This question, as is typical for question five in paper P7, focussed on reporting. The scenario for requirement (a) described the loss of accounting records that had occurred one month before the year end of a listed audit client.

The records had been held by a service organisation, which had provided reconstructed records in respect of those that had been lost. Requirement (ai) was for seven marks, and asked candidates to comment on the actions that should be taken by the auditor, and the implication for the auditor’s report. Most candidates correctly discussed that fact that the auditor was unable to obtain sufficient, appropriate audit evidence based on the reconstructed records, leading them to explain that the audit opinion should be disclaimed.

Fewer candidates suggested that alternative procedures could be used to obtain evidence, and fewer still recognised that as the accounting records were available for eleven months of the year, the audit report may not necessarily be subject to a disclaimer of opinion, or even qualified at all if alternative procedures could take place. A small minority of answers discussed the fact that due to the client being a listed entity, it would most likely have back up records of its own and not be totally reliant on the service organisation in any case.

Some answers demonstrated a lack of knowledge on audit reports, stating incorrectly that an adverse opinion would be most appropriate, and few answers described the need for discussing the potential modification with those charged with governance, instead opting for resignation in the face of such “incompetent” management.