This 30-mark question was based on an electrical equipment manufacturer, Pear International Co (Pear), and tested candidates’ knowledge of internal controls, tests of controls, substantive procedures for property, plant and equipment, levels of assurance and internal audit.

Part (a) for 15 marks required candidates to identify and explain five deficiencies, suggest a control for each deficiency and recommend tests of controls to assess if the internal controls of Pear were operating effectively.

Most candidates performed well on this part of the question. They were able to confidently identify five deficiencies from the scenario. However, many candidates did not address the question requirement fully as they did not “identify and explain”. Candidates identified, but did not go on to explain why this was a deficiency.

For example “couriers do not always record customer signatures as proof of delivery” would receive ½ mark, however to obtain the other ½ mark they needed to explain how this could cause problems for the company; such as customers could dispute receipt of goods and Pear would need to resend them.

The requirement to provide controls was generally well answered. Some candidates gave objectives rather than controls for example “Pear should ensure that all sales are forwarded to the despatch department” without explaining what the control should be to ensure that this happened. In addition some candidates provided controls which were just too vague to attain the 1 mark available per control.

The requirement to provide tests of control was not answered well. Many candidates simply repeated their controls and added “to check that” or “to make sure”. These are not tests of control.

Also many candidates suggested that the control be tested through observation. For example “observe the process for authorisation of sales discounts”. This is a weak test as it is likely that if the auditor is present that the control will operate effectively; instead a better test would be “to review sales invoices for evidence of authorisation of discounts by sales manager.”

Many candidates set their answer out in three columns being deficiency, control and test of control. However those who set it out as identification of deficiency, explanation of deficiency and control and then separately addressed the requirement of test of controls tended to miss out some relevant tests of controls.

In addition the requirement was for five deficiencies; it was not uncommon to see candidates provide many more than five. Often in one paragraph they would combine two or three points such as authorisation of credit limits and of sales discounts. When points were combined, some candidates did not fully provide controls and tests of controls for each of the given points, therefore failing to maximise their marks.