Part (b) was for 7 marks, and described a situation that had arisen at an audit client whose business involved medical procedures at a private hospital. The audit senior had overheard a comment made by an employee of the hospital which insinuated that the employee was not qualified to perform medical procedures.

Most candidates identified that the main issues for the audit firm to consider related to a potential breach of law and regulations by the hospital, and that the audit firm should consider disclosure in the public interest. Most answers identified that confidentiality was in issue, and that the matter should be firstly discussed with those charged with governance.

Some candidates focussed on disciplinary action to be taken against the employee of the hospital, and on the possibility that the hospital’s management were somehow colluding with the employee to deliberately breach law and regulations and commit some type of fraud, which missed the point.

Weaker answers also failed to consider the financial statement and therefore audit implications of a letter claiming negligence, which could lead to the recognition of a provision or disclosure of a contingent liability, and could potentially have going concern implications. These matters were relevant as the audit was ongoing.