Requirement (aii) was for 18 marks, and asked candidates to assess the implications of the key audit findings provided on the completion of the audit. Guidance was given on this requirement, instructing candidates that they needed to consider risk of material misstatement and the adequacy of the audit evidence obtained.

Candidates were also specifically instructed not to recommend further audit procedures. The scenario provided nine key audit findings to be assessed.

This is a good example of a question requirement where candidates were expected to think on their feet and not rely on rote learnt facts. The candidates that did as the question instructed and took time to think about the information in the scenario scored well, and there were some sound answers. However the majority of candidates could not apply their knowledge to this scenario, leading to unfocussed answers that did not actually answer the question requirement.

Answers were on the whole unsatisfactory. Candidates tended to approach the key audit findings in a logical way, working though them in the order presented in the question. However, for each key audit finding most answers simply stated that audit evidence was not adequate without explaining why, and then gave a list of audit procedures, which was specifically not asked for.

As in Q1(aii), answers were inadequate at explaining risks of material misstatement, and in fact were worse in this question, maybe because audit completion is less frequently examined than audit planning. Candidates made mistakes in calculating materiality, using the wrong basis for most calculations, and generally did not understand the part of the information provided that dealt with other comprehensive income and its components.

Some key audit findings were better answered, mainly because marks could be awarded for financial reporting issues which candidates seemed comfortable discussing, namely the property disposal that could have been a financing arrangement, and the potential impairment of goodwill. However, all other key audit findings were inadequately dealt with, with some in some cases not even warranting an attempt at an answer, even though the issues, when thought through, were not difficult.

For example, the key issue in relation to the actuarial loss that has been suffered was that a written representation is not sufficient evidence for such a material figure, and that no work had been done to consider the competence of the service organisation which had provided the figures.

In relation to the associate, candidates did not seem sceptical of the fact that there was no movement on the statement of financial position, which in itself indicates a potential misstatement. A significant number of answers thought that the auditor need not obtain audit evidence for a material balance if it had not moved during the year.