Requirement (b) was for five marks, and briefly described an issue that had arisen regarding the same audit client but in relation to a section of the previous year’s audit file that had not been completed. The section related to the development of an internally generated brand name which had been capitalised as an intangible asset and was still recognised in the financial statements.

Candidates were asked to explain the implications for the completion of this year’s audit, explain any other professional issues arising and to make recommendations as to an appropriate course of action.

This requirement was not well answered. Many candidates did not know the correct accounting treatment for internally generated brand names, and discussed the capitalisation criteria which were not relevant, or impairment or amortisation of the brand name, which were also not relevant.

Most could correctly determine the materiality of the brand, but far fewer identified the key issue, which was that a prior period adjustment would be necessary to correct the material misstatement that existed in the prior year’s financial statements. Few candidates discussed the quality control issues that this raised in any detail, with the most common comment being that the audit partner should be “disciplined”.