Requirement (b) was also for eight marks, and focussed on ethics. Two suggestions had been made to help an audit firm increase its revenue – one was to give managers and partners a financial reward for selling non-audit services to clients, and the other to provide an external audit service to clients.

The requirement was to comment on the ethical and professional issues raised by the two suggestions. Answers tended to discuss one of the suggestions reasonably well, but then repeat almost identical points in relation to the second suggestion. There was some overlap given that both involved the provision of a non-audit service to an audit client, but there were enough separate points that could be made to avoid repetition.

In relation to the financial incentives for partners and manager selling services to audit clients, hardly any candidates discussed the issue of the significance of the ethical threat depending on seniority and that partners couldn’t have the arrangement. Many also discussed the self-interest threat in relation to the audit firm rather than its personnel.

In relation to the extended audit, most answers explained the self -review threat and suggested appropriate safeguards, usually that of separate teams. Fewer discussed the need for extended review procedures or for separate engagement letters and billing arrangements were the internal audit service provided to an audit client.

Fewer still knew the position of the ethical codes in relation to this matter, and there was very little in the way of discussion of the topic as a current issue.

The UK and IRL adapted papers were slightly different in this requirement, as they focussed solely on the extended audit situation and asked for discussion of the how the Auditing Practices Board (APB) has responded to ethical issues raised.

Answers on the whole were satisfactory, with candidates appreciating the revision made to APB Ethical Standards in relation to the provision of non-audit services generally, and that robust safeguards are needed in the situations where a non-audit service is provided to an audited entity. Candidates seemed aware that this is a very topical issue and were largely ready to discuss the issue in some detail.