Ask the examiner: audit

Mar 01, 2019

The FAE Committee Reports from the August 2018 and January 2019 sitting expressed concern about some of the emerging practices by candidates attempting the audit elective. Could you offer your perspective on this?

Examiner: I congratulate those candidates who were successful, however, a number of common issues between both examinations arose. 

Audit risks

The issue of audit risks is a common indicator examined on both the final and interim exams. This indicator was not addressed well in the most recent exams. Candidates should follow the approach below to ensure they achieve maximum marks:
  • For each audit risk identified, candidates should be very clear as to the exact nature of this risk, using assertions where practical. For example, rather than just identifying inventory as the risk (this is not a risk but an element of the financial statements), candidates should identify valuation or existence of inventory as the risk (or whichever assertion) is relevant. A mere list of areas of a balance sheet or profit or loss will not result in marks being awarded
  • Candidates should be very clear why something is an audit risk. 
  • The candidate needs to develop the audit risk point by explaining what, from the information in the case study, led them to believe there was a risk on this issue. For example, valuation of inventory was identified as an audit risk because we were told in the case study that inventory was sold post year-end for less than its cost. It is important to be very clear as to your rationale for choosing each risk.
  • Candidates need to ensure that responses to risks are specific to the relevant audit risk assertion. For example, if we have identified valuation of inventory as a risk, the appropriate primary test would not be to attend the stock take as this test is typically more relevant when testing existence of inventory.

Candidates appeared to struggle with knowledge and application of standards.

Examiner: Knowledge of the International Standard on Auditing (ISA), e.g. ISA 402, ISA 250A and ISA 540, was very poor in the last sittings. Candidates continue to reproduce generic material, whether from standards, text books or notes. The requirement for these ‘technical indicators’ is to link the requirements of the standard to the facts of the case study. In some incidents, it was clear candidates were not even aware of the standards, which is worrying. Candidates should be familiar with the key concepts and requirements of each of the ISAs on the course and practice exam questions in this regard. 

The FAE Committee also highlighted their concerns regarding candidate performance of fraud indicators.

Examiner: As noted in previous years, fraud indicators have proved to cause issues for candidates and this was the case again this year. A large number of candidates simply copied paragraphs from the standards and textbooks with no effort to link to the facts of the case. It was concerning that some candidates identified no fraud indicators at all. To score well, candidates are expected to focus on the key issues from the case and apply their knowledge appropriately.

It should be noted that candidates who spent time reproducing this unnecessary material will have undoubtedly impacted on their chance of scoring well on other indicators across the exam. This year, fraud was directly signposted yet candidate responses remained poor compared to other indicators in the exam.

Are there any other areas of concern?

Examiner: Candidates continue to struggle with audit report indicators. This is the key output of the audit process and candidates need to be clear on audit report options and how the audit report decision links to relevant facts provided in a case study.

Finally, the layout, structure and presentation of some recent scripts was very poor. Candidates must practice previous exam questions to ensure they are clear on the expectation in this regard.