This 35 mark question was set in the planning phase of the audit of a new audit client, Ted Co. The company was a computer games designer and publisher which had experienced significant growth in recent years, and had become listed in its home jurisdiction during the financial year.

Information was provided on the company’s financial background, its operations and corporate governance structure. Extracts from the financial statements were provided along with the Earnings per Share (EPS) figure calculated by the company’s finance director.

The first requirement was for six marks, and asked candidates to discuss the matters specific to an initial audit engagement which should be considered in developing the audit strategy. Given that Ted Co was a new audit client this was a very relevant requirement.

The answers were very mixed in quality, with the best answers concentrating on practical matters such as reviewing the previous audit firm’s working papers, planning procedures to obtain evidence on opening balances, and ensuring that the audit team developed a thorough understanding of the business.

Unfortunately the majority of candidates provided generic answers discussing whether or not the firm could take on the audit, engagement letters, fees, customer due diligence and checking to see if the previous auditors had been correctly removed from office.

It was not relevant to discuss whether the audit firm should take on the client and associated acceptance issues as it was clearly expressed in the scenario that this decision had already been taken and consequently answers of this nature scored limited credit.

Other weaker answers discussed general audit planning matters such as the need to determine a materiality level. This was not tailored to the specifics of this scenario as this would be relevant for any audit.

Candidates are reminded to answer the specific question that has been set, which in this case should have meant answers focussing on matters relevant to planning an initial audit engagement after the engagement has been accepted.

Some candidates wrote a lot for what was only a six mark requirement. Candidates are reminded that the marks for each requirement are a guide as to how long should be spent on answering the question.

In some cases the answers to Q1 (a) ran to several pages, leading to time pressure on subsequent answers.