In this question, candidates were required to state the audit procedures that an auditor can carry out with respect to the going concern assumption.

The question was worth 8 marks. The requirement verb was simply state, indicating that all the candidate had to do to obtain a mark was state a relevant procedure. With eight marks available then eight relevant procedures would provide maximum marks. Most candidates recognised the requirement, although a significant minority lost time in their answer by providing lengthy introductions to the work of the auditor.

Audit procedures mentioned in the answer could be relevant to the scenario – various factors were mentioned to provide “clues” again to the relevant points to make an answer. However, many going concern procedures are generic to all companies, and candidates could still obtain easy marks by mentioning these e.g. reviewing cash flow forecasts or obtaining representations from the directors.

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

Answer comment
“Check whether any more employees have left the company.”

Examiners assessment of comment
The candidate has correctly identified one of the problems from the scenario in that a key employee has left the Smithson company. However, it is not clear from the answer what the actual audit procedure is; the word “check” being relatively vague. It would have been better to suggest that the auditor should discuss the replacement of key employees with the directors, or the HR department, rather than simply “checking”.

Answer comment
“Key employees leaving the company”

Examiners assessment of comment
This is actually an indicator of going concern, not an audit procedure. As such, it is not worth any credit. To gain a mark, an audit procedure, as suggested above, had to be stated.

Other common errors included:

• Providing a list of going concern indicators rather than audit procedures. The question requirement was for the audit procedures – that is the actions that the auditor will take. Listing indicators such as “key employees leaving the company” does not state what the auditor will actually do and therefore no credit can be given.
• Not providing sufficient detail on each procedure. For example, the procedure “review board minutes” is insufficient for a full mark because it is not clear why the minutes are being reviewed or when the review takes place. Stating that the minutes will be reviewed for going concern indicators for board meetings after the year end provides the necessary detail.
• Listing audit work on the financial statements. This is a very common error with going concern questions- candidates repeat the audit work already carried out (e.g. carry out a debtors’ circularisation) rather than looking for procedures relevant to the future of the company.

A minority of candidates provided eight relevant procedures and obtained full marks from this question. However, many other answers did not state the procedures clearly or simply mentioned only two or three procedures. Many candidates therefore did not answer this question well.