Advanced Audit

and Assurance
(AAA)
Sept/Dec 2023
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.

Contents
General comments .................................................... 2
Format of exam ......................................................... 2
Section A ................................................................... 2
Question 1 – Hammer ............................................ 2
General comments .............................................. 5
Requirement (a) – 10 marks ................................ 5
Requirement (b) – 16 marks ................................ 6
Requirement (c) – 7 marks .................................. 9
Requirement (d) – 7 marks ................................ 10
Overall professional skills marks ....................... 11
Section B ................................................................. 12
Question 2 – Aster ................................................ 12
Requirement (a) – 14 marks .............................. 13
Requirement (b) – 6 marks ................................ 13
Question 3 – Cottrell ............................................. 14
Requirement (a) – 16 marks .............................. 15
Requirement (b) – 4 marks ................................ 16
Overall ..................................................................... 17

Examiner’s report – AAA September/December 2023 1

General comments
This examiner’s report should be used in conjunction with the published
September/December 2023 exam which can be found on the ACCA Practice
Platform.

In this report, the examining team provide constructive guidance on how to answer
the questions while sharing their observations from the marking process, highlighting
the strengths and weaknesses of candidates who attempted these questions. Future
candidates can use this examiner’s report as part of their exam preparation,
attempting question practice on the ACCA Practice Platform and reviewing the
published answers alongside this report.

Format of exam
The Advanced Audit and Assurance (AAA) examination comprises two sections.
Section A contains one compulsory question for 50 marks in total. Section B has two
compulsory questions for 25 marks each. Out of this total of 100 marks across
sections A and B, 20 marks were available for professional skills related to
communication, commercial acumen, analysis and evaluation, and professional
scepticism and judgement and 80 technical marks were available for applying
appropriate technical knowledge in response to the requirements.

Section A
Question 1 – Hammer

It is 1 July 20X5. You are a manager in the audit department of Stanley Associates, a firm of
Chartered Certified Accountants, responsible for the audit of the Hammer Group (the Group) for the
year ending 30 September 20X5. The Group, which is not a listed company, operates a number of
hardware stores which supply trade customers and the public.

Your firm audits all components of the Group, including a foreign subsidiary acquired during the
year.

The following exhibits, available on the left-hand side of the screen, provide information relevant to
the question:

1. Partner’s email – an email which you have received from Paula Sanders, the audit engagement partner.
2. Group structure and activities – outline of the Group structure and activities relevant to audit planning.
3. Financial information – extracts from the projected consolidated financial statements.
4. Business developments – information relevant to audit planning.
5. Additional services – details in relation to services which Stanley Associates has been asked to perform.

This information should be used to answer the question requirement within your chosen response
option(s).

Examiner’s report – AAA September/December 2023 2

Format of the question

This question was a typical Section A question set at the planning stage of the audit
of the Hammer Group (the Group), with requirements focusing on an evaluation of
the business risks faced by the Group, an evaluation of the significant risks of
material misstatement, specific audit procedures in relation to the expenditure for a
store enhancement programme and a discussion of ethical issues arising from a
request from the client for additional services. The Section A question is typically
where candidates perform best and there have been more focused answers in
recent sessions. It is pleasing to see that many candidates appeared to have taken
note of the guidance provided by the examining team in this area.

The Group in the scenario was unlisted and an existing client of the firm, with the
core business being the operation of hardware stores. The audit firm was
responsible for auditing all components of the Group, including a new foreign
subsidiary which was acquired during the year under audit.

Candidates should note that they are not expected to have detailed industry specific
knowledge when answering questions in this examination and the scenario will
always have enough information to enable sufficient specific risks to be identified
and evaluated to achieve full marks.

Several exhibits were provided to candidates to enable them to develop an

understanding of the specific issues relevant to the audit. These were as follows:

1. Partner’s email – an email which you have received from Paula Sanders, the audit engagement partner.
2. Group structure and activities – outline of the Group structure and activities relevant to audit planning.
3. Financial information – extracts from the projected consolidated financial statements.
4. Business developments – information relevant to audit planning.
5. Additional services – details in relation to services which Stanley Associates has been asked to perform.

In this question, the partner’s email specified that exhibits 2, 3 and 4 should be
considered when carrying out the requested risk evaluations. It is often the case that
there will be interactions between the exhibits which will impact on the analysis
performed by candidates. For example in this question, the executive directors’
bonus, described in Exhibit 3, was based on annual increases to operating profit
before the exceptional items which were then described in Exhibit 4 in relation to the
extensive store enhancement programme the Group was carrying out. The
connection of this information allowed candidates’ to better discuss the risk of items
being classified as exceptional in order to maximise the directors’ bonuses.

Examiner’s report – AAA September/December 2023 3

As always, candidates are encouraged to spend adequate time reading and planning
and should aim to obtain a holistic view and understanding of the issues present in
the question.

Exhibit 1 – Partner’s email

In a Section A question, the partner’s email will always set out the detailed
requirements which are to be answered and the mark allocation. It is recommended
that candidates refer to the partner’s email first to ensure that they understand what
they are being asked to do as they read through the detailed information and to help
them consider the best way to allocate their time to each requirement.

The requirements of this question were split into four parts. Requirement (a) of the
question asked candidates to evaluate the business risks facing the Group.
Requirement (b) asked candidates to evaluate the risks of material misstatement
(RoMM) relevant to the information provided. The requirement also asked

Examiner’s report – AAA September/December 2023 4

candidates to prioritise, with a brief justification, the risks which they considered to be
most significant to the audit. Requirement (c) asked candidates to design the
principal audit procedures to be performed in respect of the expenditure relating to
the store enhancement programme. Finally, requirement (d) asked candidates to
discuss the ethical issues arising and any necessary actions, following a request for
additional services from the Group’s audit committee.

Professional skills marks were available for all four of the professional skills
associated with the syllabus.

General comments
Well prepared candidates scored good marks on this question, particularly when
focusing on the specific scenario. Where a candidate prepared an answer tailored to
the scenario and focused on the requirement, high technical and professional skills
marks were obtained.

Some candidates continued to produce very vague answers which were not tailored
to the scenario and, therefore, did not achieve high technical or professional skills
marks. This exam requires candidates to demonstrate a high level of technical
knowledge, but they need to be able to apply this knowledge to a specific context.
Generic responses with speculative risks not evident from the detail provided in the
scenario will gain little credit. Candidates should use the specific information
provided within the scenario to demonstrate both knowledge and application of skills
to pass each requirement.

Requirement (a) – 10 marks

In this section of the question, candidates were required to use the specific
information provided in the scenario to evaluate the business risks in relation to the
Group. In the AAA exam and in line with ISA 315 (Revised) Identifying and
Assessing the Risks of Material Misstatement, an evaluation of business risks should
include those risks which would have a significant impact on the client business and
where there is a significant probability of these risks occurring, after any mitigations
stated in the information provided. Risks that are of a remote likelihood of occurring,
already mitigated against or will have an insignificant impact are not considered
relevant to the evaluation. Candidates are required to identify what is significant in
the context of the specific scenario, demonstrating good professional judgement and
an ability to disseminate the important information while assessing the risks.

This requirement was generally well answered, with many candidates able to identify
and evaluate the risks surrounding the competitive environment in which the Group

Examiner’s report – AAA September/December 2023 5

operated, the high levels of borrowing the Group had with specific covenants and the
legal claims attached to the Group’s financial service company. The majority of
answers focussed on the fact that the Group had expanded internationally for the
first time and the risk that comes with operating in a different, unfamiliar market.
Stronger answers were also able to explore the impact the 35% holding of the
Farland government would have on the Group’s ability to direct the operations of
their new subsidiary, Ladder Co.

In some answers the risk was not always well explained, which restricts the marks
which can be awarded. Many candidates only scratched the surface of the
evaluation by stating for example, that there is a financial implication without
explaining exactly how that impacts the Group. For example, stating that the loan
may become repayable is only part of the risk. It is important to also clearly state that
the Group may not have the funds to repay it due to the current expansion
programme and recent acquisition. Further, stating that Wrench Co is in the financial
services industry is again only the starting point. Candidates must ensure they fully
evaluate the risk and its impact in order to maximise their marks.

Overall, in this section many candidates were able to evaluate sufficient risks to pass
the requirement and the majority of candidates did not seem to have difficulty in
identifying business risks and the implication on the Group; however the
differentiator between stronger and weaker candidates was their ability to evaluate
the risks and demonstrate their professional skills of commercial acumen and
professional scepticism.

Requirement (b) – 16 marks

This requirement is typical in volume and nature to many planning questions and
examines a major area of the syllabus – risks of material misstatement. It is
important to recognise that the requirement asked for an evaluation, not simply a list
of risks, nor a strategy or procedures to address those risks. The examining team
are testing whether candidates understand how and why a risk arises and the
implications this has on the financial statements.

Candidates are expected to perform relevant analysis to support an evaluation of

risks of material misstatement (RoMMs). There were 16 technical marks available in
this part of the question in addition to a significant number of professional skills
marks for the analysis. It was disappointing to see that candidates were often able to
identify the RoMMs but obtained few marks for the evaluation of those risks. Many
candidates are continuing to rely on basic or generic explanations, which fail to refer

Examiner’s report – AAA September/December 2023 6

to the information in the scenario. Candidates who refer to the specific information
provide more in-depth answers and are also able to assess the scale of the risk in
the context of the specific audit client.

Materiality
Specific marks were available in this requirement for the calculation and application
of materiality in line with the syllabus guidance. While a significant number of
candidates appeared prepared and followed the materiality guidance provided by the
examining team, a significant number failed to apply this guidance and lost out on
valuable technical and professional skills marks in this area.

Candidates are expected to initially determine a materiality threshold for the audit, as
would be used in practice. Three technical marks are available for the materiality
determination. Candidates are expected to demonstrate a knowledge of the
appropriate percentage range for the benchmark as instructed by the audit partner
(in this question, revenue was to be utilised with candidates expected to use 0.5 –
1%, or 1- 2% as their range) and calculate the monetary amount in respect of the
range. Candidates must then use their professional judgement to select an
appropriate materiality threshold given the risk levels which exist in the audit and
provide a brief justification for their choice. Each of these steps examines a different
aspect of the understanding and skills required of an auditor.

Generally materiality was not well applied. Many candidates ignored the guidance in
the partner’s email and used a different benchmark or produced the wrong
calculations. Some candidates wasted time by doing all the calculations correctly but
then failed to apply their own materiality threshold throughout their answer and
reverted to doing calculations for each item based on total assets or profit before tax.
This resulted in many candidates wasting time and also failing to score the
professional skills marks attached to this area.

It was also disappointing to note that some candidates failed to justify a materiality
threshold for the audit. The examining team will give credit for any reasonable
explanation of the chosen materiality threshold, as the mark is to reward candidates
who can justify their response through the application of professional judgement. It is
not required that candidates select the identical percentage or figure, or that they
provide a justification identical to that shown in the model answer. However, simply
stating that ‘materiality has been set at a specific value due to the risks which have
been identified’ is not considered a suitable explanation by the examining team and
will not be awarded credit. Many candidates used this as their explanation and
therefore were not able to score the full technical marks in this area.

In this question, some candidates stated the higher end of the range was justified
because this was an existing client and therefore the auditor had cumulative
experience and knowledge of the Group, some stated the lower end was more

Examiner’s report – AAA September/December 2023 7

appropriate due to the change in Group structure during the year. Alternative
answers included those which suggested that an amount in the middle of the range
was appropriate, because while this was an existing client, the restructuring and
pressure on the Group’s results would bring the financial statements under
increasing scrutiny. All of these obtained the mark for justifying the chosen
materiality threshold.

Evaluation of the risks

Candidates were then required to evaluate and prioritise the RoMMs. In prioritising
the RoMMs, r, candidates are demonstrating an understanding of risk, how it arises
and how the audit will focus on those issues most likely to cause a material
misstatement. Candidates who demonstrated a depth of evaluation were awarded
more credit than those providing more generic responses. Disappointingly many
candidates continue to provide answers where the risks are not well explained and
lack depth.

An issue that arises repeatedly is candidates attempting to find too many risks for the
marks available which results in many candidates conducting little or no in-depth
analysis of any of them. This will not be sufficient to attain a pass mark. This means
some of the risks stated in such answers will be speculative or which do not require
focus at the audit plan stage, therefore, will not obtain credit. This also increases the
time pressure for candidates as they are trying to cover too many points, resulting in
vague answers which will not maximise the marks which can be achieved.
Candidates are reminded to use the mark allocation and marking scheme to plan
their answer and to assess how many risks they need to cover in sufficient depth to
score the marks.

Candidates should also remember that not all business risks automatically become
RoMMs, as not all risks that the directors of the Group are concerned with will turn
into a risk for the auditor – namely a risk of material misstatement in the financial
statements. Candidates are reminded to ensure they understand this important
distinction and ensure that they can explain each of their identified risks from the
right perspective. Many candidates are still mixing them up leading to their answers
being muddled and affecting their ability to score the professional skills marks.

There was evidence again of candidates not reading the instructions or the scenario
information carefully enough. The scenario stated that Ladder Co, the new
acquisition in Farland, uses the same currency as the rest of the Group, clearly
signposting that foreign currency was not a risk. Unfortunately, too many candidates
wasted time on this risk which could score no credit. This was a similar issue for
candidates who spent time discussing that the Group’s internally generated brand
should be recognised in the consolidated financial statements, a clear breach of
IAS 38 Intangible Assets, and therefore again could no score marks. It was

Examiner’s report – AAA September/December 2023 8

however, pleasing to note that on the whole candidates made use of the guidance
provided by the examining team in terms of which exhibits to use for each
requirement.

In some answers there was a tendency to focus on the less significant issues in the
scenario, for example focussing on possible inventory issues, as there was only a
year-end inventory count, and completely ignoring the Group’s acquisition of a
brand-new foreign subsidiary. Candidates are encouraged to think about the marks
available to help them design and plan their answers. Given the complexity attached
to the acquisition of a foreign subsidiary, candidates should have been cognisant
that to completely ignore this issue would have a detrimental impact on the marks
available to them.

Strong candidates were able to make sensible comments around the issue of control
over the new subsidiary. Given that the Farland government held a 35% stake in
Ladder Co, better candidates were able to explore the idea that this might mean that
the conventional requirement around control (i.e. 50% holding) might not be
sufficient, and the Group may not actually be able to exert power over Ladder Co.
Therefore, full consolidation might not be the appropriate treatment in the
consolidated financial statements. Candidates who were able to do this also clearly
demonstrated their skill in explaining how this business risk became a RoMM in
these circumstances.

It was again disappointing to see that few candidates attempted any prioritisation of
the risks as specifically stated in the requirement. Professional skill marks were
available to the candidates who attempted this aspect of the requirement. Credit was
awarded for candidates who offered a reasonable explanation, and therefore, a
range of possible explanations are valid. Candidates should be aware this mark is for
the act of justifying the reason for the prioritisation, not for the actual justification
used. Candidates can obtain these marks by either ordering their answer in priority
order and stating with reasons that this is the case or by summarising in a brief
conclusion which risk, or risks, require the focus of the audit team. Where candidates
use this latter method, if a candidate does not state which one or two risks are the
most significant but simply lists some or all of their identified risks, this will not be
sufficient for credit. Again candidates are encouraged to review the model answers
for further examples of how to score these professional skills marks.

Requirement (c) – 7 marks

This requirement is typical of a section A question and requires candidates to design

audit procedures to address a specific risk arising in the question. In this question,

Examiner’s report – AAA September/December 2023 9

candidates were required to design the principal audit procedures in respect of the
expenditure which had been incurred by the Group in relation to a significant store
enhancement programme which was described in detail in Exhibit 4. Overall,
responses to requirement (c) were disappointing as this was procedures on a
relatively straightforward area of the financial statements – capitalisation of
refurbishment costs.

Better candidates were able to focus on confirming whether costs should have been
capitalised in terms of the criteria in IAS 16 Property, Plant and Equipment and set
out procedures looking to agree costs to invoices, contracts, or quotations with
contractors, focussing on the nature of the expenditure. Weaker answers focussed
on the approval process for the expenditure, seeking to confirm to board minutes
and other board documentation which was not relevant in confirming whether the
costs were appropriately treated.

Weaker answers also wanted to confirm the expenditure using a written

representation from management which is inappropriate based on the requirements
of ISA 580 Written Representations, as written representations are used to support
other audit evidence and cannot be used as a substitute for carrying out detailed
testing.

The strongest candidates gained a professional mark under analysis and evaluation
for designing procedures which addressed the areas of judgment in the store
enhancement programme.

Requirement (d) – 7 marks

Requirement (d) asked candidates to discuss the ethical issues arising and the
necessary actions to be taken by the firm following a request for additional services
by the audit committee. Exhibit 5 detailed the requests relating to assisting the Group
with further expansion, including advice on target companies and financing, and also
a request to assist the Group with the conversion of the financial statements of
Ladder Co to IFRS Accounting Standards in preparation for consolidation.

The responses to this requirement were mixed. Better answers were able to correctly
identify and fully explain the advocacy, self-review and self-interest threats related to
the corporate finance work as well as adequately explain why this was an
assumption of management responsibilities. Those candidates were then also able
to suggest suitable safeguards including the use of a separate team, additional

Examiner’s report – AAA September/December 2023 10

engagement quality review and also ensuring that management was aware of its
responsibilities in making any final decisions.

Weaker answers were able to identify the threats but did not explain them in relation
to the scenario, instead using more generic reasons as to why these threats arise. At
AAA level, in order to score the technical marks it is not sufficient to only
demonstrate knowledge of the threats. Candidates should apply this knowledge
explain the issues in the context of the scenario. This is also a key professional skill
– the audit partner, for whom the briefing notes are being prepared, will not need to
be educated on what a self-review threat is, for example, but will want to know why
this threat specifically arises in the circumstances presented.

The point regarding the possible adjustments to the financial statements of Ladder
Co and the consolidation was less well handled, as many candidates demonstrated
poor knowledge of the IESBA International Code of Ethics for Professional
Accountants (or other relevant local equivalent in the UK, IRL and SGP versions of
the exam) which states that in relation to accounting and bookkeeping services, only
services which relate to routine and mechanical transactions can be provided. Given
the nature of the request, many candidates were unable to discuss why this was
unlikely to be routine or mechanical and therefore no safeguards could reduce this to
an acceptable level. The use of a separate team or engagement quality review was
therefore not appropriate in the circumstances.

Overall professional skills marks

In additional to the professional skill marks described within the different sections of
the question, four marks were available for communication overall. These marks
were awarded for the use of a report header and introduction, presentation and
relevance of answer and clarity of explanations. The majority of candidates achieved
maximum marks in this area.

Examiner’s report – AAA September/December 2023 11

Section B
Question 2 – Aster

It is 1 July 20X5. You are a manager in the forensic department of Aster & Co, a firm which
provides audit and a range of other services to its clients.

You have received a request from Baker Co to perform an engagement in relation to an insurance
claim which the company is going to submit. The insurance claim is in respect of a payroll fraud
which was recently discovered at the company.

This engagement would be conducted as an agreed upon procedures engagement to quantify the
loss to be claimed.

Baker Co is not listed and is not currently an audit client of your firm. The company manufactures
medical supplies for sale to hospitals. Baker Co is wholly owned by a foreign trust, the beneficiaries
of which include the current board of directors. A trust is a legal entity that owns cash or other
assets or investments on behalf of another entity or individuals.

Baker Co is well respected in the medical sector and routinely donates 5% of annual profits to
global healthcare charities.

The following exhibit, available on the left-hand side of the screen, provides information relevant to
requirements a and b of the question:

1. Outline of fraud – details of the request from Baker Co.

This information should be used to answer the question requirements within the response
option provided.

Aster & Co was a 25-mark question set around a forensic engagement. The firm
Aster & Co had been approached by a prospective new client, Baker Co, which was
looking to have forensic work carried out following the discovery of a payroll fraud.
Candidates were asked to consider the matters prior to acceptance and then
following that the procedures which should be conducted to quantify the loss for
insurance claim purposes. Professional skill marks were available for analysis and
evaluation, professional scepticism and judgement and commercial acumen.

Examiner’s report – AAA September/December 2023 12

Requirement (a) – 14 marks

Responses to requirement a(i) and a(ii) were mixed. Better answers were able to
proficiently use the scenario to evaluate the risk attached to the engagement, this is
a new client for Aster & Co, and therefore the firm have no previous knowledge of
the business which had an unusual structure and ownership profile. Baker Co, a
company which manufactures medical supplies, was wholly owned by a foreign trust,
the beneficiaries of which included the board of directors. These candidates were
then able to discuss the need for effective client due diligence, looking at items such
as ownership and the source of funds and to question the reasons why the firm had
been approached rather than the existing audit firm who may have existing
knowledge. Some candidates scored well in the professional marks here by going on
to discuss the risks surrounding a client who might have been disappointed by the
stance of their existing auditor and were looking for a specific outcome,
demonstrating appropriate levels of professional scepticism. These candidates also
discussed the possible liability risk and how that might affect Aster & Co, thus
demonstrating strong commercial acumen.

Weaker answers tended to provide much more generic responses which essentially
ignored the detail in the scenario and simply listed basic acceptance issues such as
resources, competence and deadlines. While these points are relevant, and scored
some technical credit, the marks are severely restricted where candidates do not
make these comments applied to the specifics of the assignment and client they
have been asked to consider.

Requirement (b) – 6 marks

Examiner’s report – AAA September/December 2023 13

The section on the procedures to quantify the loss was generally poorly answered.
Many candidates spent a lot of time exploring the terms and conditions of the
insurance policy which was not relevant to this part of the question. While it would be
relevant to consider what the insurance company might need for the purposes of
their report or the level of reliance they might place on the information generated by
Aster & Co, this was more relevant to requirement (a)(i). A detailed review of the
insurance policy would not help to quantify the loss which occurred because of the
fraud and unfortunately many candidates wasted time providing multiple procedures
in this area.

Candidates are encouraged to produce a carefully considered set of procedures,

which are specific to the scenario, rather than providing long and unwieldy lists that
are less accurate and repetitive as there is professional credit in concise and
detailed information, which is reflected in the awarding of the analysis and evaluation
professional skill mark.

Question 3 – Cottrell

This 25-mark question was set at the completion and reporting stage of the audit of
Sunningdale Co, a furniture manufacturer and retailer. As is typical of reporting
questions, the examining team saw some of the strongest and some of the weakest
demonstrations of auditing competence from candidates in this question.

This question presented candidates with a schedule of uncorrected misstatements in

relation to the audit of Sunningdale Co. The uncorrected misstatements included the
treatment of investment properties, a change to the useful life in relation to specialist
manufacturing equipment and a gift of company cars to family members of one of the
company’s directors.

Examiner’s report – AAA September/December 2023 14

Candidates appeared comfortable with the familiar format of the question and the
answers provided were appropriately structured. Unfortunately some candidates
failed to consider the information in depth and simply made generic comments about
whether the item should be adjusted or not without demonstrating the information
which should be given to management to encourage them to make the necessary
changes. As such, these candidates were not able to demonstrate the professional
skills that were also examined in the question of professional scepticism and
judgement and analysis and evaluation.

Requirement (a) – 16 marks

Candidates were generally able to identify that the treatment of the investment
property was incorrect by discussing that while IAS 40 Investment Property, does
allow a move to a fair value model this needs to be consistently applied across all
the properties and therefore management’s approach was inappropriate. Stronger
answers were also able to link this to a possible issue with management integrity.

In relation to the change made to the depreciation policy on the specialist

manufacturing equipment, many candidates were able to correctly identify that this is
a change of accounting estimate in line with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, and this change should be applied going forward
and management’s use of a prior year adjustment was inappropriate. Some
candidates were able to discuss the requirements to review the depreciation policy
annually and to only make changes to the useful life where this would better allocate
the depreciation and reflect the pattern in which the asset benefits are experienced
by the company. Only the best answers were then able to discuss that while a
change to an accounting estimate is therefore allowed, it must be appropriately
justified. Therefore, in addition to the fact that management have made an
inappropriate amendment which should be rectified, the overall change by
management needed to be challenged and better understood.

Stronger candidates were able to demonstrate appropriate levels of professional

scepticism and challenge management’s reasons for the treatment of the investment
property and depreciation policy by connecting it to the bank covenant around the
increase in profit before tax. Good answers were able to delve into this in detail and
discuss the impact that putting through these adjustments would have on the
company’s profit before tax (PBT) and used calculations to support their analysis by
showing that this would affect the movement in PBT from a projected increase of 9%
to an overall decrease in PBT of 5.9%, thereby breaching the covenant.

Examiner’s report – AAA September/December 2023 15

The misstatement in relation to the gift of the cars was best handled by candidates,
with the majority able to identify that this was a related party transaction which was
material by nature and would need to be disclosed. Better answers went on to
discuss that this disclosure was therefore needed in the financial statements and
explained the content of this disclosure. Strong answers were then also able to apply
appropriate levels of professional scepticism to discuss that this transaction was not
in the normal course of business and might be an attempt to provide an additional
benefit to the director.

The requirement also asked candidates to state the necessary actions prior to
issuing the auditor’s report and it was good to see that many candidates were able to
suggest some sensible actions, such as to request amendments to the financial
statements and where necessary reporting these issues to Those Charged with
Governance, making them aware of the possible implications for the auditor’s report.
Many candidates also identified the need to request a written representation where
management were not prepared to make the amendments. Stronger candidates
were also able to suggest more specific actions such as to consider the impact that
these issues might have on other areas of the financial statements, particularly
considering the potential covenant breach and that it would be advisable to have an
engagement quality review of the audit file prior to signing the auditor's report.

Requirement (b) – 4 marks

Requirement (b) then moved the candidates on in time and asked them to consider
the aggregate impact on the auditor’s report where management had processed the
adjustment regarding the investment property but had refused to make any changes

Examiner’s report – AAA September/December 2023 16

in relation to the depreciation on the specialist equipment and the related party
transaction. Disappointingly, some candidates misread the details of the requirement
and assumed that the issue outstanding was in relation to the investment properties.
These candidates were not able to score all the analysis marks but were able to
score follow through marks where their conclusions regarding the audit opinion were
appropriate. Again, candidates are reminded to read the details of the scenario and
the requirements carefully. The request for the impact in aggregate should have
clearly suggested that more than one misstatement remained.

It also continues to be disappointing to see that many candidates are not assessing
the impact of the misstatements in aggregate and often suggest that a different
opinion would be issued in relation to each misstatement e.g. one is modified and
the other is not. Candidates are again reminded to ensure that they have a good
knowledge of auditor reporting requirements and must understand that the auditor
will issue a single opinion on the financial statements and therefore this type of
conclusion is inappropriate. This lack of understanding means that candidates waste
time providing inappropriate analysis and it also affects their ability to score the
professional marks in this area.

Some candidates continue to work through every possible option in relation to the
auditor’s opinion and other inclusions in the auditor’s report, such as emphasis of
matter paragraphs or key audit matter sections. Candidates are once again
reminded that they should focus on what is relevant in the circumstances as this can
result in valuable minutes being wasted on points which are then disregarded by the
candidate and do not score credit. Candidates should ensure that they review the
model answer to understand the level of depth and analysis which is needed to
score the technical and professional marks in relation to auditor reporting.

Despite this, many candidates were able to conclude that a modification would be
needed as a result of material misstatements in the financial statements. The best
answers were able to provide meaningful analysis on whether the misstatements
were material only or material and pervasive and credit was awarded for any valid
conclusion based on the analysis given. Answers were also awarded professional
marks where detailed analysis supported conclusions provided.

Overall
The performance of candidates in these questions is broadly in line with past
sessions. There continues to be a gap between candidates capable of demonstrating
audit competence through strong application of knowledge and concepts to practical
scenarios, and those who approach the examination as a factual exercise and fail to
tailor their answers to the scenarios or do not show professional scepticism or
commercial awareness. Many candidates also continue to show a lack of what

Examiner’s report – AAA September/December 2023 17

should be assumed knowledge for ethics and auditor reporting and continue to
produce answers of a standard below what is expected at AAA level.

Practice of past questions will aid candidates in determining their knowledge gaps
and give practice at applying their knowledge to the given scenarios. It is essential
that candidates analyse their answers in comparison to the scenario specific
explanations given in the model answers to understand the level of analysis which is
needed in the AAA exam. This question practice needs to also be based on a good
knowledge of the syllabus and must build upon both the Applied Skills level audit and
financial reporting examinations and the Strategic Business Reporting (SBR)
syllabus. Candidates are encouraged to ensure that their assumed knowledge in
both of these areas is at an appropriate level before commencing their studies
towards the AAA exam.

Candidates are encouraged to develop a wider appreciation of the significance of

risks by reviewing published auditor’s reports of listed companies where the auditor
produces a key audit matters section. This will allow candidates to see real world
explanations by auditors of why something was a specific risk to a specific client.

Information and guidance on the introduction of professional skills marks for AAA is
available as part of the study resources on the ACCA website.

Examiner’s report – AAA September/December 2023 18