~, UNIVERSITY EXAMINATIONS

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UNIVERSITEITSEKSAMENS

UNISA

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AUE202-M

October/November 2001

ALLENBY CAMPUS EAST RAND

AUDITING 202

2003 -07- 28

Duration: 2 Hours

SUITf: 244, P~IVATE BAG X60 BOKSBURG 1460

TEL: (011) 826-1544

.l.UU =ks

EXAM:INERS , F:IRST :

SECOND :

MRS LN RADESICH PROF HJ THERON

...

MISS L FERREIRA

PROF PN SWEMMER

This paper consists of seven (7) pages.

The paper consists of the following questions and main topics:

Question

Main topics

Marks

1

Multiple choice questions

/!"'n

15

2

The audit of credit purchases

20

Internal control questionnaire for credit sales

21

The audit of stock/inventory

23

5

Internal controls in respect of a share issue and audit objectives for fixed asset balances

21

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NOTE:

Although the primary purpose of the examination is to test the candidate's knowledge and application of the subject matter, the ability to organise and present such knowledge in acceptable written language will be considered by the examiner.

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AUE202-M 1011~01

QUESTION 1: (15 marks) YOU ARE REQUIRED

for each sub-section of this question to select-only ONE alternative that you consider to be appropriate and then to write down as your answer the number of the sub-section and the letter that precedes the selected alternative. Answer the sub-sections of this question in numerical sequence, for example

1.1 A 1.2 B

" .

1.1 Select the alternative which best completes the following statement:

The debtors' age analysis is most suitable and is mainly used by the auditor to: .)

A. Ascertain that cut-off is reasonable.

B. Vouch the validity of debtors.

® Determine the recoverability of debtors.

D. Determine the accuraC?y of sales in the various months.

1.2 Which one of the following audit procedures is the most appropriate procedure to verify debtors' balances at year end, in the case where certain debtors that were circularised positively did not return their confirmation letters?

A. Examine the increased provision for doubtful debts.

B.

Evaluate the internal controls with regard to the recording of payments from debtors.

Compare the details and the amounts debited to the relevant debtors' accounts, with the appropriate order forms, delivery notes and invoices in order to determine whether the debt is correctly recorded.

Tr~ce a number of postings from the individual entries in the sales journal to the relevant debtors' accounts in the debtors ledger.

D.

1.3

audit procedures is the most effective procedure to ensure that

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A. Perform analytical review procedures.

~Compare the balances of the creditors according to the creditors' list with the monthly L- / statements received from the creditors.

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AUE202-M-- 10/11 2001

C. Compare the total of the list of creditors with the total of the creditors' control account.'

D. Check the correct cut-off at year end of payments to creditors and credit purchases.

1.4 Which one of the following audit procedures is the most effective procedure to ensure that the cut-off of trade creditors is correct?

B.

Determine the number of the .Iast goods received note at the cut-off date and compare the information and date with the entry in the purchases journal.

Reconcile the balances on thecreditors monthly statements with the creditors' Iedqer at the cut-off date.

c.

C. Examine the file with the outstanding goods received notes which have not yet-been linked to an invoice at the cut-off date.

D. Compare the information on the invoice with the information on the order and goods received note.

1.5 Which one of the following controls can be implemented to ensure that wage payments are made to the proper person?

A. Employees should sign as evidence of having received their wages.

® The works foreman should be present to identify employees.

C. The person responsible for the calculation of wages should not also disburse such wages.

D. An authorised person should attend the wage payout to ensure the orderly disbursement of wages.

1.6 Select the correct alternative to complete the following sentence:

The auditor agrees the detailsofthe test counts conducted by him during the stock count to the\ final stock sheet to ensure that the items counted by him .. ,

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A. are not obsolete stock

'\. B. are included in the final stock sheets \.

C. are the property of the enterprise

D. are not slow-moving stock

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AUE202-M 10/112001

1.7 Select the correct-alternative to complete the following sentence:

During the planning of the audit of Mine (pty) Ltd, the auditor observed that the interest paid account is excessive in relation to the balance of the long term loan. This observation could lead the auditor to suspect that:

A. the long term loan is overstated.

a B. the long term 16an is understated.

~ the instalments-were increased.

A interest was not capitalised against an appropriate asset account, -

1.8 Select the most suitable person to whom unclaimed wages should'be handed to ensure thc.) there is adequate control over unclaimed wages?

A. The wages clerk who prepares the wages sheet.

B. The wages clerk who prepares the wages envelopes.

C. The factory foreman who assists with the wages payout.

~ D.

The cashier who is responsible for handling all the cash.

1.9

.-V fi~v'<\'

Which one of the following internal controls will not prevent "lapping" from taking place?

A. vfhere should be adequate separation of duties between the persons who receive cash and those who record cash transactions.

The results of the cash count should be reviewed by an independent senior official. )

08.

C. The accurate cut-off for recording cash should be checked by an independent person

fly comparing the dates of the last receipts issued with the date when they were

..

recorded.

D. The bank reconciliation should be checked by a" senior independent person who traces the reconciling items, after year end, to the bank statement.

1.10 Which one of the following entries in the financial records of an enterprise to be audited will not directly in~ue,:"ce the profit of the enterprise?

A. Write off of bad debts.

Q B. Provision for income in arrear. ~

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AUE202-M 10L1.12001

C. Purchase of fixed assets,

D. Provision for depreciation o,n fixed assets.

QUESTION 2: (20 marks)

You are busy with the audit of Persian (Pty) Ltd. You have been instructed by your audit manager

to audit the purchases/payment cycle. ~ -

YOU ARE REQUIRED:

(f .1 to describe 4 (four) audit working papers that are important when performing the

audit of credit purchases and payments to trade creditors. (6)

2.2 to describe the audit procedures which are normally used to audit the completeness of credit

purchase transactions. (14)

QUESTION 3: (21 Marks)

3.1 A debtors circularisation usually forms part of the audit procedures performed by auditors during the audit of trade debtors at year end.

f' YOU ARE REQUIRED

to briefly explain the importance of carrying out a debtors' circularisation during the audit of trade debtors. (3)

3.2

You\are part of the audit team at Flower Power (Pty) Ltd, a large tail company. The company trades in herbal remedies and sells its products mainly 0 credit <1 health shops and pharmacies. The audit manager has assigned you to evaluate the interna control measures for credit sales. You have ascertained that the company uses batch processing on a microcomputer to capture credit sales.

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AUE202-M 10/11 "2001--:-

YOU ARE REQUIRED

to list the questions that you would include in the internal control questionnaire in order to evaluate the internal control measures for each of the foliowing internal control principles of credit sales:

segregation of duties

(3)

(12) _

(3) _

custody controls

management supervision

QUESTION 4: (23 marks)

You, as a trainee accountant, are responsible for the audit of, inter alia, the stock of Outdoors (pty) Ltd, which trades in camping equipment. You plan to attend the company's physical stock count at year end.

The company does not make use of continuous stock records and the value of the stock items will be determined at a later stage.

YOU ARE REQUIRED

4.1 to mention the aspects that you will consider when planning your attendance at the stock count.

(8)

4.2 to describe the audit procedures that you will perfor~~ur attendance of the stoc~

count. ''(__~~J (15)

QUESTlbN 5:

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(21 marks)

5.1 During the course of the audit of Molly Ltd for the year ending 30 June 2001, you determined that the company issued a substantial number of shares for cash to the general public during the current financial year.

YOU ARE REQUIRED:

to describe the most important internal controls that should have been present in the company's handling of the share issue. (15) [TURN OVER]

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AUE202-M 10/11 2001

5.2 With fegard to the audit objectives in respect of fixed assets, there is a distinction between audit objectives which relate to fixed asset purchases and sales transactions and those relating to the audit of fixed asset balances that are disclosed in the balance sheet of an enterprise.

YOU ARE REQUIRED:

to describe the audit objectives an auditor wishes to achieve by auditing fixed asset balances of an ~nterprise. _ (6)

C UNlSA100l "_.

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