This 10-mark question informed candidates about issues that had been identified during a review of the files for two existing clients. Candidates were required to make an assessment of the materiality of each issue, provide a procedure to resolve each issue and discuss the impact on the audit report if each issue remained unresolved.

Performance was satisfactory on this question, with an improvement in candidates’ performance compared to the last time this style of question was examined.

The issues presented in the scenario included an outstanding receivable at Palm and non-attendance at the inventory count of Ash and the majority of candidates were able to identify and discuss the matters appropriately.

In addition most candidates correctly identified and calculated that each issue was material. Some candidates launched straight into assessing materiality without discussing the issue and hence missed out on the available discussion marks for each issue.

A number of candidates when discussing the issue focused on whether the issues were adjusting or non-adjusting events rather than a risk of overstated receivables and failing to obtain sufficient and appropriate evidence over the completeness and existence of inventory.

With regards to procedures to undertake to resolve each issue, candidates seemed to especially struggle with Ash. The scenario stated that it was not possible to undertake another full inventory count, however many candidates ignored this and still suggested “the company should be told to undertake an inventory count”.

This seems to indicate a failure by candidates to read the scenario. Other incorrect procedures involved “contacting the previous auditors” or “reviewing the competence of internal audit” rather than reviewing the results of the attendance by internal audit at the inventory count.

Candidates performed better on auditing Palm; however some candidates incorrectly suggested “obtaining management written representations” or “contacting the customer directly to ask if they will pay”.

Performance on the impact on the audit report if each issue remained unresolved was better than in previous exam diets. Many candidates were able to identify the type of audit report modification required and attempt to describe the impact on the audit report.

The most common omission was the need for a basis for qualified opinion paragraph.

Additionally a minority of candidates ignored the question requirement to only consider the audit report impact if the issue was unresolved. Lots of answers started with “if resolved the audit report …..” this was not required and no marks were available for this assessment.