This 33 mark question was in two sections. Part (a), for 19 marks, dealt with an engagement to report on prospective financial information. Part (b), for 14 marks covered the audit of a factory closure, and the difficulties in measuring environmental and social performance. Generally candidates performed better on part (a) than part (b).

The first part of the question related to an audit client, Hawk Co that had requested its auditor to provide a report on forecast financial statements included in a business plan, which would be used to help secure a loan. The scenario contained extracts from a forecast statement of comprehensive income and a forecast statement of financial position.

Requirement (ai), for 6 marks, asked candidates to identify and explain the matters that should be considered in agreeing the terms of engagement. Candidates were specifically told not to consider ethical threats to objectivity.

Answers varied greatly in quality for this requirement. The best answers focussed on matters that should be discussed with the client, such as management’s responsibilities, the nature of the assumptions used in the forecasts and the planned contents of the review report and explained why those matters should form part of the terms of the engagement.

Most answers discussed that negative assurance should be given, and explained the importance of determining the intended user of the report including issues to do with the use of a liability disclaimer. A significant number of candidates achieved high marks on this requirement. Weaker answers discussed only matters such as fee arrangements and deadlines, which, while relevant, are not enough to score well.

Some answers discussed ethical issues, which specifically were not required, and others explained matters that would be more relevant to the initial acceptance of the engagement rather than agreeing terms with the client, such as whether the firm had the competence to perform the work.