Auditing 1A AUA3751 Group Assignment

Student numbers Names

221185763 Petrina IN Nangombe
221066780 Sonia Mvula
221220569 Secilia NHM Haikali
221081305 Anna T Nandago
221381678 Mambo Tangi Ilukena
221306676 Josephine Pohamba
221327983 Ndinelao N Felenandu
221175326 Siphiwe MA Sankombo
221229469 Meme Shindjabuluka
202036936 Silas N Kadjuu
Question 1
1. False-The main objective of an external auditor is to provide an opinion on the annual
financial
statements and make sure they are prepared following the rules and regulations of generally
accepted accounting principles and compliances.

2. False - If the auditor had the duty of heading the audit committee of a client, it would
compromise independence.
3. False - It is important that the auditor is perceived as independent both in fact and appearances.
4. True
5. False - Auditing does not guarantee that financial statements are 100% correct.
6. True
7. True
8. True
9. False - Directors cannot overrule a requirement for an external audit if its mandated in the
memorandum of incorporation.
10. True
11. False - Reasons for auditing are beyond fraud suspicion, auditing can be important for various
reasons.
12. True
Question 2
Part A
a) Auditing expectation gap is the difference between what the general public expects from
auditing and what a financial audit actually involve. It has a negative impact between the
public and Auditing professionals.

One implications can create credibility problems the stakeholders and publics lose trust
on the auditor since he/ she doesn’t attend them on time or the expected results from
auditors is completely different.

Secondly erode the reputation on audit work sometimes can destroy the relationship
between the public and auditors since the auditor has different result and publics have
doubt on the results can cause them not to have hopes in auditor and keep the financial
statement not audited.

Lastly stakeholders increase the liability risks and the amount the criticism against
auditors.

b) * All stakeholders connected to the audit profession should work closely to improve
standard with clear intention to enhance quality audit reports free from fraud.

*Educating the stakeholders about the roles and responsibilities of auditors, the nature of
audit evidence, and the standards governing auditing practices.

*Improving standards and regulations, regularly reviewing and enhancing the audit
standards and regulations to align with evolving business practices and stakeholders.

Part B
a) Chartered Accountant in public practice is an accountant that works in a firm where
they provide services to external clients such as auditing, taxation, and consulting
services, while a Chartered Accountant in business is an accountant that works in
organizations that are in the private or public, as employees and not as external
consultants.

Chartered Accountants in public practice may work with various clients across
different industries and are often involved in ensuring financial compliance,
providing assurance on financial statements, and offering strategic advice to clients.
 Chartered Accountants in business are involved in internal financial management
within the organization, such as budgeting, internal auditing and financial reporting.

b) According to Auditing Profession Act claims that a person who doesn’t registered
should not perform an audit work as per Independent Regulatory Board for Auditor
under Section 41(2). For instance, in this case Josephine need to register to perform
an audit work and Annah has already registered since she is working as CA (SA) at
the local municipality.

c) 1. Educational Qualifications: Obtain a relevant academic qualification recognized

by the IRBA, such as a Bachelor of Commerce (Accounting) degree or equivalent
qualification from a recognized institution.

2. Completion of Training: Complete a period of practical training, typically known

as articles of clerkship, under the supervision of a registered training office (RTO) or
a registered auditor.

3. Passing the Initial Test of Competence (ITC): Pass the Initial Test of
Competence (ITC) examination, which assesses candidates on their understanding of
the technical knowledge and skills required for entry-level positions in the accounting
profession.

4. Completion of the Assessment of Professional Competence (APC): After

completing the practical training period and passing the ITC, candidates must
complete the Assessment of Professional Competence (APC) examination. The APC
tests candidates' ability to apply technical knowledge and professional skills in real-
world scenarios.

5. Relevant Work Experience: Gain relevant work experience in auditing,

accounting, or related fields, as required by the IRBA.

6. Character and Fitness: Demonstrate good character, integrity, and fitness to

practice as an auditor, which may involve providing character references and
undergoing background checks.

7. Continuing Professional Development (CPD): Commit to ongoing professional

development by participating in CPD activities to maintain and enhance professional
competence throughout their career.

8. Registration as a Professional Accountant (SA): After completing the above

requirements and being admitted as a member of the South African Institute of
Chartered Accountants (SAICA), candidates can apply for registration as a
Professional Accountant (SA) with the IRBA.
 d) In this case Annah is not only restricted by SAICA to be a member but she can use
various accounting bodies such as ACCA and others. Again if she wants to offer
auditing lectures to audit trainees should consider Auditing Profession Act which
registered with Independent Regulatory Board for Auditor.

Part c
a) Credibility and Trust: Having ratings audited by an independent third party adds
credibility and trust to the reported audience metrics. When a reputable auditing firm
verifies the accuracy of ratings, it reassures advertisers, investors, and other stakeholders
that the reported viewership numbers are reliable and not subject to manipulation.

Ad Revenue: Advertisers make decisions about where to allocate their advertising

budgets based on viewership data. Accurate and audited ratings provide advertisers with
confidence that they are getting what they pay for in terms of audience reach. This, in
turn, helps networks maximize their ad revenue by attracting more advertisers.

Industry Standards and Comparisons: Ratings audits ensure that television networks
adhere to industry standards in measuring and reporting viewership. Standardized metrics
enable fair comparisons between different networks, channels, or programs. This
consistency is crucial for advertisers and media planners when making decisions about
where to place their ads for optimal reach and effectiveness.

Compliance with Contracts: Networks often have contracts with advertisers and content
producers that specify audience metrics as a key performance indicator. Having audited
ratings ensures compliance with these contractual obligations, reducing the risk of
disputes and legal issues.

Viewer Demographics: Audits can also assess the accuracy of demographic data
associated with viewership. Advertisers, in particular, are interested not just in the
quantity of viewers but also in the quality of the audience—demographic information
helps them target their advertisements effectively.

Internal Controls: Networks may use ratings audits as a part of their internal control
processes. This helps identify and rectify any internal errors or discrepancies in the
audience measurement systems, ensuring the accuracy and reliability of their data.

Public Relations and Reputation: Accurate and audited ratings contribute to a positive
public image for television networks. Reliable viewership data enhances a network's
reputation, demonstrating transparency and accountability to the industry and the public.

b) No, the audit of ratings does not necessarily mean that the auditor is certifying that the
ratings are absolutely correct. Instead, an audit provides reasonable assurance that the
ratings have been prepared in accordance with specified criteria and are free from
material misstatement. Here are some reasons to support this understanding:

Limited Assurance: Auditors provide a level of assurance that is termed "limited

assurance." This means that while auditors perform various procedures to obtain
reasonable assurance that the ratings are free from material misstatement, they do
not guarantee absolute accuracy. Auditors use sampling and other testing methods,
which means they examine a representative portion of the data rather than every
single data point.

Dependence on Sampling and Testing: Auditors rely on sampling and testing

methodologies due to the impracticality of examining every piece of data
comprehensively. As a result, they may not catch every potential error or
misstatement, especially if it's isolated or doesn't fall within the sampled data.

Compliance with Standards: Ratings audits are typically conducted in accordance

with auditing standards and guidelines. The auditor's opinion attests to whether the
ratings have been prepared in conformity with these standards. It doesn't assert that
the ratings are absolutely correct but rather that they are presented fairly and in
accordance with the agreed-upon criteria.

Materiality Considerations: Auditors focus on material misstatements those

errors or omissions that could influence the decisions of users of the ratings.
Immaterial errors may exist without affecting the overall audit opinion, and auditors
are not expected to detect every minor deviation.

Inherent Limitations: Auditing, by its nature, has inherent limitations. External

auditors rely on the information and representations provided by the entity being
audited. If there is intentional deception or fraud, auditors may not always detect it.

Subsequent Events: Auditors issue their opinion based on the information

available at the time of the audit. If there are subsequent events or changes that
affect the ratings, the auditor's opinion may no longer be applicable
Question 3
1.1 - 2.11
1.2 - 2.4
1.3 - 2.12
1.4 - 2.8
1.5 - 2.1
1.6 - 2.5
1.7 - 2.7
1.8 - 2.3
1.9 - 2.10
1.10 - 2.9
1.11 - 2.2
1.12 - 2.6
Question 4

a) Public interest score is the measure of public interest in a specific company, determined by
considering the potential footprint of the company and its potential impact on the public. Public
interest score (PIS) primarily used to determine which financial reporting standards a company
must comply with; the categories of companies which must be audited/ reviewed.
Calculating PIS
A number of points equal to the average number of employees during the year.
1 point for every 1 million (or portion thereof) in third party liability at year end.
1 point for every 1 million (or portion thereof) in turnover during the year.
1 point for every individual who, directly or indirectly has a beneficial interest in the company’s
securities
Example (independent)
Detail Public interest
score
1. Employees at 1 January 2024 400
450
2. Employees at 31 December 2024 850/2
3. Average number of employees 425 425
4. Long and short term at liabilities at 31 December 2024 (7.7m = 8
8m)
5. Turnover for the year to 31 December 2024 (62.5m = 63 m) 63
6. Shareholder 12 12
Public interest score 508

b) FALSE, company act of 2008 and the corresponding regulations make it obligatory for
companies
to have their financial statements audited regardless of the public interest score
c) Below is summary of the type of inspection for a private company in relation to its PIS
If the public interest score is less than 100, an independent review must be carried out
regardless of whether the AFS are internally or externally compiled. The review must have
carried out
by a registered auditor or an individual who qualifies for an appointment as an accounting
officer.
If the public interest score is 100 – 349, an audit can only be carried out by a registered auditor
or a chartered accountant, if the AFS are internally compiled.
If the public interest score is 350 and above, the company should be audited
d) TRUE, any company which, in the ordinary course of its primary activities holds assets in a
fiduciary capacity for persons who are not related to the company and the aggregate value of
the assets exceed 5 million at any time during the financial year should have their annual
financial statements audited as it concerns external parties in most part.
e) A company which is not required to be audited, must have an independent review of its annual
financial statements unless it’s a private company in which every shareholder is a director
(owner/ manager).
A private company may include in its memorandum of incorporation, a clause which requires it
be audited, or it may be voluntarily audited. e.g. directors decide to have the AFS externally
audited.
Question 5
a) It refers to the declarations or representations made by an auditor or a corporation about
the correctness, completeness, and validity of its financial accounts.

b) Assertion about account balances and related disclosure at the period end example Trade
receivables.
• The debtors included in the balance existed at the end The year end that is no feature step
that has included [existence]
• The entity holds control the rights to the amount owed by debtor example the debtor has
not be infected [rights]
• All debtors have been included in the profit and loss to count which means [completeness]
• Account receivables have been recorded in a proper account [classification]
• account receivables have been appropriately aggregated or this is a grated and clearly
described and related clothes closure and relevance an understandable [presentation]

Assertions about classes of transaction and events example Sales

• Transition of sales an event which have been recorded or disclose have occurred and
pertain and retained to the entity(occurrence)
• Transactions and events have been recorded in the correct accounting. [cut off]
• Transition and event has been recorded in the proper counts [classification]
• Transactions and events have appropriately aggregated or disaggregated and clearly
described and related disclosures are even relevant an understandable in the context of the
applicable financial reporting framework (Presentation).

c) Sufficient relevant evidence refers to the type and quantity of evidence needed to support
auditors’ conclusions and views. It refers to the evidence gathered to determine the
trustworthiness and correctness of financial statements.
The amount of evidence should be appropriate for the organization’s size, transaction
complexity, and risk level.
The evidence should be relevant, credible, and applicable to the audit objectives, gathered
using proper methods.
This guarantees that financial statements are free of substantial misstatements, which
boosts confidence in the information given and allows investors to make confident
judgements when investing in a certain company.

d) It refers to the legal authority granted to auditors to collect required information and
documents during the auditing process.
 Auditors can utilize their access to request and review any relevant documentation.
Access also enables auditors to verify financial transactions and generate views about the
fairness and credibility of financial reporting.
It also helps them discover suspicious activities or fraudulent actions, as well as giving
stakeholders confidence that the financial statements are correct.
Even if auditors have been granted access, they must maintain confidentiality when using
their right of access.

e) In financial statements, management makes representations about the presence, accuracy,

completeness, rights and obligations, and presentation of transactions and account
balances. These are known as statements.
Access to pertinent data and documentation is necessary for auditors to assess these
claims.
The auditor has the right of access, so they can get these records and look through them
to confirm what management has said.
It is imperative that users receive appropriate certainty from this evidence in order to
evaluate the fairness of financial statements. Legal and moral constraints, however, limit
the auditor’s access rights.
References
Auditing Notes For South African Students (Paperback, 9th Edition); Author: R.D.C.
Jackson, W.J. Stent ; Publisher: LexisNexis

Published Year: 2015 Public interest score, https://www.rsm.global/

Team, C. (2023, December 4). Assertions in Auditing. Corporate Finance Institute.

https://corporatefinanceinstitute.com/resources/accounting/assertions-in-auditing/