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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
MLCPQ3 – 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 enoughThis 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 suppliersLiquidity Ratios
Current ratio fell but was still ok
Acid ratio fell too low
Less cash avilable in short run tp pay employees and suppliersQ2 – 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 researchQ2 – C
Directors do not want to disclose material uncertainty because1. 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
EtcI expect a very very difficult exam on March! I did not have the chance to give it today unfortunately!!
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Q2. I started writing procedures for cashflow until I re read question it said Explain audit evidence you would expect to find in the working paper file so only managed 4 points and had to resort the points as evidence.sounds like a few here have written procedures I’m fairly sure it was evidence though??
Same here.. had finished writing procedures… and then realized the question was asking for evidence..
Cash flow question was about evaluation of audit evidence as I remember, quite tricky due to lack of numbers and information
I think Q2B is a mysnomer also as audit procedures uncover audit evidence and so you can essentially answer the question granted a different way.
Ie:
1) obtain loan agreement and inspect amount and confirm interest rate – although a procedure also confirms SA audit evidence
Thinking about it again I’d say we should be okay?
I was thinking of a very simple example: the question asked us what would we expect to see as part of our file review:
Let’s take a simple example such as confirming the cash balance of a client
Now, as a partner what EVIDENCE would you expect to see on the file?
Well I’d like to see the assistant obtain a 3rd party bank confirmation and agree the amount back to the financial statements
If I see the above procedure has been performed then I’m content that it is sufficient and appropriate evidence
I think we wrote procedures since it asked what we would expect to see on file, and as part of that question you almost also have to state a procedure.
Going back to the question on the cash flow forecast.
The bank loan is included in January in the forecast, now what evidence during my review of it do I want to see?
Well I want to see that the assistant has obtained the loan agreement, agreed and recalculated the cost of finance and ensure they’re happy that it’s been included in January. I’d also expect to see some evidence regarding confirming the receipt to bank statement
So I think as long as your procedures essentially also explained audit evidence you should be fine
Let me know if you guys agree with my thought process above please – in my mind if you were detailed in your procedures then you would’ve also explained the relevant audit evidence without realising (as I must’ve done for the loan confirm, my procedure I wrote was to obtain the agreement to confirm the above, however that also constitutes as audit evidence as I’m sayijg how I want to see the loan agreement)
Q1 – A
BUSINESS RISKSThere is a risk that the entity will not only incur fines and penalties but also the risk that their operating licence be revoked as a result of non-compliance with health and safety regulations The loss of the operating licence mean that the business is no longer a going concern.
The entity is operating in a highly competitive environment not only is there a risk that they will lose their customers but also their employees. The firm should ensure that they pay employees industry standard salaries and up. If the firm loses its key staff “brain drain” its ability to operate decreases.
The entity recently opened coastal sports facilities there is a risk that staff are not properly trained for water sports. The firm should ensure all staff are trained in first aid and hire life guards. Under the new scheme members children will be allowed free access to coaching which includes swimming. If a child is injured or drowns the negative publicity will impact the businesses customer base.
Q1 – B
RISK OF MATERIAL MISSTATEMENTIAS 16 Property, Plant and Equipment
The 12 mil investment is material in relation to total assets.
There is a risk the entity treated the investment as revenue expenditure instead of capital expenditure since the investment was an upgrade to facilities to make it more “modern”.IAS 20 Goverment Grants
The grant was material in relation to total assets.
The recognition criteria was done correctly.
The entity recognized the entire grant instead of deferring it.IAS 23 Borrowing Costs
Loan is material in relation to total assets.
Directors loan not material in relation to total assets.
The standard states that directly attributable borrowing costs should be capitalised all other borrowing costs should be expensed. (The new coastal facility )
It does not appear like the entity capitalised borrowing costs.IAS 24 Related Party Disclosures
The standard requires disclosure of related party transactions, relationships and balances.
It does not appear like the entity made the required disclosure.New System
The entity is using a new system there is a risk that data will be lost when tranferring the data from the old system. A backup of the the old data should have been created. There is a risk of errors since the system is new. The entity appears to have acknoleged this as they provided training for two months on the proper use of the system.Q1 – C
GOVERMENT GRANT PROCEDURES
>Copy of goverment grant to confirm the terms
>Review cashbook and bank statements to confirm reciept of grant
>Descussion with management on IAS 20 and the proper treatment of the grant
>Confirm errors were corrected and deferred income recognisedQ1 – D
ACCEPTANCE
Management integrity
Accountant competenceQ1 – E
ABILITY TO DETECT FRAUDFraud is the intentional use of deception in order to mislead the users of the financial. Intentional is the key word here which mean that the fraudster will do everything in their power to hide the fraud.
There is a risk that a review engagement which manily uses analitcal procedure and inquiries will not pick up on the fraud.
There is a risk that an audit will not pick up on the fraud even after performing extensive audit procedures.Summary of Q3 – B
Personal tax service to the director:
– Concern over tax avoidance/evasion (due to many transfers in international properties etc)
Actions – report if suspicion to HMRC and be sure not to alert or mention to client the reportGeneral tax services:
– self review, management threat etc
Actions – have independent partner review the tax work to ensure adequacy and other
Remedies (can’t rememebr what else I put)Help to design sales website system:
– general point on do we have the competence to help design a system?
– management and self review threat
– also mentioned hopefully for an extra mark that FRC ethical state prohibited to help provide advice over internal control for a listed client (this was unlisted but mentioned it’s not outright prohibited)
– potential intimation threat if we say noActions – okay if we have two separate teams, independent etc, if not then say no to request
£30 voucher and office party:
– mentioned how under code, it’s trivial and inconsequential however appearance over substance may mean still threat to objectivity
– “to know the client” – however under informal setting perhaps familiarity threats could be established and since whole team went could be big impairments to objectivity (more likely to accept reasons if they befriended key management people in the audit)Actions:
Report gift/party to risk management partner
Have the risk management evaluate objectivity of team and if so significant then replace whole team
If deemed immaterial effect then no further actionsThe above was from memory so probably missed some extra actions/points but I’d like to think the above would score 10+/15 (fingers crossed!)
I think I got quite right answers based on this conversation although I missed out 1 or 2 points, is just the matter whether I wrote long enough to explain the points to secure more marks…time is the biggest enemy, cant feel my hand while writing the answer.. so many things to write but so limited time…anyway hope I’ll pass the paper..
@linaelshafie said:
What about the answer to the auditor’s report part of question two?If left non disclosed (ie: not adequate disclosure of material uncertainty) – qualified except for or adverse opinion
If they do provide adequate disclosure then unmodified opinion
In both instances a material uncertainty relating to going concern would be included immediately after the basis for opinion paragraph
Why directors wouldn’t want to disclose:
– risk of loan being rejected
– risk of suppliers shortening trade credit or fully stopping all credit since they know the company may not be able to pay the debt owed
– potential major customers who see accounts may be put off using themCan you pass this to the ACCA ..I mean you want to test our Knowledge about Accountancy whats that to do with time…??If you give 1 hour more what difference does it make to the testing of an individual..The exam was so time pressured
@jawadurrahman said:
Can you pass this to the ACCA ..I mean you want to test our Knowledge about Accountancy whats that to do with time…??If you give 1 hour more what difference does it make to the testing of an individual..The exam was so time pressuredSadly I and I imagine 99% others agree with this point.
Especially in audit and professional papers. Audit is highly judgemental and subjective, imo it makes much more sense to let students taking it have longer to fully consider and make a high quality response not rush and have to do bad plans to finish the paper in time
Equally, for P papers where you’re meant to be a professional giving advice it’s much harder to maintain that with 3 hours 15 to answer long questions such as these
Do you think it matters on one page I didn’t put the question number at the top? It followed from the question on the prior page. Realised at the end but then they called time!
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I found timing a massive issue, I think I completed only 75%. What % did you guys manage? Good luck all.
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