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AUT621S- AUDITING 202- 1ST OPP- NOV 2023 |
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nAmlBIA UnlVERSITY
OF SCIEn CE Ano TECHn OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING & FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07 BOAC
COURSE: AUDITING 202
DATE: NOVEMBER 2023
DURATION: 3 HRS
LEVEL: 6
COURSE CODE: AUT 621S
SESSION: NOVEMBER 2023
MARKS: 100
EXAMINER{S)
FIRST OPPORTUNITY
EXAMINATION QUESTION PAPER
Kamotho, D.W., Hainghumbi, H.T. P
MODERATOR: Ms W Gertze
THIS QUESTION PAPER CONSISTS OF _6_ PAGES (including this front page)
INSTRUCTIONS
1. Answer all the questions 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.
PERMISSIBLE MATERIALS
1. Nonprogrammable scientific or financial calculator
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Question 1
(25 Marks)
Miggy {Pty) Ltd {hereafter "Miggy"), a local distributor of confectionaries, has asked your
accounting firm to evaluate their system of internal controls. The CEOof Miggy explained
the current system of internal controls to your colleague. Your colleague has since been
promoted to a senior position; therefore, she has passed on the information below to
you. You are expected to generate recommendations for the partner at your accounting
firm to share with the CEOof Miggy.
Since Miggy is a relatively medium-sized organization, they have a lot of faith in their long-
term employees. They have one accountant who takes care of all accounting and
administration matters which streamlines many of their processes. For example, in this
dual role, he purchases all of the supplies and pays for these purchases. He also receives
the cheques from customers and completes the monthly bank reconciliation.
The accountant is so busy that the company handles various functions a bit
differently. Petty cash is one such function. All employees have access to the petty cash
in a desk drawer and are asked to only place a note if they use any of the cash.
Wages/salaries payouts is another such function. On payday, the salary cheques are
picked up by the accountant and left in his office for employees to collect. Due to the
accountant's busy schedule, employees are welcome to help themselves by collecting
their cheques. However, before he leaves for the weekend, he will move the cheques into
a safe in his office.
The CEOis still quite embarrassed because he had to fire one of his employees for visiting
illegal websites on a company computer. He later found out this individual was a
convicted offender who served prison time for molesting children. The company had a
hard time getting the employee to admit it was him because the company does not assign
individual passwords to access the computer.
The CEO expressed his frustration because both he and the accountant interviewed and
approved all of the new hires in the company.
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REQUIRED:
Based on the above information:
a) Define Internal control.
(3 marks)
b) Based on the description of the system of internal controls provided, identify any
six (6) control weaknesses in Miggy's internal control system.
(6 marks)
c) For each control weakness identified, recommend to the CEOwhat the company
can do to improve those controls.
(6 marks)
d) The CEOwants to understand the components of internal control. List and briefly
discuss the five (5) components that make a good internal control system.
(10 marks)
[Total: 25 Marks]
Question 2
{25 marks)
Karibu Ltd, a large manufacturing company listed on the Namibia Stock Exchange (NSX),
wishes to appoint a number of non-executive directors to their Board. In doing so, they
wish to comply with the recommendations of the Namcode on Corporate Governance.
The existing Board is made up as follows:
Chairman and Chief Executive
Officer
Financial Director
Production Director
Sales and Marketing Director
Operations Director
Non-executive Director
John Capricon(54)
Ruddy Hinanifa (50)
Zabron Mateta (46
Jerry Sakwa (44)
Chris Wood (45)
Davy Du Plessis* (52)
*Davy Du Plessis represents his uncle Bill Du Plessiswho has a 28% shareholding in
Karibu Ltd. Bill Du Plessis has the largest single holding in Karibu Ltd.
The number in bracket indicate the respective age.
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The following individuals are being considered for appointment:
Moses Mudavadi
Cathy Du Plessis (55}
Jonny Hinanifa (30)
Elvis Brown (45)
Peter Ondeng (48)
RassyDaddy (49}
Titus Veyele {60)
Reonald Koopers (50)
Maria Mathews (61)
prominent local businessman who is active in community
projects.
a recently retired engineer who had on the odd occasion been
consulted by Karibu Ltd.
a chartered accountant and son of Ruddy Hinanifa
a partner in Karibu Ltd.'s audit firm (not the designated partner
responsible for the audit of Karibu Ltd).
the company's legal adviser since the company's inception
a consultant in Karibu Ltd.'s line of business, who has no
business relationship with Karibu Ltd.
a businessman and chairman of the local Chamber of
Commerce.
the owner of a small business which supplies Karibu Ltd with a
number of components used in their manufacturing process.
Reonald Koopers's business is one of ten such small businesses
which supply Karibu Ltd as a part of the company's social and
business development initiatives. Karibu Ltd is his major
customer.
the recently retired senior public relations manager at Karibu
Ltd. This is a senior executive role.
John Capricon has asked you to advise him on "what should be done to get our Board
right".
REQUIRED:
(a) Comment on the composition of the existing Board of Karibu Ltd in terms of
the recommendations of the Namcode code of corporate governance.
(5 marks)
(b) Advise John Capricon on how the board of directors of Karibu Ltd should be
reconstituted to satisfy the recommendations of the Namcode . Your answer
should indicate inter alia, which of the individuals being considered, should be
appointed, where applicable. Justify your inclusion/exclusion of each individual.
{20 marks)
[Total: 25 Marks]
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Question 3
25 Marks
You are about to begin the audit of one of your larger clients, Mama Kambo Ltd (hereafter
"MK"). MK is a long-established wholesale distributor of dairy produce and operates out
of three countries: South Africa, Botswana and Namibia. In each country, the company
has a distribution refrigeration warehouse, and it also operates a centralised office in
South Africa for purchasing and accounting functions. As part of the audit, you must carry
out a detailed examination of the transactions of MK, including its internal controls
components.
MK's internal controls consist of the following components:
• Control environment
• Risk assessment process
• Information system, including processes relevant to financial reporting and
communication
• Control activities
• Monitoring of controls.
REQUIRED:
a) Discusswhat is meant by the term 'control environment'.
(2 marks)
b) Why is it important for the auditor to obtain an understanding of a client
company and its environment, including the company's internal controls?
(7 marks)
c) Outline THREEkey factors that an auditor would expect to see (find) in operation in
MK's control environment.
(3 marks)
d) Outline FOURdifferent control activities that should be found in MK and provide
one specific example of each.
(8 marks)
e) Discussfive inherent limitations of an internal control system
(5 marks)
[Total: 25 Marks]
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Question 4
(25 Marks)
You have recently been appointed the audit senior for Hamilton Computers Ltd, a
technology company involved in the development of computer software and the
manufacture of information technology (IT) hardware. The audit will commence shortly.
The Company relies heavily on its IT systems to manage and operate the business. The
company has just implemented a new accounting IT system to support and record all of
its financial transactions.
At a recent meeting with the company's chief financial officer (CFO),the audit partner
informed the CFOthat an audit of the new accounting IT system will be conducted this
year, focusing largely on the general and application controls in the new system.
REQUIRED:
(a) The audit partner has asked you to brief him on the key aims and objectives of
the audit of the new accounting IT system for the CFO.
(5 marks)
(b) As part of the discussions at the meeting, the audit partner mentioned that there are
three main areas upon which the audit of general controls will focus, namely:
(i) IT Information security
(ii) IT systems change control
(iii) IT operations.
The audit partner has requested that you to assess the key risks and controls in each
area.
(14 marks)
(c) The audit partner has also noted that the team will use computer assisted audit
techniques (CAATs)as part of this year's audit and would like you to briefly explain the
benefits of using CAATs.
(6 marks)
[Total: 25 Marks]
END OF QUESTION PAPER
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