ACCA/CAT

Question Three

This 20-mark question was based on a window cleaning company，Shiny Happy Windows Co，along with unrelated requirements on substantive procedures and tests of control as well as substantive procedures over a company’s bank balance.

Part （a）for 4 marks had two sub requirements which were not related to the scenario. Candidates were required to define a substantive procedure and a test of control and then provide an example of each procedure relevant to sales invoicing.

A large number of candidates could not provide valid definitions. Most were able to define test of control，but struggled with substantive procedure. The attempts by most candidates at providing examples of tests of control and substantive procedures were unsatisfactory. Many provided controls rather than how to test the controls and the substantive procedures were weak in relation to the level of detail provided. As noted in previous Examiner’s reports a substantive procedure which starts with “check” is unlikely to score many marks. en.Examw.CoM

In addition some candidates provided valid examples of tests of controls and substantive procedures，but these were not in relation to sales invoicing. It can only be assumed that this was due to a failure to read the question properly.

Obtaining evidence is a core part of the syllabus and for candidates to not be able to provide examples and definitions for substantive procedures and tests of control is unsatisfactory. Future candidates must ensure that they are mindful of the importance of this topic area.

Part （b）for 9 marks had three sub requirements；an identification and explanation of deficiencies in the cash cycle，controls to address these deficiencies，and tests of controls to assess the effectiveness of the controls.

The first two parts of these three sub requirements were answered well by almost all candidates，many scored full marks. Where candidates did not score full marks this was usually due to the fact that they had not explained the deficiencies and controls in sufficient detail or because they identified deficiencies/controls which were unrealistic， such as suggesting that all customers should be required to pay by BACS rather than by cash/cheques or suggesting that only senior members of the finance team should be allowed to open the post.

The third sub requirement for tests of controls was not well answered. Following on from comments made in relation to question 3a，candidates do not seem to understand what a test of control is and how it operates. Many provided unsatisfactory tests such as “observe the post” or they provided substantive procedures instead.

The question required three deficiencies，controls and tests of control and it was pleasing to see that the vast majority of candidates were able to clearly identify only the required number of points.

Many candidates presented their answers in a columnar format and this seemed to provide clear and concise answers which covered all parts of the requirement. Some answered just the first two sub requirements in columns whilst others answered all three parts in columns；either approach was acceptable.

Part （c）for 7 marks required substantive procedures for verifying a company’s bank balance. It presented difficulties for many candidates.

Common errors included：

·Writing at length about the steps involved in obtaining a bank confirmation，even though this was not the requirement.

·Focusing on testing transactions which would go through the bank account over the year as opposed to focusing on the year-end bank reconciliation.

·Providing tests of controls over bank，this yet again demonstrated the confusion over substantive versus tests of control.

Those candidates who did understand the requirement often failed to focus enough on the auditing of the year-end bank reconciliation and hence lost out on marks in relation to such items as unpresented cheques and outstanding lodgements.

Substantive procedures over the key categories of assets and liabilities is a core part of the syllabus and future candidates must ensure that they devote adequate exam preparation time to this critical area.

（责任编辑：中大编辑）

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