This 20-mark question was based on a listed company which sold insurance services, Saxophone Enterprises Co (Saxophone). This question tested candidates’ knowledge of outsourcing internal audit and corporate governance.

Part (a) for 10 marks required advantages and disadvantages for Saxophone and its audit firm, Cello, of outsourcing the internal audit department. Candidates performed well on this question.

Many candidates were able to identify a good range of points for both Saxophone and Cello, and the mark allocation of 8 and 2 marks respectively was adhered to. Many answers were well structured with a section for each company with sub headings for advantages and disadvantages; this facilitated the marking of this question.

Those candidates who did not score well tended to provide very little detail in their answers, such as for advantages simply stated “lower costs” or “more flexibility” these are far too brief to score the 1 mark available per point. The requirement asked candidates to “explain” their points and this does not provide adequate explanation. Candidates must pay attention to the requirement verb and provide the required level of detail.

In addition some candidates included incorrect points such as for advantages the fact that the internal audit work would be quicker as the external auditors knew the company, or that the audit fee would reduce implying that the same team would be used for both tasks or that the work would automatically be relied on which was not appropriate.