Candidates were required to state and explain how audit assertions relate to the audit of debtors/receivables.
The question was worth 4 marks. As the requirement explicitly stated that 4 assertions were required, the marking scheme was 1 mark for each assertion. The mark was split for stating the assertion and explaining the relevance to debtors/receivables.
This question was difficult to set and to a certain extent to mark due to some imprecision in the ISAs themselves.
In theory, a circularisation provides evidence on relatively few assertions. However, consideration of ISAs 500 and 505 shows that almost any assertion could be valid apart from normally presentation.
Even the completeness assertion has some relevance where, for example, a receivable states that an item has been recorded in their books but this has been omitted from the client’s books. Similarly, the valuation assertion is relevant where a circularisation reply is received from a receiver or liquidator of a receivable.
The ISAs are also confusing regarding which assertions relate to the balance sheet – for example cut-off is identified under the class of transactions heading rather than a period end assertion – although it is generally tested at the period end.
Given paper F8 is not a technical paper (at least to this depth), the question was marked per the marking scheme – that is 0.5 mark for identifying the assertion and 0.5 for application to receivables.
Candidates who made valid and plausible comments were therefore rewarded appropriately.
The overall standard for this question was relatively satisfactory; it was the application of the assertion that appeared to be problematic. Most candidates identified four assertions, but were unclear how this related to debtors/receivables.
Example comments provided and reasons why those comments did not obtain a pass standard are noted below:
Answer comment
Existence : this is to ensure that debtors exist and transactions has occurred. As such the debtor would confirm the amount owing in writing.
Examiners assessment of comment
There is some confusion regarding the assertion name and the one being explained. The answer starts by explaining existence – but then appears to get side-tracked into occurrence and valuation. It would have been better to note existence of the debtor is confirmed by the debtor replying to the confirmation letter.
Answer comment
Existence means that the debtor exists.
Examiners assessment of comment
The explanation of the assertion is taken as correct (the ISA actually uses the word “exist” to explain existence). However, there is no mention to show how the circularisation confirms existence – mentioning that receiving a reply from the debtors provides evidence of existence would obtain the full mark available.
Answer comment
Valuation – that amount has been appropriately disclosed in the accounts.
Examiners assessment of comment
Clear example of confusion between the assertion and the meaning of that assertion – nil points.
Other common errors in this section included:
• Explaining the assertion “measurement”. This is no longer a relevant assertion since the revision of ISAs 500/505 and so no marks could be awarded for points made regarding this assertion.
• Listing four assertions – literally giving four words. These type of answers did not either state what the assertion was or explain the relevance to debtors/receivables.
The standard of answer could have been higher; but overall candidates appeared to cope well with a difficult area of the study guide.