Requirement (aiii) was for 8 marks, and focussed on ethical issues. The requirement was to discuss the ethical issues raised in the scenario and to recommend actions to be taken by the audit firm. There were two ethical issues of relevance to planning the audit – the contingent fee that had been requested by the audit client, and the matter of the previous audit manager potentially gaining employment at the client.

Answers here were mixed, and generally the answers in relation to the contingent fee were better than those in relation to employment at a client company. On the contingent fee most candidates seemed confident in their knowledge, and correctly identified that a contingent fee is not allowed for an audit engagement, and recommended sensible actions such as ensuring a discussion of the matter with those charged with governance.

The majority of candidates had the correct knowledge here, and could apply appropriately to the question. As usual, candidates appear reasonably comfortable with the ethics part of the syllabus, but are reminded that to score well on ethical requirements in P7, they must do more than just identify a threat.

On the matter of the previous audit manager going to work at the audit client answers were unsatisfactory. Most could identify that it was an ethical threat, and could suggest which threat(s) arose, but were less competent at explaining why the threat arose in the first place.

Most answers suggested at least one safeguard, usually involving reviews of work performed and ensuring that the manager has no further involvement with the audit, which were fine, but many also made inappropriate suggestions along the lines of “forbidding” the manager to work at the client, “prohibiting” the audit client from taking on the manager, and “disciplining” the manager himself.

Very few answers considered the key ethical issue of considering whether the audit manager retained any connection with the audit firm. Some answers had incorrectly assumed that the manager was being loaned to the client on a temporary basis, rather than taking up a permanent position, and some thought that he would be involved in both the audit and the preparation of financial statements. It is important to read the scenario carefully and to take time to think through the information that has been given before starting to write an answer.

The requirements discussed so far attracted a maximum of four professional marks. Generally candidates presented their answer in a logical and appropriate manner, and a significant number of answers included both an introduction and an appropriate conclusion. Most answers used headings to separate their answer points and generally the presentation was improved from previous sittings.