Examiner approach to Paper P7

This article is an updated version of the examiners approach article which was issued in 2007 when Paper P7, Advanced Audit and Assurance was first introduced to the ACCA qualification. The examiners overall approach has not changed at this time, but it is felt that an updated version of the article is needed to reflect certain syllabus and paper format changes that have happened in the last few years. The article should be read in conjunction with the Study Guide and Syllabus for the paper, and with other recent articles prepared by the examining team. Format of the exam Section A will consist of two compulsory 'case study' style questions,one for 35 marks and the other for 25 marks. A range of requirements will be set for each case study, covering different syllabus areas. For example, a case study question could contain requirements on planning, evidence, and ethics. The aim is to mix up requirements and place candidates in a 'real world' situation where they would be faced with several very different issues in relation to the same client. Section B will contain three questions from which two should be attempted. This section will be worth 20 marks each. Relatively short scenarios will be provided as a basis for the Section B requirements. One of the features of the Professional level exam papers is the awarding of 'professional marks'. These are marks allocated not for the content of an answer, but for the degree of professionalism with which certain parts of the answer are presented. There will be 4 professional marks awarded in one of the Section A questions. This might be for the structure, content, style and layout, or the logical flow of arguments in your answer. You should assume that if the question asks for a specific format of answer that some marks may be awarded for an effective presentation of that format. Key objectives of the syllabus The building blocks of a successful audit or assurance engagement are thorough planning and risk assessment. Therefore, these areas will continue to be examined in every sitting, and are likely to form part of at least one of the compulsory questions. Candidates should be aware that 'planning' covers a wide variety of topics, and does not just mean 'risk assessment'. For more clarity in this area it is essential to read the Syllabus and Study Guide in order to appreciate the breadth of the syllabus in relation to 'planning'. Also bear in mind that 'planning' is not restricted to the planning of an audit, but could relate to the planning of an assurance or nonaudit engagement. It has become apparent that candidates learn a topic, such as planning, within

the context of an audit engagement but are then often unable to apply their knowledge of that same topic to a different type of assignment. The paper is called Advanced Audit and Assurance for a reason, and an inability to tackle scenarios involving assurance or non-audit work will adversely affect exam performance. At each sitting, candidates should also expect to see - requirements relating to evidence gathering. Requirements may focus on specific assertions, and specific financial statement balances or transactions, and could be set in the context of an audit or an assurance engagement. When asked to explain 'matters to consider' for an audit of financial statements, candidates should be aware that one of the key matters to consider is whether the relevant accounting standard has been adhered to. Candidates often display a lack of financial reporting knowledge when answering questions of this type. Be aware - the Study Guide contains a list of financial reporting areas that fall within the syllabus, and any of these areas could be part of a question requirement. Reporting is another important area, likely to feature in every sitting, either in Section A or Section B. This is the second area where candidates should understand the crucial relationship between financial reporting and auditing. Candidates often attempt to justify an audit opinion without any apparent knowledge, or - even worse - incorrect knowledge, of the relevant financial reporting standards. How can one reach an opinion as to whether financial statements have been properly prepared if one doesn't know the financial reporting rules that must be used in their preparation? Ethics and professional issues are also important areas within the syllabus, likely to feature in every sitting, either in Section A or Section B. In today's climate, auditors are often called upon to justify their ethical status and it is important that candidates are regularly tested in this area. Candidates may see the ethics question as an 'easy pick', but it is important to appreciate that ethics is not just about independence but also covers ethical issues such as conflicts of interest and confidentiality, as well as fraud and error, and professional liability. A note on current issues these can be tested as a discussion question, or as part of a question scenario in which the current issue needs to be considered in the context of an audit or assurance scenario. This is exactly what 'real world' auditors have to deal with on a day to day basis, and it is essential that a high-level audit and assurance exam regularly tests the ability to discuss new developments in the profession. As current issues have an impact on the planning and execution of an audit or assurance engagement, a current issues requirement could feature as part of the case study scenario in Section A. Candidates should appreciate that they are expected to read around current issues and not rely on manuals from tuition providers. Good quality newspapers, professional journals, as well as ACCA's website, provide sources of information on current developments in audit and assurance.

Candidates must not rote learn a provided piece of information on a current issue and then proceed to regurgitate this information verbatim as an answer to an exam requirement. By the time candidates have reached this stage in their professional studies they should take responsibility for developing their own opinion on a current issue, and be able to reach their own conclusion. Specific competencies Paper P7 is one of the Professional level Options papers. Candidates must consider carefully whether they have the required competencies when deciding whether to take Paper P7. The competencies I would expect to see in a candidate achieving a clear pass in Paper P7 include:

a thorough understanding of the relevant audit, assurance and financial reporting regulations that fall within the syllabus the ability to apply knowledge to specific client scenarios the ability to have an independent opinion, backed up by reasoned argument an appreciation of commercial factors which influence practice management an appreciation of the fast-moving developments in audit and assurance practices.

Candidates should appreciate that at the Professional Level, they will be expected to apply their technical knowledge to the question provided, especially in the Section A case study questions. It will not be possible to achieve a pass mark based purely on rote-learning with no demonstration of application skills. Candidates would be ill-advised to choose Paper P7 as an Options paper if they:

have little or no practical audit experience struggled with preceding audit exams are unwilling to take responsibility for their own opinions by reading around current issues are uncomfortable discussing arguments or reaching opinions.

Information sources Candidates should ensure they are familiar with the wide range of materials available to help them with their studies. In addition to material provided by tuition providers, and ACCA's

website, students are encouraged, as discussed above, to regularly read up on current issues and to be aware of the matters discussed in articles prepared by the examining team. Conclusion I want candidates to pass this paper. I want candidates who choose to attempt this paper to base their decision on an understanding of the core components of the syllabus and how they will be tested. Candidates who have practised plenty of past exam questions, who have taken time to read around the syllabus, and who use sensible exam technique on the day of the exam are very likely to secure a pass. This exam should not be approached as a rote learning exercise, but as a chance to show the ability to think logically and practically, reach an opinion, and demonstrate the application of technical issues to a real-world scenario. This article explains the changes affecting paper P7 from June 2013 and candidates are encouraged to familiarise themselves with the content of this article while preparing for exams in June 2013 and subsequent sittings.

Syllabus and Study Guide and exam format

Format of the paper The main change is that the format of the paper is being standardised from June 2013 onwards. There will still be two compulsory questions in Section A and a choice of two from three questions in section B. It is only the mark allocation that is changing. The questions in section A will be for 35 and 25 marks. In section B each of the optional questions will be for 20 marks. This standardisation is common to the Optional level examinations and has been introduced to help candidates to manage their time in the exam, and to improve exam technique. Syllabus changes It would normally be the case that the syllabus and study guide published for June and December 2013 is relevant for exams in 2013. ACCA made an exception and has now extended the syllabus and Study Guide of 2013 to June 2014. So, exam for June 2014 will be based on the 2013 Syllabus and Study Guide. There have been a few small changes made to the syllabus. In syllabus area D Planning an Audit, two new learning outcomes have been included, both of which are relevant to the demonstration of higher skills rather than the additional of technical content to the syllabus. The first new

learning outcome relates to the identification of additional information. Candidates need to be able to identify and explain the additional information that would be relevant to audit planning in a given scenario. Candidates who have familiarised themselves with past papers will have seen requirements similar to this in various questions, for example in relation to planning a due diligence assignment. The new learning outcome simply clarifies that a similar requirement could be asked in respect of planning an audit. The second new learning outcome relates to the identification of matters not relevant to planning an audit. This is a different skill being tested the ability to prioritise information that has been given in an audit planning scenario, and to focus on the most important information relevant to audit planning. This learning outcome is unlikely to appear as a specific requirement, but is implied in all audit planning scenarios, and simply means that candidates will produce a good answer if they select and prioritise the most important information and spend less time discussion the less relevant i matters from the scenario provided. Both of these learning outcomes have been added to the paper P7 syllabus following recommendations from ACCAs regulatory authorities who periodically review the Syllabus and Study Guide. Candidates are also encouraged to read an article which first appeared on ACCAs website in May 2012, which describes the appropriate exam technique to use in an audit planning question, as it contains important guidance on tackling this type of question. A second area of the syllabus where new learning outcomes have been included is syllabus area B Professional and Ethical considerations, where two new learning outcomes have been included in relation to professional scepticism. The first learning outcome that has been added to syllabus area B is 'Discuss the importance of professional scepticism in planning and performing an audit', and the second is 'Assess whether an engagement has been planned and performed with an attitude of professional scepticism, and evaluate the implications'. The syllabus has been made more robust in respect of professional skepticism due to its being a matter of increasing importance in the profession, with the IAASB issuing in February 2012 a document entitled Questions and Answers - Professional Skepticism in an Audit of Financial Statements, which explores the importance of professional skepticism as a concept to be employed during an audit. Similarly, the UKs Financial Reporting Council issued a Briefing Paper on Professional Skepticism in March 2012, covering similar ground to the IAASB document. On issuing the IAASB document, the Chairman of the IAASB stated the following. 'The IAASBs International Standards on Auditing (ISAs) explicitly recognize the fundamental importance of professional skepticism. Nevertheless, adopting and applying a skeptical mindset is ultimately a personal and professional responsibility to be embraced by every auditor. It is an integral part of the auditors skill set, is closely interrelated to the fundamental concepts of auditor independence and professional judgment, and contributes to audit quality. The auditors education, training, and experience are therefore critical.' This highlights the importance of professional skepticism not just as an attitude to be employed by the auditor, but as a crucial part of quality control including ethical considerations. A sceptical

attitude enhances the auditors ability to identify and respond to conditions that may indicate possible misstatement due to error or fraud and critically assess audit evidence. Current issues Candidates are reminded that current issues remains a feature of the syllabus and that they should be aware of IAASB developments and matters being debated within the profession. The IFAC website contains information on the work of the IAASB including its current projects and consultations. Such matters have formed the basis of discussion questions in paper P7, in which candidates are required to discuss a statement and are expected to form their own views and opinions on such matters. Current issues can also be embedded within scenario based questions. Current issues encompasses a wide variety of areas, and the topics of current issues requirements in past examinations have included for example, the audit of complex and subjective transactions and matters such as going concern and revenue recognition, developments in ethical standards and in the regulation of the auditing profession, and revisions to auditing standards. The list of examinable documents for Paper P7 is updated annually and candidates should ensure that their study material includes the relevant examinable documents for the exam sitting they are preparing for. This is important for many reasons, one of which is that changes to examinable documents may be linked to a current issue, so clearly using out of date study materials means that a candidate may not perform well on a current issues question. However reading beyond the study text is very much encouraged in relation to current issues as this will help candidates to understand issues from a broad perspective, enabling a proper discussion in the examination. Conclusion This short article has highlighted the way that mark allocations between questions will be standardised from June 2013 onwards, and the changes made to Paper P7 syllabus and study guide for the June 2013 sitting onwards. These changes are not major, but in part help to ensure that Paper P7 covers matters of increasing importance to the profession.