Feedback for Question 1- MIDTERM 2 AFM 451
A Case Content:
The question was not answered well in general.
Many students did not read the requirements and ‘assumed’ the question was
about a planning memo for the current audit rather than evaluating whether or
not sufficient work had been completed by the prior auditor. EVEN WHEN the
student typed out that they were going to evaluate the working papers.
Students drifted into writing a control memo for the client – while there were
many control weaknesses – students often lost focus and commented on the
weaknesses by restating case facts – if there was any analysis done it was from
the perspective of the impact to the client, which is important. But, they did not
extend their thinking to understand what that meant to the PA firm and the
implications for their own work as auditors.
There was a very poor understanding of the engagement letter, letter of
representation and also for the bank confirmation. Students spent far too
much time documenting deficiencies here. Even if the students realized that they
were in fact adequate – they spent far too much time explaining why rather than
allocating time to the important components of the question. Students should
understand that questions may have ‘red herrings’ in them and learn not to fall
into that kind of trap.
Very limited discussion regarding the impact on the PA firm of having poor
working papers. Only a few mentioned the possible risk of litigation or the
possible need to redo some work on the opening numbers.
Management Integrity - several students stated that there was evidence of
fraud by the controlling shareholder (overstating the case facts) but then dropped
the point – if you suspect fraud with the controlling shareholder what should the
auditor do??? NO ACTION was mentioned in most instances. This show a poor
understanding of engagement risk, audit responsibilities etc.
Assuming TOO MUCH from what was not stated in the case (i.e. ‘missing paper
work’. Essentially, students who fall into this trap must believe that the writer of
the question is ‘stupid’ – a VERY dangerous assumption. The examiners provide
case facts expecting you to USE them. At the very least, students should fully
analyse the information presented before searching for ‘missing information’.
Several students based almost their whole response on what was not present
rather than reading/understanding what was given to them. The marking key is
going to be derived from the case facts!
Substantive testing: weak explanations for how to extend testing in many
cases. In weak control settings it is often still possible to obtain audit evidence
using detailed testing. This was not understood by the students.
Generally, there was a lack of understanding of the implications of the small
business (private enterprise) nature of the bar.
o Impact to Audit risk missed
o Too many recommendations to hire additional staff just for the night
deposit (why would an owner give that job away to an employee who has
the same or greater incentive to misappropriate funds?)
o Many commented on need for an audit committee to be involved and
completely missed understanding the minority shareholders (from saying
they were too disinterested in the business to imposing on them the need
to complete the deposit)
o Several students (probably 15% or more) assumed that the active
shareholder was not part of management. This caused problems
throughout their papers (e.g. recommending the control weaknesses
should have been communicated to the bar manager rather than the
controlling shareholder)
MAKE SURE RECOMMENDATIONS ARE PRACTICAL for the case setting
Exam Writing Notes:
a) Scope: Students should pay more attention to # marks allocated to the question.
Too many students stopped at 4 or 5 points. Even assuming they were correct
with every issue they raised – they would have had to have provided enough
depth of analysis for 8 marks. INCREASE the scope (i.e. number of findings) to
ensure higher likelihood of hitting the marking key!!!
b) Language – strong opinions are fine, but be careful when using unprofessional
language. Most students didn’t go beyond ‘pocketing cash’ to describe the
control weaknesses for the night deposit, without mentioning ‘fraud risk’ or other
appropriate business language. Using proper accounting and auditing terms.
c) Format of answers: Student who used a TABLE format tended to do more
poorly.
o They ended up losing focus on the question posed of them
o Drifted more often into writing a client control memo and forgot that they
were writing a peer review report to their partner.
o Summarized their points so much that they also adequately discuss
issues - the point form became problematic
o They didn’t cover any where near as many points as their peers.
