FAsse T ADA D nes n. BACKGROUND INFORMATION (Required parts 1 and 2) BZN Auditors has been re-appointed as the external autor of Bacchus Wines Limited (Bacchus ‘Wines). You are the audit senior in charge of the 2017 aualt. The company has a 31 March year-end, Bacchus Wines farms only with one grape cultivar, namely Pinotage. The grapes are grawn under environmentally controlled conditions {in greenhouses) on the farm, Pure Pleasure. Bacchus Wines farms, produces, bottles, markets and sells its own internationally renowned wine, Purely Pinotage. ‘The wine production process entails the handpicking of grapes, pressing the grapes, fermenting the pressed grapes, filtering the fermented wine, aging the wine in oak barrels and then bottling the wine, Bacchus Wines is also the holding company of numerous large subsidiaries, Management have supplied you with a lst of related parties Mr Winey was appointed by Bacchus Wines directly after he received his marketing degree and was, since then, only employed by Bacchus Wines in the Finance Department. During the 2017 financial ‘year, Bacchus Wines established an Internal Audit Function and management reassigned Mr Winey from the Finance Division to the Internal Audit Function. He isthe head of the Internal Audit Function and also the only staff member in this function, Since Mr Winey studied marketing, he s not a member of an auditing/eccounting professional body. Mr Winey noted that he is confident that the audit work performed at Bacchus Wines' subsidiaries is consistent with best practice and in accordance with the requirements of the International Standards en Auditing, Bacchus Wines provided you with a written representation letter referring to the adequacy of the internal auditor's ‘workand informed you that there is no need to evaluate his work. JAGE WORKERS OF BACCHUS WINES (Required part 3) are paid by Means of electronic funds transfers (EFTS). Bacchus Wines uses a reputable automated payroll system YyloneyToWorkers-Solutions, When new wage workers are appointed, they are requested to sign contract, setting out thelr conditions of employment, as well as their hourly wage rate. Newly pointed wage workers are also required to complete a form that contains thé full names, banking details and tax numbers. When a wage worker resigns, the resignation letter is ‘added to his/her personnaK file. All the aforementioned information is maintained in a personnel file Jn the human resources department. ‘As soon as @ new wage worker i U generated for the wage worker. The xded onto the system, a wage worker number is automatically ze worker number is unique to a specific worker and will not be allocated again if the worker resigned\for each wage worker, a staff card and magnetic clock card are issued by the line manager to who he wage worker reports. The magnetic clock card is ‘swiped through a magnetic reader on entry arthext of the greenhouses every day. You are satisfied that the controls over the magnetic reader access\yystem are adequate. The clack card reader is linked to the MoneyToWorkers-Solutions system andgccurately records the name, wage worker number and hours worked for each wage worker. The eck card system maintains clock card records for each wage worker.(Wages are paid based on the hours worked (normal and overtime) during the week and are paid the following Friday Ms Olsen, the payroll clerk of Bacchus Wines, is responsible for the computerised _generation of payslips on the MoneyToWorkers-Solutions system. A computerised payslip appears ton screen for each separate wage worker. The fields on each payslip are pre-populated by the computer, by importing the personal information, amount payable and wage worker number into the paysip. Forthe wage workers, each working day consists of nine normal hours of work, paid at one times the normal hourly rate. Wage workers are allowed to work overtime If authorised by his/her line manager and may not exceed 25 hours per month. Overtime is paid at 1.5 times the normal rate. The hours recorded on the clock card system is used by the computer to calculate the normal and overtime pay for each wage worker. Pay-as-you-earn (PAYE), standard income tax on employees (SITE) and unemployment insurance fund (UIF) deductions are automatically calculated by using the latest relevant tables loaded onto ‘the MoneyToWerkers-Solutions system, Ms Olsen provisionally approves each payslip which reflects, among others, the normal and overtime hours worked, the rate for normal and overtime hours worked, ss well as the PAYE/SITE/UIF deduction. As soon as she clicks the "approved" button on the screen, this payslip gets lined up in the payroll, which is then ready for the final approval by Mr Mentz. After the final approval by Mr Mentz, the payslips ere printed The wage worker masterfile contains the following information: wage worker name + wage worker number + wage worker identity number © wage worker taxation number © wage worker bank account number + address and contact information + date of employment © date of resignation © normal hours worked each month + overtime hours worked each month + rate for normal hours worked © rate for overtime hours worked gross wages for each month + gross wages, year-to-date + PAYE/SITE/UIF amount to be paid each month * not wages for each month © net wages, year-to-date (CREDITORS RECONCILIATIONS (Required part 4) The products used by Bacchus Wines during the wine production process include wine yeast, oak barrels and empty wine bottles. These products are purchased from local suppliers. Mrs Winestone, the creditors clerk, is responsible to prepare monthly creditors reconciliations.One of the creditors reconciliations which were included in the audit sample is detalled below: Creditors reconciliation: Hyperstore (Pty) Ltd: 31 March 2017, Balance as per creditors statement at 25 March 2017 987476 Less Payment (electronic transfer) {R567 887) Less Invoice number 3467 (Note 1) {R 56003}, Less Goods retumed note 2345 (Note 2) (R234 989) Add invoicing error (Note 3) R 1548 Balance as per creditors ledger 31 March 2027 130245, Note 1 The empty wine bottles relating to this Invoice were only received by Bacchus Wines on § April 2017 {due toa fire at Hyperstore (Pty) Ltd which destroyed its delivery vans. New delivery vans were only ‘operational from 5 April. Note 2 ‘The batch of empty wine bottles relating to this invoice (invoice number 3456) was delivered on 17 March 2017, However, when it was unpacked during Apri, all ofthe bottles were damaged. Hyperstore (Pty) Ltd agreed that Bacchus Wines can return this batch of empty wine bottles and to credit Bacchus Wines. Hyperstore (Pty) Ltd is experiencing a backlog ints credit department and itis. expected that the credit note will be issued during May 2017. Note 3 Bacchus Wines was undercharged an invoice number 4590. 200 bottles were charged at RO.86 each Instead of R8.60 each, inclusive of VAT, SUBSEQUENT EVENT (Required part 5) Bacchus Wines has a 31 March financial year-end and Mr Cabernet, the chief executive officer, roquiros the audit report by 15 May 2017. Final materiality was set at Rt BC 000 by BZN Auditors (On 11 May 2017, during the finalisation of the audit, you overheard the following conversation between the winemaker and Mr Cabernet Winemaker: "1 am so sorry si! | accidently added brewer's yeast instead of wine yeast to the harvested grapes in ten of our fermentation vats today. Its not my fault, the supplier delivered the incorrect yeast!" Mr Cabernet: "How could this happen? You do realise the impact of your actlons? The wine will have a terrible flavour and could be poisonous. The cost price ofthe inventory you destroyed amounts to 3.000 000. Our insurance policy covers such losses for only an amount of Ri 000 000." ‘AUDIT REPORTING (Required part 6) ‘The machinery used during the wine production process was overstated by R2 S00 000 in the final tral balance. You have discussed the matter with management. However, they refuse to adjust the financial statements to correct the overstatement of R2 500 000.REQUIRED Dyer reference othe information contained under the heading BACKGROUND INFORMATION crib the procedures you woul have adoptedt determine the completes of he i f related parties supplied by management. 75) Communication skils- clarity of expression m formulation of procedures. (as) 2. With reference to the information contained under the heading BACKGROUND INFORMATION: (2) Discuss, with reference to the information provided, any concerns you may have during the evaluation of the Internal Audit Function for the purpose of the 2017 auait of Bacchus Wines. Confine your answer to the following areas: + Organisational status and objectivity @) = Competence @) (b) Based on the assumption that you evaluated the internal Audit Funetion and decided to make use ofits work, comment on whether the written management representation letter from Bacchus (Wines would serve as sufficient audit evidence for you to rely on the work conducted by the internal auditor without the evaluation thereof, @) 3. With reference to the information contained under the heading WAGE WORKERS OF BACCHUS wines: Formulate the substantive auait procedures you would perform in respect of the wages of Bacchus Wines. f applicable, your answer should also deal with substantive procedures using computer assisted audit techniques (CAAT). Exclude any procedures related to presentation and disclosures. (G55) Communication skils- clarity of expression in formulation of substantive audit procedures (1.5) 4. With reference to the information contained under the heading CREDITORS RECONCILIATIONS: Formulate the substantive audit procedures you would perform in respect of the creditors reconciliation of Hyperstore (Pty) Lt (ass) Communication skills structuring of the answer accarding to the components headings} of the reconciliation (as) 5. With referance te the information contained under the heading SUBSEQUENT EVENT: (a) Classify the event as either an adjusting or a non-adjusting event. You should also justify your reasoning. 8) (b) Describe how the subsequent event should be treated in the financial statements at 31 March 2017. 65, With reference to the information contained under the heading AUDIT REPORTING: Discuss the effect of the unresolved matter on the sudit report of Bacchus Wines for the year ended 31 March 2017. (185) Communication still - clarity of expression and logical flow of arguments as)