*** ACCA Paper AAA September 2019 Exam was.. Instant Poll and comments ***

@ajiljacob96 said:
Can anyone tell me how it was recognised as a new client, i actually checked whether it was a new client and dint find any clues during when i was reading the question, feels dumb now

not just you I actually checked but couldn’t see the place where it stated that it’s a new client. I also missed some easy marks on complexity due to restructuring, consolidation risks and the other easy bits. The 24 marks was just too much to grab

From what I remember these were the questions and marks available:

Q1
Audit risks (24)
Additional information on disposal (4)
Procedures for a) joint venture classification, b) government grant (8)
Ethical and professional issues (10)
Professional marks (4)

Q2
Matters to consider
a) Sale and leaseback (8)
b) Investment property (6)
c) Impairment of mall (6)
Audit opinion (5)

Q3
Accepance of forensic audit (8)
What evidence needed to get value of fraud (6)
Criticism of controls and improvements to suggest (6)
Why auditors can’t always detect fraud (5)

All in all this paper was awful. No easy business risk marks, instead a nightmare scenario with a group with held for sale assets, joint ventures, planned future acquisitions, restructuring, and a requirement to talk about disclosures which I’ve never seen in any past questions…

Matters and evidence – the sale and leaseback was a mess, I have no idea what they did right or wrong. The others were okay, but the inclusion of a load of figures for the impairment was hard to deal with whilst sticking to the timeframe – I don’t see how anyone has the time to calculate part-year depreciation and/or impairment adjustments. Why not the usual short scenario with accounting explanations required, instead of tables of numbers to take into account in the few minutes you have to read it.

The final question being on forensic auditing also threw me. I couldn’t quite get my head around the mechanics behind the fraud, so couldn’t explain how to analyse it beyond generic “use CAATs to analyse transactions”, and controls criticism was also a bit weird.

All in all I never felt like I really knew what I was on about except for a couple of questions in Q2, but I did manage to write something for everything, so there’s an outside chance I pick up enough marks here and there to pass. If not, at least I know the resit can’t possibly be this hard.

Q1 I found the 24 marks question really difficult for an audit risk question. The disclosure on the restructuring made it really hard. I eventually missed simple group audit risks like how complex the business was, the consolidation risks and the like. Restructuring had a lot of risks to identify.Joint ventures maybe for the new company, discontinued operations not properly presented, fair value risks etc. For new coffee shops Capitalization of intangibles and wrong amortization of 15k 3years intangibles for the new shops and probably contains expenses that should be expensed. Government grant there was bias to boost earning should be in OCI maybe. Materiality to P&L and SoFP. Question for additional doc requested easy 4 marks. Audit procedures easy 8 marks. Ethical issues were very evident in the scenario so quite good. Hope I get 70 percent of question one.
Q2. Very difficult.. Disaster. Evidence will probably help a bit. Sale and lease back I felt was correctly treated. Investment property not properly valued Ias 36 misapplied. Not material though to PandL. Shopping mall amortization reversal didn’t see what was wrong just saw a lot of back and forth with the estimates. Since it was material I wrote what I could. Evidence again to the rescue. 2B effect on audit report I did separately then combined. Since shopping mall was significant and pervasive on all FS I suggested adverse opinion and basis for adverse.

3. Forensic audit was the only nice question here but unfortunately time pressure had set in. First part just needed points about accepting the engagement. Competence, independence if audit client, if the report will be used for legal proceedings etc. Cool 8 marks. Procedures for quantifying inventory lost due to fraud… Ehhh kinda hard. Listed interviews, CAAT, recalculation and some control testing. 6 marks maybe I’ll get 4. Internal control deficiencies were very obvious so cool 6 marks. Last 5 marks was about mgt and the company’s auditors reaction to the discovered fraud. I blamed the mgt for weak controls but also blamed the auditors for not testing controls that resulted in mistatements in the FS. Explained how the ISAs required auditors to be sceptical and that it’s not their duty to prevent fraud but should have reported and discovered deficiencies also if they have caveat in their report it could help. Too much talk for a 5 mark question but time was almost up and I wanted to do the one I felt confident in while sulking on question 2.

@jecksmelv said:
Q1 I found the 24 marks question really difficult for an audit risk question. The disclosure on the restructuring made it really hard. I eventually missed simple group audit risks like how complex the business was, the consolidation risks and the like. Restructuring had a lot of risks to identify.Joint ventures maybe for the new company, discontinued operations not properly presented, fair value risks etc.

You’ve just made me realise so many easy marks I failed to get whilst worrying instead about the disclosures for the restructuring… Why didn’t I just go back to basics and talk about complex group (1 mark), consolidation risk (1 mark), high revenue increase for the coffee drive throughs (1 mark)…

@pqukaccounts said:
From what I remember these were the questions and marks available:

Q1
Audit risks (24)
Additional information on disposal (4)
Procedures for a) joint venture classification, b) government grant (8)
Ethical and professional issues (10)
Professional marks (4)

Q2
Matters to consider
a) Sale and leaseback (8)
b) Investment property (6)
c) Impairment of mall (6)
Audit opinion (5)

Q3
Accepance of forensic audit (8)
What evidence needed to get value of fraud (6)
Criticism of controls and improvements to suggest (6)
Why auditors can’t always detect fraud (5)

All in all this paper was awful. No easy business risk marks, instead a nightmare scenario with a group with held for sale assets, joint ventures, planned future acquisitions, restructuring, and a requirement to talk about disclosures which I’ve never seen in any past questions…

Matters and evidence – the sale and leaseback was a mess, I have no idea what they did right or wrong. The others were okay, but the inclusion of a load of figures for the impairment was hard to deal with whilst sticking to the timeframe – I don’t see how anyone has the time to calculate part-year depreciation and/or impairment adjustments. Why not the usual short scenario with accounting explanations required, instead of tables of numbers to take into account in the few minutes you have to read it.

The final question being on forensic auditing also threw me. I couldn’t quite get my head around the mechanics behind the fraud, so couldn’t explain how to analyse it beyond generic “use CAATs to analyse transactions”, and controls criticism was also a bit weird.

All in all I never felt like I really knew what I was on about except for a couple of questions in Q2, but I did manage to write something for everything, so there’s an outside chance I pick up enough marks here and there to pass. If not, at least I know the resit can’t possibly be this hard.

i agree with so much of what you say

question two, it really was not clear, what was wrong, though part B kind of gave it away… speaking of part B, that bit seemed pretty clear – a modified opinion

question three, the fraud was extremely complicated… i found the question ´how would you assess the inventory quantity loss´very difficult…what did everyone else write for this ?

Hey everyone.

Just a breakdown of things that may have been worth mentioning which I wrote about in my answers

Q1) audit risks:
– Complex group structure
– Listed entity – management bias to manipulate results
– Potential Impairment of the Burger chain as they mentioned in the wording revenues had fallen
– operating segment disclosure
– disclosures for the joint venture
– the disposal of the burger chain is an event after the reporting period as they have not found a buyer at year end disclosure necessary?
– held for sale treatment for the burger chain
– the PPE capitalised $45m has intangibles in it which need to be sepreated and amortised
– within the PPE whatever related to the PPE items such as Fixtures and fittings, plant and machinery and the building should all have different depreciation terms and should be separated
– dont know if anyone noticed but there was a reconciling difference between The operating segment note which stated total assets were i think $450m but just below it “other information” stated that total assets were $475m there was a reconciling difference of $25m of assets. I talked about how the auditor doesnt audit the “other information” section and doesnt express and opinion but there is a risk that this is mistated and we must ask management to correct.
– government grant risk that the full amount has been recognised in the P&L but according to IAS standards should only recognise the income when the associated costs are alongside and as nothing has been spend the f/s are misstated. Also worth noticing that Profit after tax was $20m and the government grant was $20m so if we remove the grant profit after tax becomes $0?

Further information about the disposal i mentioned all the criteria needed for a held for sale such as actively marketed, sale highly probable, sell in currrent condition, fair value, sale in one year etc.

The ethical threats i mentioned self interest due to the fee the auditor may receive, intimiation as juniors may fail to challenge the senior auditor, self review , management responsibilities, as well as familiary as the audior may become too trusting of the staff if he joins them for a short while.

Q2) FYI for those uncertain about the shopping mall impairment treatment. If you have done P2 theres one page which mentions impairment reversals and an entity cannot recognise an impairment reversal greater that what they had originally impaired the inital asset at. The sale and leaseback was correctly recorded so it was just things to talk about such as has a sale occured and has the entity satisfied its performance obligations and if the transaction didnt meet the requirements of a sale then the treatment of the sale and leaseback would be different. As the building had a 50year life and the leaseback was only 10years the substantial rights to the asset move to entity buying the building (they have the remaning 40years of use on it) therefore it can be treated as a sale. All in all a qualified opinion would be issued with an “except for” wording and a “basis for qualifed opinion below it”

Q3) forensic audit acceptance was:
Advocacy
Confidentiality
Self review
Professional competence
Self interest

I could keep going on the other parts let me know if you want good luck to everyone.

I wrote evidences like a copy of etc etc instead of additional information required in Q1. Do you think I’ll get marks for that ?

@navjot23 said:
Hey everyone.

Just a breakdown of things that may have been worth mentioning which I wrote about in my answers

Q1) audit risks:
– Complex group structure
– Listed entity – management bias to manipulate results
– Potential Impairment of the Burger chain as they mentioned in the wording revenues had fallen
– operating segment disclosure
– disclosures for the joint venture
– the disposal of the burger chain is an event after the reporting period as they have not found a buyer at year end disclosure necessary?
– held for sale treatment for the burger chain
– the PPE capitalised $45m has intangibles in it which need to be sepreated and amortised
– within the PPE whatever related to the PPE items such as Fixtures and fittings, plant and machinery and the building should all have different depreciation terms and should be separated
– dont know if anyone noticed but there was a reconciling difference between The operating segment note which stated total assets were i think $450m but just below it “other information” stated that total assets were $475m there was a reconciling difference of $25m of assets. I talked about how the auditor doesnt audit the “other information” section and doesnt express and opinion but there is a risk that this is mistated and we must ask management to correct.
– government grant risk that the full amount has been recognised in the P&L but according to IAS standards should only recognise the income when the associated costs are alongside and as nothing has been spend the f/s are misstated. Also worth noticing that Profit after tax was $20m and the government grant was $20m so if we remove the grant profit after tax becomes $0?

Further information about the disposal i mentioned all the criteria needed for a held for sale such as actively marketed, sale highly probable, sell in currrent condition, fair value, sale in one year etc.

The ethical threats i mentioned self interest due to the fee the auditor may receive, intimiation as juniors may fail to challenge the senior auditor, self review , management responsibilities, as well as familiary as the audior may become too trusting of the staff if he joins them for a short while.

Q2) FYI for those uncertain about the shopping mall impairment treatment. If you have done P2 theres one page which mentions impairment reversals and an entity cannot recognise an impairment reversal greater that what they had originally impaired the inital asset at. The sale and leaseback was correctly recorded so it was just things to talk about such as has a sale occured and has the entity satisfied its performance obligations and if the transaction didnt meet the requirements of a sale then the treatment of the sale and leaseback would be different. As the building had a 50year life and the leaseback was only 10years the substantial rights to the asset move to entity buying the building (they have the remaning 40years of use on it) therefore it can be treated as a sale. All in all a qualified opinion would be issued with an “except for” wording and a “basis for qualifed opinion below it”

Q3) forensic audit acceptance was:
Advocacy
Confidentiality
Self review
Professional competence
Self interest

I could keep going on the other parts let me know if you want good luck to everyone.

Looks like you really hit the nail on the head with q1. Q3 it mentioned the company wasn’t currently a client so not sure if you’d get marks for stuff like self-review, advocacy threats etc. I based the acceptance on having resources, trained staff who have personal skills to interview witnesses, helpful to have some further information on claim to help understand extent of task.

The procedures I put on looking into fictitious customer account, cancelled orders with stock missing etc. I hope I’ve done a good enough job on Q3 to make up for 1&2.

I really went to town with the overstated revenue for the coffee shops and the separate system. And ultimately just gotten 1 or 2 marks.

Did any one notice the inventory question of Q3 part B was Money Laundring ????As it was going through warehouse Manager n sale representative the was not completed and parts were being sold online !!

It always concerns me when the comments on here regarding the exam are so focussed on accounting rules. And also complexities and details of the scenarios. This is missing the point in such a major way if you want to pass.

I have not seen the exam paper. But based on several posts which detail the requirements, I would tell you the following:

Q1

3 easy Prof Marks
2 for calculating materiality of any 2 things you put as risks

RISKS

Assuming no calcs were requested, probably aiming for 11 audit risks
Qn asks for audit work on 50% acqn and a grant, so that means both have risks:
– recognise grant in P or L too early
– might need prov for grant repayment if not meeting t+c
– new 50% thing needs disclosure (IFRS 12) and they might under-disclose
– mis-classification of new 50% thing as could be JV, Sub, associate and “control” is subjective concept
– new 50% acqn could be a new Op Seg = disclosure needed
– gain or loss on disposal wrong
– potential wrong classification of disposal as HFS or Discont Op(I do not know when it was sold so cannot tell which would be right)

the above looks like enough risks to pass given the marks, and is based purely on seeing another part of the question asking for audit tests on those 2 things. It does not need reading of the story. Even if you only score an average of 1 mark per risk above, that is 7 marks, add to the 3 Prof Marks and 2 materiality and we are up to 12.

EXTRA INFO RE DISPOSAL

since I have not seen the story, I do not know what info HAS been given, but common sense says I would want the following, so if any of these are not in the story they go in the answer:

– WHEN sold
– to WHOM (could be RPT)
– for HOW MUCH (to calc gain, and also could be deferred / contingent)
– WHY (to help GC assessment of remaining company/group)
– tax situation (if a gain, tax likely)
– if sold post y/e, WHEN did the advertising for sale start (to check if HFS at y/e)

If at least 2 of the above are not in story, that should be a pass (it was out of 4, right?)

TESTS

Grants have come up so often, if you cannot do 4 tests on a grant you might as well give up:

– CB and BS
– Grant agreement
– board minutes to verify commitment to use grant within the t+c
– recalc of whatever portion to P or L this year (if any)
– corresp with grant authority for signs of failure to meet t+c

The 50% thing … there was a JV question in Sep/Dec 2016 Q1. Sounds like it could be the same? Anyway, if tests are re classification then need to see involvement of your client in management and decisions at this new acqn:
– BM of client to understand intention of acqn, is it to jointly manage?
– BM of the thing acquired, to see if client’s directors are attending BM and voting
– Co House info to verify make up of board at acquired entity
– Shareholder reg to confirm 50% owned, and who owns the other 50%

ETHICS

Cannot comment without seeing the story for this bit.

The point is that there are at least 20 marks of content above for Q1, and that assumes poor explanations of the audit risks, no attempt at the ethics at all, and not reading the scenario at all. Almost a pass.

A lot of auditing is about doing core things on every client, and then adding specific extras. The core stuff still gets marks, whatever the scenario says (within reason of course!).

Q2

SALE and LEASEBACK

The IFRS 16 accounting for these is nasty. I suggest you ignore it.

Evidence
– sale document confirming transfer of legal ownership to other party and date
– leaseback document to confirm lease length, payment terms and any other t+c
– BS and CB to verify any cash received from sale and date received
– BM to confirm understanding of why sale and leaseback done (could be cashflow issues and a GC problem)
– proposed disclosure note and SFP to verify asset now described as leased not owned

Matters
– calc materiality of a number in the story

above is more than 4 out of 8 = pass. As I said, ignore the accounting rules. They are hard (judging by the amount of discussion on this thread!!)

INV PROP

having not read the question, I do not know whether this was bought in the year, or revalued in the year, or whatever. So it is hard for me to say what I would test, other than:

– copy of most recent valuation to verify value, and how recent
– quals, exp and indep of valuer to assess reliability
– if not recent, auditor expert to do valuation
– BMs to confirm intention re asset is investment not use
– recalc of gain on revaluation
– Land Reg docs to confirm still owned by client
– physical inspection to verify not in use by client

Calc materiality (of the reval gain, if there is one) and that’s that bit passed.

I will stop now, because no doubt this is annoying some of you, but the point here is that a decent approach, combined with having practised recent past questions (and therefore nailing the grant and JV tests because you did both in revision within past few days), gets a pass every time.

Anyone who is worrying about the specifics of the scenario ahead of what I did above is in deep trouble. So follow my advice, and stop getting angry at difficult accounting stuff in the stories.

Good luck to all for results 🙂

Hello

For the 2b The opinion was individually or in agreegate?

would reference to risk about ias 33 presentation get points as it was listed company?

@raoul7370 said:
It always concerns me when the comments on here regarding the exam are so focussed on accounting rules. And also complexities and details of the scenarios. This is missing the point in such a major way if you want to pass.

I have not seen the exam paper. But based on several posts which detail the requirements, I would tell you the following:

Q1

3 easy Prof Marks
2 for calculating materiality of any 2 things you put as risks

RISKS

Assuming no calcs were requested, probably aiming for 11 audit risks
Qn asks for audit work on 50% acqn and a grant, so that means both have risks:
– recognise grant in P or L too early
– might need prov for grant repayment if not meeting t+c
– new 50% thing needs disclosure (IFRS 12) and they might under-disclose
– mis-classification of new 50% thing as could be JV, Sub, associate and “control” is subjective concept
– new 50% acqn could be a new Op Seg = disclosure needed
– gain or loss on disposal wrong
– potential wrong classification of disposal as HFS or Discont Op(I do not know when it was sold so cannot tell which would be right)

the above looks like enough risks to pass given the marks, and is based purely on seeing another part of the question asking for audit tests on those 2 things. It does not need reading of the story. Even if you only score an average of 1 mark per risk above, that is 7 marks, add to the 3 Prof Marks and 2 materiality and we are up to 12.

EXTRA INFO RE DISPOSAL

since I have not seen the story, I do not know what info HAS been given, but common sense says I would want the following, so if any of these are not in the story they go in the answer:

– WHEN sold
– to WHOM (could be RPT)
– for HOW MUCH (to calc gain, and also could be deferred / contingent)
– WHY (to help GC assessment of remaining company/group)
– tax situation (if a gain, tax likely)
– if sold post y/e, WHEN did the advertising for sale start (to check if HFS at y/e)

If at least 2 of the above are not in story, that should be a pass (it was out of 4, right?)

TESTS

Grants have come up so often, if you cannot do 4 tests on a grant you might as well give up:

– CB and BS
– Grant agreement
– board minutes to verify commitment to use grant within the t+c
– recalc of whatever portion to P or L this year (if any)
– corresp with grant authority for signs of failure to meet t+c

The 50% thing … there was a JV question in Sep/Dec 2016 Q1. Sounds like it could be the same? Anyway, if tests are re classification then need to see involvement of your client in management and decisions at this new acqn:
– BM of client to understand intention of acqn, is it to jointly manage?
– BM of the thing acquired, to see if client’s directors are attending BM and voting
– Co House info to verify make up of board at acquired entity
– Shareholder reg to confirm 50% owned, and who owns the other 50%

ETHICS

Cannot comment without seeing the story for this bit.

The point is that there are at least 20 marks of content above for Q1, and that assumes poor explanations of the audit risks, no attempt at the ethics at all, and not reading the scenario at all. Almost a pass.

A lot of auditing is about doing core things on every client, and then adding specific extras. The core stuff still gets marks, whatever the scenario says (within reason of course!).

Q2

SALE and LEASEBACK

The IFRS 16 accounting for these is nasty. I suggest you ignore it.

Evidence
– sale document confirming transfer of legal ownership to other party and date
– leaseback document to confirm lease length, payment terms and any other t+c
– BS and CB to verify any cash received from sale and date received
– BM to confirm understanding of why sale and leaseback done (could be cashflow issues and a GC problem)
– proposed disclosure note and SFP to verify asset now described as leased not owned

Matters
– calc materiality of a number in the story

above is more than 4 out of 8 = pass. As I said, ignore the accounting rules. They are hard (judging by the amount of discussion on this thread!!)

INV PROP

having not read the question, I do not know whether this was bought in the year, or revalued in the year, or whatever. So it is hard for me to say what I would test, other than:

– copy of most recent valuation to verify value, and how recent
– quals, exp and indep of valuer to assess reliability
– if not recent, auditor expert to do valuation
– BMs to confirm intention re asset is investment not use
– recalc of gain on revaluation
– Land Reg docs to confirm still owned by client
– physical inspection to verify not in use by client

Calc materiality (of the reval gain, if there is one) and that’s that bit passed.

I will stop now, because no doubt this is annoying some of you, but the point here is that a decent approach, combined with having practised recent past questions (and therefore nailing the grant and JV tests because you did both in revision within past few days), gets a pass every time.

Anyone who is worrying about the specifics of the scenario ahead of what I did above is in deep trouble. So follow my advice, and stop getting angry at difficult accounting stuff in the stories.

Good luck to all for results 🙂

Generaly to me the exam seems ok and was a bit heavy on technical accounting standards. Q1 seemed ok though it ate most of my time. Eish quite a lot of risks in there considering the 24 marks – i included among mgt pressure on results(bias), operating segment,gvt grant recognition criteria, need for provisions as it seems the group might not meet the requirements,intangibles understatement, ppe overstatement, depr and amortisation over/ understatement, failure to disclose held for sale assets correctly in both P&L& and B/S cant remember others.

Q2 was just technical and neede knowledge of IAS. Had 1hr left and – sale and lease back thought the client was wrong and was no need to derecognise the assets and there was need to record a lease liability on money received on sale, write off profit/ loss on disposal.

Q3 Only managed to answer the first bit and boom time was gone.

Feel sad as i forgot the calculator and had to use mental – lost 3 materiality marks.