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GAU711S-AUDITING310-2ND OPP- JULY 2024 |
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n Am I BI A u n IVER s ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENTOF ECONOMICS,ACCOUNTINGAND FINANCE
QUALIFICATION:BACHELOROF ACCOUNTING
QUALIFICATIONCODE: 07 BOAC
LEVEL: 7
COURSECODE: GAU 7115
COURSENAME: AUDITING 310
SESSION: MAY/JUNE 2024
DURATION: 3 Hours
PAPER:THEORY
MARKS: 100
SECOND OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) P ERKIE,H HAITANGE
MODERATOR: AKSELNANGOLO
INSTRUCTIONS
1. This test paper is made up of three (3) questions.
2. Answer ALL Question in blue or black ink.
3. Start each question on a new page in your answer sheet.
4. Questions relating to this paper may be raised in the initial 30 minutes after the
start of the paper. Thereafter, candidates must use their initiative to deal with any
perceived error or ambiguities & any assumption made by the candidate should
be clearly stated.
THIS QUESTION PAPERCONSISTSOF 7 PAGES(excluding this cover page)
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QUESTION 1 (15 MARKS)
a) Select the most appropriate answer to the following questions.
(6 marks)
1. Planning materiality for the audit should be
a) Approved by the audit committee
b) Approved by the clients chief ~udit executive( Head of internal audit)
c) Laid out and explained in the engagement letter
d) None of the above
2. The engagement letter must contain
a) The names of the engagement team
b) The name of the designated auditor
c) The qualifications of the designated auditor
d) The name and qualification of the paiiner who will conduct the quality control
review of the audit
3. In terms ofISA 500, audit evidence is obtained by performing
a) Risk assessment procedures and substantive tests
b) Test of controls and substantive procedures
c) Risk assessment procedures and fmiher audit procedures
d) Tests of controls, substantive procedures and analytical review
4. What type of opinion is issued when the auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements, individually or in the aggregate, are both
material and pervasive to the financial statements?
a) Qualified.
b) Disclaimer.
c) Adverse.
d) Reserved.
5. Which of the following is not a section of the ISA 700 auditor's unmodified (unqualified)
opinion?
a) Auditor's responsibility.
b) Opinion.
c) Management's responsibility for the financial statements.
d) Report on other audit activities.
6. Which of the following unce1iainties will not lead to an auditor's report containing a
qualification of opinion in many countries?
a) Lack of consistency.
b) Material unce1iainties.
c) Independence of auditor.
d) Reports in reference to economic conditions
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b) What stages of the audit process come after planning?
(2 marks)
c) When can auditors not perform test of controls?
(2 marks)
d) What is the purpose of designing, implementing and maintaining internal controls in a
business?
(2 marks)
e) Name and briefly explain any tlu·ee (3) types of internal controls activities
(3 marks)
QUESTION 2 {10 marks)
The auditor obtains sufficient evidence to be able to draw conclusions which in tum support
the audit opinion. Audit evidence is obtained by applying audit procedures, and these may be
applied to an entire population or part of the population by selecting a sample from that
population.
1. Explain the term "audit sampling"
(2 marks)
2. Differentiate between tolerable rate of deviation and tolerable misstatement (2 marks)
3. The following are factors that the auditor may consider when dete1mining the sample size
for tests of detail:
I. An increase in the auditor's assessment of the risk of material misstatement
2. An increase in auditors required confidence level
3. A decrease in the total misstatement that the auditor is willing to accept (i.e. tolerable
misstatement)
REQUIRED
Indicate the effect (either increase or decrease) each of the factors listed above would have on
the sample size. Provide a brief explanation for your choice.
(6 marks)
QUESTION 3 {15 Marks)
You are busy with obtaining an understanding of an entity's internal control and made the
following observation:
A creditor's clerk, who has no formal training and who was previously employed as a sales
representative, does not sign off the creditor's reconciliation before sub.mitting it for review to
the financial manager. Payment is then authorised by the financial manager prior to it being
reviewed by him. The organisation has no formal procedures in place for the creditor's
function. As a trainee auditor, you know that management is responsible for running all aspects
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of the business, and to this end, they must put in place policies and procedures to achieve the
orderly and efficient operation of the business. It thus follows that if the client has an effective
accounting system and internal controls then the information produced by the system will be
valid, accurate, complete and timeously produced.
REQUIRED:
a) Describe control weaknesses in the above scenario.
(7.5 marks)
b) For each weakness indicate what control could be put in place to overcome the
weakness.
(7.5 marks)
Present your answer as follows:
1..................................
.
1.......................... .
QUESTION 4 (60 marks)
You are a member of the audit team performing the 31 March 2024 year-end audit of Books-
4U (Pty) Limited (Books-4U). The following information relating to the company is available
to you:
BACKGROUND INFORMATION
Books-4U is listed on the Namibia Stock Exchange (NSX). Books-4U is a wholesaler of printed
books and sells a wide range of books, including textbooks. The company purchases its books
from local and foreign publishing houses. Books-4U operates its business from several
branches across Namibia.
During the financial year, the company experienced a decrease in profits due to new technology
which allows individuals to purchase books digitally (these books are referred to as e-books).
E-books have become very popular over the past few years, as these books can be read on
electronic devices such as e-book readers and tablets at a much lower cost. Due to the decrease
in profits, management informally instructed the credit controller to relax the internal controls
regarding credit te1ms and policies in order to boost sales figures for the financial year under
audit.
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The decrease in profits is of great concern to the Chief Financial Officer (CFO) as the decrease
in profits will result in a decrease in management's perfo1mance bonuses. When interviewing
the CFO regarding the calculation of management's performance bonuses, the CFO was very
evasive in answering ce1iain questions.
In June 2023, Books-4U was notified that it is being sued for late deliveries of textbooks to
some of the public schools in the Kunene Region. The chief executive officer (CEO) of Books-
4U has apologised to the public but still fears that the litigation may have a huge impact on
Books-4U's future business relations.
Inventories (books) are measured at the lower of cost or net realisable value and the cost price
is determined in terms of the first-in-first-out (FIFO) cost formula. The measuring of the
inventory balance has not always proved to be reliable, mainly due to the limitations of the
accounting system.
Due to the unreliable measurement of the inventory balance, Books-4U decided to change its
accounting system during the financial year from a partially automated system to a fully
automated system which is also compatible with your audit firm's software.
AUDIT WORKING PAPERS
The following audit working paper was prepared by members of your audit team on the audit
ofBooks-4U for the 31 March 2024 year-end:
All payments to suppliers are made by electronic funds transfer (EFT). The system
description for the scheduling of EFTs for Books-4U are described as follows:
EFTs are scheduled in the accounting depaiiment. Two junior accountants in the accounting
department are responsible for preparing the numerically sequenced electronic EFT requests
and the two senior accountants are responsible for approving the EFTs electronically using
their unique usernames and Passwords.
Processing of EFTs is limited to terminals of the accountants in the accounting department
and to ensure timely processing, EFTs are processed between 1o·:OOand 11:00 every
weekday, excluding public holidays. In order to control access when processing and
approving EFTs, the accountants' terminals switch off after three unsuccessful access
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attempts. An activity report of unsuccessful access attempts is reviewed and signed once a
week by the financial manager to confirm that no unauthorised access was gained to the EFT
system.
If a payment exceeds the value ofN$100 000 per supplier per day, the payment can only be
authorised by the financial manager using a one-time password.
After the authorisation of EFTs, a list of all EFTs processed each day is printed out and filed
with a copy of supplier invoices. The senior accountants in the accounting department
prepare the monthly bank reconciliations which are reviewed by the financial manager on a
monthly basis. The financial manager signs the bank reconciliation as proof of authorisation.
REQUIRED
1. With reference to the background information of Books-4U:
a) Identify the risk indicators at the financial statement level.
(7 Marks)
b) For each identified risk indicator, describe the risks of material misstatement at the
financial statement level present in the financial statements of Books-4U. (14 marks)
Present your answer as follows:
1.................................. .
1...........................
.
· 2. With reference to the background information of Books-4U:
a) Describe the risks of material misstatement at the assertion level that relate to inventory
balance.
(14 marks)
b) For each risk described, identify the applicable audit assertion.
(7 marks)
Present your answer as follows:
of the risks of
n'lev~-, · ating:t
··· misst~(e
·enfocy
1........................................
.
1.................... .
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I'
3. With reference to working paper Al 00, formulate the tests of controls that you will perform
to test the internal controls relating to the payments to suppliers.
(14 marks)
4. Imagine that during the audit of Books-4U Limited you found the inventory to be
overvalued by a material amount (N$ 3 million) and the directors refuse to correct the error
REQUIRED:
Write the two paragraphs, explaining the opinion that you would expresses to the users of
the audited financial statements, applicable to the facts in this scenario.
(4 marks)
THE END