University of Limpopo

School of Accountancy
Private Bag X1106, Sovenga, 0727, South Africa
Tel: (015) 268 4149, Fax: (015) 268 3526, Email: jeanetta.neethling@ul.ac.za

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY

DEPARTMENT OF AUDITING

MODULE: CAUB022 INTRODUCTION TO AUDITING TEST 1 : 2022

TIME: 2 HOURS MARKS : 80
INTERNAL EXAMINERS : MS J NEETHLING CA (SA)
FIRST MODERATOR : MS M MTHIMUNYE CA (SA)
SECOND MODERATOR : MS T KOZA

THIS PAPER CONSISTS OF 8 PAGES INCLUDING THE COVER PAGE

QUESTION 1 33 MARKS
QUESTION 2 20 MARKS
QUESTION 3 27 MARKS

INSTRUCTIONS:
1. Ensure that you have carefully read the SOA online assessment guideline for students.
2. The assessment should be hand written (No electronic format will be accepted).
3. Calculate the time that you should spend on each question by multiplying the number of marks for each question by
1.5 to determine the time, in minutes, available for each question. Adhere to these time constraints in order to finish
the paper in the given time.
4. Only black pens are allowed, no tippex to be used.
5. Read questions carefully, if you need to provide explanations you should always use full sentences, refrain from
simply naming facts.
6. Answer all the questions. Write neatly and legible. Use lined paper, so that answers are presented neatly.
7. The neatness, disclosure and presentation of your answers will be taken into account when marking your paper.
8. All the examination regulations of the University of Limpopo will apply during this assessment.
9. Write, sign and date the ethics declaration letter on the last blank page of your answer sheet.
10. You have 15 minutes to upload your attempt on Blackboard. Should you encounter any problems you can, as a last
resort, email your attempt to Jeanetta.neethling@ul.ac.za or contact me on 060 735 6828.
11. Complete the checklist per the SOA online assessment guideline for students before submitting your answer sheet.

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 CAUB022 TEST ONE

QUESTION 1 [33 MARKS]

PART A: [10 MARKS]

1.1 YOU ARE REQUIRED TO MATCH COLUMN A WITH COLUMN B: 10

# Column A # Column B

1. An auditor must not believe everything he is told and must find suitable A. Internal auditor.
evidence to support a fact presented to him by the preparers of financial
statements.

2. Professional accountants may not compromise their professional or B. Intimidation threat.

business judgement because of bias, conflict of interest or undue
influences.

3. The type of threat created in terms of the SAICA Code of Professional C. Integrity.
Conduct when a firm has undue dependence on total fees from a client.

4. An employee who provides independent, objective assurance and D. Advocacy threat.

consulting services to the employer designed to add value to and improve
the employer’s operations.

5. The type of threat created in terms of the SAICA Code of Professional E. Familiarity threat.
Conduct when a firm has prepared the original data used to generate
records that are the subject matter of the assurance engagement.

6. The type of threat created in terms of the SAICA Code of Professional F. Objectivity.
Conduct when a professional accountant in business has the opportunity
to manipulate information in a prospectus in order to obtain favourable
financing.

7. Information gathered by an auditor which is sufficient and appropriate to G. Self-review threat.

support his opinion provided on the fair presentation of the financial
statements.

8. The type of threat created in terms of the SAICA Code of Professional H. Professional
Conduct when a firm is threatened with litigation by a client. scepticism.

9. The type of threat created in terms of the SAICA Code of Professional I. Self-interest threat.
Conduct when a member of the engagement team has a close or
immediate family member who is a director of the client.

10. The fundamental principle in the SAICA Code of Professional Conduct that J. Audit evidence.
has to do with honesty and truthfulness.

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 CAUB022 TEST ONE

PART B: [23 MARKS]

Mike Casey is the sole director and owner of Big Five (Pty) Ltd (hereafter referred to as “Big Five”), a
game farm located near Alldays in the Limpopo Province. Big Five hosts a lot of hunting expeditions
yearly for both local and international hunters. The packages offered to the hunters include a fixed fee
for accommodation, food and drinks, as well as a variable hunting parcel structured around the
preferences of each individual hunter. Mike Casey prefers it if the client pays with cash, as he uses the
cash for his personal expenses without documenting the income in his accounting records. He also
asks the hunters from overseas to pay in American dollar ($) because he saves the dollars as a hedge
for the depreciation of the rand. He keeps all the dollars in his safe at home.

The current auditor of Big Five, Malan Incorporated, (hereafter referred to as “Malan Inc.”) became
aware of the fact that Mike Casey does not declare all the cash received from hunters, leading to the
audit partner refusing to sign the audit report. Mike needs audited financial statements as he is in the
process of acquiring a loan from Better Bank. He asked you, a partner in Blink and Associates, a small
auditing firm, to replace Malan Inc. as Big Five’s auditor and to sign off on the financial statements for
the year under review. He explained to you that the bank is only waiting for the signed audit report to
grant the loan and he is under pressure to obtain the loan or else he will lose his company. He indicated
that the audit has been finalised but Malan Inc. just “forgot” to sign the report. He also told you that the
current auditor is currently overseas and that he won’t be available for at least a month.

YOU ARE REQUIRED TO:

1.2 Discuss (with reference to the SAICA Code of Professional Conduct) whether you 5
should agree to the request by Mike Casey to sign off on the financial statements for
the year under review so that he can obtain the loan from Better Bank.
NOTE: You are NOT required to provide possible safeguards for your threats.

1.3 With reference to the SAICA Code of Professional Conduct, assuming that Mike Casey 6
asked you to take over from the current auditor, Malan Inc. and conduct your own audit
of Big Five before signing off on the audit report, would you consider accepting the audit
engagement?

1.4 With reference to the SAICA Code of Professional Conduct, discuss whether or not a 11
NOCLAR has taken place at Big Five AND whether Malan Inc. would be obligated to
report.
1
Communication skills: Clarity of expression.

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 CAUB022 TEST ONE

QUESTION 2 [20 MARKS]

You recently qualified as a chartered accountant. A week ago you attended a birthday party held for
your friend, Wendy Darling, whom you haven’t seen since you finished high school ten years ago. You
really enjoyed seeing her again and hearing what she has been up to. She told you that she has
recently purchased the majority shareholding in the catering business where she used to work and was
also appointed as the Chief Executive Officer (CEO) of the company a month ago. She has also just
been informed by her lawyer, who is responsible for the formalities related to the purchase of the
company, that an auditor will have to be appointed. She has a couple of questions that she needs
answers to and asked whether you could be able to help her.

YOU ARE REQUIRED TO RESPOND TO WENDY’S QUESTIONS:

2.1 What is the difference between an assurance and a non-assurance engagement, and 4
which one of the two would qualify as an audit?

2.2 If our company is required to appoint an auditor, should we appoint an external or 3

internal auditor, and why?

2.3 What is the purpose of an external audit and can we just appoint you as our auditor 4
since you are a chartered accountant?

2.4 While at a business lunch hosted by the Chamber of Business, some of the other 4
members complained about the high costs of an audit. I did not know how to respond,
maybe you can tell me the reason as to why external audits are so expensive?

2.5 I overheard some of the members at the Chamber of Business lunch talking about 2
assertions. Can you please explain to me what assertions are?

2.6 Explain the link between assertions and the auditor’s right of access. 3

QUESTION 3 [27 MARKS]

PART A: [18 MARKS]

You are a consultant working for the South African Institute of Chartered Accountants (SAICA) and you
are responsible for answering any queries received from members.

You have the following queries that need your attention:

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 CAUB022 TEST ONE

Query 1:
Mildred Moloko CA(SA) is a professional accountant working as a financial manager at Halfway
Farming (Pty) Ltd. One of her responsibilities is to select suitable suppliers of packing material to the
company. A major supplier of packing material offered her an all-expenses paid trip to the Austrian
Grand Prix scheduled to take place in October. The specific supplier’s contract is up for renewal at the
end of the year. She is not sure how to deal with this situation in order to comply with the fundamental
principles.

Query 2:
Tony Kiriakis CA(SA) is the senior accountant for Steelworks Limited, a steel manufacturer. Tony is
responsible for compiling the annual financial statements. He receives an incentive bonus based on
the profit after tax. Tony requested your input as to whether he might be in breach of the fundamental
principles of the SAICA CPC if he receives the bonus.

Query 3:
Sandile Gumede recently qualified as a chartered accountant and was offered the position of financial
manager at the Mokgalakwena Municipality in Mokopane. She has never worked in any sphere of
government before and does not have any knowledge of the relevant laws and by-laws relating to the
public sector. Sandile sent an email to you requesting your guidance regarding her accepting the
position of financial manager at Mokgalakwena Municipality.

YOU ARE REQUIRED TO:

3.1 Discuss the acceptability of each of the above issues by making reference to the SAICA
Code of Professional Conduct.
Structure your answer as follows:
Query 1: 7
Query 2: 4
Query 3: 6

Communication skills: Structure and Layout 1

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 CAUB022 TEST ONE

PART B: [9 MARKS]

Absolute Auditors Incorporated (hereafter referred to as “AA”) is an auditing firm located in Midrand,
Gauteng Province. AA is currently busy with the audit of PowerPlus Limited (hereafter referred to as
“PowerPlus”), a company that provides additional sources of power to businesses that are negatively
affected by loadshedding. Mark Baddington (hereafter referred to as “Mark”) is the audit senior
assigned to the audit of PowerPlus. The directors of PowerPlus discussed with Mark their plan to put
out a tender for an independent power provider to become a supplier to them. The contract will be very
lucrative. That night Mark discussed it with his friend, Lightning McQueen (hereafter referred to as
“Lightning”), who has just finished setting up a solar farm and is looking for an offset point for the surplus
electricity generated. Mark gave him all the details that the directors have shared with him and promised
to find out what amount the directors would regard as a reasonable tender price. He also suggested
that he and Lightning register a new business with the two of them being the only directors and
shareholders as he feels that he deserves a share for providing Lightning with the information. He
however urged Lightning to keep his name out of all tender documents so that PowerPlus can remain
unaware of his involvement.

YOU ARE REQUIRED TO:

3.2 Discuss, in terms of the SAICA Code of Professional Conduct, the actions taken by 9
Mark Baddington.

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 CAUB022 TEST ONE

WRITE, SIGN and DATE THE BELOW DECLARATION LETTER:

On the NEXT blank page of your answer sheet after the completed test, write down the following
statement:

By submitting this online assessment, I agree that I have adhered to the statements made in the
Declaration of Own work as per the UL SOA Assessment Guidelines for Students.

SIGNATURE ……………………. DATE ……………………..

This document should be scanned together with the rest of your test and submitted as one
document. Please note that if your test does not contain this declaration, then your test will not
be marked and you will receive zero for the test.

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 CAUB022 TEST ONE

COMPLETE THE FOLLOWING CHECKLIST BEFORE SUBMITTING YOUR WORK.

Please follow the below guidelines to ensure that you have successfully completed the
assessment. DO NOT upload the checklist as this is for your own use.

Checklist questions for students’ Y/N

Have you written, signed and dated the above declaration on the last blank page of your answer
sheet.

Please note that if your test does not contain this declaration, then your test will not be
marked and you will receive zero for the test.

Has each handwritten page been numbered and labelled correctly?

Surname & Initials, Student number, Question number, Page number (i.e. page 1).

Have you reviewed your submission?

 Is each scan legible and clear?

 Have you scanned each page of your assessment (i.e. is it complete?)

Have you converted your assessment to a PDF document using a Scanner App?

Has the scan been named in the correct format:

Surname & Initials, Student number, Total number of Pages.

Does your scanned PDF document include the DECLARATION letter, signed and dated by you?

Have you saved/emailed the scan/scans to yourself and downloaded them?

Do you know where the scans have been saved/downloaded to?

You are now ready to submit your assessment on Blackboard.

Note:You run the risk of your assessment or a page of your assessment not being marked if the
submission is:

 Illegible / unclear.
 If it is incomplete / cut –off.