*** P7 December 2012 Exam *** Instant Poll and comments***

This is completely irrelevant to the answers to the questions, but did anyone else notice that the company’s in the Q’s were rockstars surnames?!

I think Hendrix was one,Dylan another can’t remember the others.

As far as I wrote in ethical issue regarding fee…Contingent fee is is not allowed as it will threat auditor’s objectivity by creating self interest threat as auditor may compromise any key audit findings in order to collect fee from Grohl. I recommended Lowering the fee if possible considering no effect and no compromise on quality of audit.

Kindly let me know where I was right and where wrong…

Did Q1,2,3,4 but found Q2 ,18 mark part quite difficult as I was unable to figure out what examiner is trying to ask.

Time pressured definitely.

Q1. There were lots of Business and Material misstatement risks, but was unable to put all of them into answer sheet.

ethical issues regarding Bob joining Grohl was a fair question.
I wrote advising Bob of any adverse consequences of joining Grohl to both the client and the firm. Self interest threat ,self review threat , familiarity and intimidation threats would rise if Bob joined Grohl.

-Recommended to advise Grohl not to hire Bob,
– Changing entire engagement team to eliminate threats
-or resign considering the level of seniority involved ( though wrote that resigning should be the last resort if safeguards could not be implemented to lower the threats)

Q2 faced real difficulties in 18 marks question though a tricky question was expected as usual.

Reassessing materiality:
– auditor may come accross further findings during audit
– acquisition can require reassessing materilty at component level as well as group level
-Severe litigation can result in provision exposing amount to Material misstatement therefore materiality may be reassessed
–
Q3 -revenue recognition discussed its importance to investors shareholders and therefore is subject to manipulation

– Matter of risk and rewards
-consignment matters
and couple of other matters

part (:) I pointed out that revenue should not be recognised until 9 months have passed or the stuff was sold at the external retailers

where as for internal retailers revenue should not be recognized until sold

there was joint audit question as well and wrote some points such as cost timing dispute between auditors , high fee engaging 2 auditors etc.

Q4 dont remember now 🙁 can any body write the break down of question 4

Did anyone else notice that the financial controller and senior exec team had left the firm in Q1 to pursue a recyclable business opportunity? I went on about the remaining board not developing strategies to keep them competitive and this could give rise to going concern risk, given the other issues in the scenario

did anyone mention in Q2 B on the goodwill, revenue gone down by 25% in one sub so clear sign of impairment of goodwill? or what about the associate, as it was kept for investment income was is asset held for sale?

Really not sure how I’ve done in this paper, keeping my fingers crossed I’ve done enough to pass.

On the whole the paper seemed reasonable (it’s my first sitting of P7), however I just felt Q1 anmd Q2 were quite timely and like everyone I struggled to finish the exam through time constraints!

Q1 – I started the question going on about the material mistatements, however I realised that the question was asking about business risks, so I integrated Parts i) and ii) together – for business risk, I explained about Exchange rate risks, interest rate risks and the main risk as being that the company had a clear going concern risk (suffering in export market (half it’s customers), supplying faulty goods to domestic (other half of customers), less revenue, very low current/quick ratio etc. I also outlined the material mistatements and concluded that 4 that needed attention were the fact that fin statements could of been manipulated by company in seeking the finance loan (eg o/s of assets and u/stating liabilities etc, risk that loan was not correctly classified under NCL’S and CL’s and interest wasnt included in accounts as finance charge had remained the same, also risk that company had not prepared accounts on a break up basis for going concern etc

The ethical issues were auditor becoming an employee of client – argued this was cause of his removal from audit team – self int, familiarity and intimidation threats could arise. Also advised he should not be allowed to hold a position with audit client until 2 years have passed etc. The other issue was contingent fees – argued these are not permitted for audit work – self int threat and issue of audit being of lower quality etc.

Th other was audit matters and procedures re insurance claim. I just waffled on this – Advised possible contingent asset – disclosure required though unsure on this? Also procedures eg looking at insurance claim submitted, viewing insurance documents, asking for expert advice, writing to insurance company as to whether claim is likely to succeed etc.

Q2 – a) Materiality – why it will change, just defined materiality and stated it will change when circumstances come to light n risk increases etc

b) I left this til last and if I’m honest didn’t answer it too well!

c) Advs/disadvs of joint auditors – used common sense hope I got some of them – Advs – Gives better credibility to process for fin users as more independance, better detection of risk etc disadvs – conflict as they may have different ways of working, more timely and therefore costly, coulks severely disrupt business operations etc

Q2 – Not answered greatly on the whole!!

Q3 – Tendering process – listed what I felt should be in tender document again using common sense – eg, fees and how calc, timescales, the list goes on I did try and waffle around 7/8 points. Part 🙂 Ethics – Firm wanted to increase revenue – offer of other audit work – explained threats eg objectivity compromised – self int threat etc. Offer to do internal audit function – eg self review threat and highly unethical etc

Q5) made a quick decision to do this over Q4. Diificult to remember the question. I remember part of it was to comment on a warranty provision that had been left out the accounts as the company had stopped doing warranties in the year. Argued provision needed to be left in as warranty had a 3 year life, so warranty claims were possible during this period. Also impact on audit statement would be an modified opinion if this miststaement was not corrected. The other part was that the companys receivable, payroll and revenue data was outsourced and had been destroyed etc and discuss matters and what audit opinion. Sted audit opinion was to give a diclaimed of opinion as the issue was material and pervasive and there was insufficient info on which to base the opinion etc. Think there was a 3 mark qu on quality. Not sure what I wrote, something quick!

Good luck, here’s hoping I don’t have to do a re-sit in June! 🙂

HI

The exam was ok. During 15 minutes reading time I started writing in answer booklet and then was interrupted by invigilator (I forgot I am not allowed to write in an answer booklet – exam heat, nerves etc). She took my booklet and has given me a new fresh one – do you think it will adversely affect my exam marking?

Cheers

And Marcin I don’t think it will affect your marking! Happens all the time 🙂 cheers!

Best of luck Trinis 🙂 cheers!

Yeah the fact that the audit team did nothing and the associate balance didn’t change could indicate that the movement in associate was un accounted for under equity method. Yes I was preparing accounts at one of our kpmg clients at least a heading held for sale should have been there under ifrs 5 (am an audit semi senior 🙂 ) though I didn’t write any procedures as question stated so and yes our q1 answers match major risks being exposure to fluctuations in forex debt servicing and repayment impairment of inventories and compliance risks

Yes I mentioned that as well relating to cash flows calculated interest covers further compounded that a 2.5 million overdraft existed in the company

@trinistudent001 said:
I attempted Q1, 2, 3 and 5. Like you, Ikristalj, I avoided Q4 couldnt remember anything about Revenue Recognition. I was able to attempt 98% of the paper. Wasnt able to finish part (b) of Q1 due to time pressure. I spent a lot of time on Q1 and Q2, and most of the points that you all have mentioned I have gotten, praise God. Cuz I was praying that I was approaching it in the way that it should be.

I’m not being overconfident about my efforts, but I wrote until my arm started to pain me. This is my last paper, so I am praying for a pass. Really praying!

Another Trini!! Hope you get through!!!

^ Muneeb you were reviewing financial statements at the interim stage i dont think it had anything to do with expression of an opinion.