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GAU711S- AUDITING 301- 1ST OPP- JUNE 2023 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF_ACCOUNTING
QUALIFICATION CODE: 07BOAC
LEVEL: 7
COURSE CODE: GAU 711S
COURSE NAME: AUDITING 310
DATE: JUNE 2023
DURATION: 3 hours
PAPER: THEORY
MARKS: 100
FIRST OPPORTUNITY EXAMINATION PAPER
EXAMINER(S) Dr. A. Simasiku
MODERATOR: Mr. T Pandulo
INSTRUCTIONS
1. Capture your full name, student number and assessment number on the first page.
2. Answer ALL the questions and manage your time properly.
3. Number each page correctly
4. Write clearly and neatly.
5. Do not write in pencil and do not use tip-ex, as this will not be marked.
6. The names of people and businesses used throughout this assessment do not reflect the
reality and may be purely coincidental.
THIS QUESTION PAPER CONSISTS OF 3 PAGES (excluding this front page)
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QUESTION 1
(30 marks)
You are newly appointed auditor of Moore Limited. Moore Limited operates as a
retailer in food, consumables and other delicatessen. Their year-end is 31 August
2022.
Moore Limited is listed on the Namibian Stock exchange and has a reporting deadline
of 05 September 2022. Moore Limited operates as a retailer in South Africa and
Namibia and has more than 500 branches across the two countries. Majority of its
stock is imported and the main suppliers are Switzerland, China and Canada.
As part of our preliminary engagement activities we have already identified the
following:
Due to the number of branches identified, it is evident that there are a large number of
volumes of transactions per month
Moore Limited applies IFRS where under IAS 2 (applied for inventories) require that
provision should be raised for obsolete stock, and it should be carried at the lower of
cost or net realisable value.
The directors of Moore Limited are identified to be aggressive in their leadership style
and have been known to dismiss the auditors where there is a disagreement
During the year the company has provided financial assistance to one of its
subsidiaries to acquire shares in Moore Limited. None of the provisions of section 44
of the companies act were met( Also note, none of the exceptions to the provisions
apply. Upon further investigations it was noted that when management were notified
of the non-compliance that their attitude towards such non-compliance was rather
nonchalant.
Required:
Based on the information given above, present the following requirements.
(a) Identify the audit risk factors that will increase or decrease the audit risk of the
audit of Moore Limited (10)
(b) Shortly comment why the above identified risks should be risks (10)
(c) Briefly state whether the responses to the above risks would be included in the
audit strategy or the audit plan. (10)
N/B: Use the following guide to answer this question.
Indicator
Why is it a risk
Audit plan or Audit
strategy
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Question 2
(30 marks)
Mark Lubasi is a very inexperienced member of your audit team and is currently involved in
the audit of the financial statements of Nansando Limited, a company Limited by liability for
the year ended 31st May 2022. The company is engaged in the manufacture and distribution
of garden furniture. Mark is assisting in the audit of the tangible non-current assets and sales
and trade receivables of the company. However, given his limited experience he is puzzled by
some areas of the audit plan.
As you are more senior to him, he has approached you for guidance on the following issues.
(i) Internal control objectives
(ii) The representations or assertions of the directors of Nansando Limited that are
embodied in the reported trade receivables figure of N$685 000 in the financial
statements of Nansando Limited for the year ended 31 May 2022
(iii) Testing trade receivables by circularisation and by the examination of post
balance sheet receipts
Required
Prepare guidance notes in any format which:
(a) (i) Give SEVEN internal control objectives of a tangible non-current assets accounting
system and
(ii) Give THREE internal control objectives of a sales and trade receivables accounting
system
For each objective give an example of a control that would help to achieve the
objective. (10)
(b) Identify and explain the management representations or assertions of the Directors of
Nansando Limited that are embodied in the reported trade receivables figure of N$ 685
000. (10)
(c) State the primary objective of the trade receivables circularisation test and describe
the circumstances in which it would be appropriate to use a positive or negative method
of requesting information. Give reasons as to whether the test should be performed in
addition to the test of post balance sheet receipts. (10)
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Question 3
(20 marks)
Under the going concern assumption, an entity is ordinarily viewed as continuing in
business for the foreseeable future with neither the intention nor the necessity of
liquidation, ceasing trading or seeking protection from creditors pursuant to laws or
regulations. According to ISA 570, the auditor shall evaluate whether sufficient
appropriate audit evidence has been obtained and shall conclude on the
appropriateness of management's use of the going concern basis of accounting in the
preparation of the financial statements.
Required
Describe investigations you would carry out to decide whether a company is a going
concern and whether it has a reasonable chance of recovering from its going
concern problems.
Your answer should include details of checks you would carry out in verifying the
company's profit and cash flow forecasts. (20 )
Question 4
(20 marks)
The directors of Compton and Eden have appointed your firm to act as auditors for
the year ended 31 December 2022. They are going to ask their current auditors to
resign since they are unhappy with the service they have been given.
Required:
(a) Describe the matters you would consider and the investigations you would
carry out before accepting appointment as auditors. (8)
(b) Describe the statutory and ethical procedures that should follow before and
after accepting appointment
(12)
END OF QUESTION PAPER
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