In this question, candidates were required to explain the audit procedures that could be carried out on the assumption that the company being audited would not be a going concern.

The question was worth 4 marks. The requirement verb explain indicated that answers should provide some element of detail to show why the procedure was being carried out. As information was not now available from the scenario, then one mark per point was available.

This question proved to be difficult for many candidates. Many comments made were repeats of the audit work already carried out in part (b) of the answer, while others attempted to explain every possible type of audit report that could be produced. While the latter approach had some merit, few candidates mentioned the basic procedures of discussing the situation with directors or obtaining a letter of representation point.

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

Answer comment
“Obtain a management representation point.”

Examiners assessment of comment
This is a valid procedure, although there is no “explanation” as such as to what the point is or why it is being obtained. Stating the point was being obtained to confirm the directors view on going concern would help to provide the necessary explanation.

Answer comment
“Qualify the audit report by unmodifying the opinion with an emphasis of matter opinion.”

Examiners assessment of comment
Some modification of the audit report would normally be expected in a going concern situation. However, the words used are a jumble of potentially relevant terms. To obtain a mark a clear statement of the amendment to the audit report was necessary.

Other common errors included:

• Repeating audit procedures from part (b) of the question. This was not required as the auditor had made a decision regarding the going concern concept. These comments also duplicated those from part (b); the examiner does not normally ask the same question twice in one examination.

A minority of commercially aware candidates also suggested that the auditor needs to raise a fee note as soon as possible, presumably to ensure that audit fees were paid prior to the company going into liquidation.

The standard of answers was therefore unsatisfactory for this section. The standard of answers again demonstrates that candidates do not like making decisions at the end of the audit (a weakness common to questions on events after the balance sheet date).