September 5, 2016 at 10:53 am
opentuition_teamKeymasterSeptember 5, 2016 at 4:27 pm
How was the paper?September 5, 2016 at 4:29 pm
could not find many audit risk in question as the scnerio was too short and only identified the following risk such as goodwill recognition, ifrs 11, 15, 10, elimination of intra group balances and transactions,September 5, 2016 at 4:30 pm
Hard! Time pressured as always. Probably a reasonably fair paper, but only easy if you know it!
Q on due diligence I avoided…
Not at all as confident as I hoped I’d feel as I thought I’d studied hard, but clearly not hard enough!September 5, 2016 at 4:31 pm
I wrote far too much on audit risks and not a lot about anything else!September 5, 2016 at 4:50 pm
Am I right in saying it was a joint venture? q1. Again so much could have been said but such little time to say it in. I always feel I have great answer in my head then when it comes to writing it I end up saying what I mean in roundabout way.
Q3 the warranty was difficult because how can you estimate warranty provision for cars sold with a 7 year warranty seems daft.September 5, 2016 at 5:15 pm
Any one know ?wht would be answer for q4 (b)i & ii ?September 5, 2016 at 5:19 pm
The exam was OK. I hope for the best. :/
Anybody remember the marking? Is it ok?
a) Audit risks 14 points
b)Internal audit used by external auditor 7 points
c) Joint venture classification 5 points
License (Intangibles) 5 points
Professional mark 4
a)Develepment cost /evidences 7-8 points
b) Investment property (maybe) 7-8 point
c) Defined contribution benefit evidences10 points
a) Due diligence tendering 10 points
b) Risk of warranty (sg like that) 4 points
c) Process for investing warranty 6 points
4. I didn’t choose
5. a I) Ethical issue Inviting auditor the management/board 5 points
II) Corporate governance problem 5 points.
B) Audit opinion 10 points
Military costs (Confidental) no information about the items.
Fire (well disclosed)
Total 20pSeptember 5, 2016 at 5:23 pm
I thought it was very time pessuried. Q1 took a lot of time.It also threw me a bit as to only 8 months worth of data was given for the current year. Some of the audit risks i found which may or may not be correct were:
-The license had not been amortised the previous year when it probably should have meaning last year’s FS contained a material misstatement which would need to be corrected in this years FS by amending comparatives and retsating retained earnings.
-Again amortisation of the license but this time for the current year. It was still shown at cost when it had a 10 year life.
– Listed company looking to expand in future so risk of management bias to make the company look better to get access to credit and for the shareholders. Risk of profit overstatement
– IFRS 15 so need to apply the 5 step model in order to recognise revenue, as this was the first time they were applying IFRS 15 they may not do it properly and recognise revenue incorrectly.
– Joint Ventue, needed to prove that this classficiation was correct and that it wasn’t an associate or subsidiary.
– IT controls were poor as payroll fraud had taken place so need to be bear that in mind and find out more information about it and carry ou substantive procedures
-Keep an eye on expenses as some of then had not been authroised, potential money laundering.
For the above two i also mentioned we only have 8 months worth of data for the current year so those figures may actually get worse by the year end.
1 b was a standard internal audit question but i said reliance couldn’t be placed on them and they couldn’t be used due to the fact they had discovered the 2 issues which meant now that the auditor would have to work on those themselves due to the high risk involved.
Q2 was a bit tricky there was a site bought and was classified under investment property on which they were building a new hq on part of it. 1/3 of that was incorrectly classified as you cannot use investment property for owner occupation, the other was internally generated asset which threw me as i kept thinking of internally generated brand and the third one was defined benefit plan.
Q4 was Quality control, for this i missed out part a as didn’t have time to answer it. Part b revenue should not have been given to a trainee because it is high risk and previous controls should not be relied upon for revenue. Substantive procedures should have been carried out as revenue should always be approached with fraud in mind. The other one was the final review which i got a bit confused with as they were calling it something else. I just wrote that there wasn’t sufficient people fo the audit as they all were saying they didnt have time and had to go to work on the other audit.
Q5 was ethics and audit report. I missed out the part about governance as i didn’t have time to answer. For the ethics i said advice can be given to recruit someone as long as the final decision is made by management but to say no to giving them the audit partner for 6 months as that would create advocacy threat. The seconds part audit report the first was a qualified opinion as expenses were material and there wasn’t sufficient appropriate evidence and the second fire relating to going concern was a KAM.September 5, 2016 at 5:29 pm
As always i feel il manage 50+ marks only for the examiner to do his thing!!September 5, 2016 at 5:42 pm
Q5 was ethics and audit report. I missed out the part about governance as i didn’t have time to answer. For the ethics i said advice can be given to recruit someone as long as the final decision is made by management but to say no to giving them the audit partner for 6 months as that would create advocacy threat. The seconds part audit report the first was a qualified opinion as expenses were material and there wasn’t sufficient appropriate evidence and the second fire relating to going concern was a KAM.
First I was also commenting on KAM for “Fire case”, than I realized the entity was not a listed company. / Actually I was searching for demonstrating my KAM knowledge:) / KAM is only used for listed companies. So I got confused and did not figure out what was the examinator’s aim with this part.September 5, 2016 at 6:01 pm
Was in Q1 Joint Venture correct classification?
In audit risk I have identified: goodwill, NCI, consolidation adjustments, foreign exchange, revenue (not recognizing fixed payments at the year end as revenue and deferring them, also apportioning revenue for 2-3 year fixed contracts over the term), impairment review of licence as benefit received was not as much as anticipated, not capitalizing network capacity acquired but expensing, listed as manipulation risk, control risk as subsidiaries in different countries, amortization of licence should have started when the asset became ready to use.
For internal audit department, well staffed but no reliance as they have identified two control deficiency issues but still stating that controls are working well;
Due diligence matters to consider: fees, objectivity (self-review threat), time to do the work, to whom we reporting, assurance required, competence to do the work, etc.
Warranty procedures to identify liabilities (contingent) and operational risk associated with them.
Investigation – poorly answered as had no ideas.
Ethical issues in q5 – self-review, self-interest, familiarity if recruiting staff, managemerial involvement; I stated that it is not appopropriate for audit partners to work as board members, recruitment advisory acceptible if for junior staffs and final decision on managemnet.
Listing affecting on audit – increased control environment, as audit committee established and board will be staffed with appropriate number of executive and non executive directors. Increase risk of management bias to make FS look better; increased work to test controls before making reliance on them.
Military expense – no evidence so limitation of scope except for due to inability to obtain audit evidence;
Fire – confused on this but stated that as correct disclosures are made regarding going concern, the case is important to highlight so emphasis of matter to be included in audit report.September 5, 2016 at 6:06 pm
I addressed the fire case as an Emphasis of matter paragraph.
My reasons being:
1. purpose of EOM is to make users aware of issues that are in the auditor’s judgement, fundametal to their understanding of AFS, and the matter fits the purpose
2. if the examiner wanted us to address the case as a KAM, then that would have been explicitly asked
3. KAM requires you to have indicated, as an auditor, how the matter was addressed in the context of the AFS as whole (and this was not part of the scenario)
4. the standard is effective from 15 December 2016, therefore assumed it would have been as a discussion as to how it would work
Just thought I should share my view. Hope I am rightSeptember 5, 2016 at 8:00 pm
Totally in agreement with the comments above.
In question one, I totally freaked as I suddenly realised having written alot about the above that (I felt) there were two audit risks practically being given to us… The payroll issue and the expense issue. Did anyone else do this?
Also, the management information given implied to me that USA was going to double it’s revenue over the next 4 months, whilst the rest of the group was going to decrease revenue by 9%. So stated that there may be some miscalculations here. Albeit, now it seems reasonable that I totally overlooked it was the previous year. Hopefully, still identifying the same potential issues thoughSeptember 5, 2016 at 8:21 pm
For me it was terrible, especially compulsory Q2. Looks like I have a serious problem with English as well as with stadrard. The exam is more about P2 than audit. I will do the break in December.September 6, 2016 at 7:19 am
I also debated about the fire issue in my mind for a while in the exam but if my memory serves me right, one of the ways of determining a KAM is if there was a significant event or transaction that occurred during the year i.e the fire.
So much as it wont affect GC, I stated that a KAM was required because it was a significant event.September 6, 2016 at 10:08 am
Another point on the KAM item is that it is only required for Listed Entities, but:
Non-listed entities may voluntarily or at the request of management. (disclose KAM)
The effect on the audit of significant events or transactions that occurred during the period.September 6, 2016 at 10:14 am
Probably, in that question it was good to identify all financial statement risks along with detection risks.September 6, 2016 at 11:47 am
it was okSeptember 6, 2016 at 6:06 pm
Does anyone remember the specific case presented in Q1 related to then network capacity aquired from 3rd party, recorded in SoFP as intangile asset?
Would the correct treatment be accounting it as PPE or lease agreement?
AdinaSeptember 6, 2016 at 8:47 pm
In response to adinas:In my opinion it was a lease agreement because it said “the seller decide which asset to be used by purchaser” and in my opinion this means that the purchaser doesnt have control on it and so this is a lease agreement(operating lease) and hence there is the risk of overstatement of intangible asset…
In response to corkandy:I mention this point ie in my opinion there was a risk of inappropriate or inadequate disclosures(in relation to ifrs 8 segmental reporting)
I hope that these were correct…September 6, 2016 at 9:09 pm
Thank you for the reply.
I also believe the leasing treatment seems right, too bad that I only figured it out today…
As for Segmental reporting, I too mentioned this audit risk of inappropriate disclosure.
AdinaSeptember 7, 2016 at 3:55 pm
you are right the issue of fire required emphasis of matterSeptember 7, 2016 at 9:01 pm
Would the fire not be a KAM? Since the 7m in damage was material? Although not causing a material uncertainty in relation to going concern, going concern is a KAM in itself and if not materially uncertain then a KAM is sufficient. KAM being those significant matters with the determination of sufficient being if there is a high risk of there being a material misstatement, it causing us to take more time and more procedures etc. I would be of the opinion it meets the KAM paragraph requirements. Here’s hoping…..September 7, 2016 at 9:23 pm
I do not think it should be EoM. should be “Material Uncertainty Related to Going Concern”
It comes after basis of opinion.
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