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Hello Sir,
for Q2 part c for audit risk and auditor responsewith regard to the loan the company took.
I have done the Risk as followsThere is a risk that he loan was not accounted properly
and the auditor response :
-Obtain the documents of the loan and check terms of it and check the proper accounting of the loan which should be presented in the non-current liabilities
-Check the bank account for the amount of the loan which should have been received($2.5M)-Recalculate the interest which should have been accrued for the portion of the time during the year the loan was acquired.
-check the interest of the if it has been debited to the profit on losswill this be enough or we can add something about the ability of the company to repay the loan since the collection period has increased during the year
and if we say that will it be correct or it will a business risk not and audit risk.Can you clarify Sir,
Thanks
Hello – I’m sorry, but I can’t comment in detail on what you have written, because every student would ask me to do the same for every question they attempt – and I don’t have the time/resources to offer what would amount to a marking service.
I will therefore answer in generic terms that I hope other students will find helpful also.
First you need to read this article: https://www.accaglobal.com/ie/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/audit-risk0.html where it clearly states:
“Risks must be related to the risk arising in the audit of the financial statements and should include the financial statement assertion impacted. Therefore, audit risks should be related back to RELEVANT ASSERTIONS.”
To say that something might be “wrong” or “incorrect” is too vague to be of any help to anyone and will never earn marks.
Also in the article regarding the response:
“Responses are NOT as detailed as audit procedures; instead they relate to the approach the auditor will adopt to confirm whether the transactions or balances are materially misstated.”Look at a marking scheme (any marking scheme to a past exam):
Each valid audit risk with a relevant response is worth 2 marks.
Each sufficiently well described substantive procedure is 1 mark.You should be aiming to earn 1 mark in every sentence you write. So giving 4 “procedures” (obtain/check/recalculate/check) cannot be an appropriate technique for writing an auditor’s response. ALSO, the fact that you are writing so many different procedures is considered a “scattergun” approach, which shows that you didn’t pinpoint the risk in the first place.
On the last technical point that you raise, a customer’s inability to pay their debts is a business risk (for sure) but it manifests in audit risk – it is an inherent risk that arises whenever a company offers credit terms to clients – and trade/loan receivables will be overstated (i.e. valuation assertion) if they are not collectible and the allowance for credit losses (“bad debts”) is understated.
Thanks for clarification sir,
I should have said about the risk:
The loan should be split between current and non current liabilities
so there is a risk that the loan was not correctly split between current and noncurrent liabilitiesThe response :
The audit team should ensure the receipts of the loan of $2.5m in the bank
and should confirm the split was correctly done between current and noncurrent liabilities of the loan.
The auditor should review the disclosure of the loan which should be in compliance with the relevant standard.——————-
about the inability of the client to repay the loan -this what I meant the client maybe unable to repay the loan he took -due to the collection period increased this may impact the liquidity of the firm and could be a reason that he will not be pay the loan.
That I can view as a business riskThanks
I still can’t “assess”/”mark” your answer response – you need to consider this yourself against the published answer/marking scheme, referring also to the examiner’s report for further guidance.
Yes – see this post for how to locate answers in the CBE practice platform https://opentuition.com/topic/past-exam-cbe-answers
And here for the examiner’s report https://www.accaglobal.com/ie/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/examiners-reports1.html
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