The second issue was often well dealt with, with many answers correctly identifying the related party transaction and explaining the associated issues, including the necessary disclosure of the transaction in the financial statements.

However there were often errors in the calculation of materiality, with candidates thinking that the vehicle had been sold for $50 million to the finance director, indicating that they had failed to read the question carefully. Weaker answers often stated that the sale was “illegal” or “unethical”, or that the accounting treatment was wrong, and that assets should always be revalued to fair value immediately prior to sale.

For both issues, while the comments on the matters to consider were often good, the evidence points were usually weaker. Candidates lost marks by not providing an explanation of why the evidence would be necessary, which was a specific requirement of the question. For example while most candidates suggested a review of management’s impairment calculations, this was rarely expanded upon.

Similarly it was often recommended that a copy of the government regulation should be on file and reviewed, but the purpose of this review was seldom explained. In relation to the related party transaction, few procedures other than checking the invoice and obtaining management representations were usually given, and while these are relevant again the purpose of the evidence was not usually explained.