This was a 30 mark question and the rationale behind providing this small case study was two-fold:
• Firstly, to provided candidates with experience of attempting longer questions in preparation for the significant case studies that will be found in the professional level papers.
• Secondly, to allow the examiner to effectively combine two 20 mark questions to use one scenario rather than two. The aim being to cut down the amount of reading and assimilation time candidates need to understand a question prior to preparing an answer.
Given the overall higher standard of answers in this exam, the second objective at least appears to have been met; whether the first has been achieved will depend on results to the Professional papers in future diets.
The scenario itself was based on a computerised procurement and purchases system and the work of an auditor in attending the inventory count at a client. The purchases system was deliberately based on a computer system, in line with the comments made by the examiner in the study guide and at the 2007 lecturers’ conference. As in similar paper 2.6 examinations, candidates were expected to use the information in the scenario to provide relevant comments in their answers.
Part (a)
Candidates were required to use information concerning the purchases system provided in the scenario.
The question was worth 12 marks, requiring the candidates to list audit procedures and then explain the reason for each procedure. The marking scheme was clear; six procedures were required with the procedure itself being worth 1 mark and the explanation of a procedure also being worth one mark. To obtain full marks candidates needed to provide six procedures meeting this criterion.
Pass standard candidates provided between four and six good procedures, with some explanation of each procedure. However, only a minority of candidates demonstrated a good understanding of audit procedures and the reasons for those procedures.
Many candidates struggled with the scenario, particularly regarding the use of the purchases system and partly in respect to the computerisation of that system. Candidates who recognised that basic audit procedures such as tracing information through a system or ensuring that details were recorded in specific ledgers or books did obtain a pass standard.
Common errors and reasons why those errors did not obtain marks included:
Other answers failed to provide sufficient detail to obtain either the procedure mark or the explanation mark.
Many candidates also continued to “check” documents rather than actually show clear what procedures were.
For example, typical comments in this respect were:
• Check the invoice
• Check the goods received note
• Check return of goods.
Unfortunately, it was not clear exactly what was being checked or why; more detail was needed to earn the procedure mark. For example, obtain details from a sample of purchase invoices and agree these to the purchase day book and ledger would form a valid procedure.
Regarding the explanation mark, many candidates correctly attempted to link audit procedures to the audit assertions. However, the quoting of assertions was not always clear or accurate. For example:
• Suggesting that agreeing purchase order details to the inventory ledgers confirmed the completeness of invoices – when the correct assertion was occurrence.
• Tracing details from the delivery note to the purchase order to confirm correct valuation of the invoice – the completeness assertion would normally be used here.
Finally, many comments related to procedures that either could not be carried out or were simply incorrect. For example:
Overall, the standard of the answers for this basic auditing question was disappointing. Candidates and tutors are reminded of the importance of understanding sales, purchases and similar systems and the need to be able to provide clear audit procedures and explanation for those procedures. This will remain a key element of the audit and assurance examination.