TITLE HET: BCOM ACCOUNTING

SUBJECT AUDITING
SUBJECT CODE AUD210
TEST/EXAM SICK TEST MEMO
SEMESTER 1ST
DATE WRITTEN APRIL 2016

TOTAL MARKS 120

DURATION 2 HOURS
PASS MARK 50%
WEIGHTING 20%
EXAMINER NKOSINATHI MKHIZE
MODERATOR

REQUIREMENTS:

Learner Requirements: Stationery and Examination Book

Equipment Requirements: None

This paper consists of:

1. Section A 20 marks
2. Section B 30 marks
3. Section C 70 marks

Please answer ALL questions.

PLEASE READ THE ASSESSMENT RULES AND REGULATIONS THAT FOLLOW

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

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ASSESSMENT RULES AND REGULATIONS

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

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

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

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SECTION A [20]

QUESTION 1

1.1. Explain the minimum requirements for an individual to register as a registered auditor
and the registration of firms as registered auditors in terms of section 37 of the
Auditing Profession Act1.

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

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

For Individuals

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

For companies
 The company has to be registered and incorporated in terms of the Companies
Act and have a share capital.√√
 The MOI has to provide that all directors are jointly and severally liable,
together with the company for any debts incurred whilst holding office as
director.√√
 Only persons who are registered auditors maybe a shareholder in the
company. √√
 Every director must be a shareholder and every shareholder must be a
director.√√
 If a shareholder dies, or ceases to qualify as a member, his estate or himself
may hold his shares for 6 months. During that time he or his estate will not
have voting rights and he may not act as a director or receive any financial
benefits from the company.√√
 The company may purchase shares without the reduction in the share capital
and without confirmation from the court, provided that the articles of
incorporation allows for it.√√

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SECTION B

QUESTION 2 INTRODUCTION TO AUDITING (30)

2.1. Define the objective of an audit of financial statement. (4)

To enable the auditor to express an opinion on whether the financial statements are prepared, in
all material respects, in accordance with an applicable financial reporting framework

2.2. Briefly discuss the different types of auditors. (10)

Solution

 External auditor- Is an independent person from outside who is required to express

their objective opinion on the financial statements of an entity.

 Internal Auditor- Someone independent, which monitors, examines and evaluate the
effectiveness, efficiency and adequacy of accounting and internal controls and
operations.

 Forensic Auditor- concentrates on the investigation and gathering of evidence where

there has been alleged financial mismanagement, theft or fraud.

 Government Auditor- They are employed by government to audit government

departments.

 Special purpose auditors- Used to audit entities due to their expertise in the field.

2.3. Discuss the fundamental principles of the theory of auditing. (16)

 Financial data can be verified.

 Conflicts of interests do not necessarily exist between the auditor and management
of the audited company.
 The financial statements and other information presented for review are free from
conspiracies and other irregularities.
 Internal control procedures reduce the possibility of errors and irregularities.
 The consistent application of International Financial Reporting Standards results in
fair presentation.
 In the absence of clear evidence to the contrary, what was true in the past will remain
true in the future.
 When an auditor investigates financial data in order to express an objective opinion,
he acts exclusively in his capacity as the auditor.
 The professional status of the independent auditor implies certain professional
responsibilities.

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QUESTION 3 AUDITORS REGULATORY ENVIRONMENT

3.1. Audit profession Act (APA) is an act that all persons that are registered with the Independent
Regulatory Board for Auditors (IRBA) have to comply with. Discuss the main functions of APA. (10)

1. Regulates registration of individual auditors and firms

The Act requires that persons wishing to be registered auditors must submit their request on
the prescribed form to (IRBA).
Applicants must have completed the training and prescribed exams, have compiled the
prescribed competencies, be a South African citizen and IRBA must have an opinion that the
applicant is fit and proper to be registered. √√√√

2. Prohibits practicing in public unregistered

A person is only allowed to be an auditor in public practice if she/he has paid a prescribed
fee. √√

3. Report irregularities
Should an auditor find an irregularity in an entity, s/he should report such irregularity to the IRBA
and the management of the entity. The auditor must discuss the matter with the management and
give the report back to IRBA. IRBA has the responsibility of communicating such information to the
relevant regulatory bodies. √√√√

SECTION C

QUESTION 4 ETHICAL ENVIRONMENT (30)

4.1. Discuss the threats to compliance with the fundamental principles. (15)

 Self-interest threat – the threat that a financial or other interest will inappropriately
influence the professional accountant’s judgment or behaviour.

 Self-review threat – the threat that a professional accountant will not appropriately
evaluate the results of a previous judgment made or service performed by the
professional accountant, or by another individual within the professional accountant’s
firm or employing organisation, on which the accountant will rely when forming a
judgment as part of providing a current service.

 Advocacy threat – the threat that a professional accountant will promote a client’s or
employer’s position to the point that the professional accountant’s objectivity is
compromised.

 Familiarity threat ─ the threat that due to a long or close relationship with a client or
employer, a professional accountant will be too sympathetic to their interests or too
accepting of their work.

 Intimidation threat – the threat that a professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to
exercise undue influence over the professional accountant.
3 marks per threat.**

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 4.2. Discuss the fundamentals underlying Ethics of Charted Accountant. (15)

 Integrity
Chartered accountants must be honest and straight forward in all professional and business
relationship.

 Objectivity
Charted Accountants should not be biased, must avoid conflict of interest and undue
influence from others.

 Professional competence and due care

They must also be experts and continue learning so that they can perform their work
properly.

 Confidentiality
Financial information is very confidential for most businesses; therefore CAs should protect
its confidentiality at all times.

 Professional behaviour
Charted Accountants should follow all the rules and regulations to enhance the image of the
accountancy profession.
*3 marks per fundamental*

QUESTION 5 CORPORATE GOVERNANCE (20)

5.1. Discuss the characteristics of good corporate governance.

 Transparency √√
Outsiders should be able to make meaningful analysis of company’s actions. This
means that the company should make available, in time, information that is accurate
for decision making. √√√

 Accountability√√
Individuals or groups of people in companies who make decisions should be held
accountable for what they do. There should be a way to make all people in decision
making position to do the right thing, and if not, pay the price.√√√

 Responsibility√√
Good corporate governance should allow for corrective actions to be taken case of
wrong doing. √√√

 Fairness √√
The companies systems should take into account all the people and stakeholder’s
interest and its future. Minor stakeholders interest in the company should be protect
the same way as major stakeholders.√√√

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QUESTION 6 AUDIT PROCESS (20)

6.1. Discuss the steps in the audit process

 Engagement activity
Before accepting the engagement, we need to check how independence, resources,
business and management risk will be affected

 Planning activities

The auditor will need to

I. obtain an understanding of an organisation;
II. look at the clients accounting systems and internal controls;
III. set materiality and assess risk of materiality;
IV. formulate the audit approach;
V. organise and manage the audit.

 Obtaining of audit evidence

Any evidence that will be used to support our reporting is needed.

 Evaluating, concluding and reporting

I. Review the audit papers and evidence

II. Evaluate the audit differences and
III. Formulate an opinion.

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