ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA
Examiner's Report
AAT(SL) Final Examination - December 2010
(61) AUDITING
The overall performance of candidates on this paper is at a fairly satisfactory level.
General observations of Examiners are as follows:
Question No.
01 -
(Marks Allotted 18)
(a) Examiner expected in this part of the question to explain the primary objective of an audit
and two other secondary objectives of audit. This was a theory based question and almost
all the candidates attempted. Some candidates were not able to obtain reasonable marks
due to the following:
•
The primary objective is as not answered completely and they have mentioned only the
part of the answer.
•
Some candidates have stated only about expressing an opinion and without mentioning
about auditing standards.
•
Some candidates did not know the primary objective and gave secondary objectives as
primary objective.
•
Some candidates have given highly irrelevant answers for the primary and secondary
objectives.
Performance: Not satisfactory.
(b) In this part of the question the examiner tested the knowledge of the candidates about
investigation and how it differs from an audit. A fair number of candidates were able to
define the investigation but could not give an example. Some candidates have mentioned
about the incidents taken place in the society rather than giving a subject related examples,
Majority of the answers were not at satisfactory level. But most of the candidates could not
explain the difference between audit and investigations. Majority of candidates did not have
a good understanding about the investigation.
Performance:
Not satisfactory.
(c) Examiner tested the knowledge of the candidates about ethical principles of AAT members.
This was a theory based question and expected to explain integrity and objectivity.
•
Most of the candidates have not answered the question based on the AAT Code of Ethics.
•
Most of the candidates explained the integrity and objectivity relating to the audit
assignments.
•
Some candidates gave the definition of objectivity for the integrity.
•
Some candidates have given definitions of independence and confidentiality as integrity.
Due to the above reasons some candidates obtained low marks for the question.
Performance: Fairly satisfactory.
(d) Most of the candidates answered well for this part but few candidates obtained low marks
due to the followings:
•
Some candidates mentioned both internal & external auditors are appointed by
management and reported to the management.
•
Some candidates mentioned the auditors are appointed by head of government.
•
Some candidates did not know the primary objective of the internal auditor and
mentioned the primary objective of both internal and external auditors are similar.
•
Some candidates have given highly irrelevant answers for the appointment, reporting
and primary objective of the internal and external auditors.
Performance:
Question No.
02 -
Fairly satisfactory.
(Marks Allotted 19)
(a) In this question examiner tested the knowledge of the internal control weaknesses relating
to the purchase systems in the given scenario. This was a practical question and even
candidates can answer this question by using their theoretical knowledge as well.
Examiner expected the candidates the identify the weaknesses relating to:
(i)
Calling quotations,
(ii) Ordering of goods,
(iii) Receiving goods, and
(iv) Payment for goods.
•
Only a very few candidates have identified the four stages and approach the question.
•
There were large number of internal control weaknesses in the given scenario. But due
to the followings candidates obtained very low marks:
-
Candidates did not have knowledge about the internal controls related purchasing.
-
At least a quotation has to be obtained from 3 suppliers. But most of the
candidates did not have any idea of those.
-
The candidates did not have any idea of the procedure of calling quotations and
selecting a supplier.
-
Most of the candidates did not know what are the documents involved in the
purchase procedure. (Eg:- Purchase order, manual, the methods of calling
quotations, selection criteria’s, etc.)
-
Some candidates do not aware of the basic aspects such as segregation of duties
as the ordering and receiving of goods before making payments.
-
Some candidates repeated the facts given in the questions as answer and failed to
identify weaknesses in the given system.
•
Some candidates did not know when the goods arrived at stores how the store-keeper
accept the goods and what are the documents to be raised by him.
•
Majority of the candidates did not know what are the documents to be needed to make
a payment.
•
Some candidates dealt with possibilities of fraud could take place.
•
Some candidates has given limitations of internal controls instead of weaknesses.
Performance: Not satisfactory.
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(b)
This part also a practical questions and examiner expected the candidates to answer the
questions using theoretical as well as practical knowledge.
(i)
(ii)
In the situation given by question the main fraud that would take place is the
salesmen can use the cash collected for their personal use. Very few candidates
have mentioned the main fraud and some candidates have mentioned in different
ways. But due to the followings some candidates obtained low marks.
-
Some stated over invoicing the good by salesmen and pocketing the difference.
-
Salesmen collected the cash from debtors try to write off the debtors as bad
debts.
-
Salesmen will vanish with the collected cash and goods.
-
Salesmen will misappropriate the goods, etc.
In this part of the question examiner expected the candidates to list out the issues
that may need to be considered by an auditor. When valuing the stocks.
-
The examiner expected from candidates, the answer in general rather than to
specific industry. Answers have to be on expiry period of the goods and the
stocks with customers in returnable situations. But most of the candidates have
mentioned the procedure for verifications of stocks.
-
Some candidates mentioned about verifications methods. (Net realistic value /
cost).
Due to the above some candidates obtained low marks.
Performance: Not up to expectations.
(c)
In this part examiner tested the knowledge of the candidates about procedures of before
and after stock taking. This was a repeated questions and knowledge based practical
question. Most of the candidates had given the audit procedures for before and after
taking stocks. But few number of candidates obtained low marks due to following:
•
Some candidates gave procedures of after stock taking for before stock taking vise versa.
•
Some candidates have given procedures without separating before and after.
•
Risk associated with the closing stocks.
•
Some candidates had explained how stock can be used to manipulate the profits.
Performance: Fairly Satisfactory.
(d)
In this part the examiner tested the knowledge of the candidates about the main
examinations to be done by Auditors. General in public corporations in accordance with
the Finance Act No. 38 of 1971. Some candidates had obtained low marks due to the
following:
•
Some candidates failed to understand the main examinations carried the out by the
Auditor General and given the powers of the Auditor General.
Eg: - Auditor General can examine any documents
- Auditor General can appoint qualified auditor.
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•
Some candidates have not familiar with the provisions of the Finance Act No. 38 of
1971.
Performance: Fairly Satisfactory.
Question No.
03 -
(Marks Allotted 18)
This was a theory based question and candidates expected to answer in accordance with Sri
Lanka Auditing Standards. This is also a repeated question and some parts of the question
have been tested in number of examinations.
(a)
•
Almost all the candidates have attempted this part of the questions and majority of the
candidates have given satisfactory answers. But some candidates obtained low marks
due to the following:
Some candidates have written factors to be considered in planning stage.
Performance: Satisfactory.
(b)
This part of the question tested knowledge of candidates about the factors to be
considered in planning an audit. The examiner expected the candidates to list out the
matters to be considered in accordance with auditing standard. This was also theory
based question. Almost all the candidates have attempted this part of the question.
Majority of the candidates obtained high marks. But some candidates obtained low marks,
due to the following:
•
Some candidates mentioned about general factors without referring to the auditing
standards.
•
Some have mentioned irrelevant matters.
•
Some are stated that Level of assurance to be given and type of report to be deliver.
Performance: Satisfactory.
(c)
This part of the question examiner tested the knowledge of the candidates about
obtaining the knowledge of the business in planning the audit. This also a theory based
question. But candidates can answer this part using the knowledge of auditing standard
and practical experience. Most of the candidates answered according to the auditing
standard though it is in specific business sector (plantations) majority of the candidates
have given a fairly satisfactory answer. But some candidates failed to obtained
reasonable marks due to the following:
•
Though the examiner accepted different sources but candidates have given similar
sources. (Ministry of Agriculture, Agriculture Department, etc.)
•
Some candidates have given highly irrelevant answers:
Main Journal.
Purchase & sales Journal.
Cash Book.
Statement of change in equity.
Notes to the Accounts, etc.
Performance: Fairly satisfactory.
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(d)
In this part of the question, the Examiner tested the knowledge of the candidates about
audit report. This was tested number of previous occasions. This also a theory based
questions and examiner expected the candidates to list out the basic elements of an audit
report according to the auditing standard. Almost all the candidates attempted this part of
the question and the performances were at satisfactory level. Except for very few
candidates majority of the candidates obtained allotted marks.
Performance: Satisfactory.
Question No.
04 -
(Marks Allotted 10)
In this question examiner tested the knowledge of the candidates about purpose of audit
procedures carried out by the auditors. This was a practical question, but the candidates should
know the meaning and what the auditors is going to established using the audit evidence.
Majority of the candidates have attempted. But most of the answers were not correct. Most of
the candidates obtained very low marks and some candidates obtained no marks at all. Due to
the followings candidates obtained very low marks:
(i)
Examinations of the minutes of board of Directors and Annual General Meeting.
-
Most of the candidates did not know why it is necessary to peruse the minutes.
-
Many have stated to know the change of board.
-
Check the remuneration of the Directors.
-
Most of the answers were highly irrelevant and if reveals that most of candidates did
not know what is happening at board meetings and AGMs.
(ii) Examinations of an agreement signed with Board of Investment. Most of the candidates
did not have a knowledge about the BOI agreements. Very few candidates stated about
the terms and conditions of the agreement. Some candidates answered that the company
has invested in the BOI.
(iii) Payments made after the end of financial year. Most of the candidates did not have any
idea why it is necessary to scrutinize the payments made after the end of financial year.
Very few candidates know it is necessary to do established completeness and accuracy
of the liabilities.
(iv) Checking receipts with the cash book and bank deposit slips with bank statement. Some
candidates stated this has to be done to check the bank reconciliations. But few
candidates have given the correct answer.
(v) Checking the supplies invoices with the good received notes and stock records. Few
numbers of candidates have given a reasonable answers.
Performance: Poor.
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Question No.
05 -
(Marks Allotted 20)
(a) (i)
• This part the examiner tested the knowledge of the candidates about input and output
controls in a computerized accounting system. This was a theory based question and
this was also tested previously.
• The majority of the candidates did not attempt this part of the question.
• The candidates who have attempted some of the candidates gave highly irrelevant
answers. (Eg: past word, Virus Guards)
• Some candidates could not give the input & output controls separately.
• Some candidates mixed up input controls with output controls.
• Some candidates ignored the computerized accounting system and gave the general
comments.
Performance: Very Poor.
(ii) & (iii)
In these two parts examiner tested the knowledge of the candidates about files to be
maintained by an auditors. This was theory based as well as practical question.
• Most of the candidates gave a satisfactory answer for those two parts and obtained fairly
satisfactory marks.
• Very few candidates obtained low marks giving irrelevant answers. (company act, verifying
income tax file, BTT file, etc.)
(b) In this part of the question was based mainly a on a practical situation but candidates also
can answer with their theoretical knowledge as well.
(i)
In this part almost all the candidates did not have any idea of how to adjust the opening
and closing stock for evaporations. Most of the candidates stated to check the receipt &
issues. Very few have mentioned about checking meter reading and check the income
and sale prices. Due to the above majority of the candidates obtained low marks.
(ii)
This part of the question the examiner tested the knowledge of the candidates about
verification of creditors. Most of the candidates have written about verifications of
balance using the internal documentations. Very few candidates stated about the direct
confirmations from CPC.
(iii)
In this part examiner tested the knowledge of the candidates about auditing of
construction project. The examiner expected from the candidates to answer using
knowledge of construction contracts. Most of the answers were on the basis of general
not specific. Very few candidates stated about checking with BOQ and estimates.
Majority of the candidates did not have any idea of how the construction contracts are
carried out. Only limited number of candidates stated about vouching of expenditure.
(iv)
In this part the examiner tested the knowledge of the candidates about auditing the
stock of food items at retail outlet. In this part the examiner expected the candidates to
state the different audit procedures applied for food items. Most of the candidates have
stated about normal stock taking procedures. Very few have mentioned about provisions
for obsolete stocks and to exclude the expired stocks.
Performance:
Part (a), (ii) & (iii) are at satisfactory level. Part (b) was not at a satisfactory
level.
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Question No.
(a)
(Marks Allotted 15)
In this question examiner tested the knowledge of the candidates about audit of year
end bank reconciliation statement and verifying the cash in hand balance. This was very
much practical question. But candidates can answer using their theoretical knowledge
as well.
(i)
(ii)
(b)
06 -
Majority of the candidates able to identify four issues which need special attention
and some candidates have given the reasons as well. Very few candidates unable
to identify the issues. The performances of the candidates were at satisfactory
level.
Possible indication of misappropriation also identified by majority of the candidates
and managed to explain. Performance was at satisfactory level.
(i)
This was very much of a practical question and examiner expected the candidates
to answer using both practical as well as theoretical knowledge. Majority of the
candidates failed to give a satisfactory answer. Very few candidates stated about
physical verification of notes and coins in hand. Some candidates used their
theoretical knowledge and gave a reasonable answers. Overall the answers were
not at a satisfactory level.
(ii)
Only very limited candidates able to provide a suitable format for the purpose of
recording the verified balance. This also a practical question. But with the general
knowledge of stock taking candidates should have given a reasonable format for
recording the cash in hand balance.
Performance:
(a) part was fairly satisfactory.
(b) part was not a satisfactory level.
-***-
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