This 30-mark question was based on a paint manufacturer, Smoothbrush Paints Co, and tested candidates’ ability to cope with a number of areas including audit risks, planning and inventory.

Part (a) for 10 marks required candidates to identify and explain the audit risks identified at the planning stage of the audit.

Many candidates performed inadequately on this part of the question. Audit risk is a key element of the Audit & Assurance syllabus and candidates must understand audit risk.

A number of candidates wasted valuable time by describing the audit risk model along with definitions of audit risk, inherent risk, control and detection risk; this generated no marks as it was not part of the requirement.

Candidates are reminded that they must answer the question asked as opposed to the one they wish had been asked.

The main area where candidates lost marks is that they did not actually understand what audit risk relates to.

Hence they provided answers which considered the risks the business would face or ‘business risks,’ which are outside the scope of the syllabus. Audit risks must be related to the risk arising in the audit of the financial statements. If candidates did not do this then they could not have passed this part of the question as there were no marks available for business risk explanations.

Candidates were able to pick up a few marks by identifying risk factors from the scenario, but if they then went onto provide a business risk explanation; they would have scored at most ½ marks for this point, as opposed to a possible 1½ marks for each valid point.

An example of this is most candidates identified from the scenario a valid risk factor of goods being in transit for two months. The explanation of the audit risk should have been to ascertain that the cut-off of inventory was appropriate at the year end.

However many candidates went onto explain that Smoothbrush Paints Co may encounter problems with stock-outs of goods, this is focused more on operational business risk rather than on the risks to the financial statements. Future candidates must take note; audit risk is an important element of the syllabus and must be understood.

Additionally, some of the candidates who were able to provide valid audit risks tended to focus too much on inventory risks as opposed to any number of the additional audit risks presented in the scenario. Credit was awarded for valid inventory risks in 1a; however where candidates focused overly on inventory they tended to lose marks in question 1c, which asked for inventory controls, as candidates did not then consider the inventory issues in question 1c as they had raised them in 1a.

The majority of answers were presented in detailed paragraphs as opposed to a columnar approach; either approach was suitable for this question. In addition a number of candidates provided far too many points for this question, which resulted in their answers to later questions either being incomplete or rushed.

Part (b) for 4 marks required a discussion of the importance of assessing risk at the planning stage of an audit.

This was well answered by the majority of candidates with many identifying that assessing risk would lead to an effective audit with the focus of testing being on high risk areas only.