Requirement (b) was for six marks, and was based on a scenario which described a review engagement that was taking place on the interim financial statements of another listed company. An accounting policy in relation to warranty provisions had been changed in the interim financial statements, and based on the information provided, candidates should have appreciated that the accounting treatment was incorrect.

Figures were provided to enable materiality to be calculated. The requirement was to assess the matters that should be considered in forming an opinion on the interim financial statements, and the implications for the review report. Most answers were good at discussing the accounting treatment for the warranty provision, that the non-recognition was not appropriate, and the majority correctly assessed the materiality of the issue.

Answers were inadequate in discussing the impact of this on the review report, being mostly unable to say much more than the auditor would need to mention it in the review report. There seemed to be a lack of knowledge on anything other than the standard wording for a review report, with many answers stating that the wording should be “nothing has come to our attention” followed by a discussion that there actually was something to bring to shareholders’ attention but with no recommendation as to how this should be done.