AAA*** ACCA Paper AAA December 2018 Exam was.. Instant Poll and comments ***

Qstn 1 (a) business risks (8) (b) RoMM (18) (c) principal audit procedures in respect of grant received from govt (6) (d) matters to be considered whether to accept an audit engagement or limited assurance review (8) (e) could a fraud be detected in previous years if audit or limited assurance review was done (6) Qstn 2 (a) use analytical review to assess going concern issues (10) (b) audit evidence expected to find when reviewing cashflow forecast in respect to GC issues (9) (c) possible reasons why management may refuse to make disclosures regarding uncertainties in going concern and impact on audit report (6) Qstn 3 (a) measures put in place regarding anti money laundering programme (4) (b) indicators of money laundering from scenario (6) (c) ethical and professional issues (15) The questions were not so difficult but were time consuming.

In Q1, notes from the meeting said 30 centres where the management accounts said 20. Anybody else notice this?

Overall a do-able paper. I personally struggled with Q1 (I took the U.K. variant so trying to allocate BR and ROMMS was difficult and I found it More challenging than usual to identify them. Q2 and Q3 I found very nice and approachable and I would hope them and then remainder makes from Q1 hopefully will secure me a pass.

I agree with you, the exam was fair but it was a matter of time management.

@burhansalah said: I agree with you, the exam was fair but it was a matter of time management.

Yeah my biggest concern with doing AAA was the intense time pressure due to all writing. We did it though! May I ask what people put for analytical review for GC? As it said evaluate using AR the GC so I put various points such as; - major competitor - new loan - loss of 5 major competitors Etc Then linking with ratios, gearing, OPM% etc in combined points

How was the International Variance exam?

@steven7 said: How was the International Variance exam?

There was no difference at all to the U.K. paper. Only difference was mark allocations shown net/gross Q1 UK: no mark allocation Q1 INTL: as the above user posted the individual marks Q2 no differences between the two Q3: the U.K. had the AML policies AND indicators of Clean Ltd committing ML in one question for 10 marks whereas in the INTL it was split 4/6 marks

Minousha - amazing memory! I too took uk version (2nd attempt) and was hoping for uk based question in section b - thoroughly revised wrongful/fraudulent trading and insolvency hoping one would come up! Agree fair exam but time pressure! GC indicators I also mentioned inventory payable and receivable days increase or decrease, and that the bank was overdrawn. And current interest cover

Only completed Q1 & Q2... Really time pressure... Is there any chance to pass?

@sarahb1985 said: Minousha - amazing memory! I too took uk version (2nd attempt) and was hoping for uk based question in section b - thoroughly revised wrongful/fraudulent trading and insolvency hoping one would come up! Agree fair exam but time pressure! GC indicators I also mentioned inventory payable and receivable days increase or decrease, and that the bank was overdrawn. And current interest cover

Yeah I personally find it quite annoying re: UK variant, I had to attend ~ 8 hours extra at college as well as revise more at home for topics that weren’t even tested. The only difference was no mark allocation which isn’t even a U.K. aspect, bit of a shame but I’m still really happy with Q2/3 The end of the day a lot of these questions involve judgement and subjectivity so we’ll all have some points others don’t etc - fingers crossed for all of us though and good luck for any other exams this week guys :) I have AFM on Friday so now on to that!

@faruqacca said: Only completed Q1 & Q2... Really time pressure... Is there any chance to pass?

More than a chance I think my friend. That’s 75 marks right there - I can’t say how you did but if you were able to score well on Q1 and were comfortable with Q2 in what it asked then I don’t see why not As there was the audit procedure question for 9 marks in Q2 that gives you a mark for every adequate procedure etc Best of luck!

I mentioned it as a point!

@liam01 said: In Q1, notes from the meeting said 30 centres where the management accounts said 20. Anybody else notice this?

I mentioned it as a point

Thought the lack of an audit report question very disappointing considering it's a mandatory part of the syllabus. Really frustrated with that and no doubt will be difference between passing and failing for me

@seamusshanley said: Thought the lack of an audit report question very disappointing considering it's a mandatory part of the syllabus. Really frustrated with that and no doubt will be difference between passing and failing for me

Yeah only marks for audit reports was around 3 marks of the 6 marker on Q2 - felt syllabus wasn’t tested thoroughly

Were there any numbers in Q1, or just in Q2? Any sign of the ISA 540 article getting tested?

Q1 ROMM - Revenue - Distinct perf obligation , Allocation of TP to PO and Over a period. High risk Related part disclosure IFRS 9 - loan Govt grant - Not deferred Control risk - Higher as internal audit not independent Analytical procedues - Revenue Overstated - Operating costs Understated Staff costs- Didn't increase considering the acq of two new sites. These were the risk of MM i was able to locate, As far as Business risk 1- Health and safety breach - Going concern 2- Scuba diving - not relative experience - 3- Lack of cash - No sure if its a point though 4- Data Management system - Implemented parallel - Staff not trained errors in the system 5- Data management system - Does not record the Unemployed free times - Risk we are providing more hours for free Q2: Going concern - Lot of indicators - Falling profit margins , Inventory days and receivable days increasing payable days decreasing poor cash position, Fall in interest cover , Current ratios - breach of covenants lenders may request to repay Cash flow procedures - Wrote few general like Op bal. to Bank over draft , Competence of person preparing etc and few specific to scenario Q3- MLCP Train staff etc Indicators were - Cash oriented business easy to place , More emphasis to sell to friends and receive commission (No profit motive) , Layering by transferring to Off shore account making it legitimate and clean Ethics - Skipped first part due to time IT system - Self interest and management role Gift- Self interest immaterial and with intent to build relations. Anyone with me on this? I was finding it difficult to analyse the data i.e no. of members , no of centres etc. Basically Q1 was bit difficult as i was not sure about the Advt contract and capital expenditure.

Unless i misread that question too, i thought it was related to what evidence you'd expect to find as part of the cash flow forecast - in relation to analysing the going concern? Also wrote about the competency of the person conducting it, how accurate management have been in preparing prior forecasts etc. Youve got a very good memory though - worried i miss read it now! Despite learning ED540 / the technical article, i couldnt see find that anywhere in the paper. One for the March sitting maybe?

I didnt do any numbers from Q1 (Apart from maybe the level of materiality for RoMM) No sign from what i could see for ed540/the new technical article.

@charlotte499 said: Unless i misread that question too, i thought it was related to what evidence you'd expect to find as part of the cash flow forecast - in relation to analysing the going concern? Also wrote about the competency of the person conducting it, how accurate management have been in preparing prior forecasts etc. Youve got a very good memory though - worried i miss read it now! Despite learning ED540 / the technical article, i couldnt see find that anywhere in the paper. One for the March sitting maybe?

Yeah I looked at the ED540 too, really confident to smash the question to not have it mentioned! CF wise I treated it as PFI and did various procedures such as: - Obtain draft loan agreement (as they’re currently negotiating it) and agree loan amount and interest rate - recalculate finance cost - inquire with management if the loan has been received yet as well as inspect PYE bank statements for evidence of the loan receipt and thus if it’s correct to include the loan in January XX as the forecast had done - obtain sales forecast and most recent budgets to determine and assess if large 25% move in revenue looks normal - again, inquire as to how they expect to turn a 1.Xm overdraft balance to 1.7m cash balance - seems unlikely - I also said about assess competence of preparer since it would impact the data produced - agree opening balances to PY signed financials - recast and recalculate whole forecast for accuracy Etc etc

My Takeaways from The Q1 Business Risk - The risks are more on the first few para, thus can put issues on the lack of control of too many branches, the health and safety requirements can affect operating license, two internal auditors - 1) understaffed for the no. of branch 2) report to FD thus indicates no considerations for other aspect of biz (operations, quality of service), NED from competitor can lead to disclosure of trade secrets etc (more out of the box thinking) RoMM -Too many marks allocated, so aside from the Accounting Standards (revenue, government grants), can touch on the Management AC provided (note that it was 20 branches, when case said 30,so incomplete amalgamation) , the staff cost, marketing cost, have all been stagnant contradicting to the case, thus ultimately can touch on the reliability on using the management accounts itself, new management system 1) transfer of data 2) learning curve thus more prone to misstatements, also FD has no one to check upon as IA report to him. In summary, more from the weakness from internal controls and the botched management account (should focus more on other aspects aside from IFRS issues as too much marks allocated - arnd 12 RoMM needed) MTC - consider the fact that they have already provided payroll system so this affects the acceptance of audit engagement (prohibited) - any ethical threats , familiarity, self-review Could Fraud Be Detected - consider the objectives on audit? more to checking errors in FS and not detecting fraud - since figures are given, maybe touch on whether during AP, we would have gotten something out of any trend analysis -sales figure increased, therefore not much attention would be needed let alone to analyse the Shop and the Other One in full detail -as for limited review, the checking would even be less extensive thus much less effective - conclude that it wont detect fraud, then touch on what the company needed was a forensic investigation, and even that would arise from a suspicion from the management (do comment if you want more analysis tq)

Analytical review - used the calculations here which i had prepared for q1!! Calculations i did - then just put a sentence as to why it could affect GC - Trade Payables days e.g Suppliers may stopping trading with them/ provide inventory - ROCE - Operating Profit Margin - Gross Profit Margin - Current Ratio - Interest Cover - e.g ability to pay the interest on the loan

@nathan488 said: Yeah I looked at the ED540 too, really confident to smash the question to not have it mentioned! CF wise I treated it as PFI and did various procedures such as: - Obtain draft loan agreement (as they’re currently negotiating it) and agree loan amount and interest rate - recalculate finance cost - inquire with management if the loan has been received yet as well as inspect PYE bank statements for evidence of the loan receipt and thus if it’s correct to include the loan in January XX as the forecast had done - obtain sales forecast and most recent budgets to determine and assess if large 25% move in revenue looks normal - again, inquire as to how they expect to turn a 1.Xm overdraft balance to 1.7m cash balance - seems unlikely - I also said about assess competence of preparer since it would impact the data produced - agree opening balances to PY signed financials - recast and recalculate whole forecast for accuracy Etc etc

I included them as well. How about the audit risk and Business risk?

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well if so, that is the first time in living memory we have had a technical article before an exam sitting that hasn't come up. Although I am sort of pleased as it is not an article I particularly enjoyed analysing. Business risk AND going concern on the same paper - that should assist the pass rate. I just hope that everyone has made a point of explaining their points and not just listed them, because on these non technical questions spotting the issues is typically not that hard, it is the depth of the explanation that gets the marks. Is this a case of setting the nastier technical paper (and the article...) in March when fewer people sit?

Q3 - A (i) Train Employees MLCP Q3 - A (ii) Money laundering is where criminal elements try to hide the proceeds of criminal activities by turning "dirty money" into "clean money". There are three stages Placement, Layering and Integration. Mr. Baker place 33,000 mil into the financial system this is placement. Placement is where criminal proceeds are placed into the financial system in order to disguise it. Mr. Baker then transferred the 33,000 mil to an off shore account this is layering. Layering is where additional layers of transactions are created in order to hide the origin of criminal proceeds in order to make it harder to trace. The entity was cash based which increased the risk of money laundering. Q3 - B >Tax Return >Office Party Self Interest + Familiarity Threat $30 gift immaterial can be accepted Annual attendance creates may cause staff to become overly friendly with the client so no >IT System Self Review The company is a certified accounting firm it may not have the expertise to even create the website Separate team from audit team if competent enough

This exam was, compared to the mock exams, straight forward. There were some bits and pieces which required connected thinking (such as A.P on revenue vs average memberships, related party transaction on shareholder loan, interpretation of how to treat a de facto zero bond into borrowing cost (. I.e substance over form) and then the inherent risk of the whole new it systems on transaction (which might explain why revenue dont correlate with members beside the inherent risk of fraud in revenue recognition) and then whoever was skipping government grant in his preparation had a big surprise in that Q1. So it's really important to revise the IFRS thouroughly. Timing is as always key. Not sure how I will write tomorrow for 4 bloody hours when my hand is messed up only after 3 hours ? . Good luck to everyone

Q2 - A Working Capital Ratios Recieveables days increased Entity recieves cash slower Inventory days increased Entity inventory is selling slower Payable days decreased Entity is paying suppliers faster Worsening working capital position Less cash available in the short run to pay employees and suppliers Liquidity Ratios Current ratio fell but was still ok Acid ratio fell too low Less cash avilable in short run tp pay employees and suppliers Q2 - B Cashflow procedures >Inquire of management to identify key assumption and to determine if those assumptions are consistant with your knowledge of the business >One of the key cashflow assumptions is the reciept of a loan so inspect coresspondence with the bank >Another key assumption is 25% increase in revenue. What is this bases on? Inquire of mangement how they came up with that did they do market research Q2 - C Directors do not want to disclose material uncertainty because 1. Suppliers will request payment immediately or decreace thier credit limit. 2. Bank may not approve the bank loan or may no agree to refinance current loans. 3. Investor may take their cash elsewhere.

Yeah backtesting is a key feature of auditing management acc. estimates. This will need to get you credits! Cheers. Beside of price index, tax rates and dividend policy and feasibility docs there is not much of "hard evidence" for the assumptions done than an independent point estimate.

For grant I had; - obtain grant agreement and agree length of grant, terms, conditions, amount and any financial penalties as a result of failure to meet conditions - agree grant amount to bank statement - Relevant AP to test if condition met (can’t rememebr off the top of my head) - review FS and ensure adequate disclosure concerning stating nature of grant, used for what etc as well as the grant has been recognised correctly - obtain clients working on grant and assess for numerical accuracy, recast and recalculate - perhaps agree to board minutes to verify managements intentions with how it intends to use the grant and to meet the conditions attached Etc