FACULTY OF COMMERCE,

MANAGEMENT & LAW

DISTANCE MODE ASSIGNMENT
LETTER

Academic Year 2023

Semester (2)
[Auditing 1B AUA3752]

A MUST, TO READ THE ENTIRE

DOCUMENT

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ACCOUNTING, ECONOMIC & MANAGEMENT

SCIENCES

ASSIGNMENT ADMINISTRATION
DISTANCE AND ONLINE COURSES – 2023
SEMESTER 2
MONTH DATES ACTIVITIES Schools

July 19 July Semester 2 Commences

August 21-25 August 2023 Compulsory Virtual Vacation School All Schools

FIRST ASSESSMENT:2nd SEMESTER MODULES

29 August Due date: 01st Assessment of 2nd Semester Modules Only School of Accounting, School of Business
30 Aug-1 Sept Grace Period for assessment submission/ completion Management, Governance & Economics
School of Law

MAKE-UP/ COMPENSATORY ASSESSMENT 1: 2nd SEMESTER MODULES

September
20 September Make-up assessment due date: 1st Assessment School of Accounting, School of Business
– Only applicable if you score 1-39% in Assignment 1. Management, Governance & Economics
Take note that a new assessment (test or assignment) is School of Law
to be submitted.

SECOND ASSESSMENT: 2nd SEMESTER MODULES

September
18 Sept Due date: 02nd Assessment of 2nd Semester Modules Only School of Accounting, School of Business
19-21 Sept Grace Period for assessment submission/ completion Management, Governance & Economics
School of Law

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MAKE-UP/ COMPENSATORY ASSESSMENT 2: 2nd SEMESTER MODULES

4 October Make-up assessment due date: 2nd Assessment School of Accounting, School of Business
October – Only applicable if you score 1-39% in Assignment 2. Management, Governance & Economics
Take note that a new assessment (test or assignment) is School of Law
to be submitted.
13 October Lectures end for First Semester
Release of CA marks
18 October Examination commences All Schools
12 January 2024 University reopens

For modules that will have online tests, all information shall be communicated well in advance. Kindly take note that some modules might
have 3 to 4 assessments. E.g.
2 assignments and 1 to 2 online tests. All necessary information will be shared timely.
Good luck!

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2023 Distance Mode Assignments

[ Auditing 1B AUA3752]
Dear Student,

Welcome to the University of Namibia. We are confident that your studies and hard work will be rewarded
with success. We kindly advise that you obtain all the relevant information and booklets available for
distance students from your Moodle platform (including the 2023 Student Information Letter, Online
Assignment Submission Guide and other documents). These documents will provide guidance on how
to approach your studies and will guide you through your study materials as well as providing useful
administrative information in submitting assignments.

1. Study materials
Your study guide is essentially your “teacher/lecturer”. However, in addition, you are required to visit the
library to consult prescribed books and recommended readings that are indicated in the study guide as well
as browse the Internet in general. You are also responsible to purchase any prescribed textbooks required
for your respective courses/modules. Furthermore, you are strongly advised to follow the guidelines in the
Online Assignment Submission Guide available on Moodle.

2. Collaborative Learning
Unam avails all your modules through Moodle, enabling you to interact with your fellow students online
through forum discussions and chats. You can use the same platform to engage with your lecturers and
tutors regarding academic support. Please take advantage of Moodle to avoid isolation and strengthen your
interaction with colleagues, ask for help, and share/receive resources to aid your learning process. See
below how to access forum discussions on Moodle:

Figure 1: Forums in courses

3. Submission of assignments
It is very important to complete and submit a clean, clear and well-argued assignment for marking. Make
sure that you have understood the questions in order to answer them correctly. It is your responsibility to
make sure that every page of the completed assignment is correctly numbered before submitting your
assignment.
As from 2017, ALL assignments are submitted through the Moodle Learning Management System.
This is an online platform where you will access all your modules and related information such as course
outlines, course notes and other learning materials that your lecturer/tutor may choose to share with you.
Moodle is accessible here: http://elearning.unam.edu.na. You should complete and submit all assignments
on or before the given due date in the assignment letter if you wish to obtain your CA marks and qualify for
examinations. UNAM always updates its assignment covers on an annual and semester basis. Please
ensure that you have used the latest assignment cover. The latest assignment cover is availed on each
course on Moodle.

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A user guide is available on how to submit your assignment in each module on the Distance Education
Common Space and you can access it on the Online Support system. Pay close attention to the following
key points listed at the beginning of the guide on:
3.1 How you would know when you have successfully submitted your assignment:
that is when the submission status shows “Submitted for grading”

Figure 2: Assignment submission status

MAKE SURE THE SYSTEM GIVES YOU A CONFIRMATION OF SUBMISSION by the

submission status shown as "Submitted for grading" when done. If that status is NOT displayed
when done, IT DOES NOT COUNT AS A SUBMISSION.

3.2 Errors to avoid when submitting your assignment (committing these errors may result
in you failing to submit your assignments and therefore potentially failing your course)

a. You are submitting on the correct Module/Course

b. You have selected and uploaded the correct Assignment document from your
computer
c. You are submitting the correct Assignment number for the respective activity (i.e.
Assignment 1, 2, etc.)

3.3 How to check the assessment feedback when your assignment has been graded.

4. Due Dates
All assignment due dates for 2023 are published on second page of this assignment letter. With the shift
from manual to online assignment submission since 2017, due dates are automated and non-negotiable.
This means that you would be required to submit your assignments ON or BEFORE the due date set on
your assignment (before 11h55 PM). After the date has passed (i.e. 12h00AM of the next day) the
assignment submission will be disabled, and you would no longer be able to submit your
assignment. Please note that assignment submissions will be open long before the due dates.

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Please note that your assignment due dates are on page 2 of this Tutorial Letter. Use this assignment due
dates to set up your calendar tool on your mobile phone or computer to set reminders for yourself and
manage your time. Another way to keep pace with due dates, is by regularly visiting your Timeline of each
of your courses on Moodle on the Course Overview. Also download the Moodle mobile app to access
Moodle on your mobile phone or tablet and have access to notifications about due dates at your fingertips
from Google Play Store for Android or Apple App Store for IOS.
5. Submission of Assignments
Due to challenges with Internet connectivity and speed, large files may take too long to upload, which is a
big risk if you wait until the last minute to submit your assignments. You are therefore strongly advised NOT
to wait until the final hours of the due dates to submit your assignments to avoid disappointments. You are
also advised to ensure that you are in an area with good Internet connectivity when submitting your
assignments. Timely submission of all assignments on or before the given due date is crucial for the timely
grading and processing of your CA marks and determining admission to exams.
Take note that assignments should never be submitted directly by email or hard copy to individual
tutors or any other staff members of the University of Namibia.
6. Academic Support
One every Moodle course there is an embedded Academic Support section with materials to assist you
with your writing process (see Figure 3 below). Go through the videos in order to enhance your writing
process and submit better quality assignments.

Figure 3: Academic Support tutorials

7. Grace Period
A grace period refers to three (3) additional days added after your assignment due date.
The purpose of this grace period is to provide each student with time to verify and or to
make amendments to assignments already submitted. These changes may include
correcting errors like submitting a file to a wrong module or on a wrong assignment;
submitting a wrong file; losing internet connectivity, etc. An example would be that a
student attempting to submit an assignment and they lose internet connection would still
be able to try again the day after at a different place or when the connection has been
restored.

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8. Conditions under which late submissions will be granted/ accepted

Medical and death are the only reasons accepted for the late submission of
assignments. Late submission of assignments will only be approved 7 days
(including public holidays and weekends) after the due date of an assignment. Valid
documentary proof must be attached as part of the assignment before any late
submission will be considered. Late submission without valid documentary proof
attached to the assignment will be returned unmarked and may not be resubmitted
for marking. Travelling and attendance of workshops, job related activities and
conferences may not be used as an excuse for the late submission of assignments.

Sick leave certificates should be submitted within 7 days from the time you happened to
be booked off. For example, if you become sick and booked off on the day you visit the
doctor, then the medical certificate should be submitted via the online ticketing system
to the respective Distance Education Officer within 7 days (including weekends and
public holidays). Any medical certificate submitted after 7 days cannot be entertained.
Any medical certificate dated during the grace period will not be considered. The
grace period is not regarded as an assignment submission due date, but rather
additional days provided to each student to submit or amend already submitted
assignment (s).

Medical certificates submitted after the end date of the sick leave cannot be entertained.

9. Plagiarism Control
It has been observed that some students copy information from the Internet and paste
into their assignments without acknowledging the sources of the information. This is
called plagiarism. A copy of the Policy on Academic Integrity has been provided to you
on every course on Moodle. Please note that plagiarism which includes copying and
pasting information from the Internet would not be tolerated, shall result in your
assignments declared null and void and graded as a “0”. All assignments submitted
through Moodle would be checked for plagiarism using plagiarism detection software.
You are therefore strongly urged to acknowledge EVERY source that you use for your
assignment by using the appropriate citations and references following the referencing
style prescribed by your lecturers (APA Referencing guides are available freely online).
Find one here: http://www.uofa.edu/docs/apa-documentation.pdf

Any assignment found with high similarity scores or with evidence of clear attempts to
cheat such as submitting an assignment that is not your own would result in a zero (0)
grade.

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10. Vacation schools
Attending vacation school is COMPULSORY and the vacation school timetable will be made
available through the UNAM Moodle, on the Distance Education Common Space.

11. My UNAM Portal and Moodle

We recommend that you regularly (at least twice a week) access your “My UNAM
Portal” (http://my.unam.edu.na) for your registration status and information, and Moodle
(https://elearning.unam.edu.na ) for your learning and assessment information.

Also visit the Distance Education Common Space on Moodle where you can find all
necessary information and user manuals related to your distance mode studies and also
engage with other students studying on distance mode. See additional information under
Section 11 below.

12. Online Support (Ticketing) System

An online support system is provided where you can report some of the issues that you may experience
regarding your studies. This system is easily accessible from the Moodle LMS system.

Figure 4: Online ticketing system

You can also make use of the Online Support (Ticketing System) for queries to be responded to by the
responsible person within 48 hours. We recommend you use this system for Help Topics or issues listed
on the system rather than email or telephone calls.
13. Online information, Tutorials and Distance Education Common Space
Information and Tutorials are provided in each course on the Moodle Learning
Management System which you should first familiarise yourself once you first access your
courses.

Figure 5: Info-Tutorials on Moodle

Indicated in Figure 4 above, the Distance Student Orientation provides video tutorials on various activities
you would perform such as submitting your assignments, converting your documents into pdf format,
changing your email address, how to check your results when assignments have been graded and so on.

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Updates and information with regard to your studies and related events would be shared in the Distance
Education Common Space which you can access from any course as shown in screenshot below. All
students studying on distance mode are linked this the space where you can collaborate or discuss general
issues.

Figure 6: Distance Education Common Space

You will also find the Student Information Letter, your Vacation School Timetable and User Guides in the
Distance Education Common Space.
14. Staff Contact Information
If you study conscientiously, your efforts will be rewarded. Should you need any assistance or clarification
on the module contents, you can reach the relevant staff members at the contact details as given below:

Tutor:
For Module/Subject content related matters, Ms Dlamini 0612063986 [email protected]
Assignments marks and CA marks queries
Student Support Coordinator: Ms. Anna-Marie Murere 0612063729 [email protected]
Ms Nelago 0612063987 [email protected]
Faculty officers: Ms T Nuuyoma 0612063609 [email protected]
Ms G Van Wyk 0612063084 [email protected]
061-2064881

Examination Officers: 061-2063715 [email protected]

Stephanie Nehoja (WHK)
For Exam marks and exam timetable, exam All exam officers at respective
related matters campuses assist students of those
campuses

eLearning Administrator: Mr Owen Lisulo 0612063381 [email protected]

Moodle related queries (technical problems), Mr Shaka Maikhudumu 0612063000 [email protected]

linking of Modules, etc.
https://elearning.unam.edu.na/sup
Please create an online ticket for any assistance port/open.php

NOTE: For additional information consult the Prospectus and UNAM General Information and Regulations
Prospectus.

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Serious offence not tolerated at all
Note well: Plagiarism
Plagiarism is “the wrongful appropriation or purloining, and publication as one’s own, of the ideas, or the expression
of the ideas of another” (OED). All published and unpublished material, whether in manuscript, printed or electronic
form, is covered under this description.
The Proctors’ Disciplinary Regulations concerning conduct in examinations (see Part 19.4. and 19.5, p. 52) state that
‘No candidate shall present for an examination as his or her own work any part of the substance of another person’s
work. In any written work (whether thesis, dissertation, essay, coursework, or written examination, or assignment)
passages quoted or closely paraphrased from another person’s work must be identified as quotations or paraphrases,
and the source of the quoted or paraphrased material must be clearly acknowledged.’ In all written work students must
be vigilant in citing the work they have referred to or quoted from (please see further Appendix D). Examples of
plagiarism and detailed advice as to how to avoid it are given on http://www.admin.ox.ac.uk/edc/goodpractice/: you
are strongly advised to consult this website.
It has been observed that some students merely download information from the Internet, copy verbatim from other
printed sources (including the Study Guide, employ other people to do their assignments for them, or plagiarise each
other’s assignments (either directly, that is, word-to-word, or through a re-arrangement of words or paragraphs in
order to deceive the tutor or marker).
These practices constitute very serious academic offences of academic dishonesty, alternatively, intellectual fraud,
which attract very serious and heavy penalties. Students must desist from such practices. Such students may score
very high marks but invariably perform very poorly in examinations. It is in the interest of such students to endeavour
to exercise their own intellectual faculties, do their own research, and personally do the set assignments.

No hardcopies are allowed, all assignment are to be uploaded through Moodle.

✓ Assignments should be submitted in PDF – only. Kindly save your assignments in PDF format
✓ Make sure that you submit one assignment as one file/document. Do not create and upload
several folders; do not zip the documents. Have 1 one document/file for 1 (ONE) entire
assignment.
✓ Assignments for modules with formulas can be handwritten, scanned in one document and
uploaded on Moodle accordingly.
✓ Make sure you submit a document that is readable and virus free.
✓ Make sure you upload the right file with the relevant assignment content.
✓ After submitting your assignment on Moodle do verify on the file you uploaded. Always try to
submit your assignment few days before the due date, this allows you to double-check all the
nitty-gritties.
NO LATE SUBMISSIONS WILL BE TOLERATED. NO LATE submission due to not adhering to the
above advises or guidance WILL BE ACCEPTED nor ENTERTAINED.

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Auditing 1B
Assignment 1

Question 1 (15 marks)

1. Explain, in terms of ISA 570 (Revised) – What Going Concern, the adoption of the
going concern basis of accounting in the preparation of the annual financial statements
means.
(2)
2. Outline the objectives of the auditor when conducting audit procedures relating to the
going concern assumption? (2)

3. Explain whether the going concern is an assertion? Justify. (2)

4. If the auditor issues an unmodified report on the annual financial statements, can a
user take this as a guarantee that the company will remain a going concern for the
foreseeable future? Justify. (2)
5. Para 10 of ISA 570 (Revised) states that "the auditor shall, when performing risk
assessment procedures as required by ISA 315 (Revised), consider whether there are
events or conditions that may cast significant doubt on the entity's ability to continue as a
going concern". Is the risk assessment stage of the audit the only stage during the audit
that the auditor needs to consider the going concern ability of the company? Justify.
(3)
6. If management (the directors) have already performed an assessment of their
company's going concern ability, discuss whether it is necessary for the auditor to perform
an assessment of going concern? Justify. (2)
7. Explain the term “mitigating factor.” (1)

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8. If the financial statements are prepared on the going concern basis and the auditor is
satisfied that this basis is inappropriate, describe the type of audit opinion the auditor
should give? (1)

Question 2 (25 marks)

Your audit firm was recently appointed as auditors of The House of Persia (Pty) Ltd
(following the unexpected resignation of the previous auditor), a medium sized company
which sells expensive carpets. The company has a public interest score of around 300
and its annual financial statements are compiled internally. The following information
pertains to the company:

1.The company was started twenty years ago and has grown into a large family business
with ten outlets situated in upmarket shopping malls in three major cities in South Africa.
Individual outlets are not particularly large, but collectively the inventory of carpets is
considerable.

2.The shares in the company are held by the Irani family, and all senior positions are held
by members of the family. Other positions, for example in the accounting department are
also held by family members. The accounting system is computerised.

3. All carpets are imported. Suppliers are mainly situated in Turkey, Iran and Morocco.
Ronnie Irani, the managing director and major shareholder of The House of Persia (Pty)
Ltd, and his oldest son are responsible for purchasing the carpets. They visit suppliers
three or four times a year.

4. A major issue in the imported carpet trade is the sale of fake carpets, and many of the
dealers in South Africa have dubious reputations. Fake carpets, which can be obtained
very cheaply, are sold to the public as genuine handknitted imported carpets. It is very
difficult for anyone who does not have the necessary expertise and

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experience to determine whether a carpet is genuine or fake. The House of Persia (Pty)
Ltd claims that it deals only in genuine carpets, but is currently in dispute with a wealthy
customer who is challenging the authenticity of a number of carpets she purchased.

5. Every carpet is unique (no two carpets are the same) in terms of colour, pattern,
material used and density of the knots, and cost can vary considerably. Whilst each carpet
is supported by some form of purchase documentation, this documentation is not always
comprehensive and is frequently in a foreign language. e.g. Turkish. Purchases are made
in various foreign currencies. Carpets do not carry any form of identification tag or
number, but each carpet can be identified by an expert, by its style, colour, pattern, region
etc. When carpets are sent to The House of Persia (Pty) Ltd's outlets a label, giving a
brief description of the carpet and its selling price is attached to the carpet. All selling
prices are set by Ronnie Irani. Because of the uniqueness of each carpet, there is no
standard mark up, and prices can vary considerably. As the carpets sell consistently and
do not deteriorate over time, only a small allowance for "obsolete stock” is made each
year.

6. There is no tight audit deadline for the upcoming financial year-end audit. However, as
the bank relies on the audited financial statements when reviewing its continued support
of the company's overdraft banking facilities, a copy must be sent to the bank once the
audit is complete.

7. Although the Irani family is concerned about political tensions in the Middle East, they
are satisfied that their supply of carpets will be unaffected.

YOU ARE REQUIRED TO:

a) Evaluate the risk that the annual financial statements, on which your firm will report,
contain material misstatement as a result of fraudulent financial reporting.
(8)

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b) Discuss your strategy for the upcoming audit of The House of Persia (Pty) Ltd.
(7)
c) Assess the risk of material misstatement of The House of Persia (Pty) Ltd's inventory
for the upcoming financial year-end audit. Structure your answer in terms of the
assertions. You are not required to consider “presentation and disclosure".
(10)
Question 3 (26 marks)

In terms of ISA 315 (Revised) - Identifying and assessing the risks of material
misstatement, the components of internal control are as follows:
(i)control environment
(ii) the entity's risk assessment process
(iii) the information system relevant to financial reporting and communication
(iv) control activities and
(v) monitoring of controls.
The statement recommends that dividing internal control into the above components
provides a useful framework for the auditor to consider the client's internal control.
At Black ’n Blue Ltd the following policies, procedures or conditions exist.
1.There is strong segregation of duties in the inventory cycle between receiving inventory,
its custody, the issue of inventory and the recording of all movement in the perpetual
inventory records.
2. The board of directors and senior management meet every six months to identify the
challenges facing the company and how successfully they are being addressed.
3. The company's organizational structure is designed in such a way as to provide the
board with a realistic chance of achieving its objectives on an ongoing basis.
4. The human resource department goes to great lengths to define the skills necessary
for each job category and to recruit suitable personnel.
5.The financial director meets frequently with the financial accountant to ensure that
information required to be disclosed by IFRS (the reporting standard used by the
company) is properly accumulated, recorded and processed.

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6. Access to the company's network is controlled by the use of comprehensive logical
controls e.g. user IDs, user profiles, passwords, and is granted on a need to know basis.

7. The recording in the general ledger of sales, purchases etc, processed by the computer
is achieved by passing journal entries. All journal entries are scrutinised and authorized
by two senior financial accounting department employees.
8. All transactions keyed into the computer via terminals are subject to a wide range of
input controls.
9. The internal audit department conducts frequent reviews of breakdowns in internal
control and how these are corrected.
10. To enter Black ‘n Blue Ltd's computer facility, warehouse and processing plant, an
individual must place his thumb on a biometric scanner.

YOU ARE REQUIRED TO:

a) Briefly describe each of the components of internal control as identified by ISA 315
(10)
b) Indicate to which component each of the policies, procedures or conditions listed in
points 1 to 10 relate. (10)
c) Explain the difference between an automated control and a manual control.
(2)

d) Suggest 4 ways in which computerization (IT) benefits a company's internal control.

(4)

Question 4 (24 marks)

During the current financial year the following matters arose at Harbour (Pty) Ltd, one of
your audit firm's clients. Both matters were uncovered by the newly established internal
audit department.

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1.It emerged that Jim Jones, the head storeman, had been for a number of years
operating the following scheme. One of his duties was to check deliveries of raw materials
for quantity against copy purchase orders prepared by the purchasing department. In
collusion with a supplier's delivery clerk he has consistently accepted short deliveries but
signed goods received notes for quantities of goods ordered. The delivery clerk
subsequently sold the goods short delivered and shared the proceeds with Jim Jones.
2. Sam Smith, the purchasing manager, and the financial director, Mr Bill Brown, had an
arrangement with a major supplier to the company whereby they would accept a
commission from the supplier in their personal capacities for placing orders with that
supplier. This has also been going on for some years.
The managing director of Harbour (Pty) Ltd immediately informed you as auditor on both
these matters.

YOU ARE REQUIRED TO:

(a) Discuss the auditor's general responsibilities with regard to the prevention and
detection of fraud. (8)
(b) With regard to EACH of the matters described, discuss whether they should be
classified as irregular acts or as illegal acts and indicate what action you would have taken
had you discovered these matters while performing the audit.
Matter 1 (6)
Matter 2 (10)

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Question 5 (10 marks)
(a)State whether the statement is true or false: (5)
Statement Option
1. Non-adjusting events are events that already existed at the TRUE/FALSE
balance sheet date, thus the auditor need not concern him-/
herself with adjusting the financial statements.
2. On placing reliance on an Expert, the auditor would only need to TRUE/FALSE
first determine the experts’ professional competence before
placing reliance on his/her work.
3. Assume the auditor assesses the risk of going concern of a TRUE/FALSE
company and has determined that there is a material
uncertainty. Management have adequately disclosed of the
matter in the Financial Statements as required by IFRS and as
such the auditor’s opinion is modified to include an emphasis of
matter paragraph.
4. If the going concern assumption is NOT appropriate we would TRUE/FALSE
issue an adverse Opinion.
5. Where the auditor cannot determine an appropriate basis of TRUE/FALSE
going concern, he/she would issue an adverse opinion.

(b) You are the audit partner in Jason & Associates. Jason & Associates have
accepted a recent engagement for a retail company called, Food Co-op. You have
obtained the Annual Financial Statements of Food Co-op and studied the opening
balances. As part of the audit plan you have decided to place reliance on the work
of the prior auditors. Explain what are the main procedures you would have to
perform to place reliance on the work of the prior auditors, i.e. in this case the
opening balances? (5)

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Assignment 2
Question 1 (10 marks)
Answer the following short questions
1. State the definition of the going concern concept. (2)
2. Why is it important to review the annual financial statements on the going concern
basis? (3)
3. Briefly state the disclosure requirements for subsequent events for which nil
adjustment is required at financial statement date, as per IAS 10 - Events after the
reporting period. (3)
4. Should a material subsequent event occur after the date of the audit report, two
potential difficulties arise. Explain. (2)

Question 2 (10 marks)

CIRCUMSTANCE MATERIAL/ OPINION

PERVASIVE
Inadequate inventory records Material and
pervasive
Completion of contract method inappropriately Material
applied
Inventory stated at cost less anticipated selling Material and
costs for a highly profitable product. pervasive
Going concern depends on negotiations to be Material
finalized after AFS are issued, disclosure has been
made.
Unable to substantiate cash transactions. Disclaimer
Failure to comply with the 4th schedule. Adverse
Goodwill shown in balance sheet no longer justified. Except for
Pending litigation not disclosed. Except for

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YOUR ARE REQUIRED TO:

State in your answer book, per circumstance whether
a. the matter is material and/or pervasive, as well as
b. what type of opinion would be issued.
Consider each circumstance separately and give reasons.

Question 3 (20 marks)

A friend of yours is presently undertaking a vacation job at your audit firm. This is his first
exposure to auditing as he has neither studied auditing at university nor worked in an
audit firm previously. On glancing through an audit file, he came across the following note,
and has asked you what it means,

"Having completed our risk assessment procedures we are confident that the risk of
material misstatement for the assertions relating to trade accounts payable is similar to
that of last year. Therefore, our audit plan will be to carry out a mix of tests of controls
and substantive testing."

YOU ARE REQUIRED TO explain to your friend the meaning of the following terms in the
context of an audit. You must link all the terms together in your explanation.
1. Risk assessment procedures (4)
2. Material misstatement (4)
3. Assertions (3)
4. Audit plan (3)
5. Substantive testing (3)
6. Tests of controls. (3)

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Question 4 (20 marks)

You are the audit manager in charge of the audit of Gourmet Limited, a leader in the
market for top quality convenience foods.
The summarised trading results and the financial position of Gourmet Limited for the
previous financial year, as well as the budget for the current financial year, which was
drawn up in support of the share issue described below and which you audited, are as
follows:

Actual: Budgeted:
Year ended Year ended
28 February 2017 29 February 2018
N$ million N$ million
Turnover 934 1 214
Profit before interest and taxation 103 134
Profit before taxation 84 67
Profit after taxation 51 110
Ordinary shareholders' funds 332 352
Total assets 447 480
You are currently planning the audit of Gourmet Limited for the year ended 29 February
2018. You became aware of the following matters at a meeting with the financial director
of Gourmet Limited held on 4 June 2017:

1.The previous managing director of Gourmet Limited resigned on 23 April 2017, after
holding that position for six months. He left the company on 30 April 2017.

2. Gourmet Limited imported all the beef which was used in its manufacturing processes
from a single supplier in Britain. Purchase contracts for a year's supply of beef were
signed with this supplier on 1 March annually. On 15 April 2017 the South African
government placed a total ban on the importation of beef from Britain. This followed on

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renewed global reports a viral infection which is fatal to humans is present in British cattle.
Fear exists that this virus may be transmitted to humans who consume the meat of
infected cattle. The local price of beef has increased by thirty percent since the importation
of beef from Britain was banned. The company had no choice but to find alternative
suppliers of beef. The company signed a purchase contract for beef with a local supplier
on 3 June 2017. All manufacturing of products which contain beef was stopped for the
period 15 April 2017 to 1 June 2006. On 15 April 2017 the company withdrew all their
unsold products which contained beef from the market.

3. Gourmet Limited issued a further 50 000 ordinary shares on 15 March 2017. The share
issue was announced on 15 February 2017 and was supported by a profit forecast for the
following financial year.

YOU ARE REQUIRED TO:

(a) Calculate the planning materiality figure which you will use for the 2017 audit of
Gourmet Limited. Take all the information provided in the question into account. Motivate
why you would use the materiality basis selected by you. (8)
(b) Indicate the factors which will influence your decision on the extent to which the results
of your planning analytical procedures may be relied upon. (3)
(c) List the audit procedures which you would perform when identifying the inherent risks
which would influence the 2018 audit. Detailed audit procedures are not required. Your
answer should merely list the matters which your audit steps would follow, e.g.
recomputation. (3)
(d) Indicate the factors which you would consider when evaluating the inherent limitations
of your client's internal control system. (3)
(e) Indicate, giving reasons, the account balances in the company's trial balance which
will need special audit attention due to the matters detailed in the question. (3)

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Question 5 (20 marks)

The following conditions or events exist at various of your firm's audit clients.
1.The company adheres to the principles of sound corporate governance. (1)
2. The company has converted itself from a complex corporate structure to a simpler
structure by unbundling itself. (1)
3. The directors' remuneration is largely dependent on the company's financial results.
(1)
4. Management decisions are strongly influenced by the managing director, a clever but
forceful autocratic man. (1)
5. The company's motto is “no question - we will be number one” and employees are
encouraged to be aggressive and competitive as progress and promotion depends upon
results. (1)
6. The financial director has little regard for the auditors, describing the annual audit as
an irritation. (1)
7. Recommendations made by the auditors to the company at the conclusion of the audit
are implemented timeously. (1)
8. The IT department of a large company is generally inexperienced and has a number
of vacancies. (1)
9. The company has two major customers, which are both experiencing a serious decline
in the demand for their products. (1)
10. The financial director is proposing changes in accounting policies which will improve
the financial position of the company in appearance, but not necessarily in fact. (2)
11. A number of complex year-end adjustments have been made. (1)
12. A large number of consultants have been engaged during the year to render advice
or services, but no tangible benefits or services seem to have accrued to the company.
(2)
13. Independent reviews of financial reconciliations e.g. cash book, creditors, inventory,
are carried out by internal audit on a surprise basis. (2)

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14. Systems development controls are sound but subsequent program changes are not
always documented, approved and tested properly. (1)
15. There are numerous transactions with related parties but authority is obtained from
the Board for such transactions. (2)
16. The company has a well-defined formal risk assessment process in place. (1)

YOU ARE REQUIRED TO indicate whether each of the above conditions or events will
increase, decrease or have no noticeable effect on the risk of fraud/theft occurring at
these companies. Provide brief reasons for your answer. Consider each one separately.
(20)
Question 6 (20 marks)
ISA 701 — Communicating Key Audit Matters in the Independent Auditor’s Report is a
Statement intended to enhance the communicative value of the audit report and provide
users with a better understanding of the audit.
Consider the following:
1. The auditor of Titles Ltd, a listed company, provided the audit committee with a
timetable for the upcoming financial year-end audit. (2)
2. In terms of the basic evidence gathered on the audit of Pulsar Ltd, a listed company,
the auditor was of the opinion that the directors’ impairment write-down for a particular
piece of machinery was understated. The matter was communicated to the audit
committee, who, after a short discussion, agreed with the auditor and requested
management to make the necessary adjustments, which they did. (2)
3. On the audit of Vyfster Ltd, a listed company, the auditor qualified the audit opinion
on the basis of material misstatement due to the incomplete disclosure of directors’
emoluments. The directors and audit committee would not make any amendments
requested by the auditor. (2)
4. On the audit of Intercom Ltd, a listed company, the audit of related parties and related
party transactions required significant audit attention due to the complexity of Intercom
Ltd’s group structure (particularly the identification of related parties). In the auditor’s
judgement, knowledge of related parties and related party disclosures were

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fundamental to a user’s understanding of the financial statements and extensive audit
resources were allocated to addressing this situation. (2)
5. At the commencement of the current year-end audit, the engagement partner of
ConText Ltd, a listed company, provided the audit committee with a statement to the
effect that there were no threats to the independence of the firm or the members of the
audit team in relation to ConText Ltd. (2)

6. On the audit of Sandrock Ltd, based on audit evidence obtained, the auditor
concluded that a material uncertainty relating to events or conditions, which cast
significant doubt on the company’s ability to continue as a going concern, existed.
However, the audit committee and management had come to the same conclusion and
adequate disclosure in the financial statements relating to the material uncertainty had
been made. The auditor was satisfied with this treatment after conducting extensive
procedures on the matter itself and its disclosure. (3)
7. During the course of the financial year under audit, Pinarello Ltd, a listed company,
commenced a major restructuring of the company (and its subsidiaries). This required
the timely and appropriate recognition of costs and provisions, which, due to their
materiality and complexity, were considered by the engagement partner to give rise to
significant risk. Both asset valuers and tax specialists were extensively used by the
audit team to address the risk which resulted in a large increase in the annual audit fee.
(3)
8. On the audit of Dominate (Pty) Ltd, the auditor was required to report a reportable
irregularity to the PAAB based on evidence that the directors had implemented a
scheme to evade significant municipal business levies by making fraudulent
declarations relating to turnover and employment numbers. The directors have ignored
the auditor’s communications with them on the matter. (2)

YOU ARE REQUIRED TO:

(a) Define the term key audit matter. (2)
(b) Discuss whether each of the matters above (1-8) should be communicated in the

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audit report as a key audit matter. Your discussion should include your reason(s) for
including or excluding each matter. (18)

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