This question was broadly themed around audit quality and ethical issues and featured the audit of Wire Co, for which the audit report on the most recent financial statements had just been issued.

The question was split into three short scenarios, with the requirement to comment on the quality control, ethical and professional issues contained in each with respect to the audit of Wire Co and the firm-wide policies of the audit firm. Candidates were also required to recommend any actions to be taken by the audit firm.

Part (a) described how the audit committee of Wire Co had refused to agree to an increase in audit fees despite an increase in the company’s operations. Consequently the audit firm increased the materiality level used during the audit, reduced sample sizes used when obtaining audit evidence and cut out some review procedures.

Many candidates attempted this part of the question well. Effective answers explained the intimidation threat to objectivity caused by fee pressure and went on to discuss the impact of each of the issues raised in the scenario on the quality of the audit that had been performed.

It was pleasing to see many candidates discuss matters such as sampling risk and the need for review procedures to assure the quality of audit work and to reduce the audit firm’s detection risk.

Weaker answers tended to be repetitive, and for each of the issues simply say that “not enough evidence could be obtained” resulting in material misstatements and an inappropriate audit opinion.