AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

REQUIRED MARKS
1. Use only the information included under the heading “CASE STUDY” and
“DOCUMENT D1”, to discuss any concerns that David Seleka should have considered,
before accepting the 2020 Vision (Pty) Ltd year-end audit.

Please Note:
 Your response should include any considerations applicable to the South African
Institute of Chartered Accountants (SAICA) Code of Professional Conduct (CPC).
 As part of your response, you should include possible action(s) that the auditor could
take in order to address any of your concerns relevant to possible breach of the
SAICA Code of Professional Conduct i.e. possible safeguards that the auditor could
implement.
 You should conclude on whether the audit should have been accepted or not.
1. Perform a client investigation 1
The following are concerns applicable to the SAICA Code of Professional Conduct
applicable to David and some of the actions underpinning the engagement:
Self-interest / Familiarity Threat to Independence / Objectivity / Integrity:
 David and the engagement team might not be independent when
performing the audit. 1
 This is because David has a close relationship with the CEO of the
company. 1
 He has been friends with Nicole since childhood, and they also studied
together and completed their training contracts at the same audit firm. 1
 The above could also affect David’s objectivity / independence / integrity
when conducting the audit. 1
 Due to a self-interest / familiarity threat. 1
 A possible safeguard could be that David should not be the engagement
partner on the audit. 1
Additional Services Requested:
 Nicole also requested the audit team to compile the financial statements. 1
 As well as to deal with the system conversion. 1
 This will give rise to a self-review threat. 1

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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

 Specific to David and all other team member’s independence / integrity /

objectivity. 1
 This is because David and the engagement team will in essence audit their
own work. 1
 A possible safeguard could be that David should not agree to perform these
services. 1
Intimidation Threat:
 David’s independence / objectivity / integrity could also be impaired. 1
 Because of his close relationship with Nicole as she could easily
manipulate him to provide audit outcomes that are favourable to the
company. 1
 This creates an intimidation threat. 1
 A possible safeguard could be that David should not be engagement
partner on the audit. 1
1.2 Integrity of the client / management: 1
The following factors should be considered with regards to the integrity of the client:
 Nicole appears to have an autocratic management style as she makes
decisions without consultation. 1
 Dismissing the previous auditors without Seleka Inc. contacting the
previous auditor could be an indication of Nicole Hlope hiding
something from the auditor. 1
 Although not a requirement, non-compliance with the KING IV report of
Corporate Governance regarding the composition of the governing body. 1
 Management’s attitude that complying with the KING IV report of
Corporate Governance is “just a box to tick” and a waste of valuable
resources 1
1.3 New client: Information Obtained from Predecessor Auditors 1
 2020 Vision did not allow Seleka Incorporated to contact the
predecessor auditors. 1
 This will result in a limitation of scope as opening balances cannot be
verified. 1
 In terms of the CPC: 1

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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

- - The engagement should not be accepted unless there are exceptional

circumstances. 1
- - It doesn’t seem that there are exceptional circumstances as the
change in auditors are due to a dispute. 1
1.4 Financial responsibility of the client: 1
 No indication that 2020 Vision will or will not be willing and able to pay
the audit fee. 1
1.5 Legal procedures: 1
 It seems that no vacancy exists in terms of the Companies Act no 71 of
2008. 1
 As the predecessor auditors were not removed at an AGM. 1
 It appears that the previous auditor was not notified of their removal. 1
 Therefore no legal vacancy appears to exist. 1
2. Determining the skills and competence requirements for the
engagement: 1
 Seleka Inc. does not have any other Optometry clients which could indicate
that the firm does not have the skills and competence to perform the audit of
2020 Vision. 1
 However, they have various clients in the service and retail industry
which could indicate they have the skills and competence requirements. 1
 The audit will be conducted when it is Seleka Inc.’s “quiet time” so there
should be sufficient staff members available. 1
 2020 Vision has a complex IT system. 1
 Although Seleka Inc. seems to have the relevant IT knowledge to perform
the audit, it appears that the services of an IT specialist will be used. 1
3. Establish the terms of the engagement: 1
 The proposal (or the award of the proposal) doesn’t replace an
engagement letter. 1
 It must be completed and signed. 1
 Before the engagement commences. 1
 This is because, it sets out the terms of the engagement. 1

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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

 As well as the roles and responsibilities of both the auditor and the
management of the client. 1
Conclusion:
 Based on the concerns raised above, I would not have accepted / not
accepted the client. 1
Available Marks 48
Maximum Marks 24
Professional Skill – Logical argument in expression articulated responses 1
Total Marks 25
2. With reference to the information provided under the heading “CASE STUDY”, discuss any
concerns you have regarding the composition of the Governing Body of
2020 Vision (Pty) Ltd, by applying the principles contained in the KING IV Report on
Corporate Governance.
General:
 The KING IV Report on Corporate Governance suggests that there should
be a balance of executive and non-executive members that serve on the
Governing Body. 1
 It further suggests that the majority of the non-executive directors /
members should be independent. 1
 It also appears that the majority of directors serving on the Governing Body
are male. 1
 The KING IV Report on Corporate Governance, suggests that a balance
should be evident regarding the race, gender, etc. on the Governing
Body. 1
 The CEO and the Chairperson function is performed by the same person
(Nicole). 1
 The KING IV suggests that the CEO and the Chairperson function cannot
be performed by the same person. 1
 Except, if a lead non-executive and independent director / member is
appointed to oversee the Chairperson’s role. 1
Executive Directors:
 From the information provided, it appears that the majority of directors are
in fact executive. 1

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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

 This is because these directors are involved in the day-to-day activities of

the company. 1
 Nicole is the CEO, Sydney is the CIO and Braam is the CFO. 1
Non-executive Directors:
 Mervin and Clara can perhaps be non-executive. 1
 As they are both not involved in the day-to-day activities of the company. 1
Independence of Non-executive Directors:
 However, it appears that neither Mervin nor Clara are independent. 1
 This is because:
- Mervin is Nicole’s husband. 1
- Mervin owns share in the company. 1
- Clara was the recent previous CEO of the company. 1
Available Marks 16
Maximum Marks 9
Professional Skill – Clarity of expression in articulating responses 1
Total Marks 10

3. Use only the information provided in the “DOCUMENT D2”, and critically discuss the
weaknesses included in the current proposed “System Conversion Plan”.

Please Note:
 Provide detailed reasons for each weakness identified.
 Please present your answer in the following format:
Weakness Reason

General Marker Note:

 “Xero” is the new system and “Bookkeeping 101” is the old system. Hence,
in the below mark plan, a student does not have to use the name “Xero” or
“Bookkeeping 101”. Please also note that some marks below are awarded
only if the student refers to the correct system i.e. “Xero” (new) and / or
“Bookkeeping 101” (old).
 Segregation of Duties because the CIO is involved with the conversion is not
a weakness. As the CIO of the company, this is his job.

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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN
Weakness
1. Auditor involvement:
The auditor should be involved
in the conversion.
2. Preparation of the data on “Bookkeeping 101” for the conversion:
Balancing of files
Bookkeeping 101 is
performed.
Preparation of data files on
“Xero” is part of preparing
“Xero” for the conversion, not
Bookkeeping 101 (Marker Note:
Mark is awarded if student
refers to preparation of data
files of “Xero”).
Controls should be
implemented in
Bookkeeping 101 to ensure the
files and data is complete,
accurate and valid.
Control totals should be
prepared in Bookkeeping 101.
3. Comparing the data transferred from Bookkeeping 101 to Xero after conversion:
Reason
Even though the CIO, IT team
1 and a “Xero consultant” will be
involved, the purpose of the
auditor is not to ensure the
system was converted
correctly, but rather to observe
the controls during the
conversion. 1
on The files in Bookkeeping 101
not should be balanced prior to
1 conversion to know what should
be converted. 1
Preparing “Xero” for
conversion is not the same as
balancing files on
Bookkeeping 101 (Marker
Note: Mark is awarded if
student refers to preparation
1 of data files of “Xero” and
Bookkeeping 101). 1
This will ensure that the data
that is being transferred is
complete, accurate and valid. 1
1
This will also ensure that once
1 the data has been converted,
control totals can be tested. 1
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AUD 300 / S3BCTQ1 –Assessment Opportunity 1 – MARK PLAN

Comparing the data transferred The data transferred from

from “Bookkeeping 101” to “Xero” Bookkeeping 101 to “Xero”
is not being performed. 1 should be compared to ensure
the data transferred is valid,
accurate and complete. 1
Preparation of data files on Preparing “Xero” for
“Xero” is part of preparing “Xero” conversion is not the same as
for the conversion, not comparing the files that
performing a comparison after transferred from
conversion. 1 Bookkeeping 101 to “Xero”. 1
The following comparisons are Performing comparisons after
not being performed: conversion ensures the
 Balance of files on “Xero” to transferred data is complete,
balance of files on accurate and valid.
Bookkeeping 101 (i.e. control 1
total). 1
 Printout of converted data to
reports from
Bookkeeping 101. 1
 Data run on “Xero” to the
information included in
Bookkeeping 101. 1
Available Marks 18
Maximum Marks 14
Communication Skill – Presenting answer in a tabular format 1
Total Marks 15

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