audit question

Glynis

I have been working on a question today that has the following part

Zertec has made an annual provision for maintenance of $20000

I don't know why this is in? Can anyone help.

Only useful replies please. No "isn't this obvious" type comments!

Steve Collings

Glynis,

Your DFS knowledge needs to be applied in these situations. As with any auditing paper, financial reporting issues will also be tested because audit and financial reporting - whilst entirely separate subjects - are extremely closely interrelated.

Think about IAS 37 'Provisions, Contingent Liabilities and Contingent assets'. This standard prohibits annual provisioning, so where a student sees the words 'annual' and 'provision' together like in this scenario, go back to your accounting standards knowledge.

Remember, just because DFS might have been sat and passed, you still need that knowledge in auditing papers. Your technique is working because it has prompted you to ask 'why' this situation is in the question. In exam questions the examiner will not put information in the question unless they want you to do something with it! In this instance you need to apply accounting standards knowledge developed in DFS to IAP.

Regards

Steve

Glynis

Thanks steve that completely makes sense. Thank you. I don't get why we have to demonstrate DFS when we already have passed it though! Seems a bit like a duplicate test.

Steve Collings

Glynis,

You asked in an earlier thread why the auditor needs to know about accounting standards and I also posted a link to an article an ACCA examiner had written for StudentAccountant magazine.

This should answer your question why DFS knowledge is assumed at IAP level. If you work in audit practice you absolutely need to know about accounting standards because (as I said on the linked thread) how else will the auditor be able to form an opinion on the financial statements they are auditing?

Regards

Steve