Insights from the ACCA AA Examining Team

ACCA Director Author

Insights from the Examining Team

Insights from the Examining Team

Introduction:

The AA paper is divided into Section A Objective Tests Questions and Section B Constructed Response Questions.

Section A – Objective Test Questions (OT):

To pass the Section A questions, students need to be familiar with key requirements in each ISA.
When preparing for the Section A questions, students really need to understand why the option is correct and why other options are wrong, this is because other options may be referred back to requirements in other ISAs.
In section A questions – students are expected to follow the order of these questions as they are structured logically by the examining team.

Section B – Constructed Responses Questions (CR):

Students often did well in corporate governance and ethics questions, however, they often had poor attempts on substantive procedures, for example, some of them are not able to differentiate from analytical procedures and tests of details.
Some students often mixed control procedures and tests of controls as well.
Besides, students are struggle with audit reporting questions, for example, when to use Emphasis of Matter paragraph.
In section B questions, students must answer the question set rather than inputting all the things they know in the answer.

Requirements verbs:

1. Calculate – only calculation is needed
2. State/List – theory questions, without applications
3. Identify and explain (describe) – identify (pic from the question), explain or describe (with reasons, impacts, ISA requirement)
4. Recommendation – usually 1 mark each

Templates in the exam for Section B:

Tables are provided in the exam, usually for questions relating to:

1. Control deficiencies, recommendations and tests of control
2. Corporate governance
3. Audit risks/ROMM

How candidates can improve performance in CR questions:

Risk questions:

0.5 marks identify risks (such as a new client) from the case
0.5 marks explaining the risk (accounting requirement, impact on accounts – be specific, ie if the correct answer is ‘the balance will be understated’, if students’ answer structures as ‘the balance will be misstated’-no marks are awarded)
1 mark for auditor’s response (what + why + how + point of view from auditor not from management!!!)

Risk 1

Risk 2

Risk 3

Identification

The company has a warranty provision on its products.

Comments: no marks as there is no reference that provision is lower than in the previous year.

Goods are purchased from overseas and are in transit for up to one month.

Comments: 0.5 marks as in transit risk is correctly stated.

The receivables collection period has increased but the allowance for doubtful debts did not change.

Comments: full marks.

Explain the risk

There is a risk the warranty provision is under or overstated per the IAS on provisions.

Comments: no marks as under or overstated is vague – no direction.

This may lead to stockouts as there may not be enough goods to sell leading to a loss of revenue.

Comments: no marks since this is stated as a business risk rather than an audit risk.

There is a risk that come balances are not receivables and may not be adequately provided for. Receivables may be overstated and allowance for doubtful debts understated.

Comments: full marks. However, if students answer say ‘assets may be overstated – less marks are given as this is too general’.

Internal control questions:

0.5 marks identify direct control for deficiency
0.5 mark explain the implication (should be specifically detailed, with business risks to the client)
1 mark for control recommendation (simply saying the control will prevent fraud and error will not earn marks as all controls are supposed to prevent fraud and errors, however, students need to think about how specifically, those controls aim to achieve).
1 mark for test of control (description should be detailed enough, for example, rather than saying check, students need to specify how to check. Therefore, how + what + why is important)

Example requirements:

For sales system:

Identify and explain SEVEN direct controls which the auditor may seek to place reliance on; and
Describe a test of control the auditor should perform to assess if each of these direct controls is operating effectively.
Identify and explain SIX DEFICIENCIES in client’s sales system and provide a control recommendation to address each of these deficiencies.
Issues a covering letter – usually 2 marks.

Substantive testing – Audit evidence questions:

Students should tailor knowledge to specific scenario – not the general list.
Students should consider the level of detail in the test, ie what specific documents to be used.
For example, review the disclosures – this only scores 0.5 marks – students are expected to go on and say, in accordance with what IFRS standard requirement.
Another example, obtain management representation – this only scores 0.5 marks – students are expected to go on and say, to ensure completeness of the provision liability.
Usually, 1 mark per well described procedure.

Let’s see an example of substantive procedure relating to PP&E additions and disposals:

Weak answer 0-0.5 marks each	Strong answers – 1 mark each
Obtain list of additions and cast it. – only 0.5 marks.	Obtain schedule of additions, cast and agree to the trial balance and Financial Statements.
Review the depreciation charge and confirm whether it is in line with straight line policy of 5 years. – only 0.5 marks as students are expected to recalculate rather than review. 0.5 marks are given since it is stating the correct assertion.	Recalculate the depreciation charge to confirm based on pro rata basis from date of addition or disposal.
Recalculate the disposal proceeds – no marks, as proceeds are shown in the bank statement and no need to recalculate this.	Agree disposal proceeds to supporting documentation such as sales invoices.
Review profit gained on disposal – no marks as recalculate is not done.	Recalculate the profit or loss on disposal and agree included in P/L. – This is awarded one mark as this is then agreed to the profits in the P/L.

Completion and reporting questions: - Syllabus area E

Students are expected to state clearly if the misstatement is corrected (explain the impact in the basis of opinion paragraph) - results in assets liabilities being under or overstated.
Students must specify clearly what audit opinion is going to be issued, ie unmodified or modified report, with qualification of opinion, or adverse/declaimer opinion.

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Categories: : Audit and Assurance (AA)