AUDITING 310 ASSIGNMENT II - JUNE 2020

NOTE:

i. Attempt both questions.

ii. Type your answers and submit them electronically by SUNDAY 28th June 2020 at 6.00 pm
(anything submitted after this date and time will not be accepted).
iii. Submit your scripts to your respective lecturers

LECTURER GROUP EMAIL

Ms Diina Jesaya Part-Time djesaya@deloitte.co.za
Mr Andrew Simasiku COLL asimasiku@nust.na
Dr Kofi Boamah Full-Time kbboamah8@gmail.com
iv. Avoid plagiarism throughout your work

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Question 1 (10 Marks)

Background

You have been assigned to the 2020 audit of Oshikango (Pty) Ltd (hereafter Oshikango). Oshikango’s
period end is 30 April 2020. The company has been established in 2013, it is situated in the Northern part
of Namibia and they are operating in the automotive industry, selling new and used vehicles.

With the Covid-19 pandemic that has caused uncertainties to the operation of many businesses, the audit
team is worried about the going concern of Oshikango Pty Ltd. The company has made losses in the
current year and they are facing a difficult financial position mainly due to the current economic status of
Namibia. The decrease in the sales of vehicles has been noticed in the recent years. Oshikango has
recently announced that they will be retrenching 15 of their employees post lockdown.

Trade receivables audit

You are currently busy testing trade receivables balance and you have selected 2 samples of debtors
from the accounting records as at 30 April 2020 and request positive confirmations from the debtors

Note A: The audit team has send a confirmation to Elizabeth Adolf (Debtor) who preferred to send the
original written confirmation back to Oshikango Pty Ltd as a matter of convenience and Oshikango’s
Financial manager Mrs Haufiku has received the confirmation and submitted the response to the audit
team.

Note B: The driver of Oshikango was due to deliver documents to Fitness Centre (Pty) Ltd (Debtor) and
therefore the audit team has requested the driver to deliver confirmations to the debtor. The debtor
phoned the audit partner to confirm the balance, who in turn informed the audit team

Required:

1. With reference to notes A and B above, discuss the concerns with the reliability of the audit
evidence gathered for audit purposes. (6)
2. With reference to the background information, describe the audit procedures that the audit team
can perform to obtain sufficient evidence about the going concern of the company.(4)

Question 2
You are the audit partner at Smart Auditors Inc. For the month of April 2020, you have received the
following technical queries relating to different audit clients. Please note that the matters below are not
related.

Matter 1: In terms of the basic evidence gathered on the audit of We Fix (Pty ) Ltd, the auditor noted that
inventory with a cost of N$500 000 and a net realisable value of N$750 000 has been recorded at the net
realisable value amount. The issue has been discussed with management and they have refused to
correct the misstatement.

Matter 2: On the audit of Grey Fade (Pty) Ltd, based on the audit evidence obtained, the auditor
concluded that there are material uncertainty relating to events and conditions which cast significant
doubt on the company’s ability to continue as a going concern. 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 the treatment after
conducting extensive procedures on the matter itself and its disclosure.

Matter 3: Belinda Beauty Care (Pty) Ltd experienced a fire few weeks before 31 May 2020 destroying
much of the company’s administrative office. Most of the company’s records were restored using the
backup files that were kept offsite. However, due to the failure of the debtors manager to back up the
debtors masterfile on a regular basis, no data was available to verify the debtors balance of N$ 2.8 million
at period end.

We are satisfied that despite this setback, Belinda Beauty Care (Pty) Ltd will still be a going concern for
the foreseeable future.

The final materiality figure for this audit has been set at N$ 1.8 million.

Matter 4: Quality Furniture Ltd sells different types of furniture to customers. During the audit of revenue it
was discovered that when goods (furniture) has been sold and it is delivered to the customer, some
customers do not sign on the delivery notes as evidence that they have received the goods. In terms of
the company’s controls, all the delivery notes should be signed by the customer upon delivery. No other
concerns were revealed by the audit procedures performed on property, plant and equipment.

The actual deviations in the population that has been tested is 7.5% which has not exceeded the tolerable
rate of deviation for this audit which is 10%

Required:

For each matter above, assist the audit team with the impact each matters on the audit opinion that
should be expressed on the 2020 annual financial statements for each client.

Discuss your answer under the following headings:

 Matter 1 (6)
 Matter 2 (4)
 Matter 3 (5)
 Matter 4 (4)