Longer type questions and answers, I know this will be a little bit difficult to
see on the screen so I'm going to drill down on the next slide. Let's start by
looking at part A, this is question 2 from June '15. Let's look at the two individual
parts. First of all part A, identify and briefly explain the five components
of an entity's internal control. I mean, isn't that just a dream question? Because as
long as you've got the knowledge as long as you remember the pneumonic crime or
however you remember your knowledge you can answer it. But the pneumonic crime
will give you two and a half marks. To pass you've got to go on and explain. I think
that pneumonic will give you five beautiful subheadings for your answer to
allow you to then build a written answer which will score the full mark. So here's
an example of control environment
written with a title underlined this is the culture attitude and awareness of
management and those charged with governance regarding internal control
within an organization.
Remember you've only got 1.8 minutes per mark, 1 and a half minutes
really once you build in some thinking, reading and planning time. I think that's
enough time to write that answer but you've got to be careful if you start
writing too much you will run out of time. Certainly a sentence, two or three lines
for any one individual mark would be a nice rule of thumb. If you start writing
more you're probably writing too much and possibly waffling. I did another
one, Information System, this is the one which people tend to struggle with
but it's the business processes related to financial reporting. It includes the
accounting which is used to record, process, and report business transactions
and events. So they have wrote a little bit more maybe then control environment
but over the course of the five, elements over the course of the time
allowed to answer the question
I think I can write briefly enough to cover everything to get the
full five marks. My target there, 4 and a half out of 5. What did the examiner say
however about candidates in that question? I really advise you to go back and
read the examiners commentary
she gives you so much good information gives me information but you this would
be invaluable for you to understand where you can improve relative to other
students. So on that part A the examiner said, "candidate's performance was mixed with
many not even attempting it". I find that incredible but obviously they didn't
have the knowledge. Many candidates were only able to identify the components and
either did not provide an explanation or it was incorrect.
Again knowledge, it's all very well having it but you need to be able to
apply it. In addition a significant significant minority of candidates
didn't understand the question requirement so instead of providing
components they started to talk about control procedures which was wrong. Now I
can understand why someone did that; they know the components they can't explain
them so they jot down something just to try and get the other half mark, I can
understand that. You wouldn't be negatively marked but obviously don't
waste time if you don't know the right answer. The second part of that, "describe
a test of control which the auditor of Bonsai Trading would perform to assess
whether or not each of the non-current asset controls listed above is operating
effectively". 'Describe'. You can't just say it too briefly, you can't just identify, you've
got to say a little bit more. Now to get the most out of this session what I'd like
you to do is just pause the video now, read through the scenario, read
through those five elements, okay? Spend 4 or 5 minutes, try and write out maybe an answer
for the top two and then I'll debrief them when you come back. So just pause your
video now and I'll see you in a couple of minutes.
Okay, hopefully you've paused it, hopefully you've had time to read through the scenario. I
won't deal with a little preamble at the top let's get straight into it. So these
are the issues; Bonsai has a capital expenditure committee and all purchase
orders for capital items are required to be authorized by this committee. So how,
how are you gonna test, as the auditor of Bonsai, how are you going to test that this
capital expenditure committee actually does, actually does, authorize all, all
capital items?
well the best answer I can come up with is to think about the committee, a
committee will hold meetings and those meetings will be minuted, so maybe the
best answer you could construct using remember in my mind about those two
words, 'inspection', 'observation', 'inspection', 'observation'. Maybe I could for the
control expenditure committee for a sample of capital purchases 'inspect'.
'Inspect' the minutes of the committee meeting to ensure they have been authorised.
I've written it in a question, I've got a lovely subheading just to give the exact
sorry the marker of your paper the understanding of exactly what you're
covering and have written enough in my opinion to get the full mark; I've
'described' it. Let's take the next one. The next one, "on receipt each asset is
assigned a unique serial number and this is recorded on the asset and in the
non-current asset register". Well I've given you two examples of an answer;
Top one, "inspect the non-current asset register", 'inspect', "to confirm that all
recorded serial numbers are unique". I think that would get the mark. I'm testing a
control that's listed in the scenario but I'd be a bit worried. Have I
written enough? Have I described it enough? Maybe I would probably do the one below,
you'd only do one of the other you don't need to give two for each control just
one test per control, there's five controls there for you to look at. The bottom one there
I feel is much better; "select a sample of non-current assets and physically
verify they have an asset tag attached. Trace and agree the asset tag
numbers back to the non-current asset register". I've got an inspection in there
or a physical verification and I'm tracing and agreeing back to the register
itself.
I think that is a good test of control to ensure that that system, that process
that control is operating effectively. I'll leave the remaining three for you
to have a look at. The examiners answer is fantastic,
okay, it's written in a really good way and a brief way that I think as a student
you would be able to learn from very easily and also be able to replicate
that style in your answers so it is highly recommended. The examiner said on this
scenario on this question weaker candidates wasted time by writing out
the five controls.
Well why would you do that just please get in
to giving me the tests. Some candidates give substantive procedures, they weren't
asked for, she wanted tests of control. Some of the tests that were given were
vague and incomplete, for example, "agree the serial numbers on the assets". That's not really
a proper description is it? And I can understand and if I was marking that paper I
can understand why you'd get probably no marks, okay, lucky to get a half,
probably none. The examiner does just say also just bear in mind
'observation', it is a valid procedure but it's not the only one for tests of
control. I say observation and inspection there are others examiner uses the word
review in her model answer quite a bit so you can use a variety of verbs but
don't do five 'observations', your answers do get repetitive and are unlikely to
score full marks. Let's move on, the final question we're going to look at is
question 4 from June '14.
I want to just look at the requirements here, then I'lll pause and I'll let you run
through the scenario. So first of all the requirements in respect of the
purchasing system at Cherry Blossom identify and explain five deficiencies
that's five, five, not six, not seven, not eight, five, five. And recommend a control to address each
of these deficiencies. I mean she gives you the clue in the requirement, she tells
you how she wants you to answer it. She wants two columns. She wants two columns, the
first of which 'identify' and 'explain' two deficiencies and then a second column
right alongside it that recommends controls to address them. You must say
enough to get a mark. So, what I want you to do is, here's a zoom-in of the actual
scenario. Again I'd like you to pause the video just for a few minutes and I want
you to identify, identify five internal control deficiencies and then I think
you might find a couple more think about which ones you would answer and ideally
try and write out a couple and I'll do the same. So pause the video now and come
back once you've done that task. Okay I hope you paused the video, I do hope you paused the video, I'm
trusting you a little bit on this. Let's read through the scenario, let's find
these issues. "When production supervisors require raw materials they complete a
requisition form and this is submitted to the purchase ordering department". Well as soon
as I read that I thought well who authorizes that? Who authorizes the form? So I
highlighted the requisition form completion and I thought I reckon I've got a lack of
authorization there but it's not signposted yet. What I'm looking for the
best answers you can give are the clear issues highlighted by the examiner in the
scenario, so let's read on. "Requisition forms do not require authorization", ah
there you go, so it is, it's clearly signposted that is a clear deficiency
they are not authorized. We can think about why in a few minutes and we can
think about recommendations in a few minutes, let's just identify them first.
"No reference is made to the current inventory levels of the materials been
requested". Well bang there's a second one.
"No reference is made to the current inventory levels of the materials been
requested". Well if you're not looking to see what inventory you've got at the moment
and you simply order it maybe you don't need that inventory. Let's read on. "Staff in the
purchase ordering department use the requisitions to raise sequentially
numbered purchase orders based on the approved suppliers list". That sounds good
to me, if this question was asking for strengths I think that they would be
strengths, but it's not, "which was last updated 24 months ago".
Bang there's another one, "24 months ago" these suppliers and the list could be out of
date there could be cheaper suppliers, there could be suppliers which will deliver
more efficiently and quicker, there may be suppliers who would be given better
quality of goods so I can argue that that is a deficiency as well.
"The purchasing director authorizes the orders prior to these these being sent to
suppliers". Good news. "When the goods are received the warehouse department
verifies the quantity to the supplier's dispatch note and checks quality is okay".
That's fine I mean suppliers can dispatch what they want but surely we've got to
be checking back to the original order to ensure we're accepting goods that we
did indeed order. "They complete a sequentially numbered Goods Received note
and send a copy of the GRN to the Finance Department", so they send a copy of the GRN
to the Finance Department, what about the Purchase Ordering Department? If they don't
get one they may not think the order's been fulfilled and reorder. "Purchase
Invoices are sent directly to the Purchase Ledger Clark who stores them in a manual file
until the end of each week.
Storing in a manual file, risk they could go missing, until the end of
the week again may not be entered on a timely basis. "He then inputs them into the
purchase ledger using batch controls", good, "and gives each invoice a unique number
based on the supplier code". Oh I'm not sure about that, I
think I might struggle to explain it well and easily but surely I'd want
there to be some sequential numbering element there. "The invoices are reviewed
and authorized for payment by the Finance Director sounds", that sounds positive, "but the actual
payment is only made sixty days, sixty days after the invoice is input into the system".
Sixty days you may lose out,
supply goodwill, any settlement discounts on offer. So how many have I got: 1,2,3,4,5,6,7,8. Eight and I need five.
Too many people in this exam would have given eight answers and wasted time.
You've got to choose what you think are the best five, the easiest to answer and the
easiest to give a recommendation to fix. To me I would have chosen firstly the
inventory levels not been checked, secondly the no authorization of the form
or requisition form, thirdly not checking back to a purchase order number,
fourthly up on the top right there that the suppliers list wasn't updated for the
last 24 months, two years, and fifthly the sixty day issue. Don't simply start at
the top and work down. This question's actually quite nice but some if I was
the examiner and thank goodness I'm not I would probably put some really tough
points at the start and the easier ones at the end. Why? I just want to bulk down
ill-prepared candidates with poor exam technique who tried to deal with the
issues in order rather than thinkin before they start writing. I've got a
couple of examples of answers here, firstly for the inventory levels
"two columns", the examiner tells you to do it just do it please.
"No references made to current inventory levels before order placed". comprehension
Paraphrasing the words from the scenario then go on and explain this
means that now I know that not might not be the best English you could ever use,
but I usually start my explanations with those words, it just focuses me to
give an explanation of the problem. "This means that orders could be placed for goods
they're not required at this time" which will, and go that extra mile if you can, tell
me the consequence to the business, it could negatively impact cash flow.
Your recommendation needs to be practical and sensible, "before any order is confirmed
inventory levels should be checked by a purchase order clark", if you can tell
me who tell me who tell me when, "before the orders placed purchase order Clark
ensure orders cannot be fulfilled from current inventory levels". I did a second
one. My second one was around the payments to suppliers again I paraphrase
the words from scenario, "payments made only after 60 days, which means that Cherry
may miss out on any settlement discounts on offer as well as potentially losing
supplier goodwill". Thinking of my recommendation, I thought that was a little bit tougher
but really I wanted to have a review of all the supplier terms but perhaps a
high-level point to make sure I get my full mark, "a new supplier payment policy
should be introduced which will allow supplier terms to be assessed regularly
and earlier payments made where appropriate or where beneficial to the
company". And that's it. I'll leave the other elements for you and again the examiners
answer is fabulous. What did she say about this answer from June '15? She
said it was a very well however some didn't always adequately
explain the deficiency.
She said that candidates should make sure they consider the implication of the
deficiency to identify the issues that will have the most significant impact. So she
does wanted to try and think of the best five deficiencies. She said that the
scenario contain more than five and the best candidates the strongest candidates
selected the five they could describe best and control best. We got candidates who
started at the top and just went down in order.
She also said that some candidates did more than five which simply wasted time,
no additional marks on offer. You will only get credit for your best 5 answers.
She suggested some of your recommendations were unrealistic and
some were too brief. However, she said it was very pleasing that most set out
their answers in columns. Those that didn't and just gave a list of control
deficiencies and then at the end a list of separate recommendations, they tended
to repeat themselves and quite a bit of time was wasted. She wants you to write in
columns because it produces the best answers. So, what have we done today, what were
the session objectives? Well I wanted to go through the key internal control
syllabus areas and we did that I know we did it briefly I'm not here to teach you the
entire syllabus but at least you should be able to tick off those you know, those
you understand and those where you think actually I need to do some more work on
that.
Secondly, I wanted to give some confidence in your ability to pass paper F8. It's
not rocket science but it does take time and it does take some commitment and
lots of question practice, and that's what we did we did a little bit of
question practice focusing both on MCQ's and internal control longer type
questions. That's the end of the session, thank you.