ACCA/CAT

Question One

This 30-mark question was based on a paint manufacturer，Smoothbrush Paints Co，and tested candidates’ ability to cope with a number of areas including audit risks，planning and inventory.

Part （a）for 10 marks required candidates to identify and explain the audit risks identified at the planning stage of the audit.

Many candidates performed inadequately on this part of the question. Audit risk is a key element of the Audit & Assurance syllabus and candidates must understand audit risk.

A number of candidates wasted valuable time by describing the audit risk model along with definitions of audit risk，inherent risk，control and detection risk；this generated no marks as it was not part of the requirement. Candidates are reminded that they must answer the question asked as opposed to the one they wish had been asked.

The main area where candidates lost marks is that they did not actually understand what audit risk relates to. Hence they provided answers which considered the risks the business would face or ‘business risks，’ which are outside the scope of the syllabus. Audit risks must be related to the risk arising in the audit of the financial statements. If candidates did not do this then they could not have passed this part of the question as there were no marks available for business risk explanations. Candidates were able to pick up a few marks by identifying risk factors from the scenario，but if they then went onto provide a business risk explanation；they would have scored at most . marks for this point，as opposed to a possible 1. marks for each valid point.

An example of this is most candidates identified from the scenario a valid risk factor of goods being in transit for two months. The explanation of the audit risk should have been to ascertain that the cut-off of inventory was appropriate at the year end. However many candidates went onto explain that Smoothbrush Paints Co may encounter problems with stock-outs of goods，this is focused more on operational business risk rather than on the risks to the financial statements. Future candidates must take note；audit risk is an important element of the syllabus and must be understood.

Additionally，some of the candidates who were able to provide valid audit risks tended to focus too much on inventory risks as opposed to any number of the additional audit risks presented in the scenario. Credit was awarded for valid inventory risks in 1a；however where candidates focused overly on inventory they tended to lose marks in question 1c，which asked for inventory controls，as candidates did not then consider the inventory issues in question 1c as they had raised them in 1a.

The majority of answers were presented in detailed paragraphs as opposed to a columnar approach；either approach was suitable for this question. In addition a number of candidates provided far too many points for this question，which resulted in their answers to later questions either being incomplete or rushed.

Part （b）for 4 marks required a discussion of the importance of assessing risk at the planning stage of an audit. This was well answered by the majority of candidates with many identifying that assessing risk would lead to an effective audit with the focus of testing being on high risk areas only.

Part （c）for 10 marks required an identification and explanation of controls over the continuous/perpetual inventory counting system in order to ensure completeness and accuracy of the inventory records. This question proved to be challenging for a number of candidates and there were some unsatisfactory answers. Many identified controls，such as “the inventory team should be independent of the warehouse staff” but failed to then explain these controls，this would have restricted their marks to . mark per control as opposed to the 1. marks available for an identification and explanation.

As noted above for question 1a，many candidates identified inventory risks in 1a，but then did not consider the controls required to address these risks for question 1c，and hence missed out on available marks.

In addition despite the question asking for controls a significant minority of candidates provided substantive procedures the auditor would perform at an inventory count. Candidates must read the question carefully. Also many candidates failed to appreciate that the controls required were in relation to the perpetual inventory system only and not for the whole inventory cycle，hence controls in relation to goods received notes and purchase invoices were not relevant.

Part （d）for 6 marks required three substantive procedures each to confirm the valuation of inventory and the completeness of provisions or contingent liabilities.

Performance was mixed for this question；candidates were generally able to provide adequate substantive procedures for provisions or contingent liabilities. However candidates are reminded that procedures such as；

·obtain management representations，

·discuss with management，or

·read board minutes

are only likely to score . mark unless there is an explanation of what the management representation should contain， what the management discussions should cover，or what the minutes are being reviewed for. Substantive procedures must be sufficiently detailed otherwise at best only . marks rather than 1 mark can be obtained.

The requirement to consider valuation of inventory，which is a topic which is regularly examined，was on the whole inadequately answered. Candidates seemed to ignore the requirement to consider valuation and often structured their answers with headings such as existence or rights and obligations. Clearly many failed to read the question properly. In addition despite substantive procedures being required，many started with a definition of net realisable value，this scored no marks.

（责任编辑：中大编辑）

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