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Hi,
I also took AAA UK version today. Here are the questions and my answers. Which audit risks have you picked?Q1:Gruber Ltd
(a) Identify and evaluate the matters to be considered in respect of the initial audit engagement of Gruber Ltd
New client – lack in knowledge of business, internal control – > increase detection risk
By thorough audit planning, mitigate the detection risk.
Opening balances may be misstated. Need to do more work.
Comparative figures may be misstated. need to do more work.(b) Evaluate significant audit risks for audit planning
1. Management override – family business, senior management are members of the board.
2. Revenue recognition of contracts with customers
3 year support service is a separate performance obligation, to be recognised throughout 3 years
3. Aryele Ltd- Contract assets – overstatement of contract assets and accrued profit from the contract
4. Johnson contract – contract liabilities and loss from the contract – misstated
5. The production facility on lease – right-of-use asset
6. Valuation of investment property – Natakomi Building in Edinburgh
7. The disclosure of the planned acquisition
8. The Disclosure of Related Party (Martin Gruber) and transactions (the intangible asset – Martin’s design)(c ) design principal audit procedures for the audit of valuation of investment property
Legal documentation
Bank statement
Board minutes
Expert valuation report
Discuss with management about their assumptions
Obtain written representation(d) Ethical issues raised and actions to be taken about the due diligence service for the potential buyer Willis Ltd
Gruber Ltd’s 60% shares is the target.
1. Conflict of interest and confidentiality
2. Self-interest and self-review threatQ2:
(a) Arjan Ltd – final review and subsequent events
(i) Comment on the inconsistency between management’s response and the audit evidences.
1. Understatement of inventory
2. Overstatement of receivables(ii) further actions including further substantive procedures
1. Inventory
(1) A copy of Inventory count register/report
(2) A copy of sample count working papers
(3) Meeting minutes between auditor assistant and management …
(4) (cannot remember)2. Receivables
(1) A copy of breakdown of outstanding invoices
(2) A copy of receivables confirmation.
(3) Meeting minutes with the financial controller
(4) (cannot remember)(b) Evaluate the uncorrected misstatements and comment on their individual impact on the audit opinion
(i) grant
Materiality: £5mil overstatement of grant income is material to total profit before tax.
Accounting issue:
Risk:
Material but not pervasive
Qualified opinion with an ‘except for…’ wording(ii) sale of machinery
Materiality: £1mil overstatement is material to total profit before tax.
Accounting issue:
Risk:
Material but not pervasive
Qualified opinion with an ‘except for…’ wordingQ3
a. Pre-acceptance considerations of the review engagement (10marks)
Risk: the risk of giving an incorrect opinion.
Ensure pre-conditions are in places. Limited assurance. It’s management’s responsibilities to produce the forecast statements.
Auditor consideration: if we have sufficient resources, experience and skills
Commercial: fee charge, if it is profitable
Ethics: request independence confirmation.b. Review of the forecast statements of profit or loss and cash flows (15 marks)
(i) evaluate the assumptions (6 marks)
(ii) design the principal audit procedures in the audit of cash flows. (9 marks)
Sales forecast
Search market price online
Inspect the fixed costs such as office building rents and employee salaries
Inspect the loan agreements to confirm the interest rate
Obtain WACC to recalculate the finance costsbt27 wrote:I had:
Q1: matters relating to planning audit (6m), audit risk planning (24m) procedures re investment property (8m) ethical issue (both companies audited by same firm but one buying another and wants firm to produce DD) (8m)Hi,
I posted the questions as above.I took int version.. my question 3 I think was slightly different?
Cash flow statement and procedures..I got a bit confused on q3 going concern and couldn’t write the last bit on audit report hoping for the best…
I got the same questions !
How many audit risks did you manage to find?
And what did you write in Reporting Part?CorneliaLu wrote:Hi,
I also took AAA UK version today. Here are the questions and my answers. Which audit risks have you picked?Regarding Q2:
(a) Arjan Ltd – final review and subsequent events
(i) Comment on the inconsistency between management’s response and the audit evidences.
1. Understatement of inventory
2. Overstatement of receivables
—-
For additional procedures I wrote things like using an expert to value the inventory and for receivables additional procedures such as review of the post year end bank statements to assess the recoverability. Would that be correct ?sarahsalman26 wrote:I got the same questions !
How many audit risks did you manage to find?<br>And what did you write in Reporting Part?I wrote 12 risks as I assume it’s 2 marks per well explained risk. I also note down two control risks, one in respect of the error that changed an amount from 2m profit to a 800k loss and another one in respect of the the lease to external individuals as they have access to the warehouse where the machines are manufactured.
Did you sit UK paper? @chris777
Hi Lola
Why did you comment on in the cash flow question please?
Also question 2 – ?
Thanks
Hayley@thirthy – you MUST claim mitigating circumstances for yourself – see my advice here https://opentuition.com/topic/nightmare-exam-venue
@thirthy
I can’t believe your exam was so late, especially after the disaster that was the last exam paper.
How do you feel the exam actually went?@Kim Smith thank you very much for your answer I will certainly claim for mitigating circumstances, in the meanwhile I have received an apology email from ACCA for the technical issues at the centre and stating that they will get in touch again next week.
@emwitton the exam was much easier this time, Q1 was fair enough this time with sufficient information in the scenario to put together a few audit risks. Procedures were requested to audit an agreed increase in a defined benefit pension plan for existing and past beneficiaries (weird) including the work of an external expert that has competence, experience, independence and objectivity so you had to fish for specific details on pension plan to get some marks, as well as a restructuring provision that included training and relocation cost for personnel.Q2 on acceptance decision of auditing a large company in banking industry with many foreign subsidiaries (in 50 countries if I remember well), strict reporting requirements and intimidation threats by management (giving up on existing auditor due to disagreement on models used to value financial instruments, and to cut audit time and fees). They were also facing an investigation for NOCLAR and of course the auditor did not have experience in banking just a small team working with financial institutions. However despite the question being one red flag after another, your position with the auditor (as I read it) was as a person responsible for business development too, so pro arguments were expected as well I think, as well as what should be taken in consideration when quoting a fee for the audit.
And finally reviewing some marketing material by a competitor for ethical issues. I guess this kind of question requires a bit of thinking through and in 40 minutes I just scrambled for marks taking into consideration that if you don’t answer their specific requirement you don’t get marks.Q3 was about evidence and audit opinion in a company with MURGC indicators, first reviewing the evidence on file, then recommending other evidence that should be obtained, and finally it stated tgat the auditor has satisfied himself that going concern is no longer an issue, except for a lack of confirmation regarding renewal of credit facilities that was adequately disclosed in the notes, so what would be the impact on the audit report in this situation.
P.S. To the other students this is what remember from the exam questions and according to my own understanding of the requirements, I might not remember/might not have understood everything correctly
Hopefully I will pass this time but who knows, 2 hours into the exam my energy dropped very significantly and I felt like giving up altogether, I was exhausted and honestly plain hungry having had breakfast around 8AM to be at the venue on time and now it was almost 2 PM due to ACCA’s neverending tech issues. Luckily I managed to pick myself up and finished the exam.
Hi Hayley
For the cash flow one I provided a list of procedures, mainly the ones needed for a PFI, such as recast figures in the forecast to verify they are arithmatically correct. Discuss assumptions with management, Review a schedule listing a break down of anticpated expenses, enquire why interest stays the same through out when the loan is additional. Stuff like that. (Hopefully not mixing up the questions here) sorry I had another exam today so can’t remember everything!
barbadoshk wrote:Did you sit UK paper? @chris777
International
@thirthy
We had the same exam! I found it quite nice actually, I didn’t really lose my head too much throughout but again it’s a difficult one because it’s so judgemental. I’m just hoping the points I made were relevant enough to earn enough marks to scrape that pass.
Best of luck to you!@emwitton funny how we get the same exam! 🙂
Hopefully we will both have good news next month
Good luck to you too!Took me two days to remember the question about inventory and receivables haha !
OMG! I cannot image that happen. You should file a compliant to ACCA since this is ridiculous! 3hours is a huge delay! The plane would have taken off by then…
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