General:

Overall, the performance of the candidates in this paper was better. The paper was set in such a way as to cover a large area of the syllabus. Hence, the students with lack of adequate coverage of the syllabus could not do well.

Q.1

(a)

This part was set to test the knowledge of the candidates about the international bodies IFAC and IAASB and their roles. IFAC, being the leader of the worldwide accounting profession, is responsible for developing, promoting and maintaining global professional standards and contributes to the efficient functioning of international economy by speaking out on public interest issues where professional expertise is most relevant. IAASB, on the other hand, is responsible for developing and issuing standards on auditing, related services and quality control. Students had a surface knowledge of such roles.

(b)

This part was designed to test the candidates’ knowledge about the applicability of the ISAs in Pakistan. It was disappointing to note that none of the candidates were able to give a complete answer to this part. ICAP, being a member of IFAC and regulator of accountancy profession in Pakistan, has adopted most of the ISAs. It is mandatory for every practicing member to follow ISAs while performing audit of a limited company. The format of audit report used in Pakistan also contains a phrase that the audit is performed in accordance with the auditing standards as applicable in Pakistan. Very few candidates mentioned the above points.

Q.2

This was one of the easiest questions set in the paper and generally the performance of the candidates was satisfactory. However, in Part (a), in case of Company D, the students failed to appreciate that the time frame of filling out casual vacancy by directors has elapsed and authority to appoint auditors then rested with SECP. Part (b) of this question was well performed by majority with some exceptions where students related auditors’ term with directors term.

Q.3

This question had three parts. Part (a) and (b) related to preliminary engagement activities which are carried out for recurring audits and mainly relate to matters like continuance of client, ethical issues etc. A number of students described planning activities including assessment of internal control, prior years issues and issues relating to nature, timing and extent of audit procedures etc. which is not done at this stage.

Q.4

The performance of the candidates in part (a) was mostly unsatisfactory. In this part, candidates were required to enumerate the procedures normally undertaken by the principal auditor while using the work of other auditor and to specify why the principal auditor does not need to perform all the above referred procedures if the other auditor is an affiliated firm. The main reason is that in case of an existing relationship, periodic inter-firm reviews, tests of operating policies and procedures, etc. are routinely carried out. Therefore such steps may not be required to be performed again.  Most candidates mentioned the audit procedures but failed to specify the difference when the other auditor is an affiliated firm.

Part (b) was satisfactorily attempted by most candidates. However, very few could mention all the information required to be documented by the principal auditor and hence, could not gain full marks in this part.

Q.5

It was required to identify circumstances where manual controls are preferred over automated controls. Instead many candidates listed the various manual and automated controls. Some answered the question with reference to audit risk related to both types of controls which was not required.

Q.6

(a)

Management representation is an oft-repeated topic but still students often fail to answer with specified reference to International Standards.

(b)

A number of students had no idea of verification of fair value of securities, thus, a confused response emerged on paper gaining very few marks.

(c)

Those who had no knowledge of verification of fair value of listed securities, obviously could not do any thing in this part. But most surprisingly those who were able to describe alternate procedures in Part (b) stated that the auditor in given case had no other alternate available to verify fair values and was supposed to qualify the audit report.

Q.7

Completely ignoring the marks allocated to the question, a number of candidates replied the answer in affirmative without offering any reasons. Some of the candidates correctly mentioned that working papers are necessary as they assist in planning and performance as well as supervision and review of the audit work. However, very few mentioned that working papers also provide evidence that the audit has been performed in accordance with the requirements of the ISAs and are necessary to support the audit opinion. A few candidates even expressed that working papers were not required as it was a one time engagement.

Q.8

This question on the topic of audit evidence was very easy. Except a few candidates who did not mention all the five factors, the majority gained full marks.

Q.9

This question was set to test the candidates’ knowledge about negative and positive confirmations. In part (a), most of the candidates had a ‘field day’ on this question and were able to identify the weaknesses of negative confirmation correctly. However, very few candidates mentioned that negative confirmations are less reliable than positive confirmations. As a result, they were unable to gain full marks in this part. In part (b) the candidates correctly identified that negative confirmations will be the right course of action in this situation but very few were able to enumerate the circumstances when negative confirmations may be sent.

Q.10

The question was attempted satisfactorily by majority of the candidates. The only shortcoming was that many were not able to correlate the right audit procedure with the right assertion. Some preferred to ignore assertions altogether and just stated the audit procedure and ended up losing crucial marks. Others listed down all the assertions first and all audit procedures thereafter. This also resulted in loss of marks as the requirement was to relate each suggested procedure with audit assertions. Some submitted the procedure for verification of ‘asset subject to finance lease’ instead of ‘liability’.

Part (b) was a straight forward question and everybody was able to provide accurate and correct answer. As a result, almost everybody got full marks.

Q.11

By and large, this question was attempted well by a majority of the candidates who, in turn, managed to score high marks in this question. The question was designed to test the knowledge of candidates regarding the ISA related to ‘Subsequent Events’. It was observed that most of the candidates did very well in describing the audit procedures but very few were able to mention that such audit procedures are normally performed as near as practicable, to the date of the auditor’s report.

Q.12

This question was directed towards identifying the important matters that are considered after the decision to modify the audit report on the basis of an expert’s opinion has been taken. Many students ignored this and unnecessarily described the procedure that are performed before taking any such decision.

Q.13

This question dealing with the auditor’s report was, on an average, handled well by the candidates. Nearly every candidate was able to identify that a liability / provision was required to be made under the circumstances, however, very few mentioned that an emphasis of matter paragraph was not appropriate under the given circumstances. Almost everybody was unanimous that it was a case of disagreement with management. Most of them were able to state that either an adverse or a qualified opinion was appropriate, however, they did not mention that adverse opinion was suited where the financial effect of the matter was material and pervasive.