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Hi I’m currently trying to attempt part A of Parker 6/13 paper which is asking to perform preliminary analytical procedures and to evaluate the audit risks.
I’m confused as to how I start this question? And what I calculations I should do? Is there a format which we should always follow when attempting a number heavy question?
I started by calculating the percentage change for revenue, COS and then worked out the receivable days payable days and inventory days.This is where planning an answer is particularly useful – and remember than 15 minutes isn’t all the time you should expect to spend in reading in planning.
I think you “start” such a Q by making annotations on the Q paper – this could include, for example, simply putting up/down arrows against each of the actual amounts – so revenue up – but when you read note 1 – cost of sales is down. (Note 1 effectively tells you that you need to exclude the $250k from cos in calculating GP%.)There’s no reason why, in the exam, you can’t present your appendix before the briefing note – clearly label it as such.
Part of deciding what/how much you need to do is reflecting on the marks available – 24 includes “identify and explain any additional information” – so let’s say that’s 4 marks – you’re looking for 20 marks of evaluating audit risks (which is the purpose of analytical procedures at the planning stage). So let’s say 2 marks per evaluated risk – you’re looking for max 10 areas of risk. I would guess that only 1/4 of the marks would be available for the calculations – so don’t calculate every ratio just because you can – it’s more important that you can comment on what you calculate.
I had a question in relation to the division of marks for this question:
6 marks is calculation for ratio (1/2 marks for trend)
5 marks for additional information
So 13 Marks for Audit Risks and explanation of Preliminary Analytical Review. is this accurate?Also, the answer states a lot of ratios which I know I wont have to do them all. But if I want to select the ratios to perform, how many should I stick with for example in liquidity (as it involves current ration, inventory holding days, receivables collection period and payables payment period)
What are the 6 ratios I can stick to in order to not spend too much time here since I cannot finish the answer in time?
Also when explaining the results of analytical review, will 2 marks be awarded per explanation (Inventory days – 2, Receivables collection period – 2)?
As per original published marking scheme:
“Up to 2 marks for each audit risk/area from preliminary analytical review evaluated ….the scheme then lists 12 topics which would make up maximum 24 marks
then, of this ….
1 mark for each ratio and comparative calculated (½ mark for a trend) to a maximum of 6 marks
1 mark for each additional information request to a maximum of 5 marks”So yes 13 would be the indicative number of marks – IF full 6 marks were awarded for ratios and 5 marks for additional information – but the marker could award marks for risk areas with only 3 ratios (say) and 3 information requests (say) – and the candidate could still, theoretically, be awarded full marks.
What the marking guide is telling you is that you should expect the easier marks to be capped – so don’t just list dozens of calculations which are not then used in the briefing note.
Which ratios to choose will depend on the information given in each scenario – but you should be looking for a range – say at least one profitability/liquidity and solvency – but then which others to choose should depend on whether it highlights any additional risk.
I recommend you read the current examiner’s report from the AAA September 2018 exam for further guidance.
Re your also – if you look at the list of matters (2 marks available for each) in the marking scheme it should be clear that you would NOT get 2 marks for explanation of inventory days AND 2 marks for receivables days – because only 2 marks were available in total for liquidity:
– Profitability
– Liquidity
– Solvency
– Going concern
– Provisions
– Finance costs
– Tax expense
– Development costs
– Property revaluation
– Overtime payments control risk
– New client detection risk
– Opening balancesIf you want a tutor response to future posts please use the ask the tutor forum.
Thank you so much! It is clear now and I will use “Ask the tutor forum” moving forward!
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