Candidates were expected to explain ethical threats from the scenario provided and then for each threat explain how that threat could be mitigated.

The question was worth 12 marks. There was not requirement for specific number of threats to be mentioned, although the question requirement suggested 6 threats. The mark allocation would be 0.5 for identifying the threat, 0.5 for explaining the threat and then 1 mark for showing how the threat could be mitigated.

Most candidates identified up to 6 points although a minority mentioned 7 or more; the lack of a specific number of threats to mention in the requirement meant that candidates could accumulate marks over more than 6 threats.

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

Answer comment
“The auditor should not accept the balloon ride from the client.”

Examiners assessment of comment
The answer identifies the ethical threat but does not state why it is a threat. Additional commentary such as showing that the ride would impair the teams’ judgement – they would not want to annoy the client for fear of losing the balloon ride, was required to obtain full credit.

Answer comment
“The threat of the balloon ride needs to be referred to the audit committee and checked against the audit firm’s ethical guidelines. There is a possibility of a threat but more work is needed to determine this; in the meantime the ride could be accepted”.

Examiners assessment of comment
There is no clear method of mitigating the threat; the answer is attempting to “sit on the” fence rather than provide clear guidance. The only justification for reference to ethical guidelines is in jurisdictions where limited entertainment of auditors is allowed (e.g. Singapore). Correct mention of this point in the answer did enable the candidate to obtain credit.

Other common errors included:
• Not explaining the ethical threat (as noted above). Simply stating a threat was “intimidation” for example, tended to be insufficient as an explanation.
• Mentioning non-relevant points. Firstly, in this situation Zoe being part-qualified would not bar her from being on the audit team as this is how auditors obtain “on the job” training. A significant minority of candidates suggested that the entire audit team had to be qualified indicating a lack of practical audit experience. Secondly, the first time audit for the manager was not a threat; staff have to be changed at some stage. Lastly there was insufficient information to correctly determine a fee dependency threat; the contingent fee and fixed fee were sufficient to discuss in this area.
• Not mentioning sufficient points. A small minority of candidates only mentioned say 3 points and spent up to a page explaining each threat. Candidates are reminded again about the need to check the requirement verbs used in a question and how these relate to the number of points expected in an answer.

The standard of answers for this question was satisfactory; as with question 1(b), ethics appears to be a question most candidates like. As noted above, not providing sufficient points was the main reason for a candidate not achieving a pass standard.