Candidates were required to list three substantive analytical procedures and to state their expectation of the result of each procedure. In other words, candidates were expected to provide valid substantive analytical procedures such as a month by month analysis of salaries and then state expectation in terms of some months salaries being higher because of bonus payments or salary increases.
The question was worth 6 marks. The question requirement was for three procedures giving a clear guide that each substantive analytical procedure was worth 1 mark and the expectation from that procedure was also worth 1 mark.
Most candidates provided three (or sometimes fewer procedures); a minority provided more than three when the best three procedures were marked.
Example comments provided and reasons why those comments did not obtain a pass standard are noted below:
Answer comment
“Test the calculation of gross salaries deductions and net salary and ensure that net salary was paid to the correct individual.”
Examiners assessment of comment
The answer appears to be a substantive procedure rather than a substantive analytical procedure. The point is therefore not relevant because the question requirement has not been met.
Answer comment
“Compare manager’s salary to the industry average to determine accuracy of amount paid”.
Examiners assessment of comment
The point appears to be an analytical procedure; however, comparison to industry average does not necessarily help ensure that the amount paid is accurate as different companies pay different rates. Comparison of salaries to prior years in the same company may be valid if the method of comparison and the expectation of seeing an increase dependent on salary increase and change in number of managers was mentioned.
Other common errors included:
• Stating procedures in very general terms such as reviewing salaries to show that a bonus was paid.
• Inclusion of comments relating to checking overtime amounts; managers were not paid overtime.
• Inclusion of comments relating to the accuracy of the time recording system; not relevant as managers receive a standard amount each month so again they do not receive overtime payments.
The standard of answers for this question was inadequate. Many candidates did not distinguish between substantive procedures and substantive analytical procedures, or simply provided vague points, as noted above.
Candidates were required to explain various procedures for collecting audit evidence and then to discuss whether the auditor will benefit from that evidence. The specific example of audit procedure of inspection was given in the question requirement to indicate that other procedures apart from this were to be included in the answer.
Answers also had to refer to the time recording system mentioned in the scenario.
The question was worth 8 marks. The question requirement was to include 4 procedures in the answer. Most candidates mentioned 4 (or sometimes fewer) procedures although a minority mentioned more than 4; in this situation the best 4 procedures were marked.
Two marks were therefore available for each procedure. The marking guide was therefore 0.5 for stating the procedure, 0.5 for explaining the procedure and 1 mark for discussing the benefit of the procedure to the auditor.
Most candidates appeared to understand the question and provided an appropriate range of procedures. A minority of candidates mentioned and explained audit procedures such as observation to obtain the first mark for that procedure, but then discussed the benefit by including an actual procedure e.g. observing the clocking in process to ensure this was being followed. This interpretation of the question requirement was acceptable and marked accordingly.
Example comments provided and reasons why those comments did not obtain a pass standard are noted below:
Answer comment
“Re-calculation; the benefit of this procedure is that the auditor obtains evidence that clients systems are working correctly, e.g hours worked are correctly calculated.”
Examiners assessment of comment
The audit procedure and the explanation of the benefit are fine; however, there is no explanation of what recalculation is limiting the marks awarded by 0.5.Examiners’ report – F8 December 2008 5
Answer comment
For the procedure recalculation -“Ensure that net wages are correctly calculated by the wages programme to show the auditor that the wages programme is working correctly”.
Examiners assessment of comment
While there is some benefit in the procedure, it did not relate to the time recording system. To obtain the mark for explaining the benefit, ensuring that the time recording system had correctly calculated hours worked would have to be mentioned.
Other common errors included:
• Explaining the audit procedure inspection although this was specifically excluded by the question requirement.
• Using a list of assertions instead of audit procedures
• Including comments about wages systems in general when the question requirement was to focus on the time recording system.
The standard of answers was variable. Inadequate answers tended only to list procedures and then provide little or no detail on the procedure itself. Many candidates obtained between 6 and 8 marks for clearly stating procedures and explaining them per the question requirement. There tended to be relatively few answers between these extremes.