The audit examiner gives some insights as candidates make their final preparations for the upcoming FAE audit elective in August 2019.
There have been very consistent themes over the past two years with respect to the audit elective exam in general. Many of these issues are related to core areas of the Audit Elective Competency Statement; however, students continue to perform poorly. A lot of these issues have already been highlighted in previous examiner feedback reports, which is concerning.
Outlined below are some of the key issues/pitfalls with advice on how to address these in future exam sittings.
Ethics
Ethics are the cornerstone of every audit and the ability to understand and apply the Ethical Standard is fundamental in your future role as a qualified Chartered Accountant.
Students need to be very careful when reading the case and need to pay attention to what exactly is being asked of them. This is a wider learning point not only specifically linked to ethics. For this indicator at interim, a significant number of candidates included ISQC1 in their solution, whereas the question that was asked was for any “ethical and engagement continuance issues arising” as opposed to what the audit firm should consider in terms of policies/procedures prior to undertaking a new client or, in this case, continuing the relationship.
At FAE level it is really important that you do not sit on the fence. In respect to this ethics indicator, I noted that a lot of students did not give a concrete conclusion on the impact of a particular ethics issue, which reflected the level of marks awarded. The question asked was to assess the “significance” of the issue and the consequence for continuing as an auditor. It is really important to always include a conclusion when asked and rationalise why you have come to that conclusion. Your conclusion may not always be fully correct, but showing the confidence to make a conclusion and rationalise your thinking is an important skill.
Similarly, the answer to every ethical issue is not to resign as auditor. While there may be circumstances where the threats to auditor independence are so significant that no safeguard(s) can be implemented, this is generally a minority when it comes to an exam situation. The ability to identify threats and advise appropriate safeguards in the context of ethics is very important for this exam.
Audit risk
The identification of audit risks and the auditors’ responses to those risks is a common area examined for the Audit Elective. Over the last few exam papers, the overall standard of answers continues to be poor. Here are some of the main issues:
- Generic audit risks: please avoid stating audit risks that are not linked to the case facts provided to you. These will not yield marks.
- Justification of audit risk: it is very important that you explain and rationalise why you think a particular area's results in an audit risk by linking to what case facts lead you to this conclusion.
- Knowledge of assertions: it was evident from the Audit Elective Interim Assessment, that usage of assertions when it comes to audit risk is something that students struggle with. If you do not understand the relevant assertions, you do not understand the concept of audit risk. I would advise that students practice past exam papers and review their knowledge in this area.
- Audit procedures: candidates need to ensure that responses to risks are specific to the relevant audit risk identified. Reproducing blanket generic procedures for a particular area from a textbook will not yield marks.
- Answer layout: your solution should be clearly laid out in a “tabular” format for audit risks.
Core ISAs
As part of your audit elective studies, you will learn some really fundamental ISAs, e.g. ISA 240 on Fraud and ISA 700 on Audit Reports. It is very important that you understand these and what the ISA requires. In an exam situation, you will be tested on your ability to apply these, so please avoid reproducing the full ISA text without any relevant linkage to the case facts provided. A way to improve your ability in this area is to practice your past exam questions and review the relevant lecturing material.
General
It was clear from some of the scripts in the Interim Assessment that the answer had been rewritten from another exam solution. While I understand previous exam solutions are a helpful learning guide on the standard expected, it is not sufficient to regurgitate a previous solution and not link appropriately to the case facts that have been provided. In some cases, incorrect client names were stated, so it was clear that the student had rewritten from previous solutions. This is a key learning point to be aware of with any exam you undertake at FAE level.
Finally, in advance of the final exam, I would advise students to continue to practice past exam papers in an exam context, take note of any key learning points raised above in terms of exam approach and technique and, most importantly, do not overlook any area of the competency statement!