THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Audit and Assurance Certificate in Accounting and Finance –
Spring 2017

General:

The paper was reasonably attempted and the passing percentage was 36%. However, it
was much below the passing percentage achieved in the previous attempt i.e. 54%. The
decline was mainly attributable to very poor performances in Questions # 1 and 3 which
was quite surprising as these were normal questions from frequently tested areas.

Question-wise comments.

Question 1(a)

The requirement was to identify fraud risk factors in the given scenario. The performance
was quite poor mainly because the candidates were not able to differentiate between
fraud risk factor and Audit risk. Most of the candidates identified audit risks instead of
fraud risk factors.

Question 1(b)

The performance in this part was relatively better as compared to part (a). The most
common error in this part was that the candidates stated audit risks which were not
related to the given scenario. Many students who had already identified the audit risks
erroneously while responding to part (a), tried to define audit risk which was not relevant.
Many candidates gave definitions of Inherent, Control and Detection risks.

Question 2(a)

In this part of the question, the candidates were required to specify the steps which the
auditor should perform to ensure carrying values of inventories is based on lower of cost
and NRV. The performance in this part was satisfactory. However, many students gave
generalized steps and did not say anything about the observation mentioned in the
question. Several students focused on how the NRV is computed which was not required.

Question 2(b)

This was a straight forward question from ISA 560 “Facts Which Become Known to the
Auditor after the Financial Statements Have Been Issued”. Majority of the candidates
performed well in this part also. However, it appeared that several students had not
studied the above ISA altogether. Many such students specified the steps that may be
carried out to verify the information given in the scenario, which was totally incorrect.

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 Examiners’ Comments on Audit and Assurance – Spring 2017

Question 3

This question contained three situations (parts) and the candidates were required to
discuss the possible impact on the audit report and specify the procedures which the
auditor may be required to take, in each case. The overall performance was very poor as
only 7% of the candidates secured passing marks. A common issue in part (b) and (c) was
that many candidates only mentioned that a modified opinion would be issued but did not
specify the exact nature of modification. Further comments on each part are given below:

Question 3(a)

The performance was very poor. Only few candidates could identify that change of
accounting policy has to be reported as a key audit matter and therefore missed all the
related issues. However, the students generally scored marks by mentioning that auditor
needs to concur with the change.

Question 3(b)

It was rightly noted by majority of the candidates that refusal to grant written
confirmation by lawyer is a scope limitation in gathering audit evidence and would have
a consequential impact on the audit report either being qualified or disclaimer being
issued. However, some students presumed it to be an issue of management representation
and went into a totally different direction.

Question 3(c)

This was a simple situation where the management was unwilling to make certain
disclosures. Generally the candidates were able to identify that a qualified opinion would
be given but most of them failed to explain clearly about giving details of the nature of
information in the basis of opinion paragraph. Further, before making any final decision,
the auditor was supposed to bring the issue to the knowledge of those charged with
governance. This aspect was rarely covered.

Question 4

This question contained four simple situations [one in part (a) and three in part (b)] and
the candidates were required to discuss the threats and the related safeguards in each
case. It was well attempted as more than 70% of the candidates secured passing marks.
Comments on each situation are given below:

Question 4(a)

Most of the candidates performed well in this part of the question. Some candidates
identified self-interest threat which was incorrect. Some candidates did not mention the
correct safeguards and stated that while preparing the financial statements, the auditor
should not take any management decision which was not appropriate in the given context.

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 Examiners’ Comments on Audit and Assurance – Spring 2017
Question 4(b)(i)

The overall performance was good. However, many candidates incorrectly identified self-
review threat instead of familiarity threat.

Question 4(b)(ii)

Good performance was witnessed in this part also. However, many candidates also
mentioned familiarity threat which was not correct. Some of them even mentioned
intimidation threat which was totally incorrect. As regards the safeguards, some of the
candidates mentioned that the work carried out by Rashid should be reviewed by a
chartered accountant which was not appropriate as the work performed by all team
members is reviewed at various stages as a matter of routine rather than in that particular
situation.

Question 4(b)(iii)

An average performance was witnessed in this sub-part. Most of the students failed to
understand that the threat would only be significant if some extra-ordinary benefit is
obtained. Some of them even mentioned that the firm should not continue as the auditor
which was quite inappropriate. In fact, the threat if any, was easily manageable by
reducing the use rather than refusing the audit altogether.

Question 5(a)

This was a straight forward question in which the candidates were asked to state the
matters to be considered at inventory count and majority of the candidates performed
well. However, many candidates gave verification steps such as agreement with ledger,
valuation of excess/shortages and verification of NRV, which were not relevant in the
context of the question.

Question 5(b)

The performance in this part was below average as the candidates generally lacked proper
understanding of the cut-off procedures. Many candidates discussed performing the
procedures on invoices but did not discuss delivery documents. Many candidates were
totally ignorant and mentioned steps such as analytical review, inspection of
suppliers/debtors statements, etc.

Question 6(a)

This straight forward question on audit engagement letter was well answered by majority
of the students. However, many candidates mentioned the key contents of the letter which
was not relevant. Some students completed the tally of four points by repeating the same
thing in different words and lost easy marks.

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 Examiners’ Comments on Audit and Assurance – Spring 2017
Question 6(b)

The overall performance in this part was quite poor. Only few of the candidates who had
studied and could understand the question’s requirements responded well and secured
good marks. However, most of the candidates completely deviated from the concept and
related requirements outlined in the question.

Question 6(c)

This question required course of action to be adopted by auditors if pre-conditions of

Question 6(d)

The performance in this part was below average. Most of the candidates misjudged the
requirement and wrote how analytical procedures are performed, whereas the question
required the factors which determine the extent to which analytical procedures are used
as a form of substantive audit evidence.

Question 7

This question in essence had two requirements i.e. conditions for use of negative
confirmations and appropriateness of the use of negative confirmation in the given
scenarios. Most of the candidates correctly identified the preconditions for use of
negative confirmations although some of them mentioned exactly the opposite of what
should have been written.

While discussing the scenario, many candidates did not seem to understand that for
sending negative confirmations, all the conditions should be met and it was not enough if
some of them were met.

Question 8(a)

A short and straight forward question on management representation which was generally
well answered.

Question 8(b)

This part required analysis of scenario and whether it was necessary to obtain
representation or not. Most of the candidates rightly stated that representation would be
required in case of related parties but erred in the other two cases. They must understand
that representation is not a substitute for available audit evidence and that it cannot justify
an incorrect accounting treatment.

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Question 9(a)

The overall performance in this question was considerably below average and reflected
the candidates’ lack of knowledge in the area of IT controls. Most of the candidates could
not differentiate between general IT controls and application controls and therefore could
not give correct examples also.

Question 9(b)

This part was in continuation to the first part and where candidates failed to attend first
part, they also erred in this part. Even otherwise, very few candidates seemed to
understand that manual procedures exercised by users may provide effective controls at
the application level.

Question 10

The question was focused with reference to the requirements of Companies Ordinance,
1984 with regard to auditors’ appointment. Mixed responses were seen in response to
both parts of the questions. In part (a), only about 25% of the candidates could explain
that Term Finance Certificates are not shares and therefore the appointment is valid. In
part (b), the position was slightly better as majority of the students were aware that
shareholding of auditor in associate also needs to be considered in assessing compliance
with eligibility requirements.

(THE END)

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