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ACCA F8

AUDIT AND ASSURANCE

EXAM COMMENTARY

December 2012

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General Impression

The paper followed a similar format to the one that has been outlined by the examiner, and

therefore was therefore a good test of candidate’s skills.

Q1: A scenario based question on the deficiencies within an entity’s inventory counting

procedures, audit procedures to be conducted during the inventory count and computer

assisted audit techniques (CAATs).

Q2: A short factual question based on the rights of an auditor, control activities and the

limitations of external audits.

Q3: A scenario based question on understanding the entity, audit risk and considerations

which should be made before establishing an internal audit department.

Q4: A written question on the fundamental principles from the Code of Ethics and

substantive procedures.

Q5: A scenario based question covering written representations, relevance and reliability

of oral representations and the impact on the auditor’s report of two specific scenarios.

Other comments

Question 1 has historically been quite a time pressured question but there was sufficient

time to complete the requirements this sitting.

There was no specific requirement to describe tests of controls which was unusual although

tests of controls could have been incorporated in the answers to Q1(b) and Q1(c)(i).

QUESTION REVIEW

Question 1

30 marks

Part (a) for 12 marks required candidates to identify and explain six deficiencies in a

company’s inventory count arrangement and also to provide a recommendation to address

each deficiency.

Inventory counting is an area which candidates should be familiar with and there were up to

ten deficiencies provided in the scenario which should have made the requirement relatively

straightforward.

Part (b) for 6 marks asked candidates to describe audit procedures that would be

undertaken by the auditor during the inventory count.

Candidates would have needed to provide 6 procedures and those who focussed on

verifying whether the inventory count instructions were being followed, performing sample

counts and identifying issues which could lead to concerns over valuation should have

performed well on this requirement.

Part (c) tested computer assisted audit techniques (CAATs) for 12 marks. The audit firm

was planning to use CAATs on the client for the first time and candidates were asked to

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describe 4 audit procedures that could be carried out using CAATs as well as 4 advantages

and 4 disadvantages of using CAATs.

This was a really challenging requirement for so many marks. To do well candidates would

have needed to relate their audit procedures to inventory and also appreciate that this was

the first year in which CAATs had been used.

Question 2

10 marks

Part (a) for 3 marks required candidates to state 3 rights the auditor has excluding those

relating the resignation and removal. This is a purely knowledge based requirement and

candidates should have performed well.

Part (b) for 4 marks asked candidates to explain 4 control activities other than the

maintenance of control accounts. Again this is a straightforward requirement and many

candidates would have scored full marks.

Part (c) for 3 marks required candidates to describe 3 limitations of external audits. Once

more this was a straightforward requirement.

Question 3

20 marks

Part (a) for 5 marks required candidates to list 5 sources of information used in

understanding an entity and describe the information the auditor would expect to obtain.

Understanding the entity is a practical auditing standard and candidates should have been

able to use their common sense to generate their answers.

Part (b) for 10 marks asked candidates to describe 5 audit risks and explain the auditor’s

response to each risk. With the exception of June 2012, this requirement has been tested in

4 of the last 5 exams and so candidates should have been well prepared for this

requirement.

Part (c) for 5 marks required candidates to describe the factors a finance director should

consider before establishing an internal audit department. Candidates would have scored

well here provided that they answered from the point of view of the company and not the

audit firm.

Question 4

20 marks

Part (a) for 5 asked candidates to identify and explain the 5 fundamental principles from the ACCA

Code of Ethics. This is an extremely straightforward knowledge based requirement and candidates

should have scored full marks here.

Part (b) for 12 marks presented three separate scenarios and required candidates to describe

substantive procedures that would be perform in relation to each matter.

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The scenario content related to trade payables where the accounting ledgers had been closed a

week before the year end, a receivables circularisation where there were a number of non-

responses and differences and a company reorganisation. Most candidates would have dealt well

with the receivables circularisation but both the payables and the reorganisation are likely to have

cause difficulty. In particular candidates would have needed a good understanding of IAS 37 from

their F3 studies in order to answer the section relating to the re-organisation.

Question 5

20 marks

Part (a) for 5 marks was a straightforward requirement asking candidates to explain the purpose of

and procedures for obtaining written representations. Candidates would understood that there

were essentially 2 separate requirements here would have scored well.

Part (b) tested the relevance and reliability of an oral representation from directors over the

completeness of the entity’s bank overdraft. The appropriateness of audit evidence is a

straightforward concept and candidates should have coped well with this requirement.

Part (c) for a total of 12 marks provided candidates with 2 scenarios and asked them to discuss the

issues presented, consider the materiality of the issues, the audit procedures to gather evidence to

resolve the issue and the impact on the auditor’s report if the issued remained unresolved. This is a

similar requirement to previous exams and so candidates should have understood what was

required of them. Unusually both issues were material and pervasive leading to a disclaimer of

opinion and an adverse opinion. There was however sufficient prompting in the scenario to indicate

the severity of the issues to candidates.