Overall approach of the paper setter was to test a large portion of the syllabus by way of straight forward requirements. Nevertheless, few questions also tested practical application of knowledge. Generally the performance was good, however as in the past, even good answers contained irrelevant portions which were not required. There is a general tendency in many students to produce as much information as they know even if only a part of it has been asked for. The students are advised to cut this tendency, if they really want to succeed in the examinations.

Question-wise comments are as under:

Q.1

Legal provisions regarding appointment of statutory auditor is a topic regularly asked and was attempted fairly by most students. The general deficiencies noted in the answers were as follows:

• The time lapse after which an ex-employee can become an external auditor was not mentioned.
• There were many examinees who said that a private limited company having paid up capital less than rupees three million can appoint, even a body corporate, as its auditors.
• There was a general misconception that an ex-employee of a director also needs a time lapse of three years for appointment as an external auditor.
• Very few students knew that if shares are held by the minor son of a person, he cannot accept appointment as an external auditor. There is no such restriction if the son has attained the age of majority

Q.2

Most of the students did well in this straight forward question. However, those who hadn’t studied the relevant text, relied on guess work specially in answering part (b) and described the dictionary meaning of the word ‘monitoring’.

Q.3

(a)

Generally the students didn’t seem to have studied this area. Most of them answered using their general understanding of IFAC and couldn’t secure good marks.

(b)

In-depth understanding of importance of financial reporting framework at client acceptance level was lacking. An auditor is not supposed to accept an assurance engagement unless management has adopted a reporting framework that serves as a suitable criteria for preparation and evaluation of financial statements. Some of the students could not understand the question and tried to explain the importance of International Accounting Standards.

Q.4

Students did well while describing assessment of internal audit at planning stage and discussed various criteria such as Status in the Organization, Scope of Functions and Technical Competence etc. However, some of them could not see the difference between assessment of internal audit function at planning stage and assessment of specific work performed by the internal auditor. Thus, mixed and confused thoughts were presented by some of them.

Q.5

Use of expert’s work was another topic where students performed well. However, a number of students ignored the simple fact that in the given case, the expert’s objectivity has been impaired as he was an employee of the client. As a result they did not mention the steps that the auditor may perform in such a situation and lost easy marks.

Q.6

(a)

Term ‘error’ is an essential concept of audit and most of the students stated the meaning correctly. Some overlooked the requirement and didn’t give examples in their answers.

(b)

Modern auditing approach gives substantial importance to the possibility of misstatement in financial statements due to intentional act of the management. Management overrides controls which are established to reduce the risk of fraudulent financial reporting. Many students disregarded the requirement of the question and kept on writing every thing they knew about fraud committed by the management. They were rewarded only for relevant points related to financial reporting such as fictitious entries, incorrect estimation, concealment of information etc.

Q.7

Materiality is another term repeatedly used in auditing and examiner expects a profound knowledge about the term and its use. An information is material if its omission or misstatement could influence the economic decision of the users of financial statements. Better answers contained a brief description of materiality, its due importance and relationship with the particular circumstances. Some candidates had an incorrect understanding that a quantitative threshold is blindly taken as materiality level by the auditor without considering the qualitative characteristics of the items under consideration.

Q.8

(a)

This was an easy question. Most of the students were able to mention correctly that sufficiency is a measure of the quantity of audit evidence where as appropriateness relates to its quality. 

(b)

The important matters that an auditor usually considers in determining the extent of tests of controls to be performed by him are:

·        Extent of reliance being placed

·        The length of time, in respect of which the reliance is being placed

·        Frequency of operation of controls during the period

·        Lists of other controls and

·        Expected deviation from the control.

Some students started discussing irrelevant things like control environment and risk of management’s override of controls etc. and wasted lot of time.

Q.9

(a)

The auditor considers a number of factors while using analytical procedures as substantive procedures and the examinees were required to discuss only one such factor i.e. preciseness of expectation. However, a number of students failed to notice the requirement. Consequently, some of them just listed all the factors whereas others discussed each of the factors and wasted lot of time which affected their performance in other questions.

(b)

Concepts of most students regarding analytical procedures were not clear. At the end of audit, such procedures are usually carried out to corroborate conclusions drawn during the audit and to identify a previously unrecognized risk of material misstatement. Most of the students appeared to believe that auditor’s opinion is based on such procedures.

Q.10

Most students did have the knowledge about the topic of external confirmation but were found unable to apply the same on the given situations. They failed to consider many aspects such as suppliers’ dependency – case (i), documentation requirement of oral confirmation – case (ii) and using other means where no response was received – case (iii).

Q.11

(a)

Most students were able to write down the purpose of performing review of subsequent events although a large number of them wrote very lengthy answers which were not required. Moreover, the fact that these procedures should be performed as near as possible to the date of auditors’ report was missing from many answers.

(b)

Overall performance was good in this part of the question in which the examinees were required to describe the procedures for review of subsequent events. However, there were instances where examinees produced unasked details like types of enquiries and procedures relating to specific matters like going concern and subsequent losses etc.

Q.12

(a)

Students presented a fairly good knowledge about the topic. However, some of them mixed up qualified opinion with modified opinion ignoring the fact that all modified opinions are not qualified opinions. Some wrote samples of audit opinions gaining no marks.

(b)

In many cases it was noted that the students reproduced the contents already given in the question. Students are once again advised that marks are not awarded on the basis of length of the answer. Relevance, accuracy and coverage of the topic is considered while marking the questions.