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In the following question the model answer seems to be indicating that the auditor should be concerned with payment terms and recommend the client to pay earlier, but surely that’s a business risk and not an audit risk, which is something the material in this syllabus (till this point) has been very clear in saying is NOT the auditors concern. Why should the auditor care if the client is missing out on an early payment discount if it does not affect the accuracy of the financial statements?
This seems to be conflicting with everything we’ve been taught until this point.
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Identify and explain EIGHT deficiencies in Equestrian Co’s internal controls and provide a recommendation to address each of these deficiencies.
“In order to maximise cash balances, the finance director approves all purchase invoices for payment 75 days after receipt of the invoice.
Invoices are authorised by the finance director, but payment is only made 75 days after receipt of the invoice. There is the risk that Equestrian Co is missing out on early settlement discounts. Also, failing to pay in accordance with the supplier’s payment terms can lead to a loss of supplier goodwill as well as the risk that suppliers may refuse to supply goods to the company.
The policy of making payment after 75 days should be reviewed. Consideration should be given to earlier payment if the settlement discounts are sufficient. If not, invoices should be paid in accordance with the supplier’s payment terms.”
You don’t say where you are coming across this question. It’s a past exam question, but it’s old and although such points might still be made, they’re not examinable as you rightly say. You really can ignore it.
It was from the June 2017 paper. There are many other such examples from the Internal Controls section, but they are all also from many years ago.
Is business risk something that was previously examinable in the Audit and Assurance syllabus many years ago?
What I meant was, are you seeing this in the exam Qs & As as originally published or in a publisher’s materials – Kaplan/BPP or ACCA Study Hub?
But that aside … business risk has never been asked for in AA, the “risk Q”has always been audit risk (and auditor’s response). Confusion arose around the time of Equestrian with answers to “control Qs” that included points such as the one you copied out in this post. ACCA reiterated that business risk is not examinable, and candidates would not be expected or required to include such points.
It’s from ACCA’s own June 2017 AA exam paper. Page 12:
It’s very strange because the marking guide even shows 2 marks being allocated specifically for making the point “Invoices not paid in line with suppliers’ terms”.
It seems to me that there’s an ambiguity that exists within the Control Deficiencies part of the syllabus that should be addressed by ACCA.
I recommend you use updated Qs & As that conform with ISA 315 (Revised 2019), for example.
Technically obsolete pdfs are no longer available in ACCA’s AA resources.
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