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AUD612S-AUDITING 201-1ST OPP-JAN 2025 |
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nAm I BI A u n IVE RS ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF, ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING (CHARTERED ACCOUNTANCY)
QUALIFICATION CODE: 07 BACC LEVEL: 6
COURSE CODE: AUD612S
COURSE NAME: AUDITING 201
SESSION: JANUARY 2025
PAPER: THEORY AND PRACTICAL
TOTAL DURATION: 188
MINUTES
READING TIME: 25 MINUTES
WRITING TIME: 163 MINUTES
MARKS: 125
FINAL ASSESSMENT OPPORTUNITY 2 2024 - INFORMATION
EXAMINERS MSG. KAFULA
MS Z. STELLMACHER
MODERATOR: M. E. CLOETE
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. This paper consists of FOUR (4) separate questions.
3. Write clearly and neatly.
4. Start each question on a new page and number the answers clearly.
5. No programmable calculators are allowed. You may make use of an
unprogrammable calculator during the assessment.
6. Questions relating to the 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.
7. Any resemblance to any people, places, organisations, or anything are purely
coincidental.
THIS QUESTION PAPER CONSISTS OF 9 PAGES (Including this front page)
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QUESTION 1
20 MARKS
Harley Limited
You are a partner at Limbo & Partners, a medium sized audit firm whose head office is situated in
Johannesburg. For a number of years your firm has been the auditors of Harley Limited, a company that
manufactures spare parts for motor bikes for the local and export market. The company's year-end is 31
March. Harley Limited has established strong internal controls and maintained high ethical standards over
the years.
During the audit planning meeting with management to determine the scope of the audit, you were
informed that ownership of the company's shares had changed and that a foreign company which is
registered in Germany now holds 65% of the issued shares. The financial manager informed you that
audited statements have to be available within 2 months after year-end for consolidation purposes. He
realized the audit deadline is tight and provided you with proof of accounti'ng records balanced and
reconciled on a regular basis from the internal audit department. Fortunately, your audit firm is already
familiar with the accounting system and came to the conclusion that an effective control environment
exists with effective accounting and internal controls in place.
The following interim financial statements for the six months ended 30 September 2024 were also made
available to you:
Statement of Financial Position for the 6 months ended 30 September 2024:
Land and Buildings
Plant
Current assets
Construction costs
Shareholders' funds
Long term loan
Current liabilities
3 000 000
4 000 000
2 500 000
591
9 500 591
4 000 591
2 500 000
3 000 000
9 500 591
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The sales and profit figures were as follows:
Sales
Net Profit
Actual:
6 months ended 30 Sep
Budgeted:
6 months ended 30 Sep
2024
2024
7 500 000
7 800 000
1000 000
1200 000
The company showed an assessed loss and did not pay any tax.
The financial manager also informed you that the company had large capital expansions in April 2024, which
drastically reduced manufacturing costs. The expansion was financed through loans.
QUESTION 2
55 MARKS
Holiday Holdings (Pty) Ltd
You are an audit manager at JMEG Inc. (hereafter JMEG), a firm of Registered Auditors based in Johannesburg,
Polokwane and Cape Town. JMEG is a widely recognized audit firm to a variety of industries including the leisure
industry.
You are responsible for managing the audits of the companies in Holiday Holdings (Pty) Ltd Group and report to Ms.
Violet Bvuma (Audit Partner for the group). The financial year end of all companies in the group is 31 March. All group
companies have adopted International Financial Reporting Standards (IFRS)as their financial reporting framework.
New Standards issued, but not yet effective will not be adopted before its effective date.
JMEG has performed the external audit of Holiday Holdings (Pty) Ltd as well as for Rhino Ranch (Pty) Ltd, and
Adventure Pty Ltd, both subsidiaries of Holiday Holdings over the last 4 years.
The following documents and Workpapers are available for the different audit files:
DOCUMENT /WORKPAPER NAME
-
WORKPAPER REFERENCE
HOLIDAY HOLDINGS LTD GROUP
Understanding the group and governance of the group
Al00
Extract from minutes of the Board meeting held on 28 February 2024
B200
Property, Plant and Equipment Balance
C200
Audit matters: Various Accounts
D200
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Client: Holiday Holdings Ltd Group
Year-end: 31/03/2024
Prepared by: PG)ones
Date: 1 April 2024
Revieweq by:'DA ~oza.
Date: 9 April 2024
Subject: Understa-nding the group and governance of the group
GROUP STRUCTURE:
··AlOO
Holiday
Holdings Ltd
I
Rhino Ranch
(Pty) Ltd - 85%
Subsidary
I
Adventure (Pty)
Ltd -100%
Subsidary
Holiday Holdings Ltd owns a number of holiday resorts and lodges throughout South Africa. Holiday Holdings
receive rental income from Rhino Ranch (Pty) Ltd, which operates from two lodges owned by Holiday Holdings.
Adventure (Pty) Ltd makes use of Holiday Holdings (Pty) Ltd.'s resorts and lodges for tours held close to these
resorts and lodges.
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The Board of Directors of Holiday Holdings (Pty) Ltd are as follows:
Name
•:
Designation
- ,. <-
Mr. Lethabo van Zyl
Chief Executive Officer
Mr. Reneilwe Thupana CA (SA)
Chief Financial Officer
Mr. Eric Human
Chief Operating Officer
Adv. Thabang Boqwana
Non-executive Chairman
Dr. Sefako Bond
Independent Non-executive
Prof. Ethen Britz
Independent Non-executive
Dr. Ngaka Mkhize
Non-executive
Prof Martin us Jacobs
Non-executive
Adv. Lesiba Smuts
Independent Non-executive
Notes
#
Nl
N2
N3
Notes:
#
He also serves as the company secretary.
Nl He has been a senior lecturer of Accounting for ten years and he is the lead independent.
N2 Obtained his Medical Doctor qualification from Sefako Makgatho Health Science University.
N3 He holds 11% of the shares of Makhina Travel, one of Holiday Holdings (Pty) Ltdmaterial
customers.
All executive directors have employment contracts dealing with terms of employment. All non-executive
directors receive a base fee plus fees for attending meetings of the board and its sub-committees as well as travel
reimbursements. The Remuneration Committee is responsible for setting and monitoring the remuneration
policies of the group and approving incentive schemes. Members of the Audit Committee are Adv. Smuts
(Chairperson) and Prof Britz. Members of the Remuneration Committee are Dr. Bond (Chairperson); Prof Britz
and Adv. Smuts. A Risk Committee has been established as well.
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Client: Holiday Holdings Ltd Group
Prepared by: PGDACandidate
Reviewed by: PGDA Lecturer
Year-end: 31/03/2024
Date: 23/03/2024
Date: 04/04/2024
B200
Subject: Extract from minutes of the board meeting held on 28 February 2024
1. Attendance and apologies
• All the directors were present.
2. Minutes of the previous meeting (31 July 2023)
• Minutes of the only other meeting held during the year were adopted as fair reflections of the
events of the meeting subject to few corrections.
3. 2024 Financial Year End Planning Process
3.1. Adjusting Journal Entry at year-end
The CFOindicated that at the management meeting held during the month of February 2024, at his
direction and persuasive, they agreed that an adjustment is necessary to reduce the taxable income of
Rhino Ranch (Pty) Ltd which will improve the tax position of the group. In order to prevent this
adjustment from being detected by either the auditors or South African Revenue Service (SARS),we
will refer to the adjustment as "purchases" on the journal entry.
3.2. The management is ready for year-end and everything is in place to ensure a smooth year end
closure audit process.
• Audit files are prepared with all supporting documents for the auditors.
4. Audit Committee Report
Adv. Smuts reported on the recently held audit committee meeting and the following were the
highlights:
• Management indicated that the Annual Financial Statements will be finalised in time and
presented to the committee for review and inputs before submission to the auditors.
• A meeting will be arranged by the auditors to present the audit strategy and budgeted audit
fee to the committee for approval prior to the start of the audit.
S. Closure
Adv. Boqwana closed the meeting at 13:17pm. In his closing remarks, he thanked all members for the
commitment to Holiday Holdings {Pty) Ltd and reminded them of the importance of confidentiality
regarding all matters discussed during all board meetings. He further indicated that these minutes
should not be shared with anyone other than the Board members. If auditors or anyone request these
minutes, item 3.1 should be deleted from the minutes prior to sharing the minutes.
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Client: Holiday Hoidings Ltd Group
Period end: 31/03/2024
Prepared by: A.Trainee
Date: 01/04/-2024 ·
Reviewed by:
Date:
Property, Piant anp Equipment Balance
Property, Plant and Equipment: Cost
Opening Balance
Additions
Disposals
Closing balance
Accumulated Depreciation
Opening Balance
Depreciation for the year
Closing balance
R24 000 000
Rl 760 000
(Rl 230 000)
R24 530 000
N$ 6 476 000
N$ 2 980 000
N$ 9 456 000
Client: Holid~y Holdings Ltd Group
Prepared by: A.Trainee
Reviewed by:
Auclit matters: Various :Accounts
Period end: 31/03/2024
Date: 02/04/2024
Date:
Procedures that first-year trainee needed to complete:
1. Observe the client's count teams perform the inventory count.
2. Recalculate the total balance of debtors outstanding for longer than 120 days, to determine whether the
provision for doubtful debts is reasonable.
3. Obtain confirmation letters from three of the most significant creditors to confirm whether the balance due
to them agrees to the supplier age analysis.
4. Observe the sales agent access the bookings software to confirm whether a password is required.
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5. Re-perform the interest received calculation, using the prime interest rate obtained from the South African
Reserve Bank's website for periods throughout the financial year, to confirm whether the interest received
from the loan granted to the shareholder is reasonable.
QUESTION 3
40 MARKS
You are the audit senior of Chumba Shoes Ltd (hereinafter "Chumba Shoes"). Chumba Shoes is a company which
manufactures veld shoes and is based in Oshakati. The company has been in existence for several years but during
the last few years it has received a lot of positive online attention. This was in particular due to the fact that several
prominent figures in Namibia, as well as abroad applauded the fine craftmanship of Chumba Shoes.
During 2023, Chumba Shoes converted into a public company, and it also launched an online shop. According to the
IT executive of the company, Mr Gaba, it was best that the company opted to develop the system for the on line shop
itself. He believed that off-the-shelf packages are mainly just a bunch of formulae put together and to top it all - it is
expensive.
While conducting the audit, you realized that the development of the on line shop and its related financial applications
had major budget overruns. Mr Gaba also told you in confidence that some of the customers of Chumba Shoes were
very upset as their outstanding debtors' balances were extremely high, while they did not make any purchases online.
Many accused the company of dishonest dealings.
It later came to light that an intern involved in the development of the system performed test runs on live customer
data.
A local Namibian celebrity, Jacky Jax, also caused quite a scene in the office of the CEOof the company. He claimed
that his private phone number was leaked out onto social media and that he was now inundated with many unwanted
phone calls and text messages. The only platform where he used this phone number was on the online shop of
Chumba Shoes. The only valid explanation that the CEO could think of at the time was that hackers infiltrated the
website of the company and in particular the customer database to obtain private information of customers.
The leaking of Jacky Jax's number went viral and thousands of negative comments were posted on the Facebook page
of Chumba Shoes. The negative publicity led to the share price of Chumba Shoes plummeting and major investors
withdrawing from the company.
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The Board of Directors of Holiday Holdings (Pty) Ltd are as follows:
_..,,,
Name
'
Mr. Lethabo van Zyl
',
Designation
'
p
Chief Executive Officer
Mr. Reneilwe Thupana CA (SA)
Chief Financial Officer
Mr. Eric Human
Chief Operating Officer
Adv. Thabang Boqwana
Non-executive Chairman
Dr. Sefako Bond
Independent Non-executive
Prof. Ethen Britz
Independent Non-executive
Dr. Ngaka Mkhize
Non-executive
Prof Martin us Jacobs
Non-executive
Adv. Lesiba Smuts
Independent Non-executive
Notes
#
N1
N2
N3
Notes:
#
He also serves as the company secretary.
Nl He has been a senior lecturer of Accounting for ten years and he is the lead independent.
N2 Obtained his Medical Doctor qualification from Sefako Makgatho Health Science University.
N3 He holds 11% of the shares of Makhina Travel, one of Holiday Holdings (Pty) Ltdmaterial
customers.
All executive directors have employment contracts dealing with terms of employment. All non-executive
directors receive a base fee plus fees for attending meetings of the board and its sub-committees as well as travel
reimbursements. The Remuneration Committee is responsible for setting and monitoring the remuneration
policies of the group and approving incentive schemes. Members of the Audit Committee are Adv. Smuts
(Chairperson) and Prof Britz. Members of the Remuneration Committee are Dr. Bond (Chairperson); Prof Britz
and Adv. Smuts. A Risk Committee has been established as well.
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Client: Holiday Holdings Ltd Group
Year-end: 31/03/2024
Prepared by: PGDACandidate
Reviewed by: PGDALecturer
Date: 23/03/2024
Date: 04/04/2024
B200
Subject: Extract from minutes of the board meeting held on 28 February 2024
1. Attendance and apologies
• All the directors were present.
2. Minutes of the previous meeting (31 July 2023)
• Minutes of the only other meeting held during the year were adopted as fair reflections of the
events of the meeting subject to few corrections.
3. 2024 FinancialYear End Planning Process
3.1. Adjusting Journal Entry at year-end
The CFO indicated that at the management meeting held during the month of February 2024, at his
direction and persuasive, they agreed that an adjustment is necessary to reduce the taxable income of
Rhino Ranch (Pty) Ltd which will improve the tax position of the group. In order to prevent this
adjustment from being detected by either the auditors or South African Revenue Service (SARS),we
will refer to the adjustment as "purchases" on the journal entry.
3.2. The management is ready for year-end and everything is in place to ensure a smooth year end
closure audit process.
• Audit files are prepared with all supporting documents for the auditors.
4. Audit Committee Report
Adv. Smuts reported on the recently held audit committee meeting and the following were the
highlights:
• Management indicated that the Annual Financial Statements will be finalised in time and
presented to the committee for review and inputs before submission to the auditors.
• A meeting will be arranged by the auditors to present the audit strategy and budgeted audit
fee to the committee for approval prior to the start of the audit.
5. Closure
Adv. Boqwana closed the meeting at 13:17pm. In his closing remarks, he thanked all members for the
commitment to Holiday Holdings (Pty) Ltd and reminded them of the importance of confidentiality
regarding all matters discussed during all board meetings. He further indicated that these minutes
should not be shared with anyone other than the Board members. If auditors or anyone request these
minutes, item 3.1 should be deleted from the minutes prior to sharing the minutes.
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Client: Holiday Holdings Ltd Group
Period end: 31/03/2024
Prepared by: A.Trainee
Date: 01/04/2024
Reviewed by:
Property, Plant an~ Equipment Balance
Property, Plant and Equipment: Cost
Opening Balance
Additions
Disposals
Closing balance
Accumulated Depreciation
Opening Balance
Depreciation for the year
Closing balance
C:200
R24 000 000
Rl 760 000
(Rl 230 000)
R24 530 000
N$ 6 476 000
N$ 2 980 000
N$ 9 456 000
Client:,Holiaay Holdings ltd Group
Prepared, by: A.Trainee
Reviewed by:
Audit matters: Various Accounts
Period end: 31/03/2024
Date: 02/04/2024
Date:
0200
Procedures that first-year trainee needed to complete:
1. Observe the client's count teams perform the inventory count.
2. Recalculate the total balance of debtors outstanding for longer than 120 days, to determine whether the
provision for doubtful debts is reasonable.
3. Obtain confirmation letters from three of the most significant creditors to confirm whether the balance due
to them agrees to the supplier age analysis.
4. Observe the sales agent accessthe bookings software to confirm whether a password is required.
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5. Re-perform the interest received calculation, using the prime interest rate obtained from the South African
Reserve Bank's website for periods throughout the financial year, to confirm whether the interest received
from the loan granted to the shareholder is reasonable.
QUESTION 3
40 MARKS
You are the audit senior of Chumba Shoes Ltd (hereinafter "Chumba Shoes"). Chumba Shoes is a company which
manufactures veld shoes and is based in Oshakati. The company has been in existence for several years but during
the last few years it has received a lot of positive online attention. This was in particular due to the fact that several
prominent figures in Namibia, as well as abroad applauded the fine craftmanship of Chumba Shoes.
During 2023, Chumba Shoes converted into a public company, and it also launched an online shop. According to the
IT executive of the company, Mr Gaba, it was best that the company opted to develop the system for the on line shop
itself. He believed that off-the-shelf packages are mainly just a bunch of formulae put together and to top it all - it is
expensive.
While conducting the audit, you realized that the development ofthe on line shop and its related financial applications
had major budget overruns. Mr Gaba also told you in confidence that some of the customers of Chumba Shoes were
very upset as their outstanding debtors' balances were extremely high, while they did not make any purchases on line.
Many accused the company of dishonest dealings.
It later came to light that an intern involved in the development of the system performed test runs on live customer
data.
A local Namibian celebrity, Jacky Jax, also caused quite a scene in the office of the CEOof the company. He claimed
that his private phone number was leaked out onto social media and that he was now inundated with many unwanted
phone calls and text messages. The only platform where he used this phone number was on the online shop of
Chumba Shoes. The only valid explanation that the CEO could think of at the time was that hackers infiltrated the
website of the company and in particular the customer database to obtain private information of customers.
The leaking of Jacky Jax's number went viral and thousands of negative comments were posted on the Facebook page
of Chumba Shoes. The negative publicity led to the share price of Chumba Shoes plummeting and major investors
withdrawing from the company.
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QUESTION 4
10 MARKS
You are the audit manager at ABC Audit Firm. The audit firm has recently taken on a new audit client, Blu's Bulldozers
(Pty) Ltd (hereinafter "Blu"). Blu manufactures bulldozers in Ondangwa and has been in operation for the past twelve
years.
The manufacturing process of the bulldozers is subjected to stringent standards and Blu prides itself in compliance to
the requirements of the International Organization for Standardisation (ISO). The company has won several
international awards and has a highly competent staff compliment. ABC Audit Firm does not have the skills to value
the inventory of Blu at this stage
Although all preliminary engagement procedures were finalized, the engagement letter was not yet drawn up. The
designated audit partner has requested that you compile the engagement letter. The year-end of Blu's is 30 June and
the audit will commence on 31 July 2025. The firm does not have an internal audit department.
END OF INFORMATION
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