This 20-mark question was based on a computer hardware specialist, Clarinet Co (Clarinet) and tested candidates’ knowledge of misstatements, going concern and audit reports.

Part (a) for 4 marks required a description of the procedures the auditor of Clarinet should undertake in relation to the uncorrected inventory misstatement. This question, where answered, was disappointing.

Many candidates entered into lengthy discussions as to whether the write down to inventory was an adjusting or non-adjusting event (and frequently came up with the wrong conclusion). Relatively few considered how critical it was to determine the materiality of the misstatement or to perform further substantive procedures to determine the size of the misstatement.

Many also wrote at length about every possible impact on the audit report as well as providing detailed inventory count procedures. It was apparent that there were significant gaps in candidates’ technical knowledge in this area.