The second part of the question, requirement (b), involved a scenario which described how the finance director of the Tony Group was insisting that the audit firm should rely on a file prepared by him in their audit of goodwill impairment.

The file contained workings and assumptions and had been checked by the Group’s head of internal audit. The requirement asked candidates to discuss how professional scepticism should be applied to the scenario, for six marks and to explain the principal audit procedures to be performed on the impairment of goodwill, for five marks.

Many candidates were able to explain that the Group finance director was intimidating the audit firm, that his workings were not sufficient as a source of evidence, and that he may have something to hide.

It was disappointing that few candidates appreciated that the Group’s profit before tax had fallen significantly, and therefore the small impairment to goodwill suggested by the finance director was unlikely to be sufficient in the circumstances, and probably influenced by management bias.

Most candidates did however realise that the audit firm should perform their own workings and not place complete reliance on the procedures that had been performed by the head of internal audit.

The requirement relating to procedures on goodwill impairment was poorly attempted. The evidence points provided by candidates for this requirement tended to revolve around recalculation or a discussion with management.

Very few suggested specific procedures that would allow the auditor to develop their own expectation in terms of the impairment necessary, which could then be compared with the finance director’s workings.

This was disappointing, as impairment has featured in several P7 exams as an audit issue and is a topic that candidates should be better prepared to tackle.

Many candidates did not answer the question, and simply described the accounting treatment for goodwill, or suggested procedures that were relevant to the calculation of goodwill at acquisition but not relevant to a review of its impairment.