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

@swaggarv – in my opinion the procedures to be carried out on the projected profit forecast was to analyse each one of the item and make a comment, e.g. Revenue – the forecast for 2015 showed a 22% increase from 2014; however the 2015 to 2016 only showed a mere 2%; we need to ensure that the expected patrons reconcile with the price @$10.00

etc etc……that is my opinion

Generally it was a good paper, questions meet professional expectation for someone aspiring to be a member of ACCA. However, the time runs so fast. I wonder if its a speed work they are testing or the knowledge you possess. But on a whole it was a good paper.

I was tempted to write about Forex change fluctuation as an Audit Risk ..But in the Question it was clearly stated that both the Group n Foreign Sub use same currency. So i didn’t write that point :S

Impossible to complete the paper in 3hrs… Attempt only 80% :(.

For q 1, the foreign currency point is genuine cause this is the first audit we are doing so we dont know if they have been retranslated properly even if they have we dont know if they used the correct exchange rate and this sub is not

Audited by us…

My answer:
Q1(a) risk
-Nature of business – tons of transaction as manufacturer ,increase risk
-complex group structure -3 subs+1 associate increase audit risk
-intra group balance – 800k accrual payment, related party transaction disclosure in individual acc
-unrealized profit in inventories- transfer between co in same group
-brand – impairment review
-goodwill – impairment review since many years never chg structure
-bonus scheme – performance based , vesting purpose must satisfied
-revenue – analytical review, maybe fraudulent reporting to gain bonus scheme
-associate- classification (20% but may not be significant influence)
-investment properties – very material , FV based on estimate/judgement , risk

Q1(c) matter to be considered -ISA 600
technical competence / unmodified for many years /small firm / independent issue/ member

Q2(a) matter to be considered PFI
intended user/ assumption whether hypothetical / fee / technical competence / understanding of entity / limited assurance

Q2(b) procedures
-discuss why tax is not included
-obtain breakdown of finance cost , check in line with loan
-if not , ask whether any other loan has settled
-discuss price elasticity – increase from 7 to 10 , affect volume
-obtain breakdown of operating cost
-confirm whether depreciation has increased since purchase capital asset
-confirm whether staff cost has increased

Q2(c) stages
Define placement, layering and intergration – link to the case

Q2(d) elements to counter money laundering
-clear reporting procedure
-good internal control system
-money laundering report officer
-maintain record 5 years ,facilitate forensic auditing for proactive purpose
-audit committee – facilitate reporting and internal control

Q3(a)(i) matters to be consider
PPE / going concern / emphasis of matter paragraph / accounting treatment for research /materiality / risk /provision of legal liability
Q3(a)(i) evidence
Asset registered listing confirm existence PPE / obtain expert to confirm impact of regulatory compliace/ dissusion note / minutes of board meeting

Q3 (a)(ii) matters to be consider
materiality – nt material to company but may material to manager/ risk do nt disclose /not at arm length / nt yet pay-fraud / loan
Q3 (a)(ii) evidence
Sales agreement of the car / invoice / disclosure note in finacial statement / minutes of board meeting

Q3(b) action to be taken(prior year mistake- unaudited account)
seek legal advice / discuss with partner (no more idea from me =( )

Q4 (a) business risk and risk of material misstatement
Define and link

Q4 (b) planning ( service organisation on payroll)
-execute transaction and maintain accountability , hence must planning to audit
-obtain understanding of service orginasation(nature,financial strength, relationship of the service,etc )
-CAAT may assist
– if internal control good ,test system
-if internal control bad, test operation and system

Q4(c) matter to be consider before giving advice on tender
fee / conflict of interest since audit client /safeguard/ obtain understanding of entity / technical competence

Q4(d) joint venture with audit client
independence / safeguard / limited knowledge in business field

I did mention that the transfer price to Lynott is expected to be relatively high as there could be material waste due to recycling the luxury silk clothing and also (not mentioned) the cost of labour for processing the luxury clothing is it taken into account in the transfer price. If so, despite having cheap labour in Lynott, the transfer price could be relatively high.

I talk about inherent risk , control risk and detection risk question 1

.

Isnt pfi supposed to just be analytical procedures and enquiry if management? I remember from my reading that pfi doesnt have any substantative procedures.

Thats why its limited or negative assurance

Q1 i wrote
a)Risks
IAS 28
-investment in associate maybe wrongly classified as associate- however more than 25% so may not be a risk
-associate acquired on January so only for 5 months- risk of not taking that into account for profit and loss
-brand at historic cost- ias 38 no amortization – no impairment
-ias 21 (wrong dint see it was the same currency)
-inter company transactions-risk of non elimination
-inventory in transit risky -as sub transfer inventory in other subs
-ias 2 inventories lower of cost or NRV if the goods were transferred at no price then NRV Zero risk that was not recognized at lower of ..
-New IT system risk of errors made
-all these were made with comments on their materiality

(I am so pissed that I forgot opening b/ces unaudited ias 24 disclosures,
Ias 40 investmet property and no ratios)

b) other info
-copies /documentation from the acquisition of associate I don’t expect much here
-the financial ration to obtain an analysis of the group

C) matters on component auditors
-same ethical requirements as the group auditors
-their competence,qualification,standards.
if they are part of a network of audit firma
-resources to be involved with consolidation as it is small firm

procedures( confirmation of belonging to a network of firms, written representation that they comply with all ethical standards and one more dont remember…. unfortunately i could not find others

Q2
a)
nature of assumptions
–distribution of the report
–use of the report not thoroughly explain though
Period cover
–responsibilities of mgt
Limited assurance

b)
Procedures-don’t remember

c)
– money laundering stages not thoroughly explained again

elements to encounter money laundering
-appoint a MLRO
Training of employees in the firm didn’t write as much as I would
Identification procedures

Q4
a)Explain business risk, f/s risk related with going concern

b) Outsourced payroll
I I wrote 2 lines about what is outsourcing (don’t expect marks here)
Also that auditors should have unrestricted access to the payroll from the outsource org to obtain evidences

c) matter to be consider before giving advice on tender
– Conflict of interest
– Safeguards
Advocacy thread
Non audit service

d) joint venture with audit clien
-self interest thread
-business relationships prohibited unless immaterial
-less critism on clients if client go to events that has a motive for profit
All these very summarised

Q5

a) 3 lines about going concern should be disclosed if there is significant uncertainty

b)report
-reference to the appropriate ISA 706
-basis of opinion and opinion paragraph should be included
-The paragraph was not explained adequately
-Materiality I wrote that was correctly included but apparently is wrong since the materiality was wrongly based
-impact on the financial statement if not corrected reference to IFRS9 financial asset receivables

About the claim
-Immaterial so no impact on audit opinion
-EOP inappropriate since only highlights significant matters

-Disclaimer of opinion not appropriate as it’s only made when a matter is pervasive and -lack sufficient appropriate evidence

Audit opinion
I accidentally thought that the 50 000 was 500 000 and if was taken together with the 2.5m of receivable would have become 3m so pervasive and Adverse opinion (GGrrr So mad)

Overall I attempted 90% I am so pissed that I didnt had the time to write something more on all the question as I was time was a biiiigggg issueee

I pray for a pass its my 3rd attempt and i still not understand why i didnt pass previous time

The exam was extremely time pressured as there were a lot of things to write!

Q1… as soon as I saw that auditors were appointed recently I went into ISA315 and talked at length about the need to gain an understanding of the client in order to assess the risks of material misstatements…such things as nature of operations, ownership and governance structures, internal control, financial performance measures etc…needless to say I was overly obsessed with ISA 315 that I didn’t have sufficient time to really go into the financial statement risks.

I managed to mention the associate classification could be a risk as 25% isn’t sufficient unless management can demonstrate significant influence! Also, inventory transfer within group is intercompany, shld be eliminated, NRV = zero, risk of overstatement, not correctly recorded, inventories in transit…new system is a risk because if it’s not integrated into sales/ general ledger, errors could arise, investment properties must fulfill ICE criteria (especially as it’s overseas we can’t verify if it’s empty of the group, hence classification might be wrong), forgot to mention FV as a risk! 200 stores is definitely a risk as we can’t attend stock counts and we may not have sufficient time and resources to gather enough evidence as per these stores!.

I didn’t calculate ratios so my question paper was clean & untouched on the numbers bit. But I mentioned that revenue was a risk as bonus is dependent on it!…I thought the 800k management charge was subsequent event IAS 10 (due in September), I bet it was only me that thought that (dumb maybe!)….

Q2. PFI was basically things like fees, threats to objectivity, risks, financial health of client, who the report is for( we may be held liable if client defaults on interest and principal payments as bank would be relying on forecasts) etc…. Procedures was mainly analytical and enquiry as they are just forecasts although some of the figures may be actuals like rent, staff salaries etc.

Money laundering, remembered only placement and layering but still mentioned the transfers overseas….

Other sections were fairly okay but time was seriously not my friend!

I thought the q3a was a bit tricky and it needed a provision (may be for decontamination) which should be present valued, research costs should be expensed as incurred. Didn’t know how to deal with the 60k ppe so I left it…

Car to FD is related party transaction that shld be recognised at 75k and not 50k…disclosure also required!

That’s how much I can remember for now.

I am seriously hoping that I atleast get more than enough marks to pass by God’s grace!

i was baffled during the exam on how i spend 2 hours on Qs 1 the remaining one hour 15 mins i spend on 3 qs altogether :S. I am hoping & praying for just a 50. Qs 5 was very straightforward but i believe in part b the opinion was adverse and not disclaimer i missed that part 🙁