This question was in two parts. Part (a) was for 8 marks and described the self-construction of new property, plant and equipment at a client. A loan had been taken out to help finance the construction, and financial information was provided in relation to the asset and the loan. Candidates were asked to comment on the matters that should be considered, and the evidence that should be found when conducting a file review of non- current assets.

Candidates should have been familiar with this type of question requirement, as it commonly features in P7. Sound answers contained a calculation and explanation of the materiality of the asset and of the borrowing costs that had been capitalised, followed by a discussion of the appropriate accounting treatment, including whether the borrowing cost should be capitalised, and when depreciation in relation to the asset should commence.

There were some sound answers here, with candidates demonstrating sound knowledge of the relevant financial reporting standard requirements, and going on to provide some very well described and relevant audit procedures.

Weaker answers said that it was not possible to capitalise borrowing costs, or incorrectly thought that the construction should be accounted for as some kind of long-term construction contract. Procedures in the weaker answers tended to rely on management representations and recalculations of every figure provided in the question.