by Teach Accounting
12 Feb 2010
The results for the December 2009 sitting showed that well-prepared candidates can perform extremely well in this paper. However, the majority of scripts are lacking in focus, fail to answer the actual question requirements and contain too many technical errors. Many scripts display little application skill and only the best demonstrate professional judgment and commercial awareness.
Areas of poor performance
Focusing on technical knowledge, the area of the December 2009 paper in which candidates performed least well was Question 5, which dealt with subsequent events and the completion stage of an audit. Many candidates clearly knew little about the requirements of ISA 560, Subsequent Events, and chose instead to talk at length about the financial reporting requirement of IAS 10, Events After the Reporting Date.
The most concerning matter, however, is that candidates continue to display a lack of knowledge of modified/qualified audit reports and refuse to reach a conclusion on their use in relation to the scenario provided. Most candidates hedge their bets by listing all types of audit report in the hope that one will be correct.
Question 2(c) polarised candidates. Those that had prepared for the topic of money laundering scored very well on this requirement. But, it was puzzling to see that in certain geographical locations, for example Hong Kong and Singapore, many candidates either did not attempt this requirement at all or produced extremely brief answers, in many cases little more than a few lines, indicating a lack of knowledge of this syllabus area.
Some candidates chose instead to discuss the requirements of ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements, which was not asked for.
Question 1(c) also tended to be badly answered as candidates usually failed to tailor their answer to the question scenario altogether and comments were often too vague to score well. A list of bullet points containing comments such as 'last year's accounts' and 'management accounts' is not detailed enough to answer the question requirement, which asks for an explanation of the information required.
Reasons for failure
- Answers too brief: Many candidates simply do not write enough different points to score well. For example, providing five procedures in answer to requirement Question 3(a), worth 11 marks, is not sufficient to score a pass on this requirement.
- Answers fail to answer question requirements: For example, in Question 1(aii) candidates were asked for the limitations of performing analytical procedures at the planning stage of the audit. Most candidates chose to ignore the last part of the requirement and discussed the limitations of analytical procedures as a substantive procedure when obtaining audit evidence.
- Answers sometimes lack commercial sense: For example, candidates continue to assert that going concern issues are prevalent in almost all question scenarios. Though this can sometimes be relevant, for example in Question 2 where a major customer of the client company had announced its insolvency, in other scenarios challenging the going concern assumption may be too speculative to be worth more than a passing mention in an answer. For example, in Question 5 the client company was closing a factory in order to relocate its operations not to permanently cease its activities.
- Misunderstanding of types of risk assessment: Well-prepared candidates should appreciate that, in the past, Question 1 of the paper usually contains a requirement relating to risk assessment. Questions have addressed audit risk, financial statement risk or business risk assessment. Unfortunately, significant proportions of candidates do not understand the crucial difference between these types of risk assessment and so answer the requirement incorrectly.
- Best practice teaching of relevant subject areas: There is no substitute for question practice. Candidates should be introduced to exam style questions as early as possible in their Paper P7 studies. This is the best way to develop an applied approach to answering question requirements. On the revision phase of a course, candidates should practise past questions under exam conditions in order to improve exam technique, especially application skills for the Section A questions.
Tutors should also encourage candidates to read examiner articles and reports, which should be seen as an essential complement to a study text. In addition, encourage debate of current issues in the classroom. This should stimulate candidates to take an interest in the wide variety of developments in the auditing profession, which may form the basis of an exam question.
Teaching Paper P7 should be as practical as possible. It is good to make use of past exam questions, examiner reports and other articles to encourage discussion of audit issues. Candidates must be encouraged to apply their knowledge in questions and to answer the specific question requirement. Devoting a significant amount of class time to question practice is recommended as a way to develop these skills.