Examiner’s report

F8 Audit and Assurance

March 2018

General comments
The F8 Audit and Assurance exam is offered in both computer-based (CBE) and paper-based
formats. The structure is the same in both formats but our model of delivery for the CBE exam
means that candidates do not always receive the same set of questions. In this report, the
examining team shares their observations from the marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer constructive advice for future candidates.
 Section A objective test case questions – here we look at the key challenge areas for this
section in the exam.
 Section B constructed response questions - here we provide commentary around some of
the main themes that have affected candidates’ performance in this section of the exam,
identifying common knowledge gaps and offering guidance on where exam technique could
be improved, including in the use of the CBE functionality in answering these questions.

There were two sections to the examination and all the questions were compulsory. Section A
consisted of three OT cases each comprising five OT questions for a total of 30 marks, which
covered a broad range of syllabus topics. In Section B candidates were presented with one
constructed response question worth 30 marks and two constructed response questions worth 20
marks each; testing the candidates’ understanding and application of audit and assurance in more
depth.

In order to pass this examination, candidates should ensure they devote adequate time to obtain
the required level of knowledge and application. Candidates who do not spend sufficient time
practicing questions are unlikely to be successful as the written questions in particular aim to test
candidate’s application skills.

Section A
It was very pleasing to see that once again almost all candidates attempted all 15 questions,
across the three OT cases. Candidates preparing for future sessions are advised to work through
the past exams which are available and to carefully review how each of the correct answers were
derived. Section A questions aim to provide a broad coverage of the syllabus, and future
candidates should aim to revise all areas of the F8 syllabus, rather than attempting to question
spot. Section A in the March 2018 examination included but was not limited to, questions on the
following areas:

 Professional ethics and application of ACCA’s Code of Ethics and Conduct

 Substantive testing including testing on non-current assets and inventory
 Written representations
 Audit finalisation and review
 Auditor’s reports

Examiner’s report – F8 March 2018

Sample questions for Discussion

The following questions are reviewed with the aim of giving future candidates an indication of the
types of questions asked, guidance on dealing with exam questions and to provide a technical
debrief on the topics covered by the specific questions selected. Candidates are reminded that
there will be a mix of application and knowledge questions in Section A and it is imperative that
they ensure their knowledge of the International Standards on Auditing (ISAs), and important areas
of the syllabus such as audit procedures is at an appropriate level.

Example 1

Which of the following statements relating to codes of professional ethics are correct?
(1) Codes of professional ethics are prescriptive ethical rules which professional accountants
should consider in every situation
(2) A code of professional ethics allows a professional accountant to apply fundamental ethical
principles to a given situation
(3) A code of professional ethics encourages professional accountants to think about more
than just legal compliance
(4) Compliance with codes of professional ethics is a legal requirement for professional
accountants

A 1 and 2
B 1 and 3
C 2 and 3
D 3 and 4

The correct answer is C.

Codes of professional ethics, including ACCA’s Code of Ethics and Conduct adopt a principles
based approach rather than being a prescriptive set of rules. This approach identifies fundamental
principles, threats to these principles and safeguards which can be put in place. This approach
requires the professional accountant to use professional judgment when applying ethical principles
to any given situation. Compliance with codes of professional ethics is a professional requirement.

On this basis, statements 1 and 4 are incorrect.

Example 2
As a starting point for the audit testing of inventory the audit assistant has carried out ratio analysis
on the draft financial statements of Well Heeled Co.

Which of the following ratios would be useful in relation to testing inventory?

A Gross profit margin

B Quick ratio
C Current ratio
D Return on assets

The correct answer is A.

Examiner’s report – F8 March 2018 2

The key to this question is to consider the assertions which would be relevant to the testing of
inventory. In this instance the gross profit margin is relevant to the valuation of inventory. As
closing inventory is a component of cost of sales, changes in the gross profit margin could indicate
that inventory is misstated.

Candidates should be reminded of the importance of understanding what the results of a ratio
show, rather than just having knowledge of the balances which would be included in its calculation.
For example, in this instance whilst the inventory balance is included in the current ratio, it is
difficult to derive conclusions regarding inventory specifically from its calculation.

Section B

The constructed response questions in Section B tested candidates understanding of the audit and
assurance syllabus:

- Audit framework and regulation

- Planning and risk assessment
- Internal control
- Audit evidence
- Review and reporting

Audit framework and regulation

This area of the syllabus requires; an understanding of the functions of an audit, being able to
distinguish between the scope of internal and external audit, and, an understanding of both
corporate governance and professional ethics.

Questions in this area may present candidates with a scenario-based ethics or corporate
governance question. Candidates are generally asked to identify and explain a set number of
issues from a given scenario and give relevant recommendations to address the issues identified.
‘Hurling Co’ from the ‘Sample March/June 2017 Questions’ is a good scenario based question to
practice the skill of explaining ethical issues and making relevant recommendations.

In addition questions in this area can be stand-alone knowledge based, such as internal audit or
assurance, and do not need to be applied to the scenario provided in the question. In answering
knowledge questions it is important to ensure that an adequate level of detail is provided, as often
these questions are answered too briefly, almost in a note format. It is also important to identify the
requirement verb, as ‘describe’ or ‘state’ require completely different levels of detail to be provided.

As in all other areas of the syllabus, it is important that the candidate carefully reads the specific
requirement of the question. For example if a question asks candidates to describe the
responsibilities of the auditor in accordance with ISA 250: ‘Consideration of laws and regulations in
an audit of financial statements’, no credit will be awarded for explaining the responsibilities of
management.

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Planning and risk assessment

This area of the syllabus requires an understanding of how the auditor obtains and accepts audit
engagements, obtains an understanding of the entity and its environment, assesses the risk of
material misstatement and plans an audit of the financial statements.

Questions on assessing audit risks tend to be scenario based; the candidates having to identify
and explain the risks from a scenario and give an auditor’s response to address the risks. Other
questions in this area of the syllabus tend to be more factual knowledge based questions and
hence depend on the ability of students to recall their knowledge in the exam. It should be noted
however, that knowledge based questions may require candidates to give examples relevant to the
company in the scenario.

As noted in previous Examiner’s Reports a fundamental factor in planning and assessing the risks
of an audit of an entity is an assessment of audit risk, and this remains a highly examinable area.
Audit risk questions typically require a number of audit risks to be identified (½ marks each),
explained (½ marks each) and an auditor’s response to each risk (1 mark each). Typically
candidates can be required to identify and explain in the region of six to eight risks and responses.

The scenarios usually contain more issues than are required to be discussed. It is pleasing that
candidates planned their time carefully and generally only attempted to list the required number of
issues. However, in common with other sessions, a significant number of candidates often did not
explain how each issue could impact on the audit risk and therefore were not awarded the second
½ mark. To explain audit risk candidates need to state the area of the financial statements
impacted with an assertion (e.g. cut off, valuation etc.), a reference to under/over/misstated, or, a
reference to inherent, control or detection risk. Misstated was only awarded if it was clear that the
balance could be either over or understated.

Candidates should note that an auditor’s response does not have to be a detailed audit procedure,
rather an approach the audit team will take to address the identified risk. However, the responses
given were sometimes too weak e.g. “discuss with management”. Responses also sometimes
focussed on what management should do rather than the auditor, and/or, were inappropriate to the
scenario.

‘Hurling Co’ from the ‘Sample March/June 2017 Questions’ is a good scenario based question on
audit risks and responses to practice.

Audit risks and response questions can also be linked with a factual knowledge question; ‘Cupid &
Co’ from the ‘Sample September/December 2017 Questions’ being a good question to practice.

Audit risk questions can also be combined with a requirement to calculate ratios, these ratios then
link into the risk and responses requirement. ‘Centipede Co’ from the December 2016 exam is a
good question to practice the skill of calculating ratios and applying these to a risk and response
question.

In addition candidates should read the F8 Technical Articles on ‘Audit Risk’ (updated 2/2/18) and
‘ISA 240 (redrafted) Auditors and Fraud’ (updated 1/2/18).

Examiner’s report – F8 March 2018 4

Internal control

This area of the syllabus requires both an ability to describe and evaluate internal controls
techniques and audit tests, and, also an ability to make appropriate recommendations.

Internal control questions typically require internal control deficiencies to be identified (½ marks
each), explained (½ marks each), a relevant recommendation to address the control deficiency (1
mark), and, often a test of control the external auditor would perform to assess whether each of
these controls, if implemented, is operating correctly (1 mark). Internal control questions can also
include the identification (½ marks each) and explanation (½ marks each) of key controls which the
auditor may wish to rely on as well as tests of controls (1 mark) to assess the operation of these
controls. Further, these applied internal controls may be required to be presented in the form of a
report to management, in which case a covering letter (2 marks) is required.

Internal control questions often include a knowledge or factual requirement. In common with
planning and risk questions, these are relatively straightforward marks and candidates should be
attempting to score maximum marks. However it was disappointing to note in this session that
many candidates failed to score many marks in factual requirements. It is imperative that future
candidates ensure that they devote adequate time to learning the knowledge areas of the syllabus
as well as practicing this style of question. A good example question is ‘Heraklion Co’ from the
September 2016 exam.

Internal controls questions remain a highly examinable area and performance in March 2018 was
mixed.

The scenarios included in exam questions contain more issues than are required to be discussed.
In this sitting it was pleasing to see that candidates on the whole were able to identify (for ½ marks
each) an adequate number of control deficiencies from the scenario. However, candidates must
ensure that they focus on the relevant part of the information provided. For example, if the scenario
included the following information, “overtime request forms are required to be authorised, however
this does not always occur” the relevant information is the lack of authorisation, rather than the use
of overtime request forms. It was also disappointing that some candidates were not able to identify
effective controls; often identifying controls where in fact a deficiency existed instead.

In common with previous sittings some candidates did not clearly explain the implication of the
deficiency/control. It is important the explanation fully details the impact to the company e.g. for the
deficiency of “junior staff member recording new customers’ details”, a suitable, well explained
implication could be “this could lead to customers not being set up correctly resulting in a loss of
goodwill”. Many candidates did not go on to explain the impact on the company, in this example,
‘the loss of goodwill’.

Most candidates were able to provide good recommendations to address the deficiencies they
identified. However some of the recommendations were either poorly described, did not clearly
address the specific control deficiency identified or were impractical suggestions.

Examiner’s report – F8 March 2018 5

‘Equestrian Co’ from the ‘Sample March/June 2017 Questions’ is a good internal control
deficiencies and recommendations question to practice.

As in previous sessions it was disappointing that candidates’ descriptions of tests of controls that
an auditor should perform were often not well explained (e.g. repeated use of the word “check”),
did not address the controls identified, or described substantive audit procedures rather than tests
of controls.

Tests of controls are a key requirement in internal control questions and future candidates must
ensure they practice these types of questions in advance of their exam. ‘Halley & Co’ from the
‘Sample September/December 2017 Questions’ is a good internal control deficiencies,
recommendations and test of controls question to practice.

Audit Evidence

This area of the syllabus requires a description of the work and evidence obtained by the auditor
required to meet the objectives of audit engagements and the application of International
Standards on Auditing.

A key requirement of this part of the syllabus is an ability to describe relevant audit procedures for
a particular class of transactions or event. Overall performance in this key syllabus area in this
exam session was once again very disappointing.

The March 2018 exam session contained a number of questions in this syllabus area covering a
variety of areas across both the statement of profit or loss and statement of financial position,
illustrating that candidates must be prepared to tailor their knowledge of substantive testing to any
area of the financial statements. In most cases candidates remain unable to tailor their knowledge
of substantive procedures to the specific issues in the question requirements, with many providing
tests of controls rather than substantive procedures, or providing incorrect procedures, or
concentrating on one type of test e.g. multiple examples of analytical review procedures.
Candidates should also note that one mark is available for each well described audit procedure
and should consider this when determining how many procedures are required for the marks
available.

In particular care must be taken to address the specifics of the question; often the requirement is to
describe substantive procedures to address specific financial statement assertions, such as
valuation, any tests provided which did not test this assertion would not have scored any marks. A
good example to practice is ‘Dashing Co’ from the ‘Sample September/December 2017 Questions’.

In addition candidates should read the F8 Technical Article ‘The Audit of Financial Statement
Assertions’ (updated 1/2/18).

As addressed in previous Examiner’s Reports candidates must strive to understand substantive

procedures. Learning a generic list of tests will not translate to exam success – procedures must
be tailored to the specific requirements of the question.

Examiner’s report – F8 March 2018 6

A further example of a substantive procedures question to practice is ‘Airsoft Co’ from the ‘Sample
March/June 2017 Questions’.

There are many resources available on the ACCA’s website which will help candidates prepare for
this type of question and practice of the highlighted questions, along with other past exam
questions, are one of the best ways to help candidates cover the syllabus and become
accustomed to the style of questions set.

Review and reporting

This area of the syllabus requires an understanding of how consideration of subsequent events
and the use of the going concern basis can inform the conclusions from audit work and are
reflected in different types of auditor’s reports, written representations and the final review and
report.

Questions in this area of the syllabus tend to be scenario-based and may require candidates to
describe audit procedures in relation to going concern or subsequent events and one mark is
available for each well described procedure. Alternatively they can require an assessment of the
impact on the auditor’s report due to an unresolved accounting issue.

Performance in audit procedures questions in this area of the syllabus continues to be

disappointing. Many candidates remain unable to describe the required number of substantive
procedures, or, the procedures were often vague.

Despite an improvement in auditor’s report questions in recent sessions, performance in the March
2018 session was disappointing. Candidates are often required to discuss an accounting issue,
assess whether the error is material, consider the type of modification, if any, and lastly to discuss
the impact on the auditor’s report. Candidates often omit the discussion of the issue. In order to be
awarded marks for discussing the issue candidates should not just repeat the information from the
question. Candidates need to explain the effect of the item being incorrectly recorded, eg if this
results in assets/liabilities/profit being over/understated. Weaker candidates continue to provide
every possible auditor’s report option available. Credit will only be awarded where the auditor’s
report option is relevant to the scenario.

Auditor’s reports are a core area of the syllabus and knowledge of the ISAs in this area is
imperative, including knowledge of ISA 701 Communicating Key Audit Matters in the Independent
Auditor’s Reporting. Good questions to practice are ‘Airsoft Co’ from the ‘Sample March/June 2017
Questions’ and ‘Snail & Co’ from the December 2016 CBE exam

Exam technique

Good exam technique is vital for success in F8. It was pleasing to see many candidates followed
the instructions in audit risk and internal control questions and structured their answer in columns.
Not only does this make it easier to mark, it makes it easier for a candidate to review their answer
and ensure they have covered all of the relevant areas, for e.g. it is clearer to see if a test of control
has been omitted.

Examiner’s report – F8 March 2018 7

Additionally, it was pleasing that where a question asked for a specific number of issues to be
addressed, such as risk and internal control questions, most candidates attempted to identify the
required number demonstrating appropriate exam technique and time management.

Disappointingly though this session, in common with December 2017, some question requirements
were not attempted. This tended to be in knowledge areas, substantive testing questions and some
auditor’s report questions. This could have been down to a lack of knowledge or exam preparation.
Candidates are also reminded of the importance of practising questions to time.

Candidates need to ensure that their answers relate to the scenario given. In questions requiring a
description of substantive procedures these were often too generic. Candidates need to particularly
ensure that substantive procedures and tests of controls are clearly described as to exactly ‘how’
the procedure should be performed. Also an adequate number of procedures must be provided; a
four mark question should have at least four well described procedures to maximise the candidates
mark.

Word processing technique

Candidates sitting CBE questions used the word processing tools available adequately. However
some CBE answers, especially those contained within the pre-formatted tables provided, tended to
be quite brief almost note like. Whilst bullet points are acceptable, answers must be sufficiently
detailed in order to maximise marks.

Occasionally, the typed words in some candidates’ answers were difficult to understand as the
words were misspelt. Candidates are reminded that there is no automatic spelling checker tool
available and to try and manage their time appropriately to allow for a review of their answers
before submission.

There are resources on ACCA’s website giving more guidance on how to use the word processing
tools. A video introducing the main functionality and how to make best use of these in F8 can be
accessed via the video an introduction to F8 CBEs.

Guidance and Learning Support resources to help you succeed in your exam

Preparing for the F8 exam can appear challenging but there are many resources available to help
you. You should refer to these throughout your studies.

You should make sure you have made use of all of the resources found under technical articles for
F8 – these include technical articles, study support videos and exam technique resources – all
developed with you in mind.

Additionally Examiner’s Reports are available after each exam session. These are a valuable tool
for understanding the exam, avoiding common pitfalls and developing exam technique. Work
through the F8 resource ‘A guide to using the examiner’s report’ if you are sitting the exam for the
first time or ‘A guide to reflection’ if you are retaking your exam. Both of these interactive tools can
be found under the technical articles page for F8. These have been developed to sit alongside the
self-study guide and the retake guide respectively, and provide you with further pointers for using
the examiner’s reports for previous sittings.

Examiner’s report – F8 March 2018 8

It is essential to practise as many exam standard questions as you can in the lead up to your
exam, this is critical for F8 as 70% of the marks are written. We strongly recommend that you use
an up to date question and answer bank from one of our Approved Content Providers but if this is
not possible then work through the most recent past exams on our website. However, please note
if you are using the past exams that these are not updated for syllabus changes or changes to the
exam format since September 2016 and so should be used with caution – so check the latest
syllabus and study guide for changes.

It is essential that you have a good understanding of the verbs typically used in ACCA F8 exam
questions. Take a look at the article What is the examiner asking? which sets out some of the most
commonly used verbs, and ensure that you understand how these are used in the F8 questions.

Examiner’s report – F8 March 2018 9