Question Three

　　This 20-mark question was based on a window cleaning company，Shiny Happy Windows Co，along with unrelated requirements on substantive procedures and tests of control as well as substantive procedures over a company’s bank balance.

　　Part （a）for 4 marks had two sub requirements which were not related to the scenario. Candidates were required to define a substantive procedure and a test of control and then provide an example of each procedure relevant to sales invoicing.

　　A large number of candidates could not provide valid definitions. Most were able to define test of control，but struggled with substantive procedure. The attempts by most candidates at providing examples of tests of control and substantive procedures were unsatisfactory. Many provided controls rather than how to test the controls and the substantive procedures were weak in relation to the level of detail provided. As noted in previous Examiner’s reports a substantive procedure which starts with “check” is unlikely to score many marks.

　　In addition some candidates provided valid examples of tests of controls and substantive procedures，but these were not in relation to sales invoicing. It can only be assumed that this was due to a failure to read the question properly.

　　Obtaining evidence is a core part of the syllabus and for candidates to not be able to provide examples and definitions for substantive procedures and tests of control is unsatisfactory. Future candidates must ensure that they are mindful of the importance of this topic area.

　　Part （b）for 9 marks had three sub requirements；an identification and explanation of deficiencies in the cash cycle，controls to address these deficiencies，and tests of controls to assess the effectiveness of the controls.

　　The first two parts of these three sub requirements were answered well by almost all candidates，many scored full marks. Where candidates did not score full marks this was usually due to the fact that they had not explained the deficiencies and controls in sufficient detail or because they identified deficiencies/controls which were unrealistic， such as suggesting that all customers should be required to pay by BACS rather than by cash/cheques or suggesting that only senior members of the finance team should be allowed to open the post.

　　The third sub requirement for tests of controls was not well answered. Following on from comments made in relation to question 3a，candidates do not seem to understand what a test of control is and how it operates. Many provided unsatisfactory tests such as “observe the post” or they provided substantive procedures instead.

　　The question required three deficiencies，controls and tests of control and it was pleasing to see that the vast majority of candidates were able to clearly identify only the required number of points.

　　Many candidates presented their answers in a columnar format and this seemed to provide clear and concise answers which covered all parts of the requirement. Some answered just the first two sub requirements in columns whilst others answered all three parts in columns；either approach was acceptable.

　　Part （c）for 7 marks required substantive procedures for verifying a company’s bank balance. It presented difficulties for many candidates.

　　Common errors included：

　　·Writing at length about the steps involved in obtaining a bank confirmation，even though this was not the requirement.

　　·Focusing on testing transactions which would go through the bank account over the year as opposed to focusing on the year-end bank reconciliation.

　　·Providing tests of controls over bank，this yet again demonstrated the confusion over substantive versus tests of control.

　　Those candidates who did understand the requirement often failed to focus enough on the auditing of the year-end bank reconciliation and hence lost out on marks in relation to such items as unpresented cheques and outstanding lodgements.

　　Substantive procedures over the key categories of assets and liabilities is a core part of the syllabus and future candidates must ensure that they devote adequate exam preparation time to this critical area.

　　Question Four

　　This 20-mark question was based on a manufacturer of luxury mobile phones，LV Fones Co，and addressed the syllabus area of professional ethics.

　　Part （a）for 5 marks was unrelated to the scenario and required five threats from the ACCA’s Code of Ethics and Conduct along with an example for each threat.

　　This part of the question was very well answered by the vast majority of candidates with most scoring full marks. A significant minority of candidates confused the requirement for threats with that of the fundamental principles and hence provided answers in relation to objectivity，integrity，confidentiality，professional competence and due care and professional behaviour；unfortunately these answers gained no marks. In addition some candidates did not provide an example of each threat，choosing instead to explain the threat in more detail，however this was not what was required.

　　Part （b）for 10 marks required an explanation of the ethical threats for LV Fones Co along with an explanation of how the threats might be avoided.

　　This question was well answered by most candidates；they were able to clearly identify from the scenario the ethical issues impacting the audit of LV Fones. Some candidates did not explain the threats in sufficient detail， sometimes just identifying the issue and not explaining how this was an ethical threat. For example，many identified that the offer of a staff discount of 10% was an issue，however if they did not then go onto explain that this was a self-interest threat they would have only gained . rather than 1 mark.

　　The second part of this question required methods for avoiding the threats，candidates performance here was generally satisfactory. Some answers tended to be quite brief and to include unrealistic steps， such as resigning as auditors to reduce the risk of fee dependence，not allowing the finance director and partner to be friends or suggesting the finance director should resign. In addition many candidates demonstrated that they had not read the scenario properly，as a common suggestion was to not allow the audit senior to undertake the secondment，this was despite the scenario clearly stating that the secondment had already occurred.

　　Part （c）for 5 marks required the steps an auditor should perform prior to accepting a new audit engagement. This question was well answered by most candidates who were able to identify steps such as contacting the previous auditors as well as various client screening procedures.

　　Question Five

　　This 20-mark question was based on a pharmaceutical company，Medimade Co，which was experiencing going concern problems.

　　Part （a）for 2 marks required a definition of the going concern assumption. Most candidates were able to score at least one mark in relation to a reference to continuing to trade for the foreseeable future. In order to gain further credit there either needed to be an explanation of what the foreseeable future was，or a reference to the IAS 1 Presentation of Financial Statements requirement to prepare financial statements on a going concern basis.

　　Part （b）for 8 marks required an identification of going concern indicators for Medimade Co and a description of why these indicators could impact upon going concern.

　　Generally candidates scored well in the identification of going concern indicators for Medimade Co，a small minority of candidates did not relate their answers to the scenario and instead produced a standard list of indicators.

　　The requirement to then describe the impact upon going concern was more problematic for candidates，as many answers just stated “this will lead to going concern problems” as opposed to explaining why there would be an impact on going concern. Therefore although the marking allocation was to give . mark for an indicator and up to 1 mark for the explanation of the impact， few candidates scored 1. marks for their points. However，due to the considerable number of going concern issues in the scenario，many candidates did score well in this question.

　　Part （c）for 6 marks required audit procedures to assess if Medimade Co was a going concern. This question was satisfactorily answered by most candidates.

　　Many had a reasonable attempt at this question and generated some satisfactory tests such as obtaining a management representation on going concern and reviewing cash flow forecasts，however there were also a number of unsatisfactory tests provided.

　　Common errors included：

　　·Providing procedures which were based upon the year that had passed rather than the coming 12 months

　　·Requesting a written confirmation or a meeting with the bank to ascertain whether they would renew the overdraft facility， this is unrealistic.

　　·Lack of detail in the going concern procedure，such as “review board minutes” without an explanation of what to look for.

　　·Lack of variety of procedures， many tests started with “discuss with management”.

　　Part （d）for 4 marks required a description of the impact on the audit report if the auditor believed Medimade Co was a going concern but a material uncertainty existed. In addition the scenario stated that the directors had now agreed to make going concern disclosures.

　　This question was unsatisfactorily answered by many candidates. Previous Examiner’s reports have stressed the need for candidates to understand audit reports.

　　As the auditors believed that the going concern basis was appropriate，and the directors had made disclosures then the impact on the audit report was dependent on the adequacy of the disclosures made. If adequate then an emphasis of matter paragraph would be needed，if the disclosures were not adequate then a material misstatement modification would be required.

　　Unfortunately，not many candidates understood the point about the adequacy of disclosures；they did suggest an emphasis of matter paragraph or material misstatement modifications，but this was without any reference to disclosures and so demonstrated a lack of understanding. In addition a number of candidates wasted time on a discussion of whether the company was a going concern and therefore whether the break up basis should instead be used，this was despite the scenario stating that the auditor believed the company was a going concern. Candidates must take the time to read the scenario and requirements carefully.

　　ACCA2010年12月考试时间：12月6日-15日

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