotation Requirements
An additional year can be served due to unforeseen circumstances outside the firms control only with the
concurrence of TCWG. The IESBA also proposes requiring the firm to discuss with TCWG the reasons why
the planned rotation cannot take place and the safeguards that will be applied.
A partner may continue to serve as a KAP for a maximum of two additional years only with the concurrence of
TCWG.
(b) Do you agree or disagree with these proposed changes? Explain why.
Agree
General Provisions
Improve audit quality and enhance confidence in auditing
Positive impact for clients and investors
Auditors have a clearer picture of their obligations and considerations when approaching audit work
Partner Rotation & Cooling Off Period
Reduce familiarity and self-interest threat for engagement partners
Increase appearance of independence

Disagree
Partner Rotation & Cooling Off Period
Smaller audit firms with insufficient headcount may have difficulty fulfilling the rotation requirements
Non-PIEs still have the discretion to ascertain if familiarity threat exists and the cooling period
Restrictions on the type of activities by KAP
Audit quality may be compromised as knowledge and expertise on the client may be lost due to the extended
cooling period
May have an overall adverse effect on firms
Overall: Agree
Overall beneficial for the industry
The perceived negatives are outweighed by anticipated improvement in the perception of independence from
stakeholders as a whole, including investors and regulators.
Proposed changes will have positive impacts for clients, investors and public confidence in that it creates a
further check and balance on decision making within the audit process.
(c) Discuss the pros and cons of mandatory rotation of audit firms
Pros
Improve independence
o Auditor can get too familiar with client auditor losing its professional skepticism and become less
observant
o Financially rewarding to maintain a long term relationship with a client
o Mandatory rotation: Improve appearance of independence
Improve audit quality
o Close relation and familiarity with client reduce the quality of audit
o Auditors might become less rigorous because they trust their client and rely too much on previously
done work
o A new auditor will have a new/fresh point of view
Cons
Reduce audit quality
o Quality is low during the first few years of engagement as auditor need time to develop specific
knowledge about the company greater problem in specialised industries
o Auditors are generally more dependent and influenced by their clients in the first few years
Increased costs
o For auditors: Cost increase to gain good knowledge of the client
o For clients:
Have to provide resources, assistance and material resources e.g. spend more time to
orientate its new audit team.
Extra costs when selecting the new auditor (research cost)
Increased risk of audit failure in the first few years of working with a new auditor
o For shareholders: an investor might not be able to distinguish a voluntary change of the audit firm
(due to, for example opinion shopping of management) from a compulsory rotation
o Increasing the cost of information
Decreased competition
o Argument: mandatory rotation might provide smaller audit firms the opportunity to grow
o However, it is equally likely that mandatory firm rotation will lead to higher market concentration
because large corporations tend to choose one of the Big 4 auditors when switching their audit firm
o Companies with specialised activities: limited in their freedom of choose
(d) How does mandatory audit firm rotation affect an auditors assessment of the clients business risk, the
auditors business risk and acceptable audit risk?
Client Business Risk
Auditors may not be able to assess the changes in business risks as well
Auditors put less effort in assessing the business environment
Information not relayed to succeeding auditors properly (as they are competitors)
May assess business risk to be lower if missed out on pertinent changes
Auditor Business Risk
Auditors will see an increase in number of new clients due to need to release old clients
Rotation after a few years = less due diligence
Client selection lowers engagement risk
Less stringent selection increases auditors business risk
Higher chance of client involvement in litigation or controversy
Acceptable Audit Risk
New auditors start out not proficient on the job

Unfamiliar with the industry / firm

Higher minimal detection risk (can only perform up to a % of transactions, beyond that it becomes
uneconomical)
Minimal audit risk auditors can accept is higher

Presentation 4- IESBA ED non-assurance services,

(a) Outline the key changes proposed in the IESBA exposure draft on Proposed Changes to Certain
Provisions of the Code Addressing Non-Assurance Services for Audit Clients
Removal of the emergency exception provisions
IESBA noted that a significant number of jurisdictions do not have emergency provisions for bookkeeping or
taxation services.
Current
Proposed changes
Include provisions that permit the auditor to
Withdraw the emergency exception provisions related to
perform certain services for audit clients that are
bookkeeping and taxation services with the intention of
public interest entities(PIEs) not normally
strengthening the Code by removing the potential for misuse of
permitted by the code in the case of an
the provisions due to subjective terms such as emergency and
emergency or other unusual situations when it is
unusual situations included in the extant guidance.
impractical for the audit client to make other
IESBA believes that should an exception be deemed to be
arrangements and subject to specific safeguards
necessary, paragraph 100.11 of the Code would permit
being implemented.
consideration of the matter.
Clarification of the non-assurance services provisions in the Code concerning management responsibilities
Proposed changes to the management responsibilities provisions provide further guidance and clarification as
to what constitutes a management responsibility to better ensure that the auditor does not assume a
management responsibility.
The proposal states that the firm shall be satisfied that client management makes all judgments and
decisions that are the responsibility of management. This includes ensuring that the clients management:
o Designates an individual, preferably within senior management who possesses suitable skill,
knowledge and experience to be responsible at all times for the clients decisions and to oversee the
services. A suitable individual should understand the objectives, nature and results of the services and
the respective client and firm responsibilities. However, the individual is not required to possess the
expertise to perform or re-perform the services;
o Provides oversight of the services and evaluates the adequacy of the results of the services
performed for the clients purpose; and
o Accepts responsibility for the actions to be taken arising from the results of the services. (Paragraph
290.165)
The IESBA believes these changes will help to enhance auditor independence and further clarify expectations
from the clients management in relation to the performance of non-assurance services by an auditor.
IESBA proposes that the term significant be deleted from paragraph 290.162 as it believes that all decisions
regarding acquisition, deployment and control of human, financial, physical, technological and intangible
resources are the responsibility of management.
In addition, the IESBA proposes to delete the term generally from paragraph 290.163 as it believes that the
examples provided in the proposed guidance are definite examples of management responsibilities.
Clarification of the phrase routine or mechanical as it pertains to the provision of accounting and bookkeeping
services
The IESBA also proposes clarifications to the phrase routine or mechanical as used in the subsection
preparing accounting records and financial statements. These clarifications include additional descriptive
language further clarifying the meaning of the phrase routine or mechanical. The changes also include
additional examples of activities that are considered to be routine or mechanical (paragraphs 290.167-171).
(b) Do you Agree or Disagree with the proposed changes? Explain why.
Agree
Removal of Emergency Exception Provision
Emergency and Unusual situations
o Difficult to define
o Subjective
o Prone to misuse and manipulation
When applying the emergency exception provision, decision making should not rest in the hands of auditors
and clients.
Paragraph 100.1 (Unusual circumstances):
o Professional accountant is to consult member body or relevant regulator within the jurisdiction. The
regulator may determine whether it would be in the public interest to perform certain non-assurance
service prohibited by the code in an emergency or in other unusual situations
Change in the Decision Maker:
o From auditors and clients to external independent third party bodies
Further Clarification Management Responsibility

Removing the terms significant and generally creates an absolute line on what constitutes management
responsibilities
The increasingly clear-cut definition leaves little room for potential arguments and debates.
Auditors who abided by the well-explained provisions would be able to better maintain independency
Further Clarification Routine or Mechanical
Improve understanding for the term Routine or Mechanical
To a certain degree, better distinguishes between routine and non-routine work
By including more examples, the code provides a clearer guidance that is to be followed by the auditors.
o Example: of a routine nature such as utility bill
Disagree
Removal of Emergency Exception Provision
Purpose: Converge varying views, pertaining to the provision, among the many jurisdictions and IESBA
towards a single consensus
Some jurisdictions, however, still do not have regulations or regulatory processes to deal with possible
breaches of the code. In those cases, discretion remains in the hands of the audit firms and clients
Therefore, the code still does not address the practical challenges faced by those jurisdictions in applying the
provision as intended by the code.
Further Clarification Management Responsibility
Comprises of all related actions performed for each type of activity.
o Example: Non-Assurance Service (Corporate Taxation):
Directing employees of the client to assist in miscellaneous tasks, such as gathering
information required to perform the service.
Deployment of human Management Responsibility?
Other Considerations
The underlying concepts for the affected terms remain somewhat the same.
o Feedback from various jurisdictions through comments on the exposure draft reflects that the
understanding on what the code intends to regulate is not affected, with or without the proposed
changes.
o Necessary?
More examples are added to improve the clarity of the provisions.
o Principle-based Code of Ethics gradually taking a Rule-based approach instead. Code of Ethics
becoming a check-list of do and dont for the auditors, rather then leaving room for professional
judgment
o Akin to Illustrative Examples for FRS
o More appropriate to provide FAQs and other supporting guidance materials instead?
(c) How does the approach of IESBA in respect of provisions of non-assurance services for audit clients
compare to that of Section 201of the Sarbanes-Oxley Act of 2002?
IESBA 290
SOA s201
Use of conceptual framework
Public law
Principle based
Rule based
Application based on circumstance
Absolute in nature
Activities affected are defined
A list of prohibited activities
Permitted under emergency situations
Exemption authority allows Board to permit non-assurance service.
Permitted if preapproved by audit committee
(d) Discuss the pros and cons of allowing external auditors to provide non-audit services to their audit
clients.
Pros
Knowledge spill over
o Overlap of information required in both audit and non-audit services
o Exchange of knowledge between auditors and other departments
o Enhanced Audit Quality
Increase technical competence of auditors
Providing NAS lead to greater understanding of the clients business and financial
transactions
Increases auditors knowledge base
Example: Audit of systems requires help of specialists
Greater likelihood of identifying key issues and undetected misstatements during the audit
process
o Better quality of NAS provided
Auditors have extensive knowledge of the client
Systems, personnel, activities, industry
Experience in dealing with challenges unique to client
Best position to provide advice to clients on their operations and systems

Greater Efficiency
Services in which information required is a by-product of the audit process
Example: Tax calculations most information derived from financial records
Communication with experts within the same firm may be faster compared to consulting from
other firms during audit process
o Reduction in total cost
Resulting from economy of scope
Overlap of information and resources required for auditing and in other services
Joint use of information (knowledge spill over) in audit and NAS
Lower total cost compared to engaging different firms for each service
Financial Benefits to Audit Firm
o Additional income stream from providing profitable NAS
Indirect Benefits
o Auditors gain additional skills and knowledge from working with skilled colleagues in other
departments.
o

Cons
Threats to Independence
Financial Interest threats
o Auditor could benefit from financial interest in client
o High dependence on fees from audit client to the extent that maintaining objectivity is impossible
SelfReview threats
o Auditor in position of reviewing work they have been previously responsible for
o Possibility of ignoring errors made previously
o E.g. Valuation service where the resulting valuations have material effect on financial statements
Familiarity threats
o Auditor develops too close of a relationship with client due to multiple services
o Sympathetic to clients interest
o Reduce in professional skepticism
Advocacy threats
o Auditor promotes or perceives to promote clients position or opinion to the point that professional
objective is compromised
o E.g. Promoter of clients shares or securities
Tendency to accept risker clients
o Riskier clients have higher potential to obtain high profit through non-audit services e.g. Michael
Jackson
o Auditors may fail to adequately respond to increased risk
Perception of auditors independence
o Reliability of financial statements perceived as uncertain by investors
o Increased perceived risk may deter investors from investing in the company
o Loss of confidence in auditors by society
Presentation 5- EP200 Anti-money Laundering and Countering Financing of Terrorism
(a) Outline the key requirements in EP 200
Section 1 Introduction and Scope

Designated high risk service: Buying and selling of real estate; Managing of client money, securities or other assets;
Management of bank, savings or securities accounts; Organisation of contributions for the creation, operation or
management of companies; Creation, operation or management of legal persons or arrangements, and buying and
selling of business entities.
Section 2 Reporting and Tipping-off
Required under the Singapore law to lodge a suspicious transaction report with the Suspicious Transaction
Reporting Office, Commercial Affairs Department of the Singapore Police Force (STRO) if he knows or has
reasonable grounds to suspect that transactions are related to ML/TF, and if such knowledge or suspicion
arose in the course of his trade, profession, business or employment
Regardless of the amount of transaction
Failure to report is a crime
Where a professional accountant knows or suspects that investigations by the authorities are underway, the
professional accountant should exercise caution not to disclose related information to the alleged perpetrator
(or any other parties) so as to avoid tipping off
Will be an offence if it is likely to prejudice an investigation/impending investigation
The statutory obligation to report suspicious transactions to the authorities overrides any duty of confidentiality
to a client
Section 3 Systems and Controls
Establishing policies, procedures and controls
Risk-based approach
Professional firms would be able to ensure that measures to prevent or mitigate ML/FT are comparable with
the risks identified, and would enable them to make decisions on how to allocate their own resources in the
most effective way.
Section 4 Customer Due Diligence & Records Keeping
What kind of CDD measures to take
When CDD should be performed
o CDD measures apply to all new clients
o CDD measures shall also be applied to existing clients on the basis of risk, at appropriate times,
taking into account whether and when CDD measures have previously been undertaken and the
adequacy of data obtained.
How to conduct CDD
Non-compliance with CDD measures
Risk-based approach to CDD
Records keeping
Section 5 Reporting, Training, Compliance, Hiring and Audit
Reporting Procedures
Implement appropriate internal policies, procedures and controls to meet its reporting obligations under the
law
A single reference point (appointment of a Money Laundering Reporting Officer MLRO) should be
established for employees to refer all suspicious transactions to
Ongoing Training
Training programs tailored to the firms size, nature and complexity
Staff should be reminded of their responsibilities and kept informed of related new developments through
refresher training or internal communication
Refresher training should be held at least once every 2 years or more regularly if new regulatory requirements
are imposed
Compliance Management
Develop appropriate compliance management arrangements to monitor the professional firms compliance
with its AML/CFT policy and procedures
Appointment of a compliance officer at the management level who would report to senior management on
compliance and address any identified deficiencies
Hiring
Have adequate screening procedures in place to ensure high hiring standards
Independent Audit Function
Adequately resourced and independent to regularly assess the effectiveness of the professional firms internal
policies, procedures and controls, and its compliance with AML/CFT requirements
(b) Discuss the impact of the enhanced mandatory requirements on implementing controls and procedures
for anti-money laundering (AML) and countering the financing of terrorism (CFT) on auditors client
acceptance, audit procedures and quality control over audit.
Client Acceptance
When auditors are screening engagements, CDD requirements may either be integrated with existing client
acceptance procedures or addressed separately.
More work for the firm prior to client acceptance

o Increased cost and resources required

o May need to implement new systems to conduct CDD systematically for all new clients
Potential uncovering of information which causes client to be rejected
o Saves firm from potential negative consequences
o Opportunity costs
Audit Procedures
More/less work for the firm depends on the level of risk identified
o Risk-based approach
Auditors have to be wary of making tipping-off offences when performing audit procedures
However, level of work may not increase since:
o Close connection between the indicators of fraud risk and those of ML/ TF acts
o Auditors should assess the risk of a breach of law relating to ML/ TFC as well when they identify
possible instances of fraud
Quality Control over Audit
Record keeping of 5 years following the termination of business relations
o Different from SSQC 1 requirement - 5 years from the date of the auditors report for engagement
documentation retention
Enhance reporting process by appointing a Money Laundering Reporting Officer (MLRO) in the firm
Develop internal processes and controls to aid reporting process to STRO
Additional training to ensure all auditors are adequately prepared to deal with ML/ TF
(c) Explain how brainstorming is supposed to work as part of the audit planning process. Do you believe
brainstorming will be an effective technique for detection of fraud and ML/FT activities?
Brainstorming Discussion among the Engagement Team
SSA 300 Paragraph 5: The engagement partner and other key members of the engagement team shall be
involved in planning the audit, including planning and participating in the discussion among engagement team
members.
SSA 315 Paragraph 10: The engagement partner and other key engagement team members shall discuss the
susceptibility of the entitys financial statements to material misstatement, and the application of the applicable
financial reporting framework to the entitys facts and circumstances. The engagement partner shall determine
which matters are to be communicated to engagement team members not involved in the discussion.
SSA 240 Paragraph 15: SSA 315 (Revised) requires a discussion among the engagement team members ...
This discussion shall place particular emphasis on how and where the entitys financial statements may be
susceptible to material misstatement due to fraud, including how fraud might occur. The discussion shall occur
setting aside beliefs that the engagement team members may have that management and those charged with
governance are honest and have integrity.
SSA 550 Paragraph 12: The engagement team discussion that SSA 315 (Revised) and SSA 240 require shall
include specific consideration of the susceptibility of the financial statements to material misstatement due to
fraud or error that could result from the entitys related party relationships and transactions.
Effective
Provides opportunity for more experienced team members to share insights and about how and where the
financial statements may be susceptible to material misstatement due to fraud
Allows team members to exchange information about business risks and about how and where the financial
statements might be susceptible to material misstatement due to fraud or error
Assists team members to gain a better understanding of the potential for material misstatement of the
financial statements in the specific areas assigned to them
Provides basis upon which team members communicate and share new information that may affect
assessment of risks of material misstatement or the audit procedures performed to address these risks
Permits auditor to determine how results of audit procedures will be shared among the engagement team and
how to deal with any allegations of fraud that may come to the auditors attention
Sets the proper tone at the top for conducting the engagement
Limitations
Less experienced team members may not have a similar level of understanding about the client
o Solution: Perform analytical, fact-based research before the session to think about possible fraud risks
Less experienced team members may feel unqualified to speak openly about fraud risks or be reluctant to do
so in front of more experienced team members
o Solution: Encourage all team members, including less experienced ones, to express any idea no
matter how unusual it may seem
Threats
Group Domination
Social Loafing (Free-Riding)
Groupthink
Groupshift

Presentation 6- deficiencies in revenue recognition

(a) Discuss the deficiencies relating to revenue recognition reported under case studies 1 to 3 in Section 3 of
the Report. Provide further illustrations where necessary.
Case Study 1: Sales Cut-off Assertions
Did not select export sales in testing cut-off
o Did not comprise the right proportion of local and export sales that mirror actual sales mix.
Did not cover the inventory delivery cycle
o Covering only one day before and after year-end is not sufficient in testing risk of cut-off errors
Case Study 2: Terms of Trade and Sales Occurrence Assertions
Failed to consider the different terms of trade in the Companys sales invoices when testing for sales
occurrence
o For sales of goods with DAT terms, the Company should only recognise revenue when its goods
reach the buyers port, which is 7 days after the bill of lading date.
o Given that 80% of the Companys sales were on DAT terms, this may give rise to inaccurate sales cutoff and pre-mature recognition of revenue at year end.
Case Study 3: Bill and Hold Sales
While noting the bill and hold arrangement, the engagement team had not considered if it was appropriate to
recognize revenue based on the delivery date of 15 January 2014 according to FRS 18 Revenue
Applying to the case, on 23 December 2013,
o There were no indications that the delivery on 15 January 2014 would not be probable
o Goods had been specifically set aside for the customer and ready for delivery by 23 December 2013.
o Customer had acknowledged the deferred delivery conditions and had agreed to bear the risk of any
losses for damage to the goods placed at the Companys warehouse;
o Standard payment terms were used in the sales contract
o Hence, sales transaction should have been recorded on 23 December 2013 (in the financial year
ended 31 December 2013).
(b) Identify the key assertions that you should consider in your audit of the Dollar Holleraccount. Explain
why each assertion is applicable and important.
Assertion
Case Facts
Importance
Completeness The dollars are not
No timely updating of the records. The company would not know
regularly counted
if they the amount that they counted for is correct.
Customer is allowed to
Difficulty in determining the amount since customers behavior is
place as many dollar bills
unpredictable.
as they like on the walls
There are also no supporting documents as this is not
transaction-based.
Completeness Staple to any available
Miscounting (omitting) dollar bills since the bills are not
surface in the restaurant
concentrated in a single area.
Valuation
Writing a message or
Questionable assumption that all defaced dollar bills are still
drawing a picture with a
legal tender
permanent marker
Complexity in determining the exact value of the dollar bill (eg. If
it is signed by Michael Jackson vs if it is signed by
Tom/Dick/Harry).
Existence/
Asking that customers
Misappropriation of cash, after counting and recording, by staff
Completeness
not remove existing
or customers who have easy access to the dollar bills
dollar bills
Rights and
Customer may feel that the dollar bills still belongs to them since
Obligations
there are no actual transactions taking place
(c) List the risks associated with the companys handling of and accounting for the DollarHoller dollars.
Suggest one or more potential internal controls to mitigate each risk you identified.
Issue: Handling of Dollar Holler Dollars, Dollar bills not physically secured
Risk 1
Misappropriation of Cash
Susceptible to theft by patrons or employees
o Removal of existing dollar bills by patrons is a problem the company frequently encounters
Controls
Internal Controls:
Install CCTV cameras as deterrence for theft and allows for detection of theft
Physical control removing the bills from easy-to-reach places regularly and storing them in a
secured display case
Stringent personnel selection process and impose clear rules and penalties against theft for both
patrons and employees
Issue: Handling of Dollar Holler Dollars, Staff making loose change for patrons

Risk 2

Misappropriation of Cash
Susceptible to theft by employees when they make dollar bill changes for patrons, since the act
cannot be traced by the cashier counter.
Controls
Internal Controls:
Install CCTV cameras as deterrence for theft and allows for detection of theft
Restrict staff access to cashier counter, prepare a standard amount of petty cash/loose change for
each wait staff (which they are individually accountable for)
Stringent personnel selection process and impose clear rules and penalties against theft
Issue: Accounting of Dollar Holler Dollars, Dollars accounted for as Cash in B/S and Gain in P/L (part of net
income), Valuation of balances determined via estimation
Risk 3
Misrepresentation (Under/Overstatement) of Financial Standings for Cash Balance and Income
No way of reliably estimating how many bills put up annually at each location within US.
Unreliable financial information for company to assess its performance
Also, may inadvertently understate net income and get into trouble with the US tax authorities for
underpaying tax
Controls
Internal Controls:
Require customers to inform staff before putting the bills up so that staff can holler while recording
amount at the same time.
Periodic counting and safe-keeping of dollar bills to ascertain amount of Dollar Holler account
Issue: Accounting of Dollar Holler Dollars, Dollars accounted for as Cash in B/S and Gain in P/L (part of net
income), Classification of dollars contentious
Risk 4
Misrepresentation (Overstatement) of Financial Standings for Cash Balance and Income
Dollar bills would not be utilised by the company in its operations like normal cash, since the
companys practice is to not remove the bills
Dollar bills cannot be reinvested or paid out as dividend like net income
Controls
Internal Controls:
Obtain the advice of professionals (eg accountants and lawyers) on how to more faithfully represent
dollar bills in the financial statements
o E.g. reclassify dollar bills as part of OCI instead of net income; record as Dollar Holler Dollars asset instead of Cash
(d) Explain how you could use analytical procedures to develop an expected value for theGainDollar Holler
account balance.

Total amount from "Dollar Holler" bills

X No. of customers for the year
Total number of customers
Can take:
to arrive at an
expected value for gains from the Dollar Holler
However: Over the years, this tradition has grown in popularity
It may be more accurate to record how many customers place a Dollar Holler in three months and
extrapolate that out to an entire year
Have to factor in seasonality, i.e adjust for fluctuations in customer count, since the Loaded Leprechaun is a
tourist attraction
Alternatively, can use sales revenue (excluding the gains from the Dollar Holler) in place of number of
customers
Should have a similar relationship between sales revenue and gains from the Dollar Holler, since sales
revenue is proportional to number of customers

Presentation 7- Framework for Audit Quality

(a) Briefly explain how the inputs, outputs, interactions and contextual factors contribute to increasing quality
audits.
Input factors
Values, ethics and attitude of auditors
At audit engagement level
o Audit engagement partner has the responsibility to ensure the team exhibits the values, ethics and
attitude of a quality audit
Recognizes that the audit is performed in the wider public interest and the importance of
complying with ethical requirements
Exhibits objectivity and integrity
Is independent
Exhibits professional competence and due care
Exhibits professional skepticism
At audit firm level

Audit firms culture is important in determining how its partners and staff function in the public interest
while achieving firms commercial goals
Governance arrangement to establish appropriate tone at the top
Promote necessary personal characteristics
Financial considerations do not drive actions and decisions
Providing partners and staff with continuing professional development and high-quality
technical support
Culture of consultation on difficult issues
Robust systems for making client acceptance and continuance decisions
At National level
o National audit regulatory activities have an important influence
Ethics requirements are promulgated
Regulators, national standards setters and professional accountancy organizations are active
in ensuring ethics principles are understood and requirements are consistently applied
Information relevant to client acceptance decisions shared between audit firms
Contribution of audit quality
o 3-tier effort to ensure auditors display values, ethics and attitude for quality audit
Identifies the key stakeholders that can contribute to audit quality
Emphasizes on importance of individuals in terms of objectivity, integrity, independence and
professionalism
Highlights the importance of an audit firms culture on individuals
National level organizations can help by creating greater clarifications on standards and
increasing enforcement
Knowledge, Skills, Experience and Time
At audit engagement level
o Audit engagement partner has the responsibility to ensure the engagement team has appropriate
competences
Understand the entitys business
Make reasonable judgments
Partner actively involved in risk assessment, planning, supervising, and reviewing the work
performed
Detailed on-site audit work has sufficient experience: Work is appropriately directed,
supervised and reviewed
Sufficient time to undertake the audit in an effective manner
Accessible to management and those charged with governance
At audit firm level
o Audit firms policies and procedures will impact the required knowledge and experience
Sufficient time to deal with difficult issues as they arise
Engagement teams are properly structured
Less experienced staff receive timely appraisals and appropriate coaching
Sufficient training is given to audit partners and staff on audit, accounting and specialized
industry issues
At National level
o National activities can impact the competences of auditors
Robust arrangements for licensing audit firms/individual auditors
Education requirements are clearly defined
Training is adequately resourced and effective
Update auditors on current issues and provide training to new requirements
Auditing profession is well-positioned to attract and retain individuals with appropriate
qualities
Contribution of audit quality
o 3-tier effort to ensure audit teams have the necessary knowledge, skills, experience and time
Identifies the key stakeholders that can contribute to audit quality
Each individual engagement team has a good balance of staff for the necessary knowledge
and experience required, while also ensuring staff continuity
National level guidance to the education of current and future auditors
Process factors
Audit Process and Quality Control Procedures
Contribution of audit quality
o 3-tier effort to ensure auditors apply a rigorous audit process and quality control procedures
Generally refers to the close compliance to auditing standards and relevant laws and
regulations
o

Similarly require national level bodies to monitor and enforce that the standards are being
complied
Output Factors & Key Interactions
Contribution of audit quality
o Output factors and Key Interactions with stakeholders can help improve audit quality
Providing greater insights to the outputs produced
Making improvements on entitys financial reporting and internal control through observations
Knowledge of the expectations of end users to provide more useful information in future
audits
Work with financial and prudential regulators to uncover material breaches in laws and
regulations
Contextual Factors
Environment in which financial reporting and audit takes place varies between countries
o In some countries, business practices relatively informal and commercial law less well developed.
External financing reporting may be limited, and user expectations related to it, low.
o As these countries develop (and as businesses grow in size and need to obtain financing from capital
markets), the environment becomes more complex
o Financial reporting becomes more important and user expectations of the speed and reliability
continuously grow
o In response, law, financial reporting requirements and corporate governance processes are constantly
evolving
o Environment factors (or contextual factors) collectively have the potential to impact the nature and
quality of financial reporting
o When appropriate, auditors respond to these factors when determining how best to obtain sufficient
appropriate audit evidence
Factors: Business Practices & Commercial Law; Laws and Regulations Relating to Financial Reporting;
Applicable Financial Reporting Framework; Information Systems; Corporate Governance; Broader Cultural
Factors; Audit Regulation; Litigation Environment; Attracting Talent; Financial Reporting Timetable

(c) Past Year Exam Question

Presentation 8- Auditor Reporting Standards
(a) Briefly outline the key changes in the new and revised Auditor Reporting standards on 15 January 2015.
Key Changes in New and Revised Auditor Reporting Standards
A new requirement, which applies for financial statements of listed entities, for auditors to communicate in
their audit report Key Audit Mattersthose which the auditor views as most significant, with an explanation of
how they were addressed in the audit
Amendments to increase the auditors focus on going concern matters, including a new requirement to
challenge related disclosures in the financial statements
Added transparency in the auditors report about the auditors work and responsibilities.
Changes for all Companies
Report reordered opinion required to go first
Revised description of management and auditor responsibilities
Description of work performed on other information such as the Annual Report
Further Changes for Listed Companies
Description of key audit matters
Disclosure of the engagement partners name
Disclosure of other information not received before report date and of related auditor responsibilities
The Specific Enhancements at ISA Level
1. Proposed ISA 700 - Proposed ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements
Revisions to establish new required reporting elements including
o A requirement for the auditor to include an explicit statement of auditor independence and
o Disclose the source(s) of relevant ethical requirements, and to
o Illustrate these new elements in example auditors reports
2. Proposed ISA 701, Communicating Key Audit Matters in the Independent Auditors Report
New standard to establish requirements and guidance for the auditors determination and communication of
key audit matters.
Key audit matters, which are selected from matters communicated with those charged with governance, are
required to be communicated in auditors reports for audits of financial statements of listed entities.
Auditors of financial statements of entities other than listed entities may also be required, or may decide, to
communicate key audit matters in the auditors report.
3. Proposed ISA 260 (Revised), Communication with Those Charged with Governance

In light of proposed ISA 701, amendments to the required auditor communications with those charged with
governance,
for example, to include communication about the significant risks identified by the auditor
4. Proposed ISA 570 (Revised), Going Concern
Amendments to establish auditor reporting requirements relating to going concern, and to illustrate this
reporting within the auditors report in different circumstances
5. Proposed ISA 705 (Revised), Modifications to the Opinion in the Independent Auditors Report
Amendments to clarify how the new required reporting elements of proposed ISA 700 (Revised) are affected
when the auditor expresses a modified opinion, and to update the illustrative auditors reports accordingly
6. Proposed ISA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent
Auditors Report
Amendments to clarify the relationship between Emphasis of Matter paragraphs, Other Matter paragraphs and
the Key Audit Matters section of the auditors report
7. Proposed Conforming Amendments to Other ISAs
Conforming amendments related to communicating key audit matters
ISA 701: Communicating Key Audit Matters in the Independent Auditors Report
The New Auditors Report has included a new section to communicate key audit matters (KAM).
KAM = matters that, in the auditors professional judgment, were of most significance in the audit of the
financial statements of the current period.
KAM are selected from matters communicated with TCWG
What to include in KAM: aspects of auditors response that were most relevant, brief over of procedures
performed, indication of outcome of auditors procedures, key observations
Objective & purpose
o To determine KAM and, having formed an opinion on the FS, communicate those matters by
describing them in the auditors report
o To provide greater transparency about the audit performed enhance the communicative value of
auditors report
o Provides additional information to intended users to assist them in understanding KAM, the entity and
areas of significant management judgment in the audited FS
Not a substitute for
o disclosures in the financial statements
o a modified opinion when required by the circumstances of a specific audit engagement in accordance
with ISA 705
o reporting in accordance with ISA 570 (Revised) when a material uncertainty exists relating to events
or conditions that may cast significant doubt on an entitys ability to continue as a going concern
Not a separate opinion on individual matters.
Describe each KAM using appropriate subheading in a separate section under the heading Key Audit
Matters. The introduction of this paragraph should state:
o KAM are those matters that, in the auditors professional judgment, were of most significance in the
audit of the financial statements [of the current period]; and
o These matters were addressed in the context of the audit of the FS as a whole, and in forming the
auditors opinion thereon, and the auditor does not provide a separate opinion on these matters.
o Placed in close proximity to the auditors opinion give prominence
o Order of presentation of individual matters is a matter of professional judgment. E.g.: relative
importance based on the auditors judgment, or correspond to the manner in which matters are
disclosed in the FS.
o If comparative financial information is presented, the introductory language is tailored to draw
attention to the fact that the KAM described relate to only the audit of the FS of the current period
Circumstances in which a matter determined to be a KAM is not communicated in the auditors report
o (a) Law or regulation precludes public disclosure by either management or the auditor about the
matter (e.g.: matters that are or appear to be related to money laundering) or
o (b) When the adverse consequences would reasonably be expected to outweigh the public interest
benefits of such communication.
Understand managements views about the significance of adverse consequences by
communicating with management and TCWG
o Other concerns: Relevant ethical requirement? Required law or regulation?
When the auditor expresses a qualified or adverse opinion, communicating other KAM would still be relevant
to enhancing intended users understanding of the audit, and therefore the requirements to determine KAM
apply.
3 circumstances
o No key audit matters to communicate
o KAM will not be communicated in the auditors report and no other matters have been determined to
be key audit matters

The only key audit matters communicated are those matters addressed by Basis for
Qualified/Adverse Opinion section

(b) Mid-Term Test

(i)(aa) EOM [old]- draw users attention to a matter presented or disclosed in FS that is of such importance that is
fundamental to users understanding of FS [uncertainty relating to litigation]
(i)(bb) EOM + KAM [new](ii)(cc) Disclaimer & EOM (in (i))
(ii)(dd) Disclaimer & EOM (in (i)). Disclaimer no KAM
Presentation 9- Accounting estimates and FV measurement, CF forecast,
(a) Discuss the deficiencies relating to the audit of accounting estimates and fair value measurement reported
under case studies 4 to 6 in Section 3 of the Practice Monitoring Programme (PMP) Report.
Case Study 4: Assessing Goodwill Impairment
Wrongly compared the value-in-use amount against the goodwill only (FRS 36 paragraph 90).
o Since subsidiary A relies on the continued use of its assets to derive the cash flows as projected by
management the cash-generating unit (CGU) is the tangible assets.
Therefore, should be compared to the CA of the CGU, including the goodwill.
Demonstrates a lack of understanding over the requirements of the standard.
Case Study 5: Testing Cashflow assumptions for impairment assessment
Did not assess the reasonableness of revenue and cost of material (COM) growth rates
o Revenue growth 8% used when highest 3-yr historical growth rate was only 7% and declining
o COM growth at only 3% when historical growth rate is 10%
Did not assess reasonableness of Discount rates
o D/E ratio of A is 1:1
o Only cost of borrowing factored in
Did not consider events subsequent to year end and how it would affect A
o Non-renewal of contract with major customer
o CAPEX Items - Purchasing of new machineries
o Revise cashflow forecast downwards
Did not consider implications arising from the use of PAT as a proxy for CF
o Estimates of CF should exclude income tax receipts or payments (FRS 36.50: Impairment of Assets)
o Adjustments for non-CF items such as depreciation and unrealised FOREX gains
Case Study 6: Assessing Management Estimates in Providing for Liquidated Damages
Failed to take additional steps to independently assess and challenge management on the reasonableness of
pay-out rate
o Historical rate is 80%
Failed to follow-up on assessment after 20 Jan 14 till 28 Feb 14 (date of audit sign- off)
o Email correspondences between customers and B to discuss pay-outs should have alerted them
o Before sign-off, should have confirmed both internally and externally the results of the pay-outs
negotiation
Adjustments necessary as difference exceeds performance materiality
(c) Outline in general terms, how the attitude of professional scepticism might be applied when reviewing the
cash flow forecast.
Understand the business condition
Understand the basis of the management in making the assumptions instead of taking the face value of each
assumption
Question managements basis of making the assumptions
Question the reasonableness of the relevant growth assumptions
Be alert to any contradictory evidence of the assumptions
Question the completeness of the cash flow forecast - particularly in the cash outflows
Realise the pressure faced by the management in preparing this forecast to meet the criteria of the
restructuring of loan.
(d) Identify and explain the matters that the auditor might be sceptical about when reviewing each of the key
assumptions made by management in relation to support the cash flow forecast.
Number of existing members; Number of new members; New member fee; Annual subscription fee; Number
of instructors; Salary per instructor; Number of studios

(b) Outline the audit procedures that you would perform on the cash flow forecast to assess the going
concern basis for preparing the financial statements. You should justify your answers by stating the purpose
of each audit procedures that you would perform
Audit Procedures
Justifications
Inspect the list of existing customers and study the past trends of
Existence and valuation of the existing
aging reports on members
members - potential cash inflow
Study the past trends of the growth of new members and the
Assessment of the future revenue
retention rate of existing members
Study the past trends of the growth of subscription fees
Assessment for feasibility of increased in fees
Check for subsequent payments to determine if members are willing
Assessment of the future revenue
to pay increased fees
Review of employees list and send confirmation to all employees
Ensure all employees are included in the
current staff to ensure they are still working with the company
forecast of salaries and also completeness of
the cash outflow for salaries
Send external confirmation to current employees on the outstanding
Ensure completeness and accuracy of the
salaries
cash outflows of salaries
Check subsequent payments made to instructors or other staff
Completenesss & Accuracy of the salaries
Review of documents for any long term commitments made to rent
Completeness of all cash outflows with
studio space/ gym equipments
regards to the studio
Check for subsequent cash inflow from new investors
To ensure cash inflow from new capital
Review minutes of board meetings (method for raising new capital)
Evaluate the feasibility of the plan
Study past trends of collectibility of members fees
Determine possibility of bad debts
Check for subsequent payments received from members
Ensure fees payments received from
members
Review loan agreement with the bank, re-perform loan interest and
To ensure completeness of interest payments
repayment amount
- Cash outflow
Examine correspondence from lawyers to check if there are any
Completeness of potential litigations - possible
pending or threatened lawsuits from defaulting payments
cash outflow
Obtain a written representation from management that all litigations,
Completeness of all potential cash inflows and
asserted and unasserted claims and assessments have been
outflows
disclosed in accordance with applicable financial reporting
framework
Presentation 10- component auditor
(a) Discuss deficiencies relating to the group audit under case study 7 10 in Section 3 of PMP. Explain the
relevant SSA600 requirements and provide further illustrations.
Case Study 7: Determining & Communicating Component Materiality
Deficiencies
Relevant Paragraphs (SSA600)
1) failed to determine &
Para 21 (c) (Ref: Para A44)
assign a component
- Group engagement team shall determine. component materiality for those
materiality for Subsi C
components where component auditors will perform an audit/review for purposes of
group audit
2) component materiality
Para 21 (c) (Ref: Para A43)
should be lower than
- To reduce to an appropriately low level the probability that the aggregate of
materiality for the group
uncorrected & undetected misstatements in the group F/S > materiality for group F/S as
F/S as whole
a whole, component materiality shall be lower than materiality for group F/S as a whole
3) did not access whether
Para 22 (Ref: Para A46)
materiality used by
- Where component auditors will perform an audit for purposes of group audit, the
component auditor was
group engagement team shall evaluate the appropriateness of perf. materiality
appropriate
determined at the component level.
Case Study 8: Assessing the Professional Competence & Objectivity of Component Auditor
Deficiencies
Relevant Paragraphs (SSA600)
1) Although component auditor was a large size firm &
Para 19 (b) (Ref: Para A38)
affiliated with international network, it should not be sole
If the group engagement team plans to request a
justification for placing reliance.
component auditor to perform work on financial info.
of a component, the group engagement team shall
obtain an understanding of:
In evaluating the professional competence & objectivity of
component auditor, they had not considered the experience & component auditors professional competence
(Ref: Para A38)
qualification of engagement partner& team.
2) Given that it was the partners 1st year on engagement, the Para 19 (b) (Ref: Para A38)
group engagement team had not enquired further on the
Para A38:
profile of engagement partner, such as the partners past audit Possesses an understanding of audit & fin.
experience in similar industries (ie: subject to audit
reporting framework applicable to group audit
regulatory/internal inspections)
Possesses the special skills (ie: industry specific

- Discussions relating to component audit teams experience

knowledge) necessary to perform the work on
in auditing construction contracts were not held, considering
the particular component
the new property development activity undertaken by C
Case Study 9: Assessing The Work Of Component Auditor
Deficiencies
Relevant Paragraphs (SSA600)
Had not perform adequate
Para 30(c): If a component auditor performs an audit of the financial information of a
review procedures
significant component, the group engagement team shall be involved in the
component auditors risk assessment
this involvement at a minimum shall include reviewing the component
auditors documentation of identified significant risks
Para 42(b): Group engagement team shall determine whether it is necessary to
review other relevant parts of the component auditors audit documentation.

Had not review the audit

working papers, which was
last performed 3 years ago
Application: Rotational review
plan to provide on-going
assurance over quality of work
performed by component
auditor
Had not questioned why there
was no changes in key audit
risks
Application: Key audit risk
from construction in progress
Had not checked for
adjustments to align
accounting policy for Inventory

Para A61: What parts of the audit documentation will be relevant may vary
depending on the circumstances. Often the focus is on audit documentation that is
relevant to the significant risks of material misstatement of the Group FS.

Para 43: If the group engagement team concludes that the work of the component
auditor is insufficient, the group engagement team shall determine:
What additional procedures to be performed
Whether they are to be performed by component auditor or by the group
engagement team
Para 35: If the financial information of a component has not been prepared in
accordance with the same accounting policies applied to the Group FS, the group
engagement team shall evaluate whether the financial information has been
appropriately adjusted.

Para A29: Discussion [among Group Engagement Team members and Component
Auditors] provide an opportunity to consider whether uniform accounting policies are
used and where not, how differences are identified and adjusted.
Case Study 10: Assessing The Work Of Component Auditor
Deficiencies
Relevant Paragraphs (SSA600)
Had not performed a
Para 9(m): Significant component- a component identified that is
sufficiently robust
(i) Of Individual financial significance to the group, or
assessment in determining
whether Subsidiary D is
Para A5: The group engagement team may apply a % to a chosen benchmark as an
significant component:
aid.
(a) Quantitative: Used only
a single benchmark
Identifying a benchmark and determining a %... involves the exercise of professional
judgment.
(b) Qualitative: Had not
Para 9(m): Significant component- a component identified that is
considered factors like
(ii) due to its specific nature or circumstances, is likely to include significant risks of
market acceptance and
material misstatements to Group FS
how that boosted
Subsidiary Ds significance
Para A6: The group engagement team may also identify a component as likely to
in contribution
include significant risks of material misstatements of the Group FS due to its specific
nature or circumstances.

As a result, did not perform

additional procedures for
significant component.

SSA 315 Para 28(b): whether the risk is related to recent significant developments
and, therefore, requires special attention.
Para 31: If significant risks of material misstatement of Group FS have been
identified, the group engagement team shall evaluate the appropriateness of the
further audit procedures to be performed to respond to the identified significant risks....

(b) Using the narrative description and the flow chart provided, identify TWO internal controls in the
purchasing and receiving function. For each internal control identified: Describe the test of controls to be
performed. Explain the risk of misstatements that could be addressed by the internal controls.
IR
Match between approved PO, supplier delivery note and the physical goods received
RMM
Completeness of inventory
Occurrence of inventory
Note: Its not existence of inventory because goods received may not end up in the year-end inventory

Test of
Control

IR
RMM
Test of
Control
Note

balance
Observe the receiving process
o Is the matching process performed?
o Is the inspection of goods carried out?
Examine samples of approved PO and GRN
o Is matching done correctly?
o If there is any unmatched document, it is flagged out properly?
Examine how they provide evidence that internal control was performed and examine those
evidence/documentations
AP clerk match the supplier pro-forma invoice against approved PO and GRN before processing
payments
Completeness of Accounts Payable
Accuracy of Accounts Payable
Observe the AP clerk to see if matching is done
Test samples from the paid file to see whether matching is done correctly
Select payment samples and redo the matching process yourself
Payables are recorded after payments are madeWRONG
Cut-off issue

(c) As the Group auditor, you have concluded that the audit procedures, i.e. the test of control in (b) above
and additional audit procedures, are necessary. Discuss with reference to Singapore Standards on Auditing,
whether these audit procedures should be performed by your audit engagement team (i.e. Group auditor) or
the local audit firm (i.e. the component auditor).
SSA 600 Paragraph 9
Component An entity or business activity for which group or component management prepares financial
information that should be included in the group financial statements.
Component auditor An auditor who, at the request of the group engagement team, performs work on
financial information related to a component for the group audit.
SSA 600 Paragraph 11

The group engagement partner is responsible for the direction, supervision and performance of the group
audit engagement in compliance with professional standards and applicable legal and regulatory
requirements

(any reference to a component auditor) does not diminish the group engagement partners or the group
engagement partners firms responsibility for the group audit opinion.
SSA 600 Paragraph 19
If the group engagement team plans to request a component auditor to perform work on the financial
information of a component, the group engagement team shall obtain an understanding of the following:
(a) Whether the component auditor understands and will comply with the ethical requirements that are relevant to
the group audit and, in particular, is independent;
(b) The component auditors professional competence;
(c) Whether the group engagement team will be able to be involved in the work of the component auditor to the
extent necessary to obtain sufficient appropriate audit evidence.
(d) Whether the component auditor operates in a regulatory environment that actively oversees auditors.
SSA 600 Paragraph 20
If a component auditor does not meet the independence requirements that are relevant to the group audit, or
the group engagement team has serious concerns about the other matters listed in paragraph 19(a)-(c), the
group engagement team shall obtain sufficient appropriate audit evidence relating to the financial information
of the component without requesting that component auditor to perform work on the financial information of
that component.