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GAU711S-AUDITING 310-2ND OPP-JULY 2022 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOFCOMMERCEH, UMANSCIENCESAND EDUCATION
DEPARTMENTOFACCOUNTINGE, CONOMICSAND FINANCE
QUALIFICATION: BACHELOROF ACCOUNTING
QUALIFICATIONCODE: BAOC
LEVEL: 7
COURSE:AUDITING 310
COURSECODE: GAU711S
DATE: JULY2022
SESSION:JULY2022
DURATION: 3HRS
MARKS: 100
EXAMINER(S)
SECOND OPPORTUNITYEXAMINATION QUESTION PAPER
DR. K BOAMAH
MR D. BENSON
DR A SIMASIKU
MODERATOR: MRS M DIKUUA
THIS QUESTIONPAPERCONSISTSOF _6_ PAGES
(Excluding this front page)
INSTRUCTIONS
1. Answer ALLthe questions and in blue or black ink
2. Start each question on a new page in your answer booklet & show all your workings
3. Questions relating to this examination 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
PERMISSIBLEMATERIALS
1. Examination paper- No study materials are allowed in the
examination room
2. Examination script - The examination script should be handed to the
invigilator at the end of the examination session
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QUESTION 1
(40 marks)
Houses a long-established large construction company has recently instructed your
firm to act as the company's external auditors. The company has its own internal audit
department. Professional clearance has been obtained from the previous auditors and
an audit engagement letter has been issued.
It is now 1 March 2021 and you have been assigned to the audit team who will visit the
company in order to obtain as much relevant knowledge as possible for use in planning
the audit of the company's financial statements for the year ended July 2021.
Required:
(a)(i) Identify to whom in a company an audit engagement letter should be addressed
and explain how acceptance of the terms of engagement should be conveyed to the
auditor
(3 )
(ii) Explain the purpose of an audit engagement letter, state when such a letter
should be issued to an audit client and identify the occasions when it may be
appropriate to issue a new (replacement) letter. (13)
(b)Give SEVEN examples of information your firm would wish to obtain prior to 31
July 2021 in order to assist in the planning of the financial statements of Houses Ltd.
For each example state you're reasoning for wishing to obtain the information
(14)
(c) Explain what you understand by the term audit risk, making reference to:
(i)lnherent risk (3)
(ii)Control risk (3)
(iii)Detection risk (4)
(10 )
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QUESTION 2
(30marks)
The following audit report was drafted by a trainee on the audit report of Litetech (Pty)
Ltd a company which manufactures lighting systems. The trainee was asked to draft
the report at the conclusion of the audit for the financial year ended 30 June 2021 as
part of the on-the job training and as part of your training you have been asked to
evaluate his report. The shareholders of Litetech (Pty) Ltd included a clause in the
company's Memorandum of Incorporation which requires that the company's annual
financial statements are externally audited.
Independent report.
To the board of directors.
We have evaluated the accompanying financial statements of Litetech (Pty) Ltd for
fairness based on our annual audit carried out in terms of the memorandum of
Incorporation of the company.
Management is responsible for the preparation of the financial statements and for the
prevention of fraud.
The auditor's responsibility is to perform the audit and in doing so, to detect any fraud
which may have a material effect on the financial statements not having been prevented
by the directors.
We report on the following aspects of the audit
1. An expert was engaged by our firm to assist in the valuation of work in progress. Due
to the complexity of some of the company's lighting system, the risk of misstatement in
work in progress warranted this.
2. The company is currently being sued by a former employee who suffered personal
injury at work whilst testing electric current flow during quality control procedures.
3. With regard to the detection of fraud we detected a small wage fraud relating to
unauthorized overtime. We reported this to management who subsequently dismissed
the perpetrators.
In our opinion, except for the matters raised in 1 to 3 above, there were no outstanding
issues arising from the audit which was conducted in terms of the International
Standards on Auditing and the International Financial Reporting Standards
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Emphasis of Matter.
There are no matters which require emphasis
Mayweather and Mosely
30 June 2021
Packia Place
Pretoria.
Required:
Detail the errors/deficiencies in the audit report presented to you for evaluation (give
explanations where necessary) You are NOT required to redraft the report. (30
marks)
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QUESTION 3
(30 marks)
Jeans a Limited liability company manufactures high fashion jeans for distribution to
Wholesalers and retailers.
You have been assigned to the audit of inventory in the company's financial statements
for the year ended 31 July 2021.
The following points were relevant to the audit.
(i)The company has raw materials, consumables, and work in progress inventory at its
factory base. Finished goods are stored in a separate warehouse located five miles
away
The company does not hold inventory held by third parties.
(ii) On 31July 2021 employees of the company will physically count the inventory at both
of the company's sites and members of your audit team will be in attendance.
(iii)The company has significant quantities of finished goods inventory held by
independent retails stores under its sale or return system. Under this system, inventory
is displayed for sale at retail shop premises but remains the property of Jeans until it is
sold by retailers. Any garments not sold within three months are returned to Jeans for
bulk sale at heavily discounted prices.
(iv)Some quantities of finished goods inventory were stated at net realisable value in
the financial statements of the company for the previous year.
Required:
(a)(i) Define inherent risk
(3)
(ii) Explain why inherent risk associated with inventory in the financial statements
of Jeans would be assessed as high
(10)
(b)(i)Define net realisable value
(4)
marks)
(ii) Identify THREE possible causes for finished goods inventory being stated at
net realisable value in the financial statements of Jeans for the previous year (3)
(c) (i)ldentify the important tasks that members of your audit team should carry out
when attending the company's physical inventory count on 31 July 2021 and (5)
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(ii)For each task identified explain the purpose of carrying it out
(5)
END OF QUESTION PAPER
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