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Home > Students > Examresources > Professionallevel > P7AdvancedAuditandAssurance > Technicalarticles

EXAM TECHNIQUE FOR P7

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StudentAccountanthub
ThepassrateforP7,AdvancedAuditandAssurancecontinuestobelow.Theexaminersreports,which
arepublishedaftereachexamsession,provideavaluableinsightintothestrengthsandweaknessesof
candidatesperformance,andusefulexamtechniquepoints.Thisarticleprovidessupplementaryadvice
onexamtechnique,reiteratingandexpandingoncommentsmadeintheexaminersreports,and
focusingonsomeofthemorecommonrequirementsthatfeatureinP7.

RISK ASSESSMENT
AcommonfeatureofaSectionAquestionistherequirementtoassesstheriskstobeconsideredin
planninganauditoffinancialstatements.Candidatesoftenseemwellpreparedforthistypeof
requirement,butoftenfailtobesufficientlyspecificinhowrisksareidentified,explainedorevaluated.
Whentacklingarequirementinvolvingriskassessment,thefirstissueistobeclearonexactlywhattype
ofriskassessmenthasbeenaskedfor.AccordingtotheP7syllabusSectionD1(i),therearethree
differentcategoriesofriskassessmentthatcanfeatureinarequirementbusinessrisk,auditrisk,and
riskofmaterialmisstatement.Despitebeingrelatedtoeachother,theyaredifferent,andrequirea
differentfocusinansweringtherelevantrequirement.

BUSINESSRISK
BusinessriskisdefinedinISA315,IdentifyingandAssessingtheRisksofMaterialMisstatementthrough
UnderstandingtheEntityandItsEnvironmentasariskresultingfromsignificantconditions,events,
circumstances,actionsorinactionsthatcouldadverselyaffectanentitysabilitytoachieveitsobjectives
andexecuteitsstrategies,orfromthesettingofinappropriateobjectivesandstrategies.Auditorsassess
businessriskinordertodevelopbusinessunderstanding,andaspartofformingaviewontheoverallrisk
oftheauditassignment.
Businessrisksareoftenlinkedtoinherentrisk,whichitselfisacomponentofauditrisk.ISA200,Overall
ObjectivesoftheIndependentAuditorandtheConductofanAuditinAccordanceWithInternational
StandardsonAuditingexplainsthatexternalcircumstancesgivingrisetobusinessrisksmayalso
influenceinherentrisk.Forexample,foracompanyoperatinginahightechindustry,technological
developmentsmightmakeaparticularproductobsolete,therebycausinginventorytobemore
susceptibletooverstatement.
However,ifaquestionrequirementintheexaminvolvesthespecificassessmentorevaluationof
businessriskonly,candidatesshouldfocustheirattentiononthespecificbusinessrisksidentifiedfromthe
scenario,andnotdeveloptheiranswertoincludeothertypesofrisk,ordiscusstheimpactoftheriskon
thefinancialstatements.

RISKOFMATERIALMISSTATEMENT
ISA200explainsthattheriskofmaterialmisstatementistheriskthatthefinancialstatementsare
materiallymisstatedpriortoaudit,andiscomposedofinherentriskandcontrolrisk.Therefore,ifa
requirementrelatestotheriskofmaterialmisstatement,candidatesareadvisedtofocusoninherentand
controlrisksarisingfromthequestionscenario.Unlikeanassessmentofbusinessrisk,whenitisnot
necessaryinansweringaquestiontoconsiderthespecificfinancialstatementimplicationoftherisk,when

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assessingtheriskofmaterialmisstatementitiscrucialtodiscussthespecificimpactoftheriskonthe
financialstatements.Thisshouldincludedetailsastothespecificaccountbalanceortransactionaffected,
whetherthepotentialmisstatementisanoverorunderstatement,orwhetherthepotentialmisstatement
relatestoaspecificdisclosurerequirementinthenotestothefinancialstatements.

AUDITRISK
Finally,auditriskisthebroadestlevelofrisk,asitincludesnotonlyinherentandcontrolrisks,butalso
detectionrisks.So,ifarequirementinvolvesauditriskscandidatesshouldconsiderthesethree
componentsofriskintheiranswer.

ANALYTICAL REVIEW
Analyticalreviewisrequiredattheplanningstageoftheaudit.Forthatreason,questionsinvolvingaudit
planningandriskassessmentmaycontainextractsfromfinancialstatements,eithercompleteelementsof
thefinancialstatementsorshortercomponents,whichcandidatesareexpectedtouseasameansof
identifyingpotentialrisks.Thesemaybebusinessrisks,auditrisks,orrisksofmaterialmisstatement.
Analyticalproceduresmayinvolveratioanalysis,thecalculationofsimpletrends,orcomparisonsof
figures.Whenansweringaquestionthatinvolvesriskassessment,candidatesareencouragedtoperform
analyticalreviewasameanstoidentifypotentialrisks,evenifthequestionrequirementdoesnot
specificallyaskforanalyticalreview.Itisimportantthatcalculationsarenotperformedinisolation,butare
usedinadiscussionofthespecificriskasrequired.

AUDIT PROCEDURES
RequirementsaskingcandidatestorecommendspecificauditproceduresareacommonfeatureofP7
questions,andcanfeatureinmanydifferenttypesofquestion,notconfinedtoscenariosinvolvingthe
planningstageoftheaudit.Here,candidatesoftenfailtoanswerthespecificquestionrequirement.Itis
importantthattheansweronlyprovidesactualauditprocedures.Nodiscussionofothermatters,suchas
therelevantaccountingtreatment,orthematerialityofthebalanceortransactioninquestionis
necessary.
Whenrecommendinganauditprocedure,thewordingshouldbeasspecificaspossible,andshouldfocus
ontheexactrequirement,whichoftenstipulatesaparticularissueforwhichproceduresarerequiredfor
example,theclassificationofalease,ortherecoverabilityofareceivable.Inordertoprovidesufficiently
focusedanswers,candidatesmustunderstandtheobjectiveofauditproceduresrequired,andtailorthe
recommendedprocedurestomeetthatobjective.

ETHICAL MATTERS
Ethicsisacorecomponentofthesyllabus,andcanfeatureinSectionAorSectionBquestions.While
candidatesoftenseemwellpreparedforquestionsonethicalmatters,theydonotalwaysprovide
sufficientlydetailedanswers.
TheInternationalEthicsStandardsBoardforAccountants(IESBA)(IFAC)CodeofEthicsfor
ProfessionalAccountantsprovidesausefulframeworkfordiscussingethicalmatters.Athreestep
processisusefultoapplytheprovisionsoftheIESBACode.Thefirststepistoidentifywhattypeof
ethicalmatterisapparentfromthequestionscenario.Thiscouldbeathreattoobjectivityand
independence,oranissuesuchasconfidentialityorconflictofinterest.Iftheethicalmatterisathreatto
objectivitythenthereshouldbeidentificationofthespecificriskfactorforexample,aselfreviewor
intimidationthreat,andthenabriefexplanationastowhythatriskfactorisrelevant.
Thesecondstepistoevaluatethesignificanceofthethreatidentified.Thelevelofsignificancedepends
onmanymattersandwillvarydependingonthespecifictypeofthreatthathasbeenidentified.Itcould
include,forexample,theseniorityofthepeopleinvolvedwiththethreat,orthematerialityofanissueto
thefinancialstatements.
Thethirdstepistoconsiderwhethersafeguardsareavailabletoeliminatethethreatsidentified,orto
reducethemtoanacceptablelevel.Safeguardsshouldberecommendedthatareappropriatetothe
scenarioforexample,takingintoaccountthesizeoftheauditfirm.Candidatesshouldalsobereadyto
recognisesituationswhensafeguardscannotbeusedtoreducethreatstoanacceptablelevel.
Candidatesarealsoremindedthatforpublicinterestentitiestherearestricterrequirementsinrelationto
ethicalmatters,whichshouldbediscussedwhererelevant.
CandidatesintheUKandIrelandcandrawontheprinciplesandrequirementsoftheEthicalStandards
issuedbytheAuditingPracticesBoard.Thesamethreestepprocesscanbeused,asdescribedabove,
andcandidateswillearnequalcreditwhethertheyrefertotheIESBACode,ortheEthicalStandardsas
therelevantregulatoryframework.

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CONCLUSION
Thisarticleisintendedtoprovidegreaterclarityforcandidatesinhowtoanswersomeofthemore
commonfeaturesofrequirementinP7.Candidatesarestronglyencouragedtoattemptrecentexam
questionsandtoreadtherelevantexaminersreports,whichareavailableonACCAswebsite.Thisisa
veryeffectivemethodtopractiseexamquestions,developexamtechnique,andbenefitfromthe
resourcesavailabletoallcandidates.
WrittenbyamemberoftheP7examiningteam

Backtotop
Lastupdated:24Feb2016

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