Issue (d) explained that the audit firm had been approached to invest in a business opportunity with an audit client, which proposed the audit firm invest some cash and supply personnel to work in a joint business venture, with profit being shared between the audit firm and the audit client. Seven marks were available for discussion of this issue.

Most answers picked up on the potential for a close business relationship to be created with an audit client, and many could discuss that the severity of the ethical threats resulting from such an investment are unlikely to be acceptable. Some answers also considered the commercial angle, and many also reached an appropriate conclusion. Weaker answers listed out all of the possible threats to objectivity without any real application to the scenario.

In summary, the answers to Question Four showed that many candidates have a good understanding of ethical issues and can apply that knowledge to deal with specific scenarios. There has been some improvement in the way that candidates discuss ethical matters, with threats usually being explained, their significance evaluated, and relevant safeguards suggested.

Where candidates performed less well on this question it tended to be due to them not appropriately assessing the mark allocation. It was common to see most written in the answer to (a) and less for issues (c) and (d), when the mark allocation would suggest otherwise.