The second requirement, (aii) was for 13 marks, and asked candidates to recommend the rocedures that should be used to examine and report on the forecast financial statements to be included in the business plan.

The best answers made good use of the forecast financial statements that had been provided, and gave procedures that were both well described and relevant to the specific content of the financial statements. Many candidates also performed analytical procedures to determine unusual trends and relationships in the figures and information provided, which helped to generate very exact procedures. Sound answers had a range of procedures, some general, some focussed on income and expenses, some focussed on assets, liabilities and equity.

Weaker answers tended to state simple enquiries, for example “ask management who prepared the forecasts”, or “ask why sales has increased” without any further development. Another problem arose in answers that seemed not to realise that the figures were forecasts, so source documentation would not be available in the same way that it is for an audit of historical information.

For example, many answers suggested agreeing assets purchased to invoices from suppliers, or the forecast increase in share capital to share certificates, but these items would not yet exist as they relate to future transactions. The one area that was missing from almost all answers was the need to ensure internal consistency in all forecast figures, so for example cross-checking from the forecast financial statements to a capital expenditure budget and to cash flow forecasts.

Another problem with weaker answers was that they tended not to always provide procedures. For example, some answers contained a lengthy discussion as to whether a part of the business that was planned to be sold should be accounted for as a held-for-sale group of assets, which is not very relevant to the question requirement. These answers seemed to be drifting into an assessment of potential material misstatements, which was not asked for.