Candidates were required to list audit procedures and actions in respect of the director’s decision to revalue some inventory to a potentially unrealistic amount.

The question was worth 6 marks. As the requirement verb was list, then including 6 relevant procedures in the answer would obtain full marks.

This question proved to be a fairly good discriminator with many candidates struggling to obtain more than 3 marks overall. The majority of answers explained the need to discuss the matter with the directors, the effect on materiality and the need to modify the audit opinion to obtain these marks. Some answers went on to mention other points such as representation letters and reviewing the proposed policy against GAAP to see if it actually was valid.

The main weakness in many answers concerned the apparent need to go back and audit inventory from the beginning of the audit, even though the question requirement clearly stated that audit was complete apart from this issue.

Audit procedures regarding existence (seeing the inventory), obtaining the government contract to determine the need to hold 6,000 barrels of oil, etc were therefore not relevant to the answer. A minority of candidates also treated the issue as an event after the reporting period and moved on to discussing the going concern status of the company.

As no inventory had actually been destroyed, these comments were again treated as not relevant.

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

Answer comment (part (i)) 
“Verify that the inventory of oil exists by attending the client and using a dipstick to check the level of oil in the tank.”

Examiners assessment of comment 
Potentially a good procedure on inventory, but not relevant here because audit work was complete.

Answer comment (part Iii) 
“Amend the financial statements to show the net realisable value of oil at £15 / barrel.”.

Examiners assessment of comment 
This was another common error in many answers. Auditors cannot amend the financial statements; only present an opinion on the financial statements provided to them by the directors.

Other common errors included:

• Considering resignation if the directors refuse to amend the inventory value; this was normally considered too extreme in this situation; a qualification of the audit report being sufficient, 
• Provision of every possible type of audit report modification/qualification without clearly explaining first that the directors’ amendments needed to be reviewed and then the appropriate report produced dependent on those amendments.

The overall standard of answer was inadequate. As in previous examinations, candidates need to consider carefully the time positioning of the question and not go back and repeat audit produces that should, by the end of the audit, already be complete.