This question was for 25 marks, and was split into two requirements. The first, requirement (a), asked candidates to comment on the matters to be considered and explain the audit evidence they would expect to find in a review of the working papers relating to the audit of the Adder Group.

Candidates who have practised past exam papers will be familiar with requirements of this type, and with scenarios set in the completion stage of the audit. This requirement was for 16 marks, with eight marks available for discussion of each of the two issues described in the question.

The first issue related to a sale and leaseback arrangement. The Adder Group had derecognised the asset and recognised a profit on disposal. Information was provided in the scenario to allow candidates to discuss whether the leaseback was a finance lease or an operating lease, and then to comment on whether the accounting treatment appeared appropriate. Answers on the whole were good.

Most candidates proved able to confidently discuss whether the lease had been appropriately classified and accounted for. In addition almost all candidates correctly determined the materiality of the balances and could provide some specific and well explained points on audit evidence.