Paper 2.6(Int): June 2006 Exam Tips (BPP)

ACCA Paper 2.6
Audit & Internal Review
June 2006 Exam Tips

The following list is an idea of the type of questions that may come up in the coming exam. The list highlights areas of the syllabus and how they may well be tested.

Suggested practice questions from the BPP Practice and Revision Kit (2006 edition) are shown after the relevant area. It is also worth reviewing the past exam questions mentioned to give you an idea of how a topic has been examined recently. These are easily available on the ACCA website (www.accaglobal.com/students).

Please note that there was a new examiner in June 2005

• Internal audit/ Internal review – Following the new examiner’s only article on how the internal audit department can assist in corporate governance and risk management, this was tested in June 2005. It was also tested with outsourcing in December 2005. Note that in addition to a specific question on internal audit or reviews conducted by internal or external staff, questions could be in the form of a report to management on control weaknesses with recommendations, very similar in substance to that produced by an external auditor (see Systems and Controls below) (P&R kit practice: Q6 Internal Auditors, Q8 Roxy Hotels)
• Substantive testing – This will be in the exam, but what will be tested? In December 2005 inventories (stock) were tested. In June 2005 sales and tangible assets were tested. In December 2004 substantive testing of payroll balances was tested (Q4). In June 2004 inventories (stock) (Q3) and payables (creditors) and accruals (Q4) came up. In December 2003 payroll audit was tested (Q2). In June 2003, Inventories (stock) (Q2) and provisions were tested (Q3). In the December 2002 exam, payables (creditors) (Q3) and inventories (stock) were tested (Q5). In June 2002 cash was tested (Q2) and in December 2001 receivables (debtors) were tested (Q4). That would appear to leave non-current (fixed) assets, bank/cash and receivables (debtors) as likely candidates for examination this time round. (P&R kit practice: Q42 Springfield Nurseries, Q49 Goodfoot & Q51 Villawood Computers)
• Systems and controls – Again this topic will be included in the exam in some format. In June 2005 Q3 was centred around a complex computer system. The examiner has warned that computers will be expected to feature in scenarios. In December 2004 Q3 risks from a scenario had to be spotted, and controls recommended. In June 2004, they came up in the context of outsourced catering and payroll (Q5). In December 2003 controls over payroll were tested in Q2 and Q1 included controls over business risks in the areas of human resources, procurement and marketing. In June 2003, controls over non-current (fixed) assets were tested (Q6). In the December 2002 exam the sales system was tested (Q2). In June 2002 the cash system was tested (Q2) and in December 2001 Purchases/ capital expenditure were tested (Q3). Any of these could come up again: the purchases/payables and sales/receivables systems looking the most likely. (P&R kit practice: Q36 Cosmo & Q34 Internal Control)
• Planning and risk assessment (from a scenario) – risk in one form or another comes up at every sitting. It is one of the key stages of the audit, but can also be examined in the context of a company’s business risk as it was in June 2004. In December 2005, an audit planning memorandum, or audit strategy, was required. In June 2005 Q1 was a straightforward question looking for risks from a simple scenario. In December 2004, Q2 was centred around planning and the information you require, and Q1 was about spotting the risks of fraud and error. (P&R kit practice: Q20 EWheels & Q25 Nepco)
• Professional ethics – This is a core area not examined at the last 4 sittings. It is still a topical issue with all of the recent corporate collapses bringing the independence and professionalism of their advisors into question. Recently, confidentiality came up in December 2003 (Q6), conflicts of interest in June 2003 (Q3) and objectivity in December 2002 (Q1). Any independence issues would be ripe for examination again at this sitting. (P&R kit practice: Q10 Billington Travel & Q11 Manly).
• Audit/ Assurance Reports – This is a very important area of the syllabus, it is deliverable from the end of all assurance engagements. You also need to be aware of the differences between internal audit reports/ external audit reports and other assurance reports such as review reports. It was tested in June 2005 as an unpopular optional question asking for errors in a given audit report. It has been tested in December 2003 (Q3 b and c), June 2003 (Q3c and Q5), June 2002 (Q3b) and December 2001 (Q5), but not in the last few sittings. (P&R kit practice: Q62 Audit Reports, Q65 Cremorne)
• Parts of questions – The following topics could form discrete parts of questions at this sitting: fraud, management representations, audit regulation, materiality, e-technology (see article below) so make sure you are up to speed on these areas.

Relevant Articles
The following articles can be found in the Student Accountant magazine (or ACCA website)

• The regulatory environment, Alan Lewin, 4 January 2005
• Audit risk in a brave new world, Namasiku Liandu, 30 September 2004
• Confirmation as audit evidence, Graham Cosserat and Katherine Bagshaw, 28 October 2003
• Electronic technology and the auditor, Katherine Bagshaw, 25 June 2003
• Service organisations, Katherine Bagshaw, 26 March 2003
• Internal audit and review reports, Katherine Bagshaw, 29 January 2003
• Corporate governance in the 21st century, Namasiku Liandu, 30 September 2002
• The independence of accountants, Namasiku Liandu, 10 June 2002.
• The role of internal audit in risk management, Katherine Bagshaw, 1 March 2002.
• Technique in auditing questions, Kim Smith, 4 September 2001
• Audit and internal review, Katherine Bagshaw, 1 June 2001

Health Warning! The examiners deliberately try to avoid question spotting. Just because a question featured last time, doesn’t mean it won’t feature this time. Use the tips as areas to have a good look at, but remember that no one knows what is in the exam, apart from the examiner. Your safest bet is to achieve good syllabus coverage in your revision, as the examiner aims to do in the exam.

Author’s Note: The tips are taken directly from BPP Learn Online.