Candidates were required describe the audit procedures leading up to the despatch of confirmation letters to debtors/receivables.

The question was worth 5 marks. There was no limit to the number of procedures that could be mentioned in the answer, although most candidates included five, showing an appreciation of the requirement and mark allocation.

Most answers were clear and to the point. A minority of answers either mentioned other parts of the debtors circularisation or testing of the sales system, as mentioned below, which was not relevant for this specific question.

Example comments provided and reasons why those comments did not obtain a pass standard are noted below:

Answer comment
“When replies are received, confirm balance agreed to the ledger account and investigate any discrepancies.”

Examiners assessment of comment
The question requirement was to explain the debtors circularisation up to the despatch of letters to the debtor- audit work on replies was therefore not relevant to the requirement.

Answer comment
“Review of the sales and despatch system. For example agree details of sending goods despatch notes (GDN) to accounts department and ensuring that sales invoices area issued.”

Examiners assessment of comment
This is part of the sales system and therefore not relevant to the audit of year end debtors or the debtors circularisation.

Answer comment
“The computer system should produce a list of debtors.”

Examiners assessment of comment
While the comment is correct, it is difficult to see the audit procedure here. Stating a clear procedure such as “obtain the list of debtors, cast and agree to the year-end control account” would be a better answer and obtain the relevant mark.

Other common errors included:
• Mentioning other audit procedures on debtors such as reviewing after date cash to confirm that debtors had paid the year-end balance. While the procedures were normally valid, they did not relate to the preparation of the debtor’s circularisation and therefore did not gain any marks.
• Explaining audit work on the replies received from debtors. Again this was outwith the question requirement and so not relevant.
• Explaining how the debtors balances were accumulated in the ledger; that is how invoices, payments received and credit notes were posted into the ledger.

The overall standard of answers was high. However, a minority of candidates failed to focus on the preparation of the circularisation letters.

In part (ii) candidates were required to discuss the categories of debtors that would be included in a debtors circularisation sample. The scenario did include an analysis of debtor balances which could be used as examples of the different categories of debtors – and many candidates focused their answer on this information. A minority of candidates stated other categories such as “material” or “potentially bad debts” ,correctly explained these and obtained similar marks.

The question was worth 5 marks. There was no limit to the number of categories that could be mentioned in the answer, although most candidates included up to five, showing an appreciation of the requirement and mark allocation. A significant minority of candidates spent the whole of the answer explaining one or two categories at the most, limiting the number of marks which could be awarded.

Example comments provided and reasons why those comments did not obtain a pass standard are noted below:

Answer comment
“Receivables more than 2 months old”

Examiners assessment of comment
The answer does not state why these balances will be chosen – mentioning that the balances are more likely to result in bad debts and so confirm the bad debt provision obtains the full mark.

Answer comment
“Debtors purchasing more items towards the end of the year”.

Examiners assessment of comment
The issues here are how to identify these debtors from the listing and then why that specific category was relevant for the circularisation. Very clear points were needed to justify this type of comment, assuming that the selection could be justified.

Other common errors included:
• Focusing the entire answer on explaining how to extract a sample of debtors using some form of statistical sampling technique. While the marking scheme did allow some credit for this approach, the answer was effectively only explaining one categorisation method, which therefore limited the marks that could be awarded.
• Repeating the points made. In other words, a minority of answers provided little or no structure. Adequate answers tended to work down the categorisation presented in the scenario. Other answers tended to mention categories of debtors in a random order, sometimes duplicating categories of debtors, and then fail to mention why that category was to be chosen anyway.

The overall standard was satisfactory, where sufficient categories of debtors were mentioned in the answer.