TITLE HET: BCOM ACCOUNTING

SUBJECT AUDITING 2A
SUBJECT CODE AUD 210
TEST/EXAM EXAM MEMO
SEMESTER 1ST
DATE WRITTEN 28 JUNE 2016

TOTAL MARKS 120

DURATION 2 HOURS
PASS MARK 50%
WEIGHTING 60%
EXAMINER NKOSINATHI MKHIZE
MODERATOR BONGIWE MSOMI/TELISA SINAYHAKH

REQUIREMENTS:

Learner Requirements: Stationery and Examination Book

Equipment Requirements: None

This paper consists of:

1. Question 1 45 marks
2. Question 2 40 marks
3. Question 3 35 marks

Please answer ALL questions.

PLEASE READ THE ASSESSMENT RULES AND REGULATIONS THAT FOLLOW

Learners are warned that contravening any of the examination rules or disobeying the
instructions of an invigilator could result in the examination being declared invalid.
Disciplinary measures will be taken which may result in the students’ expulsion from
Damelin.

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ASSESSMENT RULES AND REGULATIONS

Please ensure that you have read and fully understand the following assessment rules and
regulations prior to commencing with your assessment:

1. To be permitted access to the examination, a learner must arrive with:

- an Identity Document or other official proof of identity (for example,
- a student card, passport or driver's licence card with photo); and
- the required exam stationery.
2. No learner may enter the examination room more than 30 minutes after the
examination sitting has commenced and no candidate may leave the room less than
one hour after the examination sitting has commenced.
3. No extra time will be allowed should a student arrive late.
4. All learners must sign the Attendance Register for the examination on arrival.
5. It is the responsibility of learners to familiarize themselves with the examination rules
prior to sitting for the examination.
6. All examinations are to be written on the date and time officially stipulated by the
College.
7. It is the responsibility of learners to ensure that they are writing the correct paper and
that the question paper is complete
8. Cell phones must be switched off prior to entering the exam venue. Cell phones and
wallets may be placed under candidates' chairs rather than at the front of the room.
9. Learners may not handle cell phones or wallets during the exam.
10. No weapon of any description may be taken into the assessment room.
11. All personal belongings are to be placed at the front of the examination room. Personal
belongings brought to the examination are at the owner's risk.
12. Smoking is not permitted and learners will not be allowed to leave the examination
room in order to smoke
13. Once the examination has commenced, all conversation of any form between
candidates must cease until after candidates have left the room, after the examination.
14. Only the official College examination book, as supplied by the College, may be used.
15. Learners must ensure that their student number is written on the answer book.
16. Learners are responsible for ensuring that they follow the instructions in the
examination for submitting their answers.
17. Please read the instruction appearing on the examination paper carefully
18. The number of every question must be clearly indicated at the top of every answer.
19. No pages may be torn out of the answer book. All question papers and scrap paper
must be handed to the invigilator after the examination.
20. Learners finishing earlier are to leave the examination room as quietly as possible on
the instruction of the invigilator, and may not talk until outside the building where the
examination is being written.
21. Only under exceptional circumstances will a learner be permitted to leave the
examination room during the examination, and if the invigilator gives permission. An
invigilator must accompany the learner. Only one learner at a time may be absent from
the examination room.
22. Candidates may not act dishonestly in any respect.

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QUESTION 1 [45 Marks]

1.1 Name any four elements that assurance engagements exhibit. (4).

a) A three party relationship

b) A subject matter

c) Criteria

d) Evidence and

e) An assurance report / conclusion and reporting. Students may choose any 4

elements.

1.2 Discuss the fundamental principles of the theory of auditing that an audit will be based
on. (16)

a) Financial data can be verified

b) Conflict of interests does not necessarily exist between the auditor and the
management of the audited company.

c) The financial statements and other information presented for review are free
from conspiracies and other irregularities.

d) Internal control procedures reduce the possibility of errors and irregularities

e) The consistent application of GAAP/IFRS results in a reasonable account.

f) In the absence of clear evidence to the contrary, what was true in the past will
remain true in the future.

g) When an auditor investigates financial data in order to express an objective

opinion, he acts exclusively in his capacity as the auditor.

h) The professional status of the independent auditor implies certain professional

responsibilities.

1.3 What ethical principles characterize an auditor/ an accountant? Explain in good details
(25).

a) Integrity- This means that a CA or auditor should be straight forward and

honest in all professional and business relationships. This means the
accountant is expected to uphold the highest levels of morality, and be
consistent in all business and professional dealings. (5 marks)

b) Objectivity- The CA or auditor should not allow bias, conflict of interest or

undue influence of others to override professional or business judgements.
Therefore high levels of impartiality are expected from the CA in all his
dealings. Objectivity will also quantify quality of the judgements. (5 marks)

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 c) Professional competence and due care- In order to ensure that a
client/employer receives professional and competent service, the CA has a
duty to maintain professional knowledge and skill at the level required. This
means complying with technical and professional standards when providing
professional services. (5 marks)

d) Confidentiality- The CA should respect the confidentiality of the client

information, as this information is acquired as a result of professional and
business relationships. Therefore the CA should not disclose the information
to third parties without proper and specific authority, unless there is a legal
or professional right or duty to disclose. (5 marks)

e) Professional behavior- This requires compliance with the rules and

regulations and should avoid any conduct that discredits the accountancy
profession. This means that an accountant should be aware of the threats to
compliance, consider the significance of the threats and apply safeguards to
eliminate the threats or reduce the threats to an acceptable level. (5 marks).

QUESTION 2 [40 Marks]

2.1 Explain the minimum requirements for an individual to register as a registered auditor
and the registration of firms as registered auditors in terms of section 37 of the Auditing
Profession Act. (20)

The minimum requirements for an individual to register as a registered auditor and

the registration of firms in terms of section 37 of the Audit Profession Act (2005) are
as follows:

For Individuals

 The applicant must have completed the required training contract and passed
the prescribed examinations.√√
 The applicant must have complied with the prescribed competency
requirements.√√
 The IRBA should of the opinion that the applicant is fit and proper to be
registered as an auditor.√√
 The applicant must be a resident of the republic of SA.√√

For companies
 The company has to be registered and incorporated in terms of the Companies
Act and have a share capital.√√
 The MOI has to provide that all directors are jointly and severally liable,
together with the company for any debts incurred whilst holding office as
director.√√
 Only persons who are registered auditors maybe a shareholder in the
company. √√
 Every director must be a shareholder and every shareholder must be a
director.√√

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  If a shareholder dies, or ceases to qualify as a member, his estate or himself
may hold his shares for 6 months. During that time he or his estate will not
have voting rights and he may not act as a director or receive any financial
benefits from the company.√√
 The company may purchase shares without the reduction in the share capital
and without confirmation from the court, provided that the articles of
incorporation allows for it.√√

2.2 Discuss the requirements for the appointment of an auditor according to sections 90-93
of the companies Act of 2008 as well as the duties of the audit committee. (20)

In order to qualify for appointment as auditor the person or firm must:

b) Be a registered auditor√√√√
Not be disqualified from acting as the auditor
i) Not a director of the company√√√√
ii) Not an employee or consultant of the company who has, or was engaged for more
than one year to maintain the company’s accounting records or prepare the financial
statements. √√√√
iii) Not a director, officer or employee of the person appointed as company secretary.
√√√√

iv) Not a person who at any during the five financial years immediately preceding the
appointment was a person contemplated in (i) to (iv) above. √√
Be acceptable to the company’s audit committee as being independent (the auditor
has no direct or indirect benefit from the company, except remuneration as auditor,
and for the rendering of non-audit services as approved by the audit committee. √√

QUESTION 3 [35 Marks]

a) The King Code of Governance for South Africa (2009) provides for principles and
recommendations on ethical leadership and corporate citizenship. Discuss the
recommendations of the code on ‘’Ethical leadership and Corporate Citizenship’’

 The board should provide effective leadership based on ethical foundation.

 The board is ultimately responsible for the for the provision of strategic
direction to the company

 The strategy of the board should ensure long term sustainability of the
company, with due consideration on the impact of the strategy on the
economy, environment and other stakeholders of the company.

 The strategy and actions of the company should therefore promote an

inclusive approach to governance meaning that the company should always
act in the best interest of all stakeholders.

 The strategy should encompass the four characteristics of good corporate

governance, namely, transparency, accountability, responsibility and fairness.

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  The company should conduct its business in an ethical manner. The board
should set the values of the company and ensure the formulation thereof in a
code of conduct.

 The board should ensure that the company is and is seen to be a responsible
corporate citizen.

 Responsible corporate citizen equates to the adoption of an inclusive

approach to governance

 The company should engage with stakeholders in order to protect, enhance

and invest in their well-being, and to ensure an ethical relationship of
responsibility between the societies in which it operates.

 The company should develop corporate citizenship policies and implement

measurable programmes in this regard.

 The company should promote ethical conduct collectively

 The company should be guided by the constitution and the bill of rights.

 Being a good citizen and sustainability are inseparable, meaning that as the
company aims to achieve its long term goals it will also do that in a manner
that ensures long term sustainability.√√√√√√ (6 marks)

 The board should ensure that the company’s ethics are managed effectively.

 The board will be responsible for ensuring a sustainable corporate culture in

the company

 This can be done through compilation of an ethics, risks and opportunity

profile, development of a code of ethics, integration of ethics, performance
reporting and disclosure.

 Ensuring that ethical standards are adhered to

 The risk management strategies, must incorporate the ethical risks and
opportunity risks ensure that the

 The operations of the company are based on compliance with the code of
ethics.

 The company monitors, reports and discloses its ethical performance.

Any ten recommendations, 2 marks each.

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 b) Discuss the 4 characteristics of good corporate governance.

 Transparency

This is when third parties are able to make meaningful analysis of a company’s
actions and its economic fundamentals. Management must, make the necessary
information available accurately and timeously. It should be therefore possible to
obtain a clear and true picture of what is happening in the company from the
information supplied.√√√√√ (5 marks)

 Accountability

This basically means that individuals and groups who take action and make decisions
should be accountable for their actions. Therefore mechanisms must be put in place
in order to ensure, accountability responsibility and transparency.√√√√√ (5 marks)

 Responsibility

Responsibility pertains to the management behaviour that follows internal

mechanisms to allow for corrective action and the sanctioning of mismanagement.
When necessary, responsible management would put in place what it takes to set the
company on the right path√√√√√ (5 marks)

 Fairness

The systems that exist within the company must be balanced in taking into account
the all those who have an interest in the company and its future. The rights of various
groups have to be acknowledged and respected. Minority shareholders’ interests
must receive equal consideration to that of the majority shareholders √√√√√ (5 marks)

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