In part (ii), well prepared candidates gave comprehensive answers including many actions that the auditor could take. Less well-prepared candidates tended to focus on making general comments on subsequent events and in many cases providing significant details on the going concern review.

Example comments provided and reasons why those comments did not obtain a pass standard are noted below:

Answer comment (part Iii)
“Regarding event 1, the auditor needs to amend the financial statements to show the fall in the value of inventory.”

Examiners assessment of comment
This was a very common error in answers. The auditor is not responsible for amending the financial statements – that is up to the directors of the company. The auditor simply audits the financial statements as amended to form an opinion on whether the amended statements show a true and fair view.

Other common errors included:
• Listing lots of general procedures for subsequent events rather than linking those procedures to the scenario. For example, stating that a lawyer’s letter would be obtained but not stating that the lawyer’s opinion was needed on the likelihood of being sued for environmental damage.
 • Explaining the going concern review in detail. While event 2 could potentially impact on going concern and mention of this was worth a mark, stating 5 or 6 going concern procedures was clearly inappropriate.
• Provision of every possible type of audit report modification/qualification without clearly explaining first that the directors’ amendments needed to be reviewed and then the appropriate report produced dependent on those amendments.

In summary there were two distinct types of answer to this section. Firstly, the well-prepared candidate who provided relevant actions that the auditor could take. The less well-prepared candidate who either spent far too much time explaining general points about subsequent events or in a few cases simply ran out of time to make any useful comments. As with similar questions in the past, this question scenario remains a good differentiator of candidate’s knowledge and abilities.

Candidates were expected to explain the additional work an auditor should carry out in respect of a fine being levied on their client in respect of a non-adjusting event.

The question was worth 4 marks. Stating 4 relevant procedures would provide a candidate with full marks.

Most candidates provided some relevant and useful procedures such as obtaining revised letters of representation and contacting lawyers for additional advice. The main area that was not fully considered was that the audit report had already been signed; many candidates simply assumed that the auditor would issue a new report and management would accept this.

Some candidates recognised the problem of attempting to recall the report and went on to suggest that the auditor speak at the upcoming AGM. Only a minority suggested resignation, which would not have been appropriate anyway given the proximity of the AGM.

Common errors included:
• Suggesting that the auditor would amend the financial statements
• Suggesting that the financial statements needed to include a monetary provision for this non-adjusting event
• Considering every possible type of audit report without any reference to managements’ actions.
The standard of answers for this section was therefore adequate.