This question scenario was set at the completion stage of the audit of Cooper Co and candidates were well prepared for this type of question, as it was well attempted by many of the candidates that chose to answer it.

The first requirement for this question, worth 15 marks in total, presented information on two separate issues uncovered during the audit that have been brought to your attention by the audit senior – factories that are producing a chemical that would be phased out in three years’ time (eight marks), and a vehicle that was sold to the company’s finance director (seven marks).

The wording of this requirement would have been familiar to candidates who had practised past exam papers, and specifically candidates were required to comment on the matters to be considered in relation to each of the issues, and the audit evidence that should be found during a review of the audit working papers.

There were some excellent answers here, with many candidates achieving close to the maximum marks. Most candidates correctly identified that possible impairment was the main matter to consider in relation to the factories, and discussed the issue well. However, there were two common problems visible in answers.

Firstly, there was an over emphasis on going concern issues, even though the scenario explicitly stated that sales of output from the factories was still buoyant. While it was correct to identify that without a replacement for the product there would be an impact on the company’s revenue in the future, this was not a pressing issue for this year’s audit.

Secondly, in relation to the feasibility study into a replacement chemical, many candidates spent time detailing the capitalisation criteria for development costs, even when they had already stated in their answer that the amounts would have to be expensed as a research cost. This wasted valuable time as the capitalisation criteria were not relevant to their answer.

Worryingly, a significant minority of answers commented on the need for a provision to be made for the loss of revenue that would happen in future years, which displays a lack of understanding over some fairly basic accounting principles.