Part (b) for twelve marks required an identification and description of six audit risks from the scenario and the relevant auditor’s response for each. Performance on this question was mixed and performance in relation to this core area of the syllabus remains overall disappointing.

The scenario contained significantly more than six risks and so candidates were able to easily identify enough risks for the marks available. Candidates who scored well in this question went on to describe how the point identified from the scenario was an audit risk by referring to the assertion and the account balance impacted.

As in previous diets, a significant number of candidates tended to only identify facts from the scenario such as “the previous finance director had been claiming fraudulent expenses from the company” but failed to describe how this results in an audit risk, thus limiting the marks that can be scored to ½ marks.

To gain the full 1 mark candidates needed to refer to the risk of other fraudulent expenses being claimed resulting in an impact on profit, as the financial statement impact must be referred to.

Only by connecting the fact from the scenario to the relevant assertion and area of the financial statements will the candidate have adequately explained the audit risk.

Unfortunately many candidates yet again focused on business risks rather than audit risks, and explained the risk in terms of the impact on Sycamore rather than the financial statements risk and hence how it affects the auditor.

As in previous sittings, many candidates performed poorly with regards to the auditor’s responses. Many candidates gave business advice, such as undertaking quality control procedures over inventory to prevent the increased level of sales returns.

In addition a significant proportion of candidates failed to appreciate that the inventory count had already occurred, hence auditor responses focused on procedures to adopt at the count were not relevant in the circumstances.

Audit responses need to be practical and should relate to the approach (ie what testing) the auditor will adopt to assess whether the balance is materially misstated or not.

Once again this was due to a failure to read the scenario carefully. Candidates are given 15 minutes reading time and this should be spent reading the section B questions carefully and planning an appropriate response rather than attempting multiple choice questions.

Many candidates presented their answers well as they adopted a two column approach with audit risk in one column and the related response next to it. Future candidates must take note audit risk is and will continue to be an important element of the syllabus and must be understood, and they would benefit from practising audit risk questions.