Examiners' approach
Paper 8 learning objectives/outcomes (i.e. indicators of what students should be able to do) are set at a lower level than those for Professional scheme examinations. Thorough preparation of the syllabus content and adherence to the Study Guide should ensure that the outcomes are achieved.
By its very nature, auditing is a discipline, that, at any level, requires students to have an understanding of bookkeeping and accounting concepts and techniques. At Paper 8, the examination will be set with the expectation that candidates are competent in the topics examined in Paper 1, Recording Financial Transactions, Paper 3, Maintaining Financial Records and Paper 6, Drafting Financial Statements.
Key areas
Having been the Examiner for Paper C3, Auditing Practice and Procedure, I am aware that the majority of CAT students have limited or no experience of working in an audit environment. The nature of the audit process is such that candidates who have audit work experience should clearly be at an advantage when sitting the examination paper as compared to those who have not. In the interest of fairness and also to facilitate the progression of candidates from this paper to intermediate level auditing, I will therefore ensure that there is a proportion of marks available at each sitting for the demonstration of rote learning.
The syllabus for this paper is relatively broad. This is understandable given the expected learning outcomes. However, candidates should be comforted by the fact that the pass mark should be easily achieved by those who display good knowledge of the key topic areas of the syllabus. These are:
- controls
- audit planning
- practical application of audit techniques
- preparing draft reports.
I would strongly advise candidates to ensure that they are fully conversant with the topic of internal control, both from the systems and audit perspective. I am particularly concerned that students should achieve the learning outcome of ‘being able to identify control objectives and weaknesses for an accounting system under review’. I also consider it imperative that candidates are fully appreciative of the contents of SAS 300 ‘Accounting and Internal Control Systems and Audit Risk Assessments’ (UK) and ISA 400 ‘Risk Assessments and Internal Control’ (International).
It has been evident from previous Paper C3 examinations that candidates have been weak in identifying and describing the techniques used by auditors to ascertain, record and evaluate accounting systems. I expect candidates sitting this examination to have a very thorough knowledge of these techniques and have the ability to apply them appropriately. For example, candidates’ knowledge of flowcharting could be tested or they may be asked to provide a detailed explanation as to the purpose of Internal Control Questionnaires and Internal Control Evaluation Questionnaires – and to provide examples of specific questions for inclusion therein.
Audit planning is an integral part of any auditing assignment. I subscribe to the commonly held view that poor planning will result in a poorly performed audit. Candidates’ knowledge of this part of the syllabus needs to be thorough and they should be confident in their ability to answer questions on the variety of possible questions arising. These may include questions on the topics of materiality, analytical procedures and audit programs. Candidates will be expected to have the ability to discriminate between a direct verification approach, a systems based approach and an audit risk based approach to the audit. As regards audit risk, candidates should be able to comment intelligently on the components of inherent risk, control risk and detection risk. Candidates can expect ‘audit risk’ type questions to be set at a similar level and style to those on Paper C3.
Given that this is a ‘foundation level’ auditing examination paper, candidates should expect the topic of audit evidence to feature regularly in the examination. The style of question will vary, but may combine a requirement to recall rote learning knowledge with a requirement to display the practical application of such knowledge. For example, a requirement to state the audit techniques used to obtain audit evidence, with a further requirement to describe the application of those techniques in a practical situation.
One of the learning outcomes of the syllabus is that candidates should be able to ‘carry out audit procedures in accordance with an audit plan on the basis of a validly selected sample’. Consequently, it is my intention to set questions (though not necessarily on every paper) requiring candidates to identify audit tests by reference to specific audit objectives, e.g. completion, existence and occurrence. It is therefore critically important for candidates to be fully conversant with financial statement assertions. The ability to discern as to the sufficiency and appropriateness of audit evidence is also an important requirement, as is the ability to differentiate between tests of control and substantive procedures.
As previously mentioned, Paper 8 is considered to be a foundation level auditing examination. Consequently, it is expected that candidates are able to prepare clear and concise draft reports relating to the audit assignment. Drawing from the content of the syllabus, questions may be set which require candidates to evaluate, inform, comment or make practicable recommendations in report format – after considering information provided or a situation as described in a simple case study scenario. Where there is such a requirement, marks will be available for the style and presentation of the report.
While ‘the audit report’ is not listed as a key topic of the syllabus, candidates are strongly advised to ensure that they are fully conversant with the basic elements of the report. They should also ensure that they are able to discuss cogently the concepts of ‘true and fair’ and ‘reasonable assurance’. Finally, it is important for candidates to have a good understanding of the occasions when an audit report should be issued with an unqualified opinion, a qualified opinion, a disclaimer of opinion or an adverse opinion.
Format of the Examination Paper
The exam paper will comprise four compulsory questions of 25 marks each. Owing to the breadth of the syllabus, candidates should not expect each question to necessarily examine only one topic drawn from it. As the Paper C3 Examiner, it is my preferred style to include a mix of topics in question requirements. It is my intention to continue with this style.
Candidates should expect to find at least 25% of the marks in each examination paper dedicated to the topic of ‘internal control’. When reading question scenarios, candidates should assume the existence of a computer-based accounting system unless it is stated otherwise. Unlike Paper C3, I will not necessarily include a question primarily testing candidates’ knowledge of computer-based controls and the use of information technology by auditors.
Conclusion
The approach to examining this paper will not change significantly from the approach adopted when examining Paper C3. Each paper will examine key topics along with other topics drawn from the syllabus.
As should be evident from the Study Guide, I stress the importance of candidates having a thorough knowledge of internal control aspects generally. I also place high significance on a candidate’s ability to fully understand the objective(s) of specific audit tasks and urge candidates, teachers and authors of study material to bear this in mind throughout the learning and teaching process.
Brian Pine is Examiner for Paper 8