QUESTION 1 LEVEL 1

Background to auditing [24 marks]

A.
a) Systematic process: An audit requires that the auditor follow an organised and logical
process called the audit process. (1)
b) Of obtaining evidence and information: The auditor is required to gather audit evidence
in support of the amounts and disclosures in the financial statements. (1)
c) And evaluating this evidence and information: In support of the audit opinion (1)
d) Objectively: The auditor has no significant personal interest or ties in the entity that
he/she is auditing, which allows an objective view of the work that needs to be
performed and the opinion that needs to be expressed. (1)
e) Regarding assertions about economic actions and events: The auditor needs to evaluate
the assertions management makes in the financial statements in order to ensure that the
assertions are valid. (1)
f) To determine the degree of correlation between those assertions and predefined
criteria: The auditor is required to evaluate whether the financial statements comply
with predetermined criteria, such as the International Financial Reporting Standards
(IFRS). (1)
g) And to communicate the results in writing: The auditor must communicate the results of
the audit process in writing, which is done by means of expressing an opinion in the
audit report. (1)
h) To the users of the financial statements: These could be any stakeholders who would use
the audit report (shareholders, investors, lenders etc.). (1)
Available marks [8] maximum marks [6]

B.
a) The postulates provided are:
i. the outline for the theory of auditing; and (1)
ii. the basis of the International Federation of Accountants’ Code of Professional
Conduct adopted by the South African Institute of Chartered Accountants (SAICA)
and in part by the Regulatory Board for Auditors in South Africa, and with which the
auditors need to comply (1)
b) The postulates may be summarised as follows: (1)
i. They are based on truth and fairness. (1)
iii. Financial statements and financial data are verifiable. (1)
iv. The financial statements and other information submitted for verification are free
from collusive and other irregularities. (1)
v. The consistent application of generally accepted accounting practices results in the
fair presentation of the financial position and the results of operations. (1)
vi. In the clear absence of the contrary, what has held true in the past for the enterprise
under audit will hold true in the future. (1)
c) With reference to independence:
 i. there is not necessarily a conflict of interest between the auditors and the
management of the enterprise under audit (1)
vii. the professional status of the independent auditor imposes commensurate
professional obligations (1)
viii.when examining financial data for the purpose of expressing an independent
opinion thereon, the auditor acts exclusively in the capacity of auditor. (1)
Available marks [11]; maximum marks [9]

C. a)

Difference SAICA IRBA

Who can register? Chartered accountants (1) Auditors in public practice

What are they called? Chartered accountants CA(SA) Registered auditors (RA)
(1)

Why was it established? In order to protect the interests of In order to protect the interests
its members (1) of the public

By whom is it operated/ A board elected by regional The Auditing Profession Act

regulated? committees (1)

b)
i. The Certified Institute of Management Accountants (CIMA) (1)
ii. The Association of Chartered Accountants (ACCA) (1)
iii. The South African Institute of Professional Accountants (SAIPA) (1)
Available marks [11]; maximum marks [9]