*** ACCA P1 March 2017 Exam was.. Instant Poll and comments ***

You have taken words from my mouth! I was feeling its p7

Response to agnieszka.

I thought the question requirement was quite clear in that the examiner was asking for what ethical safeguards that can be placed by the audit firm, FAK, in connection to the case. Due to shortage of time, I only managed to described two which were:
i) rotation of audit partners
ii) provision of other services i.e better not to accept if the subsequent assignment would increase the reliance on a particular customer in terms of the audit firm’s revenue

@agnes4325 said:
Hi All,
If this is of any help. Some facts that I can recall on Question 1 (March 2017 session).
*Please note these details are not comprehensive – just what I remembered from memory and in my own words.*

Case scenario revolves around the State Bank of Forenia (SBF) that is trading in highly risk derivatives i.e loan documents to the extent that the “capital ?? ratio” is below recommended industry average level. The existing auditor had been auditing the bank for 20 years and the audit partner happened to be a good long-term friend of SBF Finance Director who highlighted privately to the Finance Director on the issue. But he still signed off the audit report despite his reservations.
Issue was found out and exposed by a journalist and his reporting triggered mass hysteria and many bank depositors went to withdraw out their money and the bank was unable to fulfil such massive demand of withdrawal and nearly faced collapse. It was bailed out by the government of Forenia with a 49% stake in exchange of cash injection.
Several outcome from the crisis:
i) A tender was opened for services of new auditor.
ii) Board propose for internal audit report to be reviewed by an audit committee before being received by the main Board.

Question Requirements:
a) Explain responsibility of the Board of Directors in internal control by reference to the case.
b) Give reason why it is better for audit committee to review internal audit report before being received by the main Board
c) Explain why it is beneficial to the shareholders to have open tender for external auditor service.
d) Draft statement by chairman to shareholders on following
i) state how the board had failed in its fiduciary duties
ii) < cannot recall >
iii) highlight major risks faced by SBF and what counter measures can be taken

d) ii) Assessing Going concern.

Any insights on the correct answers to Q1?

Hello!

@agnes4325, just slightly confused about the requirement A of the first question, I think it was establishing an internal audit not internal controls as far as I remember, could you please let me know. Thank

I was able to answer all three questions on time..My time management was good. But the paper was a general paper.. I don’t know if i gave the correct answers. Actually in d section B second question, d last part about the principles that should be followed when communicating with shareholders by the board, was something new. What exactly we should write for that question? I was confused..

@sharmi123 said:
what exactly they are asking in section B question 3, “The principles of disclosures to shareholders”?

Yes

I am a tutor not a P1 student so I have not seen the actual exam paper. But, based on the comments I have read here:

– we have had F8-style ethics questions on P1 before and it seems we have had them again, with a threats/safeguards question … so I doubt those worrying about being too F8 in their answers need to worry at all

– lots of real world current stuff on here, so those who have studied real world stories should have felt more comfortable. Bank crisis in Q1 smells of Lehman / Northern Rock, and it seems Q3 was blatantly Tesco. Knowing the stories in advance might have helped in understanding the issues asked

– if Agnes detail is correct, writing a statement to shareholders about how your board (it is from chairman) has failed in its duties would be a tough thing to write! An element of confession/apology/assurance about correcting the mistakes perhaps

– Impact of accountancy firm behavior on profession as a whole, and embedding risk awareness, seem to come up a lot, so should not have caused problems

– ALARP … this is where ideally you would want to avoid a risk, because it is so severe, but the operation/activity causing the risk is too important and cannot be stopped. Therefore, you cannot avoid the risk totally. Therefore, you try to get the risk down as low as you realistically can. Classic examples would be risk of spreading illness in a hospital, risk of surgical procedures being contaminated, or even just crossing the road. It is about risk reduction, in situations where you would ideally risk avoid but cannot

Seems to me that there is plenty of governance there (Q3 and Q1) but because the governance has a lot of focus on the ICS/RM/Audit part of the Code of CG, rather than directors/board structure/effectiveness, or director pay, the paper felt more risk/controls based than it actually was.

A bit disappointed that Tesco story only made it to an optional question, as I was hoping for a Q1 as there is so much more that can be done with it. Shame.

And later this year, a question involving internal controls failures at an Awards ceremony with the wrong envelope perhaps? 🙂