Requirement (b) was for 7 marks, and described how a sale and leaseback arrangement had been accounted for.

Answers to this requirement varied greatly in quality. Some were excellent, covering all of the financial reporting issues and correctly concluding that the treatment was wrong and if not corrected could have implications for the auditor’s opinion.

In these cases, evidence points also tended to be adequate, focussing on the classification of the lease as a finance lease, and on the adjustment necessary in the financial statements. Inadequate answers discussed the points in a vague manner, seeming uncertain as to whether the accounting treatment was correct or not, resulting in the suggestion of a few unclear audit evidence points.