ADVANCED
AUDITING
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Q.1 |
The question was of elementary level and it was expected that the answers from final level students would cover every aspect of the issue. But a large number of replies were not comprehensive enough. There was no reference of the following in most answers:
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Q.2 |
The response from candidates on the topic related to verification of related party transactions showed that they have reasonable practical exposure of such transactions. However, some students got confused between part (a) and (b) and were unable to distinguish between identification of related parties for verifying the completeness of the details provided by the client (asked in part -a) and examination of transactions to identify related parties (asked in part-b). |
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| Q.3 | Most of the students mentioned correctly that according to Code of Ethics issued by the Institute of Chartered Accountants of Pakistan, such an arrangement is prohibited. However, very few could mention about the exception contained therein. | ||
| Q.4 | (a) | The candidates were found familiar with the meaning of derivatives. However, they are advised to be comprehensive while answering such straight forward question where full marks could be obtained by just describing all essential elements of the term. |
| (b) | The requirement of the question was specific to the valuation and measurement assertion about derivatives. But a large number of students responded in casual manner sometimes incorporating those procedures, which were not relevant to derivatives. It appeared that students have little practical knowledge of the mechanism of derivative transactions. In view of expansion in equity and debt market in the country, examiner expects thorough understanding of such concepts from students. Very few examinees were able to explain how the valuation of a derivative will be verified if it is not quoted or a quoted market price is not available. | |
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Q.5 |
The answer regarding audit matters of governance interest showed that students have good practical exposure of such matters. However, they over-emphasized the area related to weakness of internal control and occurrence of fraud in an entity. Most of them gave little emphasis to routine audit matters, which are equally important for those charged with governance. These include material uncertainties, changes in significant accounting policies, pending litigations etc. |
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Q.6 |
(a) |
Most of the examinees correctly described the meaning of the term "engagement partner". Some of them however, wrote about the responsibilities of engagement partner, which was not asked in this part. A reference to the overall responsibility was sufficient. |
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(b) |
Candidates took a layman approach while discussing the responsibilities of engagement partner. Most of them probably did not have an idea as to which responsibilities are specific to the engagement partner and quoted all the major decisions as his responsibilities instead of restricting their answers to matters, mentioned in the relevant ISA. |
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Q.7 |
(a) |
The case given was a situation of existence of uncertainty as regards the entity's ability to continue as a going concern. Most of the students stated that only an emphasis of the matter paragraph was necessary. However, they failed to discuss the uncertainty regarding availability of further borrowing and what impact it may have on the audit report. |
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(b) |
A large number of students submitted only one aspect of management's assessment of going concern assumption, that is, the nature and condition of the business. Other factors like (i) time required to know the outcome of related uncertainty and (ii) absence of precise knowledge at the time of assessment etc. and impact of these factors on the management's assessment were mentioned by few good students only. |
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Q.8 |
Candidates were required to advise the management of a company in respect of policies and procedures that may assist the management in the prevention and detection of non-compliance with the laws and regulations. They responded the question in fairly good manner. Some of the important policies and procedures include:
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Q.9 |
The examinees were required to assess whether an internal auditor can be appointed as the external auditor with reference to International Standards on Auditing and Code of Ethics. Students were found unable to express with clarity their understanding on the issue. Many examinees, unnecessarily described the common areas between internal and external audit procedures gaining no marks. There were good answers also which contained reference to ethical requirements that include refraining from prohibited relationship, threats of self review, impairment of independence and safeguards suggested by the Code of Ethics. |
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Q.10 |
Very few students could identify the threat of cancellation of license by SECP due to erosion of equity and the impact of this threat on the audit. |
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| Q.11 | Audit approach in case of work performed by other auditor under local standards, was asked. It was expected that students would consider all aspects of the situation like application of own procedures by principal auditor and consideration of materiality in case own procedures are not possible. Majority of the students focused only on comparison of local standards applied by the other auditor with the international standards. | ||
| Q.12 |
(a)
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The students were required to explain why fraud was more likely in banks which have serious deficiencies in corporate governance and internal control. A large number of students got confused and tried to emphasis that frauds are more likely in banks, as compared to other entities as the nature of operations of a bank involves cash dealings. | |
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(b)
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The response on fraud risk factors in respect of deposit taking and lending, generally lacked professional quality. A number of students lost their track as they discussed the techniques by which customers' deposits are embezzled, instead of discussing the factors that cause such embezzlement. Similar problem was seen while discussing the factors related to lending. | ||
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| Q 13 |
Most candidates suggested extreme measures such as disowning the financial statements by giving public notices in the newspapers etc. They should have considered the fact that since the amount involved is not material the expectation is that the omission is just on account of a mistake. The measures to be taken by the auditor in such a situation are as follows: |
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(i)
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Informing the client and requesting it to advise the SECP and the relevant stock exchanges and if possible all the shareholders. | ||
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(ii)
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Informing the shareholders in the AGM. | ||
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