Requirement (c) dealt with changes in accounting policies and estimates. The scenario described an adjustment put through a client’s financial statements as a result of a change in accounting estimate – the extension of the useful life of 120 properties. For 5 marks the candidates were required to explain the impact on the auditor’s report of the accounting treatment of the change in the accounting estimate.

However, most candidates instead of focussing on whether the accounting treatment was correct (it was not) and the implications for the audit report, focussed on whether the client should have been “allowed” to change the estimate of useful lives and whether this amounted to some kind of fraud.

This led to irrelevant discussions that failed to answer the question requirement. Few candidates understood that the accounting treatment was incorrect, but those that did tended to explain their point well and link it to a potential qualification of the audit opinion. Some candidates described how this qualification would impact on the auditor’s report, as asked for, by describing the paragraphs used to explain the reason for the qualification.

As in Q2 however, many answers displayed a lack of understanding of auditor’s reports, with many claiming that an Emphasis of Matter or Other Matter paragraph should be used to highlight the “lack of integrity” or “fraudulent reporting” that they alleged was occurring.