Cta FT July Eos Paper 1 Solution

CTA FULL-TIME JULY INTAKE APPLIED AUDITING AND GOVERNANCE: 2023 EOS EXAM
REQUIRED
You are required to MARKS
Sub- Total
total
A. Discuss the considerations that should have been made by
NomuA before accepting the client in terms of ISQM 1 and ISA 13
220(Revised).
14
Communication skills: Logical Flow 1
NomuA should have considered the availability of an IT expert in the 1
engagement team given that Tempo has a system called Spaka which
proves to be complex given that integration was made possible after
multiple configuration and Tempo is heavily reliant on these systems.
Tempo is a property company, NomuA had to consider appointing an 1
expert given the complexities and subjectivity around the valuations
of properties.
Tempo has foreign-owned properties in Botswana and big cities in 1
Zimbabwe thus they should have considered if they have sufficient
audit personnel resources for the engagement to cover these areas.
Given that Tempo has a foreign property in Botswana NomuA should 1
have considered the availability of competent component auditors
to rely on for the audit in Botswana.
Tempo is a new client thus need to consider whether the available 1
staff to be allocated to the engagement is capable of auditinga client
in the property industry, a specialized industry..
Tempo is NomuA’s biggest client contributing 20% of the firm’s 1
annual revenue thus they should have considered having safeguards
in place to reduce self-interest threat to objectivity to an acceptable
level.
The audit fee bonus of 10% is part of the NomuA audit fee. 1
© Chartered Accountants Academy 2023

REQUIRED
NomuA should have considered whether there are safeguards they
can put in place to reduce the advocacy threat to objectivity created
as they may promote the Tempo business to stimulate the share
price on listing so they get the bonus.
Mr Nomu also has a business in property management. They should 1
have considered if safeguards are in place to reduce to an acceptable
level a self-interest threat to objectivity created as he may overlook
the misstatements in a bid to get a closer look into the operations so
that he can incorporate them into his business.
The audited financial statements are required by the 10th of 1
December 2023 they should have considered if time is sufficient
enough to gather evidence including subsequent events without
compromising quality of work.
NomuA should have also considered the availability of an 1
independent engagement quality reviewer as Mr Chikuwa is Mr
Nomu mentor.
Mr Chikuwa is a property mogul and there is no mention of any audit 1

experience
NomuA should consider appointing a well-qualified EQR with both
property industry knowledge and audit and financial reporting
knowledge
Mr Nomu assigned a first year to prepare templates for the audit 1
using ChatGPT, this may deviate from following the firm
methodology.
Mr Nomu should have considered if he had adequate time to
dedicate to the audit of Tempo as it is the responsibility of the
partner to ensure that all preparations for the audit are in place and
well reviewed

REQUIRED
NomuA should have also considered that the engagement team 1
consists of individuals with relevant skills and knowledge of the real
estate industry, which is of a specialized nature, given that it’s their
first client in the industry.
NomuA should have considered the questionable management
integrity evidenced by:
• The need to bribe the Permanent secretary so as to get the
tender 1
• Tempo was disposing sewer waste in lake Mute 1
• Bribing of the protest leaders and the Councilor by offering 1
low-cost mortgages to buy homes.
NomuA should have considered the availability of the audit partner 1
given that The A.P does not have enough time to review and
supervise the engagement team which may result in misstatements
going undetected.
Any valid point. 1
Communication and logical flow 1
Available 18
maximum 14
B. i. Discuss the audit risks at the overall financial
statement level for the 2023 audit of Tempo Limited. 17
(Clearly distinguish inherent, control and detection
risk). 25
ii. Discuss the overall response to the identified risk 7
above.
Communication skills: Layout and structure 1
Inherent Risks

REQUIRED
Tempo has a properties in Botswana and Zimbabwe thus a risk of:
• Monetary items being translated using the spot rate on
transaction date instead of closing rate given that they use
multi-currency. 1
• Non-Monetary items being translated using the spot rate on
transaction date instead of closing rate given that they use
multi-currency 1
The company decided to list on the Victoria Falls Stock Exchange 1

“VFEX” There is risk that management may fraudulently misstate
their financial statements so as to meet the listing requirements of
the VFEX.
NomuA was recently appointed to audit Tempo. Management may 1
take advantage of auditors’ unfamiliarity with company operations
and misstate opening financial statements.
Spaka system was not integrated with the accounting system and
property management records had to manually uploaded.
There is a risk that opening balances maybe misstated. 1
Tempo’s year-end for the current period was changed to September 1
from June. There is a risk that errors could have been made when
accounting for transactions and balances using 15 months instead of
the old 12-month period.
Tempo has a ZWL functional currency and USD as its presentation 1
currency. There is a risk that IAS 21 may be inappropriately applied
in translating financial statements from ZWL to USD as this is a
complex area.
There is a tight audit deadline to meet 10 December for the listing:
this creates the risk that management may not be able to address or
adjust all subsequent events as they try to meet the tight deadline. 1

REQUIRED
Risk that given thematerial changes in the year management may
make errors and omissions as they try to meet the deadline which 1
will lead to material misstatements
Control risks
There is questionable management integrity evidenced by
• The need to bribe the Permanent secretary so as to get the 1
tender.
• Tempo was disposing sewer waste in lake Mute. 1
• Bribing of the protest leaders by offering low-cost mortgages 1
to buy homes, controls may be overridden leading to
financial statements being misstated.
Tempo has multiple branches across the country and in Botswana
There is a risk that controls may not be uniform or operating
effectively across the wide network of branches leading to 1
misstatements in the financial statements
The property management system is outsourced from Lion-Corp
The risk that it may fail to integrate with the accounting system
leading to misstatements being made on account balances.
The risk is that the system may be susceptible to hacking leading to 1
loss of data and the inability to correct and detect errors as they
occur.
1
Detection Risk
The EQR Mr Chikuwa has questionable integrity as his REIZ 1
membership was cancelled due to unscrupulous dealings and thus
may be easily swayed to overlook the misstatements therefore going
undetected.

REQUIRED
NomuA might have to rely on component auditors for the Botswana 1
unit and they may not be competent thus failing to detect
misstatements.
Tempo is NomuA first time client there is risk that they may fail to 1
detect material misstatements due to their unfamiliarity with the
organization operations and the specialized industry in which it
operates.
Reliance may need to be placed on the work done by Team Hombe 1
on the opening balances which increases the detection risk as Team
Hombe had assumed postings to be correct so as to meet their
deadline
Any valid point. 1
Communication and layout 1
Available 22
maximum 17
ii Overall response
Emphasize to the team to maintain professional skepticism given 1
that management has questionable integrity
Assigning more experienced staff as this is a first-time audit. 1
Assigning an expert with knowledge of the Spaka accounting system 1
used.
Reviewing the work of component auditors which Nomu will rely on 1
to reduce detection risk.
Incorporating elements of unpredictability to mitigate management 1
taking advantage of our unfamiliarity.
Appointing a new EQR given Mr Chikuwa is not independent and has 1
a questionable integrity.

REQUIRED
Performing substantive procedures at year end period as 1
management can take advantage of our unfamiliarity with them.
Changing audit procedures from Test of controls to performing more 1
substantive procedures as the control environment is weak.
Increasing the sample size and lowering materiality to mitigate 1
detection risk as a result of the audit being a first time.
Performing test of controls to confirm uniformity and strength of 1
control environment at different branches
Available 10
Max 7
C. Write an email to Mr Nomu discussing the corporate governance
concerns evident from W/P Tempo 0003 for the 2023 audit of
Tempo Limited in accordance with KING IV Code of Corporate 20
Governance. For each concern identified provide a
21
recommendation to address the concern.
Communication skills: Layout and structure
1
To: MrNomu@NomuA.zw
From: trainee@NomuA.zw 1c
Date: 20 July 2023
Subject: Corporate governance concerns identified in Tempo Limited

and recommendations.
Concern Recommendation
It is a concern that Mr Karim Mr Karim should step down as the 3
is the CEO and Chairman of chairman and an independent non-
Tempo thus violating KING IV executive should be appointed. (1)
which requires the

REQUIRED
chairman to be an
independent non-executive
P7RP31 member thus
decisions made may not be
in the best interests of the
entity but of Mr Karim. (1)
The CEO should not chair

governing body P7RP34.
Power will be concentrated
on one individual leading to
personal interest being
furthered at the expense of
the company. (1)
It is a concern that Mr Mhofu Replace Mr Mhofu with an 2

chairs the Audit and risk independent non-executive member
committee thus violating the to chair the committee. (1)
KING IV which requires that
chair of the audit committee
should be an independent
non executive member
P7RP55 Mr Mhofu was once
the CFO may exert influence
so as to conceal issues that
may have been raised during
his tenure. (1)

REQUIRED
It is a concern that MrMazi is Replace Mr Mazi from the committee 2
a real estate agent and is in with an INED with financial
the audit committee thus background. (1)
contravening KING IV which
requires members of the
audit committee to have
financial background
P7RP55 thus may fail to
comprehend financial issues
as he doesn’t have an in
depth understanding. (1)
It is a concern that Mr Bhora Advise Mr Bhora to either step down 2
is a non-executive of 6 in other boards to adhere to the KING
companies, he may fail to IV recommendation (1)
execute his duties as he will
be overwhelmed. This
contravenes the KING IV
which requires members of
the governing body to attend
all meetings and devote
sufficient time and effort to
prepare for the meetings (1)
The board only has one Appoint another executive director 2
executive director (the CEO) to the board preferably the head of
yet KING IV recommends Finance. (1)
there to be a minimum of 2
directors (P7R9). This is a
concern as the non-
executive directors will only

REQUIRED
have one point of contact
with management which can
limit the understanding of
the business of non-
executives leading to
inaccurate decisions being
made. (1)
Outsourcing risk The governing body should not 2
management function to outsource the entire risk
Team Hombe yet KING IV management function.
recommends the governing They can however consult on specific
body to assume matters but the responsibility should
responsibility and set still lie with the governing body (1)
direction for the
management of risk. (P11
R1)
This is of concern as the
governing body is neglecting
its responsibilities due to the
additional workload and so
may lead to inappropriate
risk management for
Tempo.(1)
Mr Karim seemingly bribed The board should refuse for the 3
the Permanent Secretary Mr release of the title deeds to the
Magetsi with a residential permanent secretary to be done. (1)
property yet KING IV The board should do an investigation
recommends members of to confirm the legality of the
the governing body to act

REQUIRED
ethically with integrity (P1)/ transaction before any action is done
KING IV recommends (1)
members of the governing
body to comply with laws
and regulations (P13)
It is of concern as this may
lead to Tempo facing
financial penalties as it is
illegal to bribe officials. (1)
It is of concern that those Divert the low-cost mortgages 3
charged with governance amounts to rehabilitating the sewar
muted protest leaders by line (1)
offering low-cost mortgages
over pollution in lake Mute.
KING IV recommends
members of the governing
body to act ethically with
integrity (P1)/ KING IV
recommends members of
the governing body to
comply with laws and
regulations (P13)
This is of concern as Tempo
may be found liable for the
waste disposal and this can
lead to fines and penalties
from environmental
agencies.(1)

REQUIRED
There is no female Appoint female board 4
representation in the board representatives to enhance diversity
KING IV recommends the (1)
governing body to promote
diversity in gender.
This is of concern as
decision-making will be Appoint members below 50 to the
mainly male-focused and board to allow for age diversity and
hence lack diversity and younger persons to input in the
inclusivity in executing the company decision making. (1)
Tempo strategy. (1)
All members are aged above
50. Governing body should
promote diversity in age.
Interests of those below the
50 may not be taken into
account and Tempo may
lose such demand. (1)
Tempo was disposing sewer Enquire with EMA to find safer ways 3
waste in the nearby Lake to dispose off their sewer waste. (1)
Mute. The organization
should be seen as a good
corporate citizen. Tempo
may lose customers as there
may not want to associate
with a company that appear
to care about their
environment. (1)

REQUIRED
Disposing sewer waste,

governing body is not being
fair as it is not adopting a
stakeholder inclusive
approach as they have not
considered the negative
consequence to the
community of their action.
They may lose customers. (1)
Principle reference stated for revision purposes

Available 26
maximum 20
D. Describe the test of controls (TOCs) you would perform to gather
sufficient and appropriate audit evidence over the controls in W/P
Tempo 0009. 16
Communication skills: Clarity of expression 1 17
Controls Test of control

Company documentation • Obtain a sample of registered 1
submission and a resolution accounts and inspect for
to open the account certificate of incorporation
required for prospective and a directors signed
client to be registered into resolution letter to confirm
the system. that the registered submitted
the required documents.

REQUIRED
A member of the property • Obtain and inspect the email 1
managing team sends an history between property
email request to CredCheck managers and CredCheck to
an independent credit confirm that emails for
bureau in Zimbabwe for confirmation are sent.
confirmation that the • Obtain a sample of clients
potential tenant has no registered and inspect their 1
history of defaults CredCheck confirmations on
their default history to
confirm they were cleared
before being registered.
• Request for monthly reports
of persons cleared with the
CredCheck, compare with the
list of tenants signed up in
that month to confirm that
they were cleared by the
bureau. 1
Once confirmed the tenant • Obtain activated accounts 1

information is entered into and review sheet and Inspect
the system and submitted to for digital signature of the
the head of the credit head of the credit control
control department for a department to confirm
final review and account approval.
activation
If the account is rejected the • Obtain a sample of rejected 1
system sends the head of the accounts and inspect head of
credit control department credit control email history
comments. for comments to confirm the

REQUIRED
system did send the email for
each selected rejected
account.
The system generates • Obtain and inspect a sample 1
unique tenant identification of registered tenants IDs to
numbers (IDs). confirm they are unique.
• Using CAATs extract a report
of registered tenants and run
a duplication test to confirm 1
there no duplications of IDs.
• Attempt to enter a sample of
new tenants into the system
to confirm that system
generates unique tenants IDs
The unique ID is used to • Attempt to enter customer 1
generate an automated unique ID into the system to
rental invoice. confirm if an automated
rental invoice is generated.
Under a tenant's account, • Using a profile other than 1
only the combined approval property manager and credit
of the property manager and control manager attempt to
Credit Control manager can approve or adjust the
adjust the property under property under the lease in
lease in the system. the system to confirm that
adjustment will be denied.
• Request for the access
reports from IT, inspect
changes logs to confirm that
only the property manager

REQUIRED
and Credit Control manager 1
can adjust the property under
lease in the system.
The process begins with a • Obtain and inspect a sample 1

signed and numbered of prenumbered requisitions
requisition from the to confirm that there aren’t
property development any missing requisitions.
manager, indicating the • Obtain and inspect the
need for a new employee. requisitions for the managers 1
signature to confirm approval
Only candidates who tick the • Attempt to submit application 1
minimum job description without clicking on the
requirements can submit checkbox area to confirm that
their application. This is application will be rejected
done by clicking on the
checkbox area on the Tempo
portal homepage.
All applications that are • Attempt to submit a 1
received are then checked plagiarized resume to confirm
for plagiarism by an AI tool that the AI tool will pick up
that Tempo recently the plagiarized content
adopted as there had been
multiple reports of resumes
being plagiarized
A team of 3 HR personnel • Inspect a sample of selected 1
then screens resumes based candidates resumes against
on the Tempo scoring card Tempo scoring card to
confirm if they match and

REQUIRED
evidencing screening took
place.
Successful candidates are • Inspect a sample of successful 1
requested to bring a police candidates documents
clearance document submitted to confirm if a
police clearance was
submitted.
the top-ranking candidates • Obtain and inspect the list for 1
are then shortlisted and top ranking candidates to
invited for interviews confirm they are the ones
called for the interviews or
• Obtain prior lists of those that
were ranked top and were 1
supposed to be hired
thereafter, compare with the
payroll to confirm if their
names also appear on the
sheet.
Any other valid point.

Available 20
maximum 17
E. Describe the substantive audit procedures you would carry out to
gather sufficient appropriate audit evidence over the validity of the
loan to Mr Karim in W/P Tempo 0012. 6
If evidence suggests that the loan is not valid; describe the steps
that the company should take. 2 9

REQUIRED
Section 123 and 208 of the Companies and Other Business Entities
Act will be used to test the validity of the loan.
Obtain a signed and dated management representation letter 1
confirming validity of the loan to Mr Karim.
COBE Section 123
Special resolution testing:
Obtain and inspect the board meeting minutes to confirm the
following:
• Members present hold at least an aggregate of 25% of the 1
total votes of the company.
• Of the present members at least 75% voted in favor of the 1
decision.
Inspect the dates for the notice sent to shareholders to confirm:
• Not less than 21 days’ notice was given. 1
• It specified that the intention to propose the resolution as a 1
special resolution.
Solvency Test
• inspect the statement of financial position for total asset
and liability balances to confirm if asset balance exceeds
liabilities. 1
• Perform calculation of acid test ratio to confirm if it is

above 1.5:1 and company is able to pay its debt as they 1
become due.
Section 208
• Inspect Tempo article of associates to confirm if ordinary
business includes the lending of money 1
Any other valid point. 1
Available 9
Maximum 6

REQUIRED
If evidence suggests that the loan is not valid the following shall
apply as per COBE 208
If evidence suggests that the loan is not valid the following shall
apply as per COBE 208:
• The directors authorizing the loan shall be held liable as per
COBE 208 section 3 1
• The principal officers should state the registrar if a director
receives any loan which is prohibited by section 208 as per 1
COBE 208 sec 5
Any valid point. 1
Available 3
maximum 2
F. Using W/P Tempo 0012 – Company Transactions, describe the
substantive procedures you would perform to gather sufficient
appropriate audit evidence over the following:
i. Validity of motor vehicle purchased.
ii. Motor vehicle account balance. 4 15
10
Communication skills: Clarity of expression
1
i. Validity
Inspect remuneration policy to confirm if the marketing director 1
posts package contains purchase of the car Toyota Fortuner. (validity)
Inspect the company policy to confirm the following:
• If it stipulates that the purchased car would belong to Tempo 1
for the first 5 years.
• Motor vehicle will be sold to Mr Taru at the net book value 1
after 5 years.

REQUIRED
Obtain and inspect the contract between Zim CAR and Tempo to
confirm:
• Signatures of both parties on the contract is present(validity)
• The purchase consideration was agreed to be paid in 4 equal 1
quarterly settlement payments.(validity) 1
• Agreed date of delivery of the motor vehicle 1
ii. Motor vehicle account balance
Obtain a signed and dated management representation letter 1
confirming all assertions on the motor vehicles account balance.
Obtain the motor vehicles asset register and perform the following:
• Cast and cross cast to confirm arithmetic accuracy.
• Scan through for unusual items such as alphanumeric or 1
blank fields to confirm data was captured correctly.
(accuracy) 1
• Agree closing balances from the ledger, to Trial and
Statement of Financial Position to confirm there were
correctly recorded.(accuracy) 1
• Inspect the asset register to confirm if the Fortuner was
included as part of the company’s assets (completeness)
• Agree the cost price and the accumulated depreciation of the 1
motor vehicle on the PPE Note to the fixed asset register.
Obtain and inspect the contract between Zimoco and Tempo to

confirm :
• Purchase consideration was USD52 000 to confirm valuation. 1
Obtain and inspect the Invoice from Zimoco and confirm that the
motor vehicle was invoiced at USD 52 000 1

REQUIRED
- Inspect the invoice for the VAT and confirm that the motor
vehicle was recorded exclusive of the VAT in Tempo’s books 1
Physically inspect the motor vehicle to confirm existence 1

Inspect the vehicle registry book to confirm Tempo is the owner 1
(rights and obligations).
Obtain bank statements and inspects for the outflow of the 1
payments done quarterly to confirm quarterly payments wer made.
(occurrence)
Inspect the motor vehicle schedule to confirm if 8 years was used to 1
calculate depreciation.
Inspect the motor vehicle schedule to confirm asset was depreciated 1

for 6 months.
Reperform calculation of the depreciation and compare to the 1

amount used in the schedule to confirm accuracy.
Obtain and inspect disclosure notes relating to the motor vehicles to 1

confirm they were presented correctly in accordance with financial
reporting framework i.e., IAS 16.
Follow up on any material differences that might have been 1
identified to confirm that any discrepancies have been addressed by
management.
Enquire with management regarding if any assessment has been 1
done regarding the impairment of the motor vehicle to confirm it is
valued correctly
Any valid point.

REQUIRED
Available 24
maximum 15
Total Marks 100

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CTA FULL-TIME JULY INTAKE APPLIED AUDITING AND GOVERNANCE: 2023 EOS EXAM

© Chartered Accountants Academy 2023

Mr Chikuwa is a property mogul and there is no mention of any audit 1

© Chartered Accountants Academy 2023

Communication skills: Layout and structure 1

© Chartered Accountants Academy 2023

The company decided to list on the Victoria Falls Stock Exchange 1

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

Communication skills: Layout and structure

Subject: Corporate governance concerns identified in Tempo Limited

© Chartered Accountants Academy 2023

The CEO should not chair

It is a concern that Mr Mhofu Replace Mr Mhofu with an 2

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

Disposing sewer waste,

Principle reference stated for revision purposes

Communication skills: Clarity of expression 1 17

Controls Test of control

© Chartered Accountants Academy 2023

Once confirmed the tenant • Obtain activated accounts 1

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

The process begins with a • Obtain and inspect a sample 1

© Chartered Accountants Academy 2023

Any other valid point.

© Chartered Accountants Academy 2023

• Perform calculation of acid test ratio to confirm if it is

© Chartered Accountants Academy 2023

© Chartered Accountants Academy 2023

Obtain and inspect the contract between Zimoco and Tempo to

© Chartered Accountants Academy 2023

Physically inspect the motor vehicle to confirm existence 1

Inspect the motor vehicle schedule to confirm asset was depreciated 1

Reperform calculation of the depreciation and compare to the 1

Obtain and inspect disclosure notes relating to the motor vehicles to 1

© Chartered Accountants Academy 2023

Total Marks 100

© Chartered Accountants Academy 2023

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