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Here is the summary of what the AAA December 2019 exam was all about including some recent comments made by the examiner on the performance of candidates in this sitting.

What came in the D19 AAA Exam?

Section A

50 Marks

Audit Planning Stage question for a listed manufacturing company trading as a single entity where initially required to consider business risks and then audit risks. There were audit procedures in relation to two areas of the financial statements and ISA610 on the interaction of internal and external auditors.

Format was similar to December 2018 examination.

Section B

25 Marks

Question set at the reporting stage of the audit. It asked to address proposed adjustments with the client management to uncorrected misstatements given as summary, actions to be taken if the adjustments were not made and to justify an appropriate audit opinion. It also tested ethics and professional issues.

Format was very similar to the September 2018 reporting question.

Section B

25 Marks

Question examined due diligence assignment in order to understand valuation and operational significance of intangible assets with additional information which would help assess other areas of  target company. There was also Practice management area of engagement acceptance focusing on Quality Control.

Similar to question 3ai from the September/December 2017 sample questions.

Key Takeaway from this Attempt

Know your SBR before your AAA

Candidates should ensure that they are fully conversant with the financial reporting standards covered by SBR to maximise their ability to effectively identify how audit risks may arise from these issues and propose effective procedures to address those risks.

Don't Rote Learn - Learn to Apply

A common feature of weaker answers in this subject is the use of rote learned knowledge without application to a specific scenario. Such an approach does not demonstrate the skills which are required at this level to demonstrate audit competence.

Attempt Your Past Paper Questions

Past question practice should be used to develop technique, analysis skills and time management rather than with the aim of producing the same answer in an examination where the scenario will be different.

When a candidate attempts examinations at strategic professional, it is vital that they are able to apply the knowledge they have gained through studying to the situations and scenarios in a given examination question.

Reviews From Question 1

Evaluate the specific business risks facing company based on information given.

Performance: 

  • This section was well answered by candidates,
  • Majority used information effectively to describe risks relating to specific company in question.
    • Often these candidates were able to score full or almost full marks.
  • Weaker candidates produced generic risks:
    • which could affect any business; and
    • often were unable to adapt these to the business detailed in scenario.
    • In particular, this scenario included a unique selling point (USP) for the company which was highly successful, but many candidates suggested that USP was a weakness and the company needed to move away from this in order to achieve economies of scale.

Reviews From Question 2

Propose adjustments with client management on a summary of uncorrected misstatements which remained unresolved after the completion review of the audit had taken place.

Performance:

  • Many were able to take these uncorrected misstatements and explain the matters which
    should be discussed with client.
  • Significant portion of candidates instead ignored the correct accounting treatment provided to them and criticized the adjustments the audit firm were proposing.

While it is often the case in questions set at the review stage of the audit that the manager will be considering whether an accounting treatment by the client is correct and what evidence is available to support it, the information given to candidates at this point in the cycle was the auditor produced outcome of that review process.

  • Even given the correct financial reporting treatment and journals to correct the errors, some candidates described inappropriate accounting treatments and were unable to tell a loss from a gain.
    • In particular it was concerning that so many candidates believed a provision should be made for a contingent liability which was only possible and for which no reliable estimate could be formed.
    • A second common financial reporting error arose where candidates stated that use of speculative derivatives should be accounted for as a hedge despite being given adjustment to correctly treat it as fair value through profit and loss.

Reviews From Question 3

Explain specific enquiries to be made during a due diligence assignment in order to understand the valuation and operational significance of intangible assets.

The focus here was for candidates to demonstrate an ability to understand why the intangible assets were important to the acquiring company and as a result, what the fair value might be.


There was similar focus in question 3ai from September/December 2017 sample questions.

Performance:

  • Answers were either very strong or very weak.
  • Strong candidates focused on:
    • how intangibles might be impacted by various business-related issues; and
    • how that would be reflected in their value to the acquiring company.
  • Weaker candidates produced
    • lists of procedures describing how they would audit intangible assets held under rules in IAS38 Intangible Assets.
    • This approach did not attain many marks as it did not address requirement.
    • IAS 38 recognition and measurement criteria are not relevant to valuation of assets at acquisition which would be addressed using fair value.