Are you prepared for the Auditing and Assurance interim assessment?

Mar 02, 2020
The interim assessment – your opportunity to boost your chance of exam success – is coming up. But are you prepared, asks Garret Mulvin.  

The CAP 2 Auditing and Assurance interim assessment is worth 15% of the overall result for that subject.  While the assessment does not have a pass/fail result, aspiring candidates should be looking to secure a healthy score from the April interim assessment to carry into the final exam in June.

A poor relation

Disappointingly, in the April 2019 interim assessment, an average of 53 marks out of 100 was achieved; marginally lower than the April 2018 average score of 58. Unfortunately, the Auditing and Assurance interim assessment result typically compares very poorly when put up against its CAP 2 counterparts, Financial Reporting (FR) and Strategic Finance and Management Accounting (SFMA).  This is most likely due to the fact that, unlike FR and SFMA, the April 2020 interim assessment will be the first time that CAP 2 candidates will be tested on their understanding of Auditing and Assurance. As such, they should be prepared to meet the different challenge that this assessment presents.

Accounting standards

The four shortlisted topics for the April assessment will be published on 4 March 2020.  Although this is an audit paper, it is not possible to audit a financial statement balance if you do not first understand the appropriate accounting treatment for the balance in question. Candidates should have a firm knowledge of the applicable international financial reporting standards governing a particular line item in the financial statements. Past examiner reports have highlighted this as one of the reasons for poor performance in this interim assessment.

Additionally, candidates are typically asked to set out any journal adjustments that may be necessary. An understanding of the applicable accounting standard is paramount. A well-prepared candidate should be comfortable with the double-entry journals for the four topics provided in the shortlist published in advance of the exam.

Risk

Risk is a cornerstone of the audit process and a regular feature in the CAP 2 Auditing and Assurance interim assessment. Candidates are frequently asked to identify why audit risk may exist in respect of a particular financial statement line item. In such questions, it is vital that candidates strive to identify risks that are specific to the client and the background information with which they are presented. Simply transcribing generic risks from notes is not sufficient; at least half of the available marks will be missed in this case and you will most likely fail that requirement.

Professional scepticism

Auditors are required to have a critical mind and be prepared to evaluate the audit evidence which is presented to them. As such, in any CAP 2 Auditing and Assurance examination, candidates should be prepared to demonstrate sufficient levels of professional scepticism when assessing the documentation provided. Unfortunately, this has not proved to be the case. A review of previous Examiner Reports reveals some missed opportunities.  For example, in the words of the examiner:

“It was disappointing that very few candidates identified the fact that only €/£1.75m of income was received post-year end when €/£2.5m should have been expected,” and, “Not enough candidates thought to question why a profitable company would be receiving a tax rebate.”

Similarly, candidates are often required to review the audit work performed by a junior member of the audit team. Candidates should be prepared to scrutinise the quality of the audit evidence used by the audit junior and to suggest more appropriate audit evidence to be obtained.

Chartered Accountants Ireland has highlighted the importance of professional scepticism as an essential part of the auditor’s mindset. The Auditing and Assurance examiner has continuously flagged professional scepticism as an area of underperformance in the interim assessments of past years. 

CAP 2 candidates should be prepared to critically evaluate the audit evidence provided to them and identify issues which inevitably will be present.

Finally, as with any examination, ensure to practice past papers and to read the examiner reports. Good luck!