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Wow, this forum is sliding, between this arguing and the pointless religious comments that float about I do wonder how you would ever pass as professional.
The question where there were unpaid fees..
I wrote that this could constitute a loan from the auditor to the entity and this is prohibited. A demand for payment must be issued immediately and the auditor should consider resigning from the audit if this is not paid.
Anyone want to share what they put for Q1 ROMMs and Q2 (b)… would like to get an idea of whether I was completely wrong or heading in the right direction..
thanks,
I write that the actuarial valuation could be done by a separate team. Considering the immaterial nature of the balance this would be allowable. Fees from the combined audiit and acty services cannot exceed 15% of the total audit fees.
For Q2
a) Benefits – Due diligence review will ascertain whether the target company is in a fit financial state and is not saddled with debts. Also ascertains whether the target is appropriate with a competitive advantage in its business environment (no point buying a company which is useless). Third point – can’t remember
b) I found this quite tricky, threw me off!! I wrote about profitability over the various years, using the operating margin as a ratio. Recommended the SOFP be available so can calculate ROCE. Also requested that a break down of the COS was available to determine if GP margin and Operating margin were rising in line with each other.
Solvency – Calculated the interest cover for the various years and also requested information on the loans that were being serviced as the finance cost didn’t change – was this a fixed repayment, interest only or cap & interest? SOFP required for appropriate liquidity.
Ownership – are the founders on a contract after aquisition? Cannot control them as an asset as they are people.
Premises – following acquisition, what will the rent cost on commercial basis, how will this affect the profit.
Revenue Recognition – Were the two year products split evenly over life of contract?
Database – Has this been recorded as in intangible, cannot be as internally generated even though generates an income
Not sure what else I wrote for Q2.A couple of my ROMM’s were:
FX movements
Goodwill may not be calculated correctly
Disposal of Sub may still be included in YE assets
Disposal of Sub may be masking Related Party Transactions
Going concern assumption without distribution centre
Inventory recorded at selling price – risk that assets overstated
Inventory in vehicle industry may need written down if held too long due to tech changesProbably got these all wrong, but oh well…
For porter what did you guys choose as your measures? I’m sure there is a mark for whatever you chose.
Mine I think were lots of chat and then concluded each with the following
New entrants: number of new start ups entered to the business environment – to assess the level of competition
Suppliers: time taken for supplies to be delivered – in order to measure the production process
Buyers: average cost of final vehicle – to see if in line with buyers needs in recession against alternatives
Substitutes: level of emissions from all substitutes including reduced emission petrol diesel
Competition: can’t remember For this one<cite>@mixer said:</cite>
Also suggested using the P/E ratio to see the markets perception – which was actually less favourable in 2013 than in 2012.I used the P\E ratio also , less favourable in 2013 too, glad somebody else used it , thought I might have been thinking too far out side of the box !
Great news 🙂 evaluation always includes think of improvements and the examiners tips were that he wanted to see people attempting to ‘add value’ to the organisations
Q1 started with ship, ash marks! The evaluated the report – I spoke about how it failed to measure any of the elements from its strategy, there was nothing in there about customer satisfaction, also masking of individual regions hotels because all lumped together. Failed to bring in targets or comparative figures from industry to measure against. Also suggested using the P/E ratio to see the markets perception – which was actually less favourable in 2013 than in 2012. Suggested a secondary report based on bcg matrix to identify where issues lie with the brand had where strengths are.
Loved the scorecard question, easy!
Building blocks I spoke mostly about rewards needing to feature clarity, motivation and controllability as per the model and then went on to match against the scenario.
The Porter 5 Forces question I have each page a header for the 5 forces, chatted bout the issues for each and a measure for each eg. Threat of substitutes I said a comparison of emissions between substitutes and fuel cell. Had a tangent on the barriers to entry for new entry suggesting that hydrogen is dangerous and regulated and need to have regulation and care especially in times where there is terrorism :S
The transfer pricing question…. Oomph nasty! I defined what it was and mentioned failure of autonomy where FD set transfer price and a lack of goal congruence whilst one division had losses. Very minimal attempt at this question.
Hope for 60%
<cite>@tdesai said:</cite>
Q1 note 1) why was advertisement fine taken in cost of sales? And only 200k instead of the probable 400k?That was one of the risks. Incorrect application of ias37 using wrong estimate
<cite> @waqasazaz said:</cite>
Analytical procedures normally take place before a year end and so projected draft statements are always required. The difference between forecast and projection as terms are negligible in under one year timeframe.
<cite>@alysyyed said:</cite>
IN QSTN 1 WHEN ASKED TO EVALUATE ADDTIONAL INFORMATION OTHEN PRE ANA PROC AND AUDIT RISK ..IN THIS ADDITIONAL INFORMATION I TALKED ABOUT RELYANCE ON PROFESSIONAL ACCOUNTANT AND THAT CONTROL WEAKNESS.ANY1 TELL ME AM I RIGHT ON ADDITIONAL INFORMATION?For the other information I said that the lack of internal control potentially opens up to fraudulent overtime payments which would lead to overstated expenses in salary and understated tax payables balances.
<cite>@adeyemi83 said:</cite>
Hi, does any one know if our question papers are submitted with our answer scripts for marking. I made the analytical procedure calculations on my question papers during the fifteen minutes review period. Unfortunately, I could not write them on my answer scripts completely. So I am thinking the examiner would see my calculations on the question paper and give me credits for it. Anyone with an opinion on this?You get zero marks for annotating the question paper I’m afraid. Always start the question with a ratio appendix.
If question 5 WAS to consider all three scenarios as one effect on the audit report, I hope the markers will be lenient if dealt with as three separate issues. That was very unclear by having A, B, C with mark allocations against each.
I discussed each in turn, talking about the materiality and the adjustments required to the accounts and effect on audit opinion. Then a part ii to discuss impact if each were left unadjusted.
<cite>@basilahmedh said:</cite>
Can anyone tell me when asked about ethical issues faced – should we mention about the additional non audit service – due diligence provided by the audit firm or ethical issue faced by the client…..because in question believe it asked for ethical issues faced by your firm…..i am not sure…..please reply………My answer for ethical included:
Management threat by potentially influencing the business into going ahead with the takeover which threatens objectivity.
Self review for already auditing the takeover target, suggest asking third party to provide advice to minimise objectivity threat
Self interest threat for seeking additional fees on advice, safeguard is to decline to offer advice as not part of the engagement terms.
Potential advocacy threat for appearing to promote the companies position in seeking takeover
Did anyone else calculate ratios in Q1? Hope I haven’t stupidly gone down the wrong route :S
<cite>@alicia21 said:</cite>
With the new format for June 2013 you only need to do three Q1 is 50 marks plus two of three 25 marks in section 2This is not correct it’s compulsory to do question one and two and then two from three options. Please see here
<cite>@desmondsum said:</cite>
The email was asking you to prepare him the briefing notes
<cite>@desmondsum said:</cite>
which question is asking to prepare a brief note ? can’t rememberQuestion 1 was briefing notes on audit risk, ethics, or professional issues and analytical procedure for new client
This was a resit for me, I think this time was much easier but a bit time pressured though.
So many easy giveaway marks! Loved the first part of question 2 regarding the quality control. Soooo blatant! Was very similar to a question in the revision kit!
Question 5 I struggled a little – can anyone tell me if I answered correctly? For each of the three scenarios I spoke about the materiality and what transactions needed done to correct and also what the audit opinion would be, and for part ii said what opinion would be if uncorrected. It didn’t ask for an opinion, just impact on audit report so just want to know if anyone else answered like this??
Now that the questions are out…
Question 3 – has anyone else interpreted that breaching roce would mean going above 6%??
As a critical utility it would surely make sense not to have a large roce?
If a lot of people read it that way do you think they may change marking? I based all my constraints on a low roce including no motivation for cost savings
Uuuuurgh in the question about the water company….
I took at it as meaning the ROCE couldn’t go above 6% for some reason!!! aaaargh! Why would I think that. I went on to explain how cutting costs would mean they would breach the 6%… I assumed it was because it was not supposed to be some massive profit making venture seen as it was regarding the country’s water supply… AAARGH
Really time pressured!!
Q1 I panicked for a while – so much data! Ended up with a report format, and a heading for each division following by subheadings for just Profitability under each. Wrote about the third division having poor credit control with high receivabled which was inflating profits, write down of assets likely and also the inflated effect on the current ratio.
Q1 part B, never touched on the net income bit – wrote about alternative measures being both ROI and RI and spoke about measuring controllable profits and costs. Part c) remuneration – not sure how i done in that – it’s subjective isn’t it…
Q2) My EVA came out at negative 4.25 or close to that. I went onto explain the current set up was not adding value and costs needed to be cut to get into an acceptable EVA situation. Part 🙂 constraints were no motivation to seek efficiencies to reduce costs otherwise regulatory level would be breached. Only way around this would be increasing total assets, lowering liabilities. Suggestion to measure divisions independantly and to focus regulatory section on qualitative measures.
Q3) The 2 divisions, I said should be zero based, so they could be motivated and focus on increasing margins and cutting costs as no growth likely for these 2 divisions. Third division which was the star, i mentioned beyond budgeting as an option but then seen in the next requirement about rolling budgets so that was a giveaway, explained that. Marketing division i suggested activity based budgeting.
Rolling budget was easy I hope… 3% increase for revenue, 55% for COS and 9% for the other variable cost.
Spoke briefly about beyond budgeting in the 4th requirement as running out of time, never got anything for the improvements to marketing technique.
Final question, was Q4… no time!!! had to miss the main bit and answer about argenti and its lack of external view.
I don’t feel confident about this paper at all 🙁