This question was for 39 marks, and was based on an audit planning scenario, as is typical for question one. The audit client had provided financial information in the form of a statement of financial position and a statement of comprehensive income, extracted from management accounts, along with accompanying notes.

Less written background information had been provided than in some previous audit planning questions, encouraging candidates to focus their answer on the financial information provided.

The first requirement, for 23 marks, was to perform preliminary analytical review, and then to identify and explain principal audit risks. A reasonable proportion of candidates responded quite well to the requirement regarding analytical review, with most at least calculating some simple trends, usually focussing on revenue and expenses.

Sound answers calculated a range of trends and / or ratios, and used this analysis to explain a range of audit risks relevant to each of the elements of the financial statements. Some answers mainly ignored the analytical review, and just discussed audit risks. This certainly would generate some marks, but many of the audit risks could only be clearly identified and explained by reference to some analytical review.

It was very common for some answers to calculate a trend but then just state the trend in words, e.g. calculating that revenue had decreased by 12% and then just stating that “revenue has gone down” with no discussion of any risk at all. Some answers identified an audit risk but then failed to explain why it is an audit risk, e.g. many candidates calculated that the warranty provision had decreased by 20%, and went on to suggest a risk of understatement of the provision.

This is correct, but it does not really explain the risk (an answer should link the movement in the provision to the movement in revenue and explain the risk on that basis). The weakest answers contained incorrectly calculated trends, little or no discussion of audit risk and very inadequate presentation.

Candidates also need to avoid repetition - many answers discussed going concern as an audit risk, which was correctly identified, but rather than discuss it as a discrete risk, it was just referred to as a risk at the end of every paragraph. This wastes time, and also detracts from the professionalism of the answer.

Many candidates also wasted time at the start of their answers by writing a page or more discussing irrelevant matters such as a definition of audit risk and its components, general descriptions of how to plan an audit, and describing how to calculate materiality in great depth. Candidates should note that such discussions do not earn marks and are not a suitable “introduction” to an audit risk question.

Another waste of time was to suggest audit procedures for each area being discussed. It was not uncommon for a candidate to calculate a trend, identify a risk, and then spend half a page discussing what they thought would be a good audit strategy for the risk identified, or to suggest a number of specific audit procedures. None of this is asked for, and so does not earn marks.

The other common problem were answers which focussed on business risks rather than audit risks, leading to long discussions of operational or financial problems that the client was facing, but again failing to develop the point into a specific audit risk.

There were two risks specific to items which appeared to have been incorrectly accounted for – a share based payment scheme, and a leased asset. Many candidates produced reasonable answers, especially regarding the leased asset, explaining why the accounting treatment seemed incorrect, resulting in a clear conclusion as to the relevant audit risk.

However, some answers focussed entirely on explaining the accounting treatment and failed to develop the point into an audit risk. Looking at accounting issues in general, many candidates clearly have a sound knowledge of financial reporting standards, which is essential for this paper. But candidates should be aware that simply quoting financial reporting rules is not enough – they need to apply the rules to the scenario and to the specific question requirement in order to score marks.

The share based payment scheme was a difficult issue, but relatively easy marks were available for discussing the inherent risk created by the complexity of the accounting treatment.