General:

Almost every question of the paper aimed to test knowledge base and its application to practical problems by referring to short case studies. A reasonable number of students have shown their serious attitude by submitting their answers in professional manner proving the skill and competency they are gaining during their training.

Question wise comments are as under:

Q.1

Audit objectives were stated correctly by almost all students. Audit program for the verification of intangible asset was appropriately prepared by majority except for some who could not address the objective of “completeness”.

Q.2

This was an easy question consisting of some audit observations and requiring preparation of management letter. The question itself contained hints for the answer and students successfully utilized the opportunity. Only those who lacked communication skills failed to score high.

Q.3

(a)

(i)

This again was an easy question. Obviously, since the provision that the company had made was not in accordance with the law applicable at that time it was imperative for the company to give a comprehensive note explaining the reasons for making the provision on the basis of FTR. Almost all students were able to explain this.

(ii)

Here again the obvious answer was that a qualifying paragraph was required to be inserted in the audit report. The students were mostly able to mention this. However, most of them were lacking when it came to drafting the modification.

(b)

Candidates were required to draft suitable opinion paragraph if zakat has been deducted during the year on dividend but the same has not been deposited till the date of audit report.

• Some candidates did not attempt this part
• Some candidates were not able to draft proper opinion paragraph
• Certain candidates drafted the opinion reasonably well but stated that this paragraph should be inserted in the audit report before the opinion paragraph on true and fair view of the financial position.

Q.4

This was a simple question on accounting estimates taken as bonus by the students who were well versed with the concept. The students also smartly utilized their practical experience in describing audit approach towards accounting estimates which consisted of three main points i.e. reviewing the process of development i.e. basis, calculations, approval etc.

Q.5

This question was framed from ISA 402 ‘Audit Consideration Relating to Entities Using Service Organization’. Except for few, candidates were not able to write with specific reference to the relevant ISA and mostly relied on their knowledge about using the work of an expert or internal auditor securing some marks on areas of common nature. Generally, the performance was poor, as discussed above.

Q.6

(a)

Most students were of the view that the report should be qualified. It is non-compliance of section 208 of the Companies Ordinance, 1984 but does not affect the true and fair value of XYZ Limited’s financial position. Therefore in the given case the violation can be communicated by the auditors by an emphasis of matter paragraph.

(b)

Many candidates were of the view that the assignment was to be carried out as an “Agreed Upon Procedure”. They overlooked that an audit opinion was sought by the management on one of the components of the financial statements and therefore it was a special purpose audit engagement covered in ISA-800 ‘The Auditor’s Report on Special Purpose Audit Engagement’. This omission distracted the students and many of them based their answers on ISRS 4400 related to Agreed Upon Procedures.

Q.7

(a)

Largely, candidates stated the answers in a very general manner, which showed that they were not fully aware about the quality control review program established by the Institute of Chartered Accountants of Pakistan.

(b)

Specific knowledge about quality control at individual audit level was missing in large number of answers submitted by the candidates. Students were unable to identify the difference between quality control at firm level with that at individual level. They attempted the question on their general understanding. Consequently they were able to mention some logical policies and procedures like assignment of work to competent assistant, monitoring and review of work done by them etc. However most of them missed out issues like

• informing assistants of their responsibilities and objectives.

• resolving differences of professional judgment.

• ensuring that conclusions are consistent with the results of tests carried out.

Hence, only partly correct answers were produced. Extremely few could gain full or very good marks.

Q.8

(a)

Due to practical audit exposure, students were able to identify a number of techniques through which management is able to commit fraud.

(b)

Very few were aware of risk assessment procedure in identifying risk of misstatement due to fraud. This time general understanding and guess work did not pay off and only those having proper and specific knowledge could gain marks.

(c)

The performance was very poor and most students gave irrelevant answers. Most of the candidates attempted it as a general response of auditor in case of assessed risk. In fact, they should have based their answers as discussed in IAS 240 (para 76)

(d)

Here again, students based their answer on general understanding of the topic and missed important points such as understanding reporting process of the entity and inquiring individuals about unusual activity relating to processing entries.

Q.9

The question related to acceptance of audit dependent on the actual profit (contingent fee), which should be primarily discussed in the light of relevant paragraph of Code of Ethics dealing with contingency fee. Many students claimed the fee as lower of the existing fee and submitted their response on the basis of paragraphs dealing with undercutting.

Q.10

A practical case with extracts from the financial statements were given for testing skills of analytical review at planning stage. Majority showed their reasonable expertise in analyzing the figures and preparing planning notes for discussion with the client.

Q.11

Very simple question requiring a report on agreed upon procedure with no modification. It was well answered by most students except some of them who tried to form an opinion rather than reporting on factual findings as required by ISRS 4400.

Q.12

It was a very easy questions and almost all students took full advantage.