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					      THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

                             EXAMINERS’ COMMENTS



                 SUBJECT                                       SESSION
                  Auditing                      Intermediate Examination - Autumn 2011

General:

The overall performance of the candidates was average. Primary reasons contributing to
marginal performances appeared to be lack of preparation and presentation skills
combined with cursory reading of auditing standards. In addition, it was quite obvious
from a large number of scripts that candidates scored good marks in theoretical
components but failed to handle questions involving practical approach. It was also
observed that while dealing with practical situations most of the students quickly
concluded on extending qualified opinion without appreciating that it is neither a
substitute for further audit procedures nor it is to be intermittently used.

Q.1   (a)    The question was fairly well answered as majority of the students were able
             to describe the circumstances in which the auditor may decide to use negative
             confirmations. However, many of them were unable to relate the academic
             knowledge to the given scenario.

      (b)    Most students failed to clearly describe the roll over procedures to be
             performed at year end since the confirmations were sent on an earlier date.
             Instead of focusing on the remaining two months’ transactions, the students
             narrated all the procedures related to verification of debtor balances.

      (c)    The students were required to list the procedures that the auditor would be
             required to perform in the situation when management had refused to send a
             confirmation request to a particular customer. Majority of the students
             answered correctly in the light of the relevant auditing standards but many of
             them started discussing whether the audit report should be qualified, which
             was irrelevant.

Q.2   This was a conceptual question. Students were able to differentiate between
      emphasis of matter and other matter paragraph but could not differentiate clearly
      between applicable financial reporting framework and general purpose framework.
      The examples warranting inclusion of emphasis of matter paragraph were
      reasonably presented. However, the examples of situations requiring inclusion of
      other matter paragraph were not extended in a convincing manner.

Q.3   The performance in this question was quite poor as most of the students were not
      able to evaluate the situation. The students were expected to identify that:

      •     It is a non-adjustable event.
      •     The auditor is responsible to assess whether the impact of the event on the
            financial statements is material.

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                                       Examiners’ Comments on Auditing – Autumn 2011

      •   In case the auditor determines that the impact is material, he should ask the
          management to give appropriate disclosure and in case the management does
          not agree, the auditor should consider appropriate modification of the audit
          report.
      However, majority of the students produced all sorts of irrelevant stuff and mainly
      delved on the following issues:
      •   Management’s failure to properly insure the goods.
      •   Procedures to be adopted for revision of audit report although it was clearly
          mentioned in the question that the audit report had not been signed.
      •   How the information should be presented in the audited financial statements.

Q.4   In this question the students were supposed to give their views on five different
      situations with reference to appointment of auditor. Most of the students seemed to
      have studied the related guidelines and scored high marks. The errors were mostly
      in respect of the following:

      •   Some students gave the decision without any reasoning.
      •   In part (d), many students did not specify that in the given situation the
          incoming auditor was also required to obtain prior clearance from the Institute
          of Chartered Accountants of Pakistan.
      •   Only few students knew that there is no specific qualification for auditors of
          private companies having paid-up capital of less than Rs. 3 million.


Q.5   This could have been a high scoring question but the majority of students could
      secure average marks only.

      A large number of students listed irrelevant steps not considering that the
      requirement of the question was to list the procedures which would ensure that all
      related parties and related party transactions are identified. Many of them seemed
      to believe that existence of /reference to related party always means existence of
      fraud and malpractices and emphasized on this aspect only.

      Most of the students mentioned some of the easier points like inquiries from
      management, review of minutes of meetings and register of members etc.
      However, they emphasized on verification of known related party transactions
      instead of mentioning steps aimed at identification of undisclosed related party
      transactions.

Q.6   This question provided an opportunity to the students to secure high marks but
      probably most of them were not expecting such an easy question. Many irrelevant
      steps were listed whereas some important steps were missed out. Some of the
      common mistakes were as follows:

      •   While mentioning the audit assertions there was a tendency to mention all the
          possible assertions without considering whether they were relevant or not.
      •   Cut off procedures were rarely mentioned.
      •   Procedures related to bank reconciliations were mentioned by many students.
      •   Sales through credit cards were often presumed as credit sales.
                                                                             Page 2 of 3
                                     Examiners’ Comments on Auditing – Autumn 2011

Q.7   (a)   In general the students had an idea that appropriate and effective discussion
            should take place amongst team members. However, about half the students
            produced to the point and relevant material whereas the rest relied on general
            discussion which contained few of the relevant points with a lot of repetition
            as well as irrelevant material also.

      (b)   Most of the students were able to describe non-routine transactions as well as
            judgmental matters. However, some of them described judgmental matters as
            “Judgments taken by the auditor”.

            While explaining the reasons on account of which risk of misstatement was
            high in these transactions, the majority could identify the subjectivity
            involved in dealing with judgmental matters. The reasons for higher risk in
            non-routine transactions could not be specified correctly as majority of the
            students tried to come out with lengthy answers mostly based on their
            general understanding instead of relevant material from the Auditing
            Standards.

Q.8   (a)   Most of the candidates failed to comprehend the key issue i.e. the fact that
            the policy of revaluation has to be applied on all the assets in a particular
            class of assets. Consequently, they could not produce appropriate replies.

      (b)   Many candidates failed to identify that it was a non-adjusting event.
            Candidates did highlight the significance of the confirmation from an
            independent source; however, very few could point out that the difference
            between the opinion of the internal and the external source also needed to be
            sorted out.

      (c)   Very few candidates could identify that the management’s contention that
            the amount of warranty claims cannot be measured reliably was not correct
            as it could have been reliably estimated on the basis of prior years’ data.

      (d)   Only about 10% of the students could highlight the fact that the requirement
            to disclose earnings per share does not apply to non-listed entities.

Q.9   This proved to be an easy question. A large number of students seemed well
      prepared on this topic and were able to narrate the relevant points correctly.


                                     (THE END)




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