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FACULTY: FACULTY OF ECONOMICS AND MANAGEMENT SCIENCES

SCHOOL: SCHOOL OF ACCOUNTING

SUBJECT: AUDITING 1A

SUBJECT CODE: AUA 3751

DATE: MAYIUNE 20L9

MARKS: 100

TIME AILOWED: 180 MINUTES

SUMMER SCHOOL EXAMINATIONS

EXAMINER: MRS B. DHtAMtNt

MODERATOR: MRS MACHAYA

INSTRUCTION TO STUDENTS:

L, ANSWER ALLTHEqUESTIONS
2. you MAy usE A NORMAT/FINANCIAI CATCULATOR
3. THIS EXAM CONSTSTS OF F|VE (s)QUESTTONS
4. ROUND OFF TO TWO DECIMATS (WHERE APPUCABLE)
5. THIS qUESTION PAPER CONSISTS OF FIVE PAGES (5 PAGES INCIUDING THE FRONT
COVER

UNIVERSITY OF NAMIBIA
It is obvious that registered auditors must have the knowledge and skills to perform their
function and that they should be totally honest. However, there are a number of other
attributes or fundamental principles of ethical behaviour, which all auditors should
have/comply with and these are identified in various international pronouncements as
follows; the auditor should:

i. act with integrity

ii. act objectively
iii. act with professional competence ond due cdre
iv. respect the principle of confidentidlity
v. embraceprofessionalbehaviour
The following actions taken by registered auditors are examples of non-compliance with
one or more of the principles listed above:

1' Peter Boston the registered auditor in charge of the Milkmaid (pty) Ltd audit, made
racist comments concerning the client's staff during an audit planning session.
l2l
2. Preggy Pillay the registered auditor in charge of the audit of Rosebeds (pty) Ltd,
charged the client a fee for audit procedures which he knew had not actually been
carried out. l?)

3. Fred Feathers the registered auditor in charge of the audit of lmpendle (pty) Ltd,
failed to identify the misapplication by the client of an important accounting policy.
The misapplication resulted in a material overstatement of the company's profit.
(21

4. Julius Zuma a registered auditor, arranged with some of his clients to pay the fees
which he charged for his services, in cash. Any client agreeing to do so, was not
charged VAT and was given a discount. (51

5. During the planning stage of the audit of Marketvest (pty) Ltd, a company which
invests money on behalf of its clients, Rocky Ranchod the registered auditor in
charge of the audit, was given access to the investment strategy which the company
intended to adopt. Rocky Ranchod noted the listed shares which Marketvest (pty)
Ltd intended to purchase and instructed his own stockbroker to immediately
purchase a number of these shares for Rocky Ranchod's family trust. (3)

6. As the budget for the audit of Redbands Ltd would be exceeded and because he felt
he had a competent audit team, Axel Mkize the registered auditor in charge of the
audit, decided not to spend the necessary time on reviewing the work papers of the
audit team. (3)
 Required:

a) Briefly explain each of the attributes or fundamental principles of ethical

behaviour
listed above (i.)to (v.).
17l

b) ldentify with a brief explanation, which of the fundamental principles have

not been
complied with in each of the situations described in 1. to 6. above. (lll
Note: A single action may amount to non-compliance with more than one principle.

QUESTION2 .^ ^,A^"F
L. What is the objective when planning an audit of financial statements? (U

2. There is no point in the auditor attempting to determine the nature, timing

and
extent of risk assessment procedures relating to disclosures at the planning stage.
True or false? Justify.
@l

3. Once the audit strategy and plan are formulated, they should not be changed. True
or false? Justify. el
4. What is the overallaudit strategy? (2)

5. Does the process of setting the audit strategy assist the auditor in determining the
resources necessary for the audit? Discuss. (Zl

6' The availability of audit resources should be a major factor in determining the audit
strategy and plan. True or false? Justify. l2l
7. Do preliminary engagement activities form part of planning? Explain. (1)

8. ln what way does adequate planning benefit the audit of financial statements? (3)

9. What is the audit plan and what does it include? (3)

10. should the audit strategy and plan be discussed with the audit client? (2)

11. Explain why it is necessary to set a (preliminary) planning materiality level before
conducting risk assessment procedures. el

ln terms of ISA 315 (Revised) - ldentifying and assessing the risks of material misstatement
through understanding the entity and its environment, internal control has five
components, one of which is the entity's risk assessment process. The suggestion here is
that to adequately control the business, the directors (management) should assess the risks
which the business faces, from minor risks to major risks and respond to the risks by putting
internal control procedures/policies/ activities in place. ln this manner the entire internal
controlsystem will be developed.

Required:

a) Define business risk. (2)

b) List the other four components of internal control (other than the entity's risk
assessment process). l2l

c) Briefly explain the term control environment. (3)

d) Discuss whether the external auditor is directly interested in all the business risks
which are identified by the company's risk assessment process. (3)

e) Describe briefly the elements which make up that part of a company's information
system which is relevant to a company's financial reporting system. (6)

f) State, using four key words in your answer, the objective which management aims to
achieve in an accounting (financial reporting) system by implementing application
control procedures. l2l

g) discuss each of the following in relation to internal control:

i. strong control environment
ii. sound personnel practices
iii. appropriate and comprehensive segregation of duties
iv. isolation of responsibilities
v. comprehensive access control
vi. good document design
vii. regular and frequent comparison and reconciliation. (14)

QUESTION 4 10 MARKS

There are a number of ways in which engagements carried out by professional accountants can be
classified and there is also specific terminology related thereto. e.g.

assurance engagements
non-assurance engagements
reasonable assurance
limited assurance engagements
statutory assurance engagements
You are required to:

Briefly explain each of the above engagements/terms.

QUESTION 5 10 MARKS

Appearing below is a list of different types auditor and other individuals associated with the
financial world. Also listed is a broad description of some of the activities carried out by the
individuals.

7. lndividuals
1.L. Forensic auditor
1.2. Registered auditor
1.3. lnternal auditor
L.4. lndependent accounting professional
1.5. Financial director
1.6. Government auditor
1-.7. Special purpose auditor
1.8. Management accountant.

2. Activities
1.1. takes responsibility at board level for the adoption and implementation of the
accounting policies adopted by a company
1.2. investigates and gathers evidence where there has been alleged financial
mismanagement/ fraud
1.3. analyses cost and variance reports
1.4. expresses an independent opinion on whether the financial statements of a
company are fairly presented
an opinion on whether the financial information presented by State
1.5. expresses
Owned Enterprises to the government is fairly presented in terms of the
government's reporting guideli nes
1.6. performs, on behalf of the board, an independent evaluation of whether a company
is appropriately addressing the risks faced by the company
1.7. conducts procedures to determine whether a mining company is complying with
envi ronmental regulations
1.8. independently compiles the annual financial statements of a private company

Required:

a) ldentify which of the individuals listed above will be employees of the entity for
which they are carrying out the activity. l2l

b) Match each activity to the individualmost likely to carry out the activity. (8)