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FOE601Y-FUNDAMENTAL OF ETHICS AND ASSURANCE-1ST OPP-NOV 2025 |
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nAmlBIA unlVERSITY
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
COURSE CODE: FOE601 Y
LEVEL: 6
COURSE NAME: FUNDAMENTALS OF ETHICS AND
ASSURANCE
SESSION: OCTOBER 2025
PAPER: THEORY AND PRACTICAL
TOTAL DURATION: 150 MINUTES
MARKS: 100
EXAMINER
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
MSG. KAFULA
MODERATOR:
MS M. E. CLOETE
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. This paper consists of TWO (2) 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
60 MARKS
Background information
Care Audits Incorporated (Care Audits) has been appointed as the auditors of Clean Blue Water
Technologies Ltd (CBWT) at the beginning of the 2025 financial year. This was after the previous
auditors were asked to resign, following a disagreement regarding the audit fee and accounting
policies. You are a third-year audit trainee that has been assigned to the audit of CBWT.
CBWT is a public company listed on the Namibian Stock Exchange (NSX) and is a leading water
treatment company in Namibia, that was incorporated during 1992. The company also provides
services to the Namibian Government as part of tenders awarded to CBWT. The financial year end
of CBWT is 31 August.
CBWT is currently in the process of tendering for a big project to design, build and maintain a new
water treatment facility in Windhoek, as the Government is launching various projects to address
the water crisis in the city. The audited financial statements are part of the tender documentation
that have to be submitted by CBWT to the Government by no later than 30 September 2025. No
interim audit was performed due to staff constraints at Care Audits.
CBWT has been using the same accounting package since its incorporation in 1992. During
September 2024, the board of directors approved the implementation of a new fully integrated
computerized system due to the significant growth the company experienced in the past few
years and the board realizing that the current accounting package was outdated. Based on the
outcome of a feasibility study that was conducted, it was decided to purchase an accounting
package off the shelf from one of the largest and most reputable suppliers in the software industry
rather than to develop the accounting software in house. The new accounting system, ACC-600,
was implemented during February 2025 and accounting staff were provided with the relevant
manuals in order to start using the new system immediately.
CBWT owns 75% of Carbonate (Pty) Ltd's (Carbonate) issued share capital. The shares in
Carbonate were purchased on 31 January 2025. Carbonate is situated in Botswana and will be
audited by a medium sized audit firm in Botswana. The financial year end of Carbonate is 31
March.
The materiality figure for the audit of CBWT is N$2 million.
Audit firm information - Care Audits
A few years ago, Len Care CA(NAM) set up his audit practice, Care Audits. He is currently the audit
partner at the practice. Len Care also established a private company, Understand Your Business
(Pty) Ltd (Understand Your Business) to provide non-audit professional services such as
bookkeeping and the preparation of financial statements to the public in which he has an 80%
shareholding. His good friend from school, John Pastel, who has a BCompt-degree, holds the
remaining 20% interest. Care Audits' business model entails that Len Care only retain a small,
selected client base (between ten and fifteen audit clients) ensuring that he has a sound
knowledge of every client. In his opinion, this contributes to high quality audit work. As a pre-
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requisite, Len Care emphasized that all new auditing clients should make use of Understand your
Business to perform all their non-audit professional services, otherwise the engagement would
not be accepted. Len Care based this decision on the fact that it would improve the understanding
of the client and it would result in better audits.
Care Audits is a small auditing firm with only 10 staff members, but they still manage to attract
and maintain good clients due to Len Cares' high public profile which is created by publishing
auditing and accounting related articles in the financial press. These articles also generate
enquiries to Len Care who then refers them to John Pastel who is responsible for engaging with
potential clients to determine whether they are interested in appointing Understand your
Business to perform their non-audit professional services. These potential clients are
simultaneously made aware of the audit services rendered by Care Audits.
Due to Len Care's high profile and reputation in the financial industry, he has become a highly
desired speaker and spends most of his time out of the office. On 3 September 2025 prior to
leaving for his next session of presentations, he sent you an email which is included in Annexure
A to indicate responsibilities in terms of the CBWT audit.
The following documents are available for your consideration:
Annexure A The following email was addressed to you:
From:
Sent:
To:
Subject:
Len.Care@Careaudits.na
3 September 2025
Student.Advice@Careaudits.na
CBWT 2025 Audit
Dear Audit trainee,
As you are aware, I am leaving today for a three-week long tour to do presentations all over the
country and would therefore have limited involvement, if any, in the CBWT audit. During the
audit, please make sure that you address all the issues below and follow my instructions as
highlighted pertaining to the issues.
Seeing that this is the first time that our firm will audit CBWT, you are the most suitable person
to lead this audit. You are very competent, and you also have the most knowledge about this type
of industry. Therefore, I would suggest that you contact the previous auditors immediately to get
hold of their working papers and to study the prior year working paper files thoroughly.
CBWT invited me to attend a strategic planning session to be held at Windhoek Country Club on
24 September 2025. The 2025 annual financial statements will also be discussed at this meeting.
The audit therefore needs to be completed by 20 September 2025 so that I am able to advise
management on the required changes in their strategic planning session.
You would further notice that the proposed audit fee for the 2025 financial year is less than the
management consultancy fee that were charged by Understand your Business. This is because
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CBWT's operational director, Jeff Pump, being inexperienced and therefore requiring my support
and assistance. Therefore, please ensure that my instruction to inflate the current audit fee with
N$100 000 and to reduce the fee for other services with the same amount was also correctly
incorporated by Chris Flush {CA {NAM)), the financial director of CBWT, when reviewing the notes
to the annual financial statements.
During my consulting sessions, the following information was brought to my attention:
1. At the end of April 2025 huge performance bonuses were paid to the directors of CBWT,
which was based on the management reports that were presented at that time. Based on the
consultations I had with the operational director, Jeff Pump and afterwards with Chris Flush,
we realized that there were a significant number of transactions that were either accounted
for incorrectly or not accounted for at all. As this would result in a significant loss for CBWT, I
suggested that they make all these adjustments in the 2026 financial year to avoid
unnecessary questions from their shareholders. So do not treat these as misstatements in the
current year, but rather save it as part of next year's working papers, so that we have a record
of the adjustments that must be accounted for.
2. During the board meeting that was held in the beginning of December 2024, Chris Flush made
the following recommendations/proposals (as indicated below) to the CBWT's board that
would enable them to comply with some BBBEE requirements:
- The current non-executive directors should be requested to resign. Should they agree, they will
be compensated accordingly with an amount of N$250 000 each.
A reconstitution of the board would take place which entails the following:
- With effect of 1 January 2025, Kanye Ndlovu, a prominent leader in the environmental
industry, would be appointed as CBWT's chairman and she would simultaneously also be
appointed as the Director of Human Resources and Transformation.
Kanye Ndlovu should, for the next five years, be given a minimum annual performance bonus
of N$1 560 000.
3. The board unanimously accepted Chris Flush's proposals. Shortly after the board meeting, the
three independent non-executive directors as well as CBWT's chairman agreed to accept the
compensation of N$250 000 each and resigned with immediate effect.
I know that I can trust you to deal with CBWT's audit in a professional manner and that you will
take all the aspects I addressed above into account. Please accept management's explanations
for any other issues not mentioned in my email, even if there are no supporting documentation
or valid explanation for it, as they are unwilling to make any further changes to the annual
financial statements. For us to build a good relationship with CBWT's management and to retain
the audit and other non-audit professional services, we need to express an unqualified opinion.
The annual financial statements will be used for all the contracts that they will tender for soon
and to increase their bank overdraft because of possible cash flow shortages they are anticipating
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financing the new contracts. This is because of the increased demand for their services. I indicated
to CBWT's management that the audit would run smoothly and that no changes would be
requested, as I would provide the necessary guidance to my audit team .
Record all problems that you are unable to resolve, including the misstatements mentioned
above, by 20 September 2025 in a confidential report so that the effects thereof can be
considered in planning the 2026 audit. Sign off all working papers so that if an IRBA/PAAB
inspector were to look at the file they would think that the audit was completed satisfactorily.
Then prepare the standard unmodified auditor's report and sign it with my electronic signature
(ask my secretary for the JPEG file) . The deadline for this audit is non-negotiable. Thereafter
arrange that 30 copies of the audited financial statements of CBWT are printed and courier them
to Windhoek Country Club for my attention.
If you have any further questions, please do not hesitate to send me an email as I would attend
to it in between my presentations.
Once you have completed CBWT's audit, take a well-deserved two-week holiday and charge the
time to CBWT.
Regards,
Len Care
QUESTION 1
YOU ARE REQUIRED TO:
a) With reference to the background information, describe the audit risks at
the overall financial statement level for Clean Blue Water Technologies Ltd
and at group and entity level for the year ended 31 August 2025.
MARKS
{14)
Note: Exclude risks of material misstatement as a result of fraud and
manipulation .
Communication skills: logical argument
(1)
b) Describe the most appropriate overall audit responses at the financial {S)
statement level to address the audit risks identified in part (a) above.
c) List the general system software and operational controls that Clean Blue
Water Technologies Ltd should have implemented for the new fully (6)
integrated computer system to operate as intended.
d) With reference to the audit firm information and Annexure A:
Critically evaluate and discuss the ethical, statutory and corporate {32)
governance concerns you have for both Care Audits Incorporated and
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Clean Blue Water Technologies Ltd for the year ended 31 August 2025.
Limit your answer to the requirements of the following:
i. SAICA Code of Professional Conduct (CPC} (safeguards not required} (22)
ii. King IV Code on Corporate Governance (10)
Notes:
Exclude the following from your answer:
. Any potential safeguards that relates concerns identified; and
. Any considerations/concerns relating to the Auditing Professions Act (APA).
Communication skills: clarity of expression and logical argument
(2)
TOTAL MARKS QUESTION 1 (60)
QUESTION 2
40 MARKS
You are an audit senior responsible for the audit of Black and White (Pty} Ltd (hereafter referred
to as BW} for the year ending 30 June 2025. BW is a profitable owner managed business which
specializes in the music download industry.
Company Background
BW offers on-line application download facilities (only to Namibian customers} which enable
customers to download their favorite music applications from any device. A fully computerized
environment as well as a trading website is therefore in use. The company has its head office based
in Windhoek.
As part of your risk assessment procedures as well as the review of the general computer controls
for the 2025 reporting period, you have compiled the following working papers:
Work Paper Reference
A 100
B 100
Work Paper Description
Understanding the Entity and its environment
Understanding the General Computer Controls
Client: Black and White (Pty) Ltd Period End: 30 June 2025
Prepared by: T Rainee
Date: 10 July 2025
A_l00
Reviewed by:
Date:
Understanding the Entity and its environment - Risk Assessment Procedures
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Mr. Shuttle formed BW in 2010. The company is presently run by Mr. Drive who is the company's
managing director. His wife, Mrs Speedy, the financial director, handles the accounting and
financial matters of the company.
BW has a strong visionary management team, led by Mr. Shuttle. Management is dedicated to the
growth and development of the company and has a positive attitude towards a sound control
environment. Bonuses for executive directors and senior management are based on performance
and profitability.
BW sells music from well-known local and overseas artists through the internet and by means of
SMS downloads. BW has licensing agreements with local and international record companies,
which provide for royalties to be paid to the record companies for music downloads. In line with
BW's objective of reaching all Namibians, payment methods include online purchases using credit
cards.
With thousands of transactions taking place daily, BW is dependent on reliable information
technology (hereafter IT) systems.
The Industry
The industry is characterized by a high level of competition amongst major players in the market,
which are mainly companies like Kapana and Banana which are the leaders in the online
application business.
Accounting Policies
The company's accounting policies conform to International Financial Reporting Standards.
Online downloads using credit cards
• A customer accesses BW's website using a computer or an appropriately enabled hand-
held device.
• The customer is then able to browse through BW's music catalogues and selected tracks.
• Selected tracks are put into an online 'shopping basket'.
• After completing the selection of tracks, the customer enters BW's secure payment website
and enters his or her credit card details.
• Once the customer has entered all details, the payment website collects payment from the
credit card company.
• The music website then enables the download of the purchased tracks.
Information from prior year standing audit file of BW:
✓ BW has a history of law violations and claims against them
✓ Management of BW does not monitor significant controls regularly
✓ Management sets unduly aggressive financial targets
✓ BW pays their management extremely high-performance bonuses
✓ BW enter in significant related party transactions which are not in the ordinary course of
business
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Client: Black and White (Pty) Ltd
Period End: 30 June 2025
Prepared by: T Rainee
Date: 10 July 2025 -
Reviewed by:
Date:
"
Understanding the General Computer Controls
8_100
The report on the review on general controls which was presented to you contained, inter alia, the
following:
BW employs three computer technicians. They are responsible for ensuring that the company's
network functions satisfactory. The technicians report to Mrs. Numbers, the financial controller.
However, she does not interact very much with the technicians, as she is, by her own admission,
not strong on computer technology. The technicians are responsible for making program changes
as they see fit, training new staff members to use the company's computerized system, operating
the help desk, and managing the database. The three technicians are all on the same employment
grade and generally work well as a team allocating the various tasks among themselves. The three
technicians are in a general office in the accounting section where the network servers and various
other pieces of computer equipment are located.
Mrs Speedy is the senior financial director (FD) in the company. There are two executive directors
and one non-executive director but all three of these individuals are from a manufacturing
background and have little interest in the financial/ administrative side of the business which is
left up to Mrs. Speedy.
All employees of BW are given access to the network. All personnel can access the network from
two terminals in the staff canteen if, for example they want to send e-mails or browse the internet
during tea or lunch breaks. To get into a particular application the employee must enter a unique
password. Controls over passwords are as follows:
With the help of one of the technicians, the employee accesses a "new password file" which is
resident on the system. A list of two hundred and four passwords then appears on the screen and
the employee must select one password by "clicking" on it. If a password has already been taken
it appears in bold italics and cannot be selected. A new list of passwords is produced every six
months and employees must select a new password using the same procedure. Passwords of staff
that have left the company are also invalidated at this time. The password file is encrypted and
only the three technicians, all of whom have root access/ super user access, can access the
password file. The password application software was written by one of the three technicians.
Other supplementary access controls such as shut down after three access violations, time out
facilities, and access logs are in operation. The company has a firewall in place and makes use of
anti-virus software. There is a suitable disaster recovery plan and back up strategies appear to be
effective.
Ethical Dilemma
In the current year, BW's management has been under pressure to sustain profitability in order to
secure the high-performance bonuses paid to directors. To achieve this, BW entered into several
related-party transactions with entities controlled by the managing director's family. These
transactions are not in the ordinary course of business and have not been adequately disclosed to
shareholders. While some employees have raised concerns about the fairness and transparency
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of these dealings, management insists that this practice is common in the industry and should not
be questioned.
QUESTION 2
YOU ARE REQUIRED TO:
MARKS
a) With reference to the background information as well as working paper A_lO0:
i) Identify conditions or events that may increase the risk of fraud or
error according to ISA 240.
(4)
ii) Describe the procedures necessary to respond to these fraud risk
factors in general for the current reporting period if the fraud risk at
overall financial statement level has been assessed as high for the
(4)
current reporting period.
b) With reference to working paper B_l00, discuss the weaknesses in the general
(12)
controls of BW (Pty) Ltd based on the information given.
c) Using the five assumptions for solving social ethical dilemmas, discuss how BW's
(10)
ethical dilemma could be addressed.
d) Discuss BW's corporate moral obligations towards its key stakeholders, in light
of the following issues identified in the scenario:
- Undue pressure to maintain profitability and high-performance bonuses for
directors (2 marks)
- Undisclosed related-party transactions involving the managing director's
(8)
family (2 marks)
- Weak oversight of IT systems and controls (2 marks)
- History of law violations and claims against BW (2 marks)
Communication skills: clarity of expression and logical argument
TOTAL MARKS QUESTION 2
Total Marks First Opportunity Examination
(2)
(40)
(100)
END OF INFORMATION AND REQUIRED
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