Assurance — Week 1 Practice Case

Ref. Minimum Proficiency Indicator (MPI) Description CPA Way N/P/Y Feedback
AO1 (Assurance — Going-concern issue and impact on the audit report)
1 Identifies the going-concern issue Situation
2 Indicator of going-concern issue: Current liability position Analyze
3 Indicator of going-concern issue: Potential withdrawal of lender support Analyze
4 Indicator of going-concern issue: Adverse key financial ratios Analyze
5 Indicator of going-concern issue: Substantial operating losses Analyze
6 Indicator of going-concern issue: Possible inability to pay creditors Analyze
7 Indicator of going-concern issue: Inability to comply with terms of the loan agreements Analyze
8 Indicator of going-concern issue: Loss of key customer Analyze
9 Indicator of going-concern issue: Parent company no longer funding Analyze
10 Indicator of going-concern issue: Other valid indicator of the going-concern issue Analyze
11 Concludes on the going-concern issue Conclude
12 Identifies management's responsibility to prepare an assessment of going concern. Analyze
13 Audit procedure — Management's forecasts for assessment of going concern Analyze
14 Audit procedure — Management's future plans Analyze
15 Audit procedure — Bank financing Analyze
16 Audit procedure — Other valid factor Analyze
17 Correctly discusses at least 2 potential options for the impact of the going-concern issue on the audit report Conclude

NA The candidate does not address this assessment opportunity.

NC The candidate does not meet the standards for reaching competence.
RC The candidate provides 3 reasonable going-concern issues.
C The candidate provides 4 reasonable going-concern issues, with at least 3 reasonable procedures.
CD The candidate provides 5 reasonable going-concern issues, with at least 4 reasonable procedures, and discusses at
least 2 potential impacts on the audit report.
AO2 (Financial Reporting — Accounts receivable)
1 Identifies that accounts receivable must be assessed for impairment at the end of each period Situation
2 Analyzes possible impairment in relation to case facts Analyze
3 Recommends recording impairment, consistent with analysis Conclude
4 Correctly discusses the impact of the issue on the financial statements and the bank covenant Conclude
NA The candidate does not address this assessment opportunity.
NC The candidate does not meet the standards for reaching competence.
RC The candidate identifies that the accounts receivable must be tested for impairment and attempts to discuss; however,
the discussion lacks technical knowledge and/or case facts.
C The candidate analyzes the possible impairment in relation to case facts, and provides a recommendation.
CD As in C, and the candidate discusses the impact of the issue on the financial statements and the bank covenant.
AO3 (Financial Reporting — Intangible asset impairment)
1 Identifies the financial reporting issue Situation
2 Discusses fair value less cost to sell Analyze
3 Discusses value in use Analyze
4 Concludes on recoverable amount Conclude
5 Recommends recording impairment, consistent with analysis Conclude
6 Correctly discusses the impact of the issue on the financial statements and the bank covenant Conclude
NA The candidate does not address this assessment opportunity.
NC The candidate does not meet the standards for reaching competence.
RC The candidate identifies that the intangible asset must be tested for impairment.
C As in RC, and the candidate analyzes the possible impairment in relation to case facts (considering both fair value and
value in use), and provides a recommendation.
CD As in C, and the candidate discusses the impact of the issue on the financial statements and the bank covenant.
AO4 (Financial Reporting — Preferred shares)
1 Identifies the financial reporting issue Situation
2 Identifies either the criteria for a liability or for equity instruments Situation
3 Analyzes the criteria in relation to case facts: Liability Analyze
4 Analyzes the criteria in relation to case facts: Equity instruments Analyze
5 Recommends that the preferred shares should be reclassified as a liability, consistent with analysis Conclude
6 Correctly discusses the impact of the issue on the financial statements and the bank covenant Conclude
NA The candidate does not address this assessment opportunity.
NC The candidate does not meet the standards for reaching competence.
RC The candidate identifies that the preferred shares may meet the definition of a liability or may not meet the definition of
equity.
C The candidate identifies the financial reporting issue, analyzes 1 criteria in relation to case facts, and provides a
recommendation.
CD The candidate identifies the financial reporting issue, analyzes both criteria in relation to case facts, provides a
recommendation, and discusses the impact of the issue on the financial statements and the bank covenant.
AO5 (Financial Reporting — Impact on covenant)
1 Identifies that a bank covenant has been imposed and calculates the ratio before adjustments, and Situation
concludes on compliance
2 Adjusts current assets for the accounts receivable related to the impairment issue Analyze
3 Adjusts current liabilities for the current portion of the loan from the parent company, originally classified as Analyze
preferred shares
4 Indicates that the intangible asset impairment issue will not affect the current ratio covenant Analyze
5 Recalculates current assets and liabilities and the current ratio covenant, and provides a conclusion on Conclude
compliance
6 Discusses financial reporting implications for the covenant breach Analyze
NA The candidate does not address this assessment opportunity.
NC The candidate does not meet the standards for reaching competence.
RC The candidate correctly calculates the covenant, addressing at least 1 potential adjustment based on the accounting
analysis.
C The candidate correctly calculates the covenant, addressing at least 2 potential adjustments based on the accounting
analysis, and concludes on compliance with the covenant.
CD The candidate correctly calculates the covenants, making at least 2 adjustments based on the accounting analysis,
concludes on compliance with the covenant, and discusses at least 1 financial reporting implication for the covenant
breach.
AO6 (Assurance — Audit procedures)
1 Accounts receivable Analyze
2 Accounts receivable Analyze
3 Inventory Analyze
4 Inventory Analyze
5 Intangible asset impairment Analyze
6 Intangible asset impairment Analyze
7 Preferred shares Analyze
8 Preferred shares Analyze
9 Bank covenants or interest rate Analyze
10 Bank covenants or interest rate Analyze
Note: The reasonable procedure is provided in sufficient detail, including specifics of how it would be performed (for example, which
specific pieces of evidence will be examined and agreed to what). In addition, for each procedure, the risk that the procedure is
addressing OR the purpose of the procedure should be provided.

2 rows are provided for each issue to allow for credit for more than 1 risk/procedure.

NA The candidate does not address this assessment opportunity.

NC The candidate does not meet the standards for reaching competence.
RC The candidate provides 2 reasonable audit procedures (including the related risk).
C The candidate provides 3 reasonable audit procedures (including the related risk), addressing at least 3 accounts.
CD The candidate provides 5 reasonable audit procedures (including the related risk), addressing at least 3 accounts.
Communication — The candidate prepares a response that is logically organized with good use of headings and bullet points.
The response is professional in tone and sufficiently readable in terms of spelling, grammar, punctuation, and
acronyms/abbreviations.