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AUD612S-AUDITING 201-1ST OPP-NOV 2024 |
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nAmI BIA unIVE RSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (CHARTERED ACCOUNTANCY)
QUALIFICATION CODE: 07 BACC LEVEL: 6
COURSE CODE: AUD612S
COURSE NAME: AUDITING 201
SESSION: NOVEMBER 2024
PAPER: THEORY AND PRACTICAL
TOTAL DURATION: 188
MINUTES
READING TIME: 25 MINUTES
WRITING TIME: 163 MINUTES
MARKS: 125
FINAL ASSESSMENT OPPORTUNITY 1 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 FIVE (5) 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 8 PAGES (Including this front page)
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QUESTION 1
Greenfield & Co.
30 MARKS
Greenfield Audit & Co. (GAC),a mid-sized audit firm based in Windhoek, Namibia, recently secured a tender to audit
Precision Delivery Services (PDS)(Pty) Ltd for the financial year ending 31 March 2024. The engagement is expected
to last five years based on an agreement between GAC and the company's Chief Financial Officer, Mr. Benson. The
engagement letter was signed on 01 April 2024, with the audit expected to be finalized by the 15th of April 2024.
Precision Delivery Services (PDS) operates in the logistics and transportation industry, specializing in providing
delivery and courier services. The company has been in business for 8 years, focusing on reliable and efficient
transportation solutions for clients, including government agencies, retailers, and individual customers. The
shareholders of PDSare interestedin both the assets and turnover of the entity, and are willing to accept the high
risk of their investment. PDSwas previously audited by a sole proprietor.
The audit fee quoted by GAC for the 2024 year-end was relatively low. However, Mr. Benson mentioned during
discussions that if the audit were "efficient and met expectations," GACwould be considered to conduct a financial
review for PDS's upcoming application for a major government transport contract in 2025. Such an engagement
could provide significant additional revenue for GACand could serve as a platform to expand GAC's consulting
services.
The risk at overall financial statement level has been assessed as low. This is as a result of strong internal controls
implemented by management as well as a strong ethical environment.
The audit trainee has provided you with the following workpaper:
Work,,paper Reference
AA2
Workpaper Description
Financial Information
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Client: Precision Delivery Services (Pty) Period end: 31 March 2024
Ltd
Prepared by: GK
Date: 10 April 2024
Reviewed by: '
Date:
Financial information
AA2
i
Sales
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Gross Profit
Net Profit
Total Assets
Liabilities
Actual unaudited
for 11 months
FY: 31 March 2024
Bydget 12 months
FY: 31 March 2024
Prior Year audited
FY: 31 March 2023
R'000
R'000
R'000
1 550 000
5 000 000
500 000
1 200 000
3 000 000
250 000
250 000
1 000 000
100 000
900 000
2 000 000
880 000
440 000
200 000
420 000
The engagement team responsible for the audit of PDSis made up of the following people:
Position
Partner
Manager
Senior clerk
Junior clerk
Junior clerk
Person
Yourself
Reinette
Neo
Sumaiya
Alet
Experience/Background
Qualified (CA)SA
20 years of experience at GAC. Extensive transport and
logistics-related experience performing audit work for six
Qualified (CA)SA
Has gained 3 years of experience as Financial Director
working at PDA before joining GAC in January 2024.
Will qualify as a CA(SA) at the end of 2025
3 years of experience at GAC. Performs audit work for five
other transport clients.
2 years of experience at GAC. Performs audit work for five
other transport clients.
1 year of experience at GAC and performs audit work for
four other transport clients.
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Taxation specialist
Ruan
Ruan is a manager in GAC'stax department. Ruan has agreed
that GAC will provide tax services to PDSfor the year ended
31 March 2024.
QUESTION 2
20 MARKS
Pharmapen Limited
You are one of the engagement partners of RECAuditors Incorporated (hereafter REC). RECis a large independent
South African firm of auditors, that is not affiliated to any other auditing firms. REChas offices in all of the major
cities in South Africa. REChas been appointed as the auditors of Pharmapen Limited (hereafter Pharma), during the
current year. The year-end of Pharma is 31 December 2024.
Background information about Pharma
The following information was documented by the audit team during an initial visit to the client:
Pharma is the largest pharmaceutical company in Africa and has a proud heritage dating back more than 16 years. It
is committed to sustaining life and promoting healthcare through increasing access to its high quality, effective,
affordable medicines and products. Pharma is listed on the Johannesburg Stock Exchange (JSE)and therefore should
comply with the listing requirement stating that audited financial statements should be submitted within six weeks
after year-end. The founder and current CEO,Mr Thomas, is still the major shareholder in the company.
Pharma provides a diverse basket of branded, generic consumer health and infant nutritional products, which are
supplied to private pharmacies, retail pharmacy chains, hospitals, dispensing general practitioners, managed
healthcare funders and retail stores across the private and public sectors in South Africa.
Pharma's product ranges cover several therapeutic categories. These include anaesthetics, analgesics, antiretroviral,
cardiovascular system, infant nutritional products, oncology, oral hygiene and more. Pharma has two pharmaceutical
manufacturing plant, and five distribution centres in South Africa.
During the current year, Pharma acquired the majority shareholding in Newpack (Pty) Ltd (hereafter Newpack). All
the packing used by Pharma, are purchased from Newpack. The acquisition put severe pressure on Pharma's cash
resources.
Pharma's manufacturing plant in Port Elizabeth is presently undergoing an upgrade. The capital investment is being
incurred in order to increase production capabilities and to provide on-going compliance with Pharmaceutical
Inspection Convention Standards. Inspections by the Medical Control Council (MCC) and other international
regulatory authorities including the US FDA, are scheduled to take place within the next year.
Pharma converted their current tailor-made accounting system to a SAP IT package during June 2024, in order to
provide management with more comprehensive information. The new accounting system enables Pharma to
implement a new remuneration policy for management that are based on profits of the company.
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QUESTION 3
15 MARKS
Lewis Ltd
You are currently providing advisory services to Lewis Ltd, a company that sells an extensive range of home products.
Your core focus in providing advice is on corporate governance in terms of King IV, for the financial year ended 31
August 2024.
Below is information pertaining to Lewis Ltd, which you are required to work through and provide advice on.
(From left to right)
1) Board Structure:
• Mr Oliver Smith - Chief Executive Officer (CEO),BCom Financial Management.
• Mr John Peterson - Independent Non-Executive Director (Mr Peterson was
previously an Executive Director at Lewis Ltd, he left Lewis Ltd in 2022 and is now
acting in an independent capacity). Mr Peterson holds a qualification in
Environmental Science.
• Mr Nicholas Williams - Chairman (Mr Williams also provides tax advice to the
governing body at an additional fee). Mr Williams is a CA (SA).
• Mr Tom Green - Executive Director and Chief Financial Officer (CFO). Mr Green
holds a qualification in architecture and design.
• Mr Fabio David - Independent Non-Executive Director for the past 17 years. Mr
David holds a degree in BSC(IT).
Lewis Ltd has the following 2 committees:
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2) Committees
2.1) Nomination Committee
Members:
• Oliver Smith (Chairperson);
• Nicholas Williams; and
• Fabio David.
2.2} Audit Committee
Members:
• Tom Green (Chairperson);
• John Peterson; and
• Oliver Smith.
Extract of a newspaper article
Recently Lewis Ltd closed down 15 of its stores mainly due to poor performance. Mr Oliver Smith,
CEOof Lewis Ltd, responded as follows, "closing down these stores were inevitable and for now we
have no plans to look into this matter, and business will continue as usual". It has been further
speculated that Lewis Ltd has been practicing unfair labour practices resulting in large lawsuits.
Performance evaluation
In the current year, the CEO performed all the performance evaluations of all the Directors of the
Board. Based on the results of these evaluations, Directors will be remunerated in terms of the
remuneration policy approved by the shareholders. The CEOdetermined that the remuneration of
Executive Directors is in accordance with the Remuneration Policy presented to the shareholders'
vote at the Annual General Meeting.
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QUESTION 4
40 MARKS
You are on the audit team of Tutor-Time (Pty) Ltd (hereinafter "Tutor-Time"). Tutor-Time is a company which was
established by Minnie Minders, a lecturer who used to be employed at a Namibian University. Minnie quit her job in
2022 and started the company which matches tutors and students throughout Namibia.
Minnie is the main shareholder of Tutor-Time, and the company has gone from strength to strength during the past
two years. The Board of Directors consisted of a small group of five highly qualified individuals when the company
started. Dodo Doring, the previous chairman of the IT steering committee, served on the Board for a period of six
months during 2022. At the end of 2022, he left Namibia as he received a lucrative job offer in Australia. Since then,
the shareholders have not been able to fill the Board vacancy. According to Minnie there is simply nobody in Namibia
with the same IT knowledge as Dodo and since the systems are already installed and operational, the Board can run
without an IT expert for now.
Minnie informed you that since Dodo left, Tutor-Time relies heavily on the next level of IT staff, which is represented
by the IT manager, Bennie Boon. Bennie had more than ten years' experience in software management at well
established companies before he was appointed at Tutor-Time.
Minnie is confident that the tutor programme was well designed and is the first of its kind to be implemented in
Namibia.
The tutor programme interfaces with the online banking platforms of all major banks in Namibia and with the
accounting system of Tutor-Time. The programme is automated, but the application process is still done manually
and is completed in the following manner:
Students and tutors complete their details on a manual form which is e-mailed to the offices of Tutor-Time. This form
includes the name, identification number, address and banking details of each individual. All applicants must be older
than 18 years upon registration to make use of the services offered by the Tutor-Time platform. In addition, all
applicants must reside in Namibia. The company intends to design an online application form to ensure a seamless
application process and also to reduce input errors.
You made an appointment to meet Bennie at 11:00 am on the second day of the audit. Upon waiting for thirty minutes
in front of Bennie's office, his secretary informed you that Bennie often arrives late at the office but the Finance
Director, Clara Clan, seems to be turning a blind eye to this behaviour. Clara has complained on several occasions that
she does not know why Bennie should report to her as she does not understand IT related matters.
The secretary then referred you to Peter Parker, an assistant in the IT department. You followed Peter to the IT
department and noted that the door to the server room was removed. Peter informed you that he only finished his
first year of programming at the University of Namibia. He enjoys the working environment at Tutor-Time but admits
that his skills may be a little rusty as he has never attended a course on IT related matters since he joined the company
two years ago.
According to him, the Tutor-Time system application was running smoothly, and any system changes are approved by
his manager, Bennie Boon. Peter also told you that the company aims to strengthen the current system by developing
another system known as Tutor-Time Too. During his studies at university, he could vaguely recall that new systems
should be developed according to certain rules, but Bennie Boon laughed at this idea saying that there is no time for
things like that.
Just then Nancy Noon, the accountant, walked in and requested Peter to inspect the interface between the accounting
system and the Tutor-Time application. According to her, it appears that some sales transactions on the debtors'
accounts which takes place on the Tutor-Time application does not reflect in the accounting system. Nancy only
stumbled on this information as her cousin (who is also a customer of Tutor-Time) boasted that she pays half price for
tutoring as not all the tutoring sessions are invoiced by the accounting department.
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You enquired from Nancy whether the Finance Director is available as you required financial reports from her. She
responded that she would extract the reports for you as any member of the finance departments personnel has access
to all modules on the accounting system. Nancy further cautioned Peter to ensure that all taps of the bathroom are
closed. The bathroom is located directly next to the server room and Peter recounted when water from a flooded
bathroom ran into the server room on a Saturday evening a few months ago. He did not know what to do as he could
not reach any staff member via telephone. Eventually an official from the municipality helped him to turn off the main
water inflow to the building.
QUESTIONS
20 MARKS
ExactAuditors is a global audit firm with offices in most of the major cities globally. You are a partner of Exactauditors
which has been appointed as the external auditors of Meats-and-More Ltd (hereafter referred to as Meats-and-More)
on 2 January for the 2025 audit. Exact auditors are involved in the audits of various sectors in Namibia with its largest
focus on mining companies and parastatals. It does not have any exposure to food manufacturing within Namibia.
Meats-and-More is a company which is listed on the Namibian Stock exchange (NSX) and has been in existence for
more than thirty years. The company produces processed meats and has six manufacturing plants throughout
Namibia. In addition to the manufacturing plants, it has four more additional distribution centres in the country.
The CEOof the company, Pepe Pepperoni, is a close friend of yours and your families often goes on holiday together.
Pepe has also convinced you to increase your shareholding in Meats-and-More Ltd from 3 - 5 %. After reviewing the
interim financial statements (which indicated an excellent net profit to date) of the current financial year, you decided
to take his advice. The company's profits showed significant increases for during the past few years, and it boasted
significant investments in large asset funds in Namibia.
The company's year-end is 31 December and according to the NSX'srequirements, the financial statements are to be
submitted within two months after year-end.
During 2024, Meats-and-More has been in several media reports. Allegations were made against the company
claiming that its signature polony "Delish Polony" caused a deadly bacterial disease in consumers. This disease
especially affected people with poor immune systems, like the elderly and can arise due to poor hygienic conditions.
A local laboratory analysed samples of "Delish Polony'' and confirmed that there were indeed strains of the bacteria
in the polony.
In your discussion with Pepe about the disease, he simply dismissed it saying: "Our legal team will simply deny the
allegations until those customers give up the fight. We can't close our biggest factory for an inspection and lose a lot
of money because of greedy people who just want money from Meats-and-More."
Pepe also informed you that he sent the previous auditors packing because they suddenly started to ask a lot of
questions pertaining to the articles in the media.
END OF INFORMATION
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nAm I BIA un IVERSITY
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: NOVEMBER 2024
PAPER: THEORY AND PRACTICAL
TOTAL DURATION: 188
MINUTES
READING TIME: 25 MINUTES
WRITING TIME: 163 MINUTES
MARKS: 125
FINAL ASSESSMENT OPPORTUNITY 1 2024 - REQUIRED
EXAMINER
INTERNAL
MODERATOR:
MSG. KAFULA
MS Z. STELLMACHER
M. E. CLOETE
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QUESTION 1
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TO BE ANSWERED ON A SEPARATE PAGE
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YOU ARE REQUIRED TO:
,,
MARKS
(a) Discuss any threats to the fundamental principles in terms of the Code of
Professional Conduct that you, as the partner in charge of the audit, should
have considered before accepting the appointment as auditor of PDS for the
year ended 31 March 2024.
(20)
Provide your answer in the following tabular format:
Threat
Fundamental
Principle
Reason why
there is a threat
Please note that the threat and the fundamental principle will only be
awarded a mark when they are aligned to the reason for the threat.
Based on the assessment of risk at the overall financial statement level,
(b)
calculate planning materiality for the year under review. Fully discuss the
(10)
reasoning and assumptions used in your calculation.
TOTAL MARKS: QUESTION 1
(30)
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QUESTION 2
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TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
Identify and discuss the risks of material misstatement at the overall financial
statement level for Pharma for the year ended
(a)
31 December 2024.
Your answer should be presented in the following format:
I Risk indicator
I Implication of risk
I
I (1 marks)
I (1 mark)
I
(b)
Briefly explain the difference between business risk and audit risk.
MARKS
(14)
(2)
(c)
Describe the auditor's response towards significant risks.
(2)
Overall presentation and effective communication
(2)
TOTAL MARKS: QUESTION 2 (20)
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QUESTION 3
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TO BE ANSWERED ON A SEPARATE PAGE
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YOU ARE REQUIRED TO:
Identify the corporate governance concerns for Lewis Limited, and for each
(a)
concern, provide the recommended practices from the King IV Report on
Corporate Governance Please use the following format:
Corporate Governance
Concerns
..
Recommended King IV Practices
-
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MARKS
(14)
Overall presentation and effective communication
( 1)
TOTAL MARKS: QUESTION 3 (15)
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QUESTION 4
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TO BE ANSWERED ON A SEPARATE PAGE
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YOU ARE REQUIRED TO:
(a)
Define the term entity level control.
MARKS
(2)
(b)
Identify any weaknesses in entity-level controls which are evident in the (12)
information and provide possible measures which Tutor-Time (Pty) Ltd can
implement to address these weaknesses. Provide your answer in the following
format:
Weaknesses in internal control
Recommendations to improve
(c)
Identify any other weaknesses in general IT controls (except for entity level (12)
controls) from the information. Your answer should also include the category of
general controls affected.
(d) Write a memorandum to the Chief Executive Officer of Tutor-Time where you (14)
outline possible IT appiication controls for input of data which can be used in an
online application form.
Note: Each control should indicate the type of input application control (e.g.
character check) and the actual control which you will implement.
TOT AL MARKS: QUESTION 4 (40)
QUESTION 5
TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
MARKS
(a)
Discuss the matters which Exact Auditors should have considered before (20)
accepting the appointment as auditors of Meats-and-More.
TOT AL MARKS: QUESTION 5
TOTAL MARKS FINAL ASSESSMENT OPPORTUNITY 1:
(20)
(125)
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