This 30-mark question was based on a retailer of ladies clothing and accessories, Greystone Co, and tested candidates’ knowledge of internal control deficiencies, trade payables and internal audit.

Part (a) for 5 marks required candidates to explain examples of matters that the auditor should consider in determining whether an internal control deficiency was significant.

This part of the question was unrelated to the Greystone Co scenario and hence tested candidates’ knowledge as opposed to application skills. This question related to ISA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management, which is a new ISA and new to the F8 study guide for 2010.

Most candidates performed inadequately on this part of the question. The main reason for this is that candidates failed to read the question properly or did not understand what the requirement entailed. The question asked for matters which would mean internal control deficiencies were significant enough to warrant reporting to those charged with governance.

The question was not asking for examples of significant internal control deficiencies, however this is what a majority of candidates gave. Many answers included a long list of control deficiencies such as “inadequate segregation of duties” this failed to score marks as it was not answering the question.

It was apparent that many candidates had not studied the area of significant control deficiencies, and as there is now an ISA dedicated to this area, this was unsatisfactory.