This was the most popular of the Section B questions, and was generally well attempted. Three short scenarios were provided, describing a range of situations giving rise to ethical threats and other issues, with the requirement to identify and discuss the ethical and other professional issues raised, and to recommend any actions to be taken by the audit firm for each of the scenarios given. This is a fairly standard type of question for P7, and many candidates performed well, obviously having practiced some past exam questions.

Requirement (a) was for 8 marks, and described a potential new audit client, a small owner-managed company providing financial services. There were several issues that candidates should have spotted in the scenario including a potential lack of integrity of the company’s managing director, potential self-interest and self-review threats arising from the provision of non-audit services, threats arising from non-compliance with the regulatory body, and a potential for audit pre-conditions not to be met.

The majority of candidates picked up on most of these issues and explained the ethical threats well. There has been a definite improvement in the way that candidates tackle this type of question, and in many cases close to the maximum marks were awarded.