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　　General Comments

　　Despite covering some core syllabus areas，this paper proved challenging for many candidates. Overall performance continues to be unsatisfactory. Many candidates did not demonstrate awareness of the International Audit and Assurance Standards Board’s （IAASB）Clarified ISAs，and generally the display of knowledge and application of that knowledge to the question scenarios provided was not at the standard expected in the final Professional Level examination.

　　The examination comprised two compulsory questions in Section A，and three questions in Section B of which two should be attempted. Both Section A questions were based on a case study，and contained several requirements covering different syllabus areas.

　　Each optional 20 mark question in Section B included a short scenario，and several requirements. Of the section B questions，question 4 the most popular，and roughly the same proportion of candidates attempted Question 3 and Question 5.

　　The vast majority of candidates attempted the correct number of questions，and there was less evidence of time pressure than seen in previous sessions.

　　The factors contributing to the poor pass rate for this sitting include：

　　Failing to answer the specific question requirements

　　Not applying knowledge to question scenarios

　　Making too few comments given the mark allocation of a requirement

　　Lack of knowledge on certain syllabus areas

　　Illegible handwriting.

　　The rest of this report contains a discussion of each question，highlighting the requirements that were answered well，and the areas that need improvement.

　　Specific Comments

　　Question One

　　This question was for 36 marks，and focussed on the planning of a group audit engagement. Requirements related to an evaluation of audit risk，reliance on the work of a component auditor，and audit procedures with respect to investments in associates and a grant received.

　　Overall performance on this question varied considerably. Candidates who answered the specific question requirements scored well. However，despite the requirements of（a）and （c）covering familiar issues seen in many previous papers，a significant proportion of candidates did not answer the specific question requirements，leading to largely irrelevant answers scoring very few marks.

　　Requirement（a）asked for an evaluation of principal audit risks，for 18 marks. Two professional marks were also available for the briefing notes required. The scenario provided plenty of indicators of potential audit risks，and many candidates produced sound answers which identified the risk and explained it in sufficient detail. Most candidates dealt well with the more obvious risks such as a profit-related bonus，a provision for decommissioning costs and the realignment of a foreign subsidiary’s accounting policies. The majority of candidates managed to identify at least some of the audit risks specific to a group which acquired a foreign subsidiary during the year，and it was pleasing to see so many answers referring to goodwill，fair values，retranslation to group currency and alignment to group accounting policies. However，some of the explanations of audit risks identified were weak， amounting to little more than a statement of the correct accounting treatment，and not the risk to the auditor.

　　Many scripts contained the following errors：

　　Discussion of business risk without linking the business risk to financial statement risk （e.g. ‘there is a risk of failing to comply with relevant laws and regulations’， or ‘there is a risk that inventories are obsolete’），

　　Including audit procedures （which were not asked for），

　　Long description of the components of audit risk （inherent， control and detection risks）with no application to the scenario.

　　Explanations too vague to earn marks（e.g. ‘the risk is it is not accounted for properly’or‘the risk is that the accounting standard is not follwed’），and

　　Discussing reliance on the component auditor （which the requirement explicitly said should not be considered）.

　　Many candidates included the inevitable references to going concern problems，even though there was no hint in the scenario that the group faced operational or financial difficulties. Also，some candidates misread the scenario， leading to inappropriate comments. The most commonly seen example of this appeared in answers explaining that a change in accounting policy had occurred （the question stated ‘changes in accounting estimates’）。 Candidates must read the scenario carefully to avoid this type of error.

　　Candidates who structured their answers under three heading of inherent risk，control risk and detection risk tended not to score very well. Those who worked through the scenario and discussed the audit risks associated with each of the group companies in turn，and then the audit risk of the consolidation process performed well.

　　A significant minority of candidates did not attempt to earn the 2 professional marks available for this requirement. Candidates are reminded that resources are available on ACCA’s website providing guidance on the importance of professional marks.

　　The UK and Irish adapted papers featured a different presentation of the requirement for Q1 （a），the requirement being contained within the question scenario in an email from the audit engagement partner. Candidates dealt well with this different presentation of the requirement，which had been the subject of an examiner’s article， and which will be introduced across all adaptations of P7 from June 2011.

　　Requirement（b）asked for an explanation of factors that should be considered and the procedures that should be performed in deciding the extent of reliance to the placed on the work of the component auditor，Sidle & Co. This was for 8 marks，and candidates were expected to demonstrate knowledge of ISA 600 Special Considerations—Audits of Group Financial Statements （Including the Work of Component Auditors），which was revised and redrafted by the IAASB as part of the Clarity Project. Unfortunately it appeared that many candidates had very little， if any，specific knowledge of ISA 600，and produced answers which were vague and seemed to be based on guess-work rather than knowledge.

　　While most candidates could suggest that the principal auditor needed to gain some understanding of the level of competence and objectivity of the component auditor，few appreciated that it is a requirement of ISA 600 that the principal auditor shall obtain understanding of the regulatory environment in which the component auditor operates.

　　Procedures suggested tended to be based mainly on discussion，and many suggestions were impractical or unprofessional （e.g. ‘ask Sidle & Co’s other clients for a reference’ or ‘ask Sidle & Co to do a test to check their knowledge’）。

　　Overall performance on this requirement was unsatisfactory. Candidates are reminded that group audit engagements are an important part of the P7 syllabus，and the requirements and practical implications of the Clarified ISA 600 should be studied in detail.

　　Requirement（c）was for 8 marks and asked for principal audit procedures to be performed on the classification of non-controlling investments， and the condition attached to a grant received. Some candidates performed well here，providing procedures that were specific to the requirement and to the scenario. However there were three common problems with answers to this requirement：

　　Suggesting procedures not specific to the requirement，i.e. procedures not relevant to classification of investments or specific to the conditions attached to the grant，（e.g. suggesting that the auditor should ‘confirm the existence of the investments by visiting their head office’）。

　　Suggesting procedures too vague to score credit，e.g. ‘ensure the investment is classified correctly’，or ‘check the conditions of the grant have been met’。

　　Discussion of the relevant accounting treatment – not asked for in this requirement.

　　Candidates are encouraged to read the examiner’s article on exam technique in answering questions on audit procedures， published in September 2009 and available on ACCA’s website.