AAA*** P7 June 2014 Exam was.. Instant Poll and comments ***

What did everyone get as there audit risks? There didn't seem to be very many numbers relating to the subs so it was hard to talk about materiality in question 1.

Thought the exam was straight forward enough, its same old case of how the question can be interpreted but think i went along the right lines..........fingers crossed !!!

What were the audit risks in ques 1?

for qz 1 audit risk, I wrote inventories, intangible asset - brand, effects of changes in foreign exchange rates, investment properties, first year audit, new inventory system, management performance bonus based on revenue and a few others.

complex group structure...revenue... eliminating intra group transactions.. component auditor... unrealized profit in inventories... intangible asset-brand, no fluctuation in actual and draft figures, no amoritsation .. goodwill... and many more that couldve been written in part (ii)

@ngswr Question 1 did state that all subsidiaries of the Adams Group operated under the same currency, despite some being located overseas.

My thoughts on q1 were; Analytical review showed very little apart from cash had reduced yr on yr which was due to the purchase of the ass. The main material risk appeared to be 1) new audit client 2) reliance upon component audit firm for one sub 3) stock in lots of locations total value very material 4) consideration and fv of ass on sfp was different by .5m bargain purchase? 5) brand reval 6) non disclosures on face of fs ( that I can remember) The rest of the paper seemed ok but spending time doing calcs for AR on q1 that didn't add any value to the answer that I could see wasted too much valuable time.

so , it means the point we have written relating to foreign currency risk will not be marked ?

If all entities operate the same currency what risk is there?

I read it as it was reported in home currency. But I presume various costs were paid out in currency of sub's country, otherwise why mention it's a foreign sub? What did people think of the rest of the paper? The first part of number q5 about the potential changes to report - I was expecting it to come up but it seemed to be only asking about the going concern changes. 8 marks for that seemed high so I talked about all the changes.

What was question 4 about?

What are the procedures for the PFI P&L forecast?

yes the question did state that the all statements are produced in accordance with IFRS but there's no negative marking so you could've wrote .. you could've wrote it in matters to consider whether Clapton Co really adheres to the IFRS because the audit reports were unmodified for several years... Clapton Co being a small firm could not risk losing a big client .... etc etc

Q1. The audit risk I explained were: 1.Nature of business 2.overseas subsidiary risk of diff accounting treatment. 3.Foreign exchange risk- Sub acct will need to be translated to the Parent currency. 4.Bonus scheme - risk that it was attached to senior managers 5.performance, managers could inflate revenue just to get ghe bonus. 6.new inventory system. Risk of error if employees are not properly trained or possible fraud from management trying to overide control. 7.Cultural difference from overseas sub-Lyotta. 8.first time audit client- No previous experience of Adams co and considering the time limit from appointment date to Group year end,there could be some detection risk. 9.Annual management charge of $8000000 is also an audit risk. Not sure iv this will be properly classified in the Group acct. These are some of the points I analysed in Q1 a. Hopefully am right. Finger cross. Praying really hard now to get thru with this paper. Wishing everybody the very best in their result.

it was straight forward . just worried if all the answers i thought of where what the wanted. But fingers crossed !!

what about audit opinion report in q5 ?

I did't even notice it was a new audit. I feel bad :(

I didnt really notice the part on all subsi were operated under the same currency. Must have been the exam stress and the time pressure.

Anybody, what were the procedures for the PFI profit forecast?

i think you have to say about trends, verification of expenses to quotation of suppliers, verification of interest expense on loan agreements etc

I wrote most what been mentioned above but also on materiality on group n sub. Also 200 stores inherent risk of stolen cash n fraud in lylott has company has unmodified opiniib for years.

Yes I put the same and that the £800,000 management charged should be eliminated in the consolidation due to inter-company transactions but that it might have been left in to inflate revenues due to the management's bonuses. For Q5 part a I also got confused as I thought how can there be 8 marks for the going concern element and then re-read the question and it mentioned the quality and usefulness to the users so I basically wrote down all of the changes that the student article proposed. For part b I put that the first paragraph should have been two paragraphs, a basis of opinion and then an opinion paragraph. I also put that it should have been a qualified opinion or adverse but not a disclaimer of opinion. as this would suggest that the auditors were unable to obtain sufficient audit evidence. I also put that the emphasis of matter paragraph shouldn't have been used and that they should have quantified the material misstatement and mentioned the relevant standards in full that the financial statements did not comply with. I also put that they shouldn't have made reference to the director's name in the report.

Was dreading the exam, but didn't think it was too bad (don't want to jinx it) q1-audit risks, so much to comment on, my structure was pretty much: define audit risks and what is under audit risk (e.g. detection, control) risk of new client risks of doing group accounts from audit team view-competence, right staff 1 (a)risk associated with groups-related parties, inter-company transactions (new client was lynott co with inter company with other subsidiary), goodwill impairment and amortisation review, stewart co associate was overvalued as should be carried at cost-no goodwill on associates (12m vs 11.5m), classification of subsidiaries and associates (need additional info) IFRS 10, accounting policies needed to be in line with parent, make sure no errors taking numbers from individual accounts to group accounts (needed additional info on accounts of individual entities), inventory system needed checking in accordance with IAS 2, management fee looked unusual-needed investigating FORGOT to mention investment properties and intangible brand name fv check 1(b) other auditor: joint auditing suggestion, independence, competence, materiality of accounts, suceptability to fraud and error, checklists to fill in, objectivity statement to sign, no FX risk, language barrier, cultural differences 2 (a)define pfi engagements, conflicts of interest as do audit, safeguards to against threats to fundamental principles, separate engagement teams, potential going concern issue with client if they don't get the funding required, so could be seen as bias to ensure we say pfi is accurate as if they don't get funding they could liquidate and we lose audit revenue (b) pfi procedures-define pfi engagements, analytical procedures, past audit report to see if potential going concern (can't rely on recent fs's as unaudited), integrity and competence of management, entity history with accurate pfi-check variance analysis of past forecasts to actuals (c) not much info on money laundering in text book- I just defined it and said cash was dangerous for a few reasons and related it to question along with foreign bank accounts 4-all fairly straight forward scenarios by junior auditor-struggled a bit with last one for 7 marks 5-iaasb, not much info on this in technical articles or in book. Mentioned global recession, extra scrutiny now on going concerns, so auditors need to check all potential signs of going concern, emphasis of matter and other matter paragraphs outline concerns(e.g. legal cases, overtrading), mention that banks started recession as gave money to a lot of high risk going concern businesses. 5(b) was quite straight forward, opinion should have been 'except for' as issue was material and disagreement not pervasive and scope limitation, going concern risk as major material debtor has gone into liquidation, right treatment with provision as meets definition, and the materiality was wrong as profit performance materiality should be between 5% and 10%, actual materiality used was like 13%. That's all I did, fingers crossed I got the understood questions right and passed. Hope this helps some people? good luck!

Opening balances were risk There is no fx risk as all under same currency There is no goodwill on associate - the 500 change was due to equity accounting

Q5 - incorrect wording , format and should of been a qualified opinion?

What was question 4 part b for?

pls does nyone remember contents of q3

Qz 3 should be audit procedures for the ppe. Theres a few other frs along with ppe but I cant remember. I think it was revenue. I didnt do qz 3

Audit risk was straight forward enough (pretty much covered above in comments) ,PFI before accepting the engagement you have to assess if you have the competence, who the intended users are, timeframe, conflict of interest with the audit and then after the engagement is accepted all the tests you would do are things like revenue projections, ticket price increase that people would still come (assumptions/market research findings), finance cost calculations as they were borrowing £8 million but finance costs hadn't risen with them. Question 3 was going concern of company due to government legislation and research costs correctly written off. Also RPT in regards to the car and if this was actually an employee benefit or loan as the money hadnt been paid back. Question 4 general ethics and professional question, run out of time before i got to the end......!!!!!

For q5 I said that the opinion should have been modified with an 'except for'. I also said that the details in the emphasis of matter paragraph was wrong as it had already been disclosed correctly? Fingers crossed. Good luck everyone.