This 20-mark question was based on a large engineering company with a capital intensive manufacturing process. Candidates were required to identify strengths from the company’s control environment in relation to non-current assets, critically evaluate a given audit procedure for completeness and also to explain the importance of obtaining an understanding of the entity and its environment.

Part (a) for 4 marks was not related to the scenario and required an explanation of the importance to the auditor of understanding the entity and its environment. Many candidates performed satisfactorily on this question, they were able to identify one or two points such as assessing risks or to assess whether to rely on the internal controls and hence reduce substantive procedures. However after this they could not provide any other relevant answers.

A large proportion of candidates seemed to confuse the requirements of this question with question 1(a) and reproduced their answers from there.