ACCA Paper AAA exam was – June 2021 Exam – Instant Poll and comments

Nadia wrote:I also got the Dolphins Group Q1
From what I remember I included the following RoMM:<br>-new client – opening balances and comparatives<br>-revenue might be overstated due to risk that client might be overcharging customers<br>-related party disclosures might be missing<br>-licence accounting – does it need to be depreciated over its 5-year life? It does not seem to have an indefinite life as there are conditions to be satisfied<br>-accounting for the investment – if significant influence can be proven, then it is an associate even if only 18% is owned<br>-control risk with the payroll system – tax deductions might be incorrect<br>-investigation started by the government – does it give rise to contingent liability?<br>-trend analysis – EBITDA 25% decrease vs operating margin – 8% decrease – possibility for understatement of expenses

New client is audit risk, not RoMM

I would say the potential missing provision for NoClar from government investigation estimated at $240 million at $100 per customer

Possible overstated revenue as there was a claim of overcharge of customers and increase year over year for this revenue stream despite trend showings decline in market share and also inherent risk associated with subscriptions as they are recognized over time could be overstated revenue in the reporting period

Also extrapolated analytical procedure figures for 20×5 so that it is appropriately comparable to 20×4 as initial 20×5 info was for 10 months only

Risk of misstatement in consolidation if fail to eliminate intercompany balances as Oval Co and Coral Co engage in intercompany transactions and risk also inadequate disclosures for related party

Possible understated operating expenses if further evidence indicate assessment of indefinite useful life incorrect so they would failed to account for amortization however if assessment of indefinite life correct then risk that impairment review was not done and operating expenses would also be understated

There is a risk that the 18% interest together with guarantor relationship and secondment of directors conveys significant influence and therefore the investment on Bronte Co was accounted for incorrectly should have been done under equity accounting as an associate.

Further procedures should be done on payroll example increasing sample size due to inconsistencies in tax calculations the individual misstatements should be aggregated to see whether exceed materiality also by nature payroll tends to be material as opportunity for fraud is high

Q1 Group company
Scenario: Newly appointed component auditor.
1(a) Audit risks. (Impairment is specifically to be excluded) (24m)
(b) Evaluate the implications regarding impairment of a subsidiary. (8m)
(c) Audit procedures for the restructuring provision on sale of Far Co (Subsidiary with impairment indications) (6m)
(d) Component auditor implications ( Decreased substantive testing and planned to not waste too much time and rely on ICS of client and audit data analytics procedures) (8m)

The audit risks are really so hard to be identified, I even had no choice but to separate the new component auditor to 2 risks to new component auditor and they minimize substantive procedures. Asset held for sales was weird, planned to be sold in August but it was still included in the management’s account for September (Not sure is this a wrong recognition answer, or indicating the group failed to sell the subsi in August).

Impairment is specifically to be excluded which is bad as the risks identified are so less. Spent almost an hour on 1(a) and had to rush for other questions.

2
(a) (9m)
(i) Purposes of Due Diligence (DD)
(ii) Evaluation of benefits of DD
(b) Procedures for DD (10m)
(i) For new equipment acquired and claimed by CEO that will improve productivity and reduce production cost
(ii) Can’t recall for what specific item.
(c) Ethical and professional issues for client wanting us to recruit his son as employee and offered us to remain as audit client and offer future DD assignments. (6m)

This is probably the worst question, the question was really long providing us the history of the company but at the end of the question only asks us for purpose and benefits of DD. Wasted a lot of my time reading thru the question.

Ethics question was weird as the son is recruited in the DD department so the usual ethical implications on audit may not be the right answer.

3
(a) (5m)
(i) Difference between TCWG and Management
(ii) Difference in reporting to management and TCWG

(b) Report to TCWG on the implications (20m)
(i) Investment property (Change of accounting policy and the opening balance is not amended) (8m)
(ii) Revenue subscription (System changed and last year treatment is wrong, this year had to do adjustment, mgmt refuses to adjust and audit firm wants to request to charge for higher fee as the testing done on this is extensive.) (6m)
(iii) Internal control weakness (No control on refund and cancellation process and anyone able to access to the system can do the refund.) (6m)

Strange for this one, the adjustments done by auditor are given and I only wrote implications on the audit report and the weakness of ICS and the adjustment is quite complicated as well but I was running out of time so I did not read it in detail.

Had no choice but to squeeze in materiality and report implications even though question was report to TCWG. Not sure is this the right answer.

Overall, this is the worst paper as I have practiced a lot of past years and this is probably the question I identified the least audit risks but the marks are high at 24 marks. Had to take remote exam due to cancellation of centre exam, waited for 1 hour to check in and I was mentally exhausted from waiting. Really hope ACCA/ Pearson can improve on the check in process as it was tiring.

Fingers crossed for this paper. 🙁

@thirthy

Completely agree with you!
Do you feel like you’re going to be resitting? I definitely do after that exam.
I feel a little better though knowing it wasn’t just me that couldn’t really pick much out of the exam and it seems it was overly difficult compared to previous papers I’ve reviewed. Does that make sense?

Part 1 about audit risk at the Lion Group, I think a big one that I haven’t seen anyone mention was to do with stock. Multiple locations across different countries so it may not be possible to do stocktakes at all locations. So you may need to consider alternate ways to audit the stock figures. The cyber security attack meant that provisions were understated by up to 2% of revenue, meaning it was a material misstatement. The cyber attack and could’ve also affected the sales data, meaning sales could also be wrong so additional audit tests will need to be devised to test completeness. Doesn’t seem like the component was doing intercompany reconciliations which could mean the group accounts are wrong once you take out intercompany balances and unrealised profit.

Part 2, about what to include in the report to governance really threw me as I didn’t really understand what was being asked. From what I understood, the audit adjustments had been agreed by you as the manager and you had to justify these to the Director.

I possibly went way off on a tangent but for the switch was historical cost to fair value, I spoke about how the revaluation should’ve gone to the statement of comprehensive income, rather than the P/L. In addition, the size of the revaluation seemed too much given it was on an old disused warehouse. It brought into question the objectivity of the independent experts valuation. It may have been useful to inspect the warehouse yourself or use your own expert. It was also a material adjustment so could’ve resulted in a qualified ‘except for’ in the audit report.

Interested to see what people think

Comforted to know that a large majority found it hard as well.
Really challenging paper- exam kept freezing for us all in the exam hall and jumping 15 seconds at a time. We lost maybe 1.5 Minutes – that’s a lot of time with this paper!

At least I managed to attempt all the question this time -second time lucky I hope- finger crossed
There was four 4/5 markers which were testing assertions of valuation, completeness and then substantive procedure around payroll and accruals. the last risk and response article I found hard to identify risks

I put

– seek legal advice about possible compensation claims
-enquire with management regarding claims being successful
-unfair dismissal of those employees
-written representation
-board minutes

For the production costs

-analytical review
-machine set up times
-average labour cost
-prior months and trends comparison
-reviewing budgets and forecasts

I am not sure if any of these are even correct as I repeated some of them as well with analytical review

What did u write for part a) 9 marks question about benefits for due diligence?

I was scratching my head on that one as I was doing for most of this exam :/

What exam did you sit? im confused were there two papers for AAA or one?

Hi there
Just want to know how can I rebook the exam? which has been closed by proctor 1 1/2 hour before finishing the time. I don’t know the reason as I had a word with him and he said he can’t see me in video but later he closed the session

Hey Guys I got following questions in my paper!! And to be honest i found this paper tough,Challenging and time management issue as compared to past papers now examiner is really making this paper tough and challenging.
Hope to pass this exam ?
Question number 1:
Req(a) Business Risk for Dolphin Group.(12 marks)
Req(b) Audit risk (22 marks)
Req(c) Ethical and professional issues and recommendation (6 marks)
Req(d) why auditor find difficultly in identifying the related party disclosure and
Discuss the principal audit procedure on the related party disclosure (9 marks).
Question Number 2:
Req:(A)what are the benefits of due diligence and
Evaluate how due diligence is important for the Wise Company in acquiring the Goodman Company.(9 marks)
Req(b) perform investigation procedures on the redundancies of the employees included in the liabilities and
Perform the audit procedure on the new manufacturing plant and its efficient productivity.(10 marks)
Req(c) Identify the ethical professional issues in (exhibit 5)CEO emailed to Audit engagement partner.(6 marks)
Question Number 3:
Req(a) Identify and evaluate the going concern risk of sable company (10 marks)
Req(b) perform the audit procedure on the cash flow forecast of sable company (9 marks)
Req(c) Evaluate the impact on the audit opinion if the management disclosed it in the financial statement (6 marks)

Aran, I think we had the same paper. I had to really dig deep to find the risks and I feel like they weren’t developed enough to get me the marks! I said that the component auditor was an audit risk as it was a new component auditor to the group and this is an increased detection risk in itself as they weren’t familiar with them as they were with the other component who had resigned a few months earlier. This was noted in the background exhibit.

I was a bit baffled by what they were asking for in relation to Q2 with TCWG and all that. It was kinda like a ‘matters to be considered..’ type of question and I answered it that way but every now and then I would say these would form part of the uncorrected misstatements that would be presented to mgmt and TCWG just to try and tie it back to the question being asked-could literally have answered the wrong thing here. Haha

Q3-CDD for 19 marks was again weirdly asked, well the first part for 9 marks was, There was a few easier marks (6 I think) on ethical and professional issues. The FD wanted the company to hire the son as a trainee. I said it was fine as he was a trainee and that he shouldn’t be working on anything related to his FD’s company or if he was his work would be reviewed anyway by senior members. I said this may result in familiarity threat. There was an intimidation threat from the FD in so far as him saying that if you hire the son then you’ll get more work from us and then the IESBA code strictly prohibits gifts/lunches as the lunch was informal and had nothing really to do with the CDD report.

There was also 9 marks for investigative procedures. Ran out of time and managed to only get 2 poor points down. More time and I think I would have been able to give decent ones!

Alas, this sitting was not meant to be for me!

For 24 marks Audit Risks I hardly find only 8 Audit Risks and that was a tricky question