SSAO MODULE CODE: AIC22A2

_________________________________________________________________________________

FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting
DEPARTMENT Commercial Accounting
CAMPUS(ES) SWC
MODULE NAME Auditing and Internal Controls 2A
MODULE CODE AIC22A2
SEMESTER First
ASSESSMENT OPPORTUNITY, Supplementary Summative Assessment
Opportunity
MONTH AND YEAR June 2019

ASSESSMENT DATE July 2019 SESSION

ASSESSOR(S) B Kuzwayo, M. Mia; M. Nevhutanda and L. Nzama
MODERATOR(S) B Schutte
DURATION 3 hours (180 min) TOTAL MARKS 100

NUMBER OF PAGES OF QUESTION PAPER (Including cover page) 5

INFORMATION/INSTRUCTIONS:
___________________________________________________________________________
 This is a closed-book assessment.
 There are 4 questions. You need to answer all the questions
 Answer each question in a separate book. Refer to the questions below for the colour of
the book in which you need to answer each question. If you need another book/sheet,
please ask the invigilator for another book
 Read the questions carefully and answer only what is required.
 Number your answers clearly and correctly as per the question paper.
 Write neatly and legibly on both sides of the paper in the answer book, starting on the first
page.
 You are allowed to use a calculator
 By writing this test and affixing your name and student number to the answer sheet/book,
you confirm that you are conversant with the test regulations of the University
 Use only a blue or a black pen to answer your questions. Answers given in pencil will not
be marked
_________________________________________________________________________

_________________________________________________________________________________
Page 1 of 5
SSAO MODULE CODE: AIC22A2
_________________________________________________________________________________

QUESTION 1 [BLUE BOOK] [25 MARKS]

An audit is a systematic and independent examination of books, accounts, statutory records,

documents and vouchers of an organisation to ascertain how far the financial statements as
well as non-financial disclosures present a true and fair view of the concern.

REQUIRED:

1.1 List and explain the different types of Auditors. (10)

1.2 List and explain assertions applicable to Transactions and Events. (10)
1.3 Describe the objectives of the Auditing Profession Act of 2005. (5)

_________________________________________________________________________

QUESTION 2 [GREEN BOOK] [25 MARKS]

In lectures you learnt the SAICA Code of Professional Conduct, therefore you have been
asked to comment on the following.

Jack Skhosana is the manager of the audit team at a major audit client Horizon Ltd. Agnes
Skhosana, Jack’s wife owns a catering company Aggie CC. Horizon Ltd spends a significant
amount of money on employee related entertainment and for that reason they decided to put
its catering contract out for tender. Whilst reviewing the minutes of the directors meeting, Jack
Skhosana came across the amount which the directors regarded as a reasonable tender price.

Jack then approached he’s wife and suggested she applies for the tender. Agnes was
instructed by her husband not to reveal that she is married to him. She knew to tender just
below the expected amount and Jack agreed to get as much information as possible from the
Horizon Ltd procurement department. He subsequently asked an audit trainee to
comprehensively analyse Horizon Ltd’ catering expenditure, even though this was not
necessary for the audit purpose.

REQUIRED:

2.1 Evaluate whether Mr. Skosana complied with each principle of the code of ethics in terms
of the SAICA Code of Professional Conduct and justify your answer. (8)
2.2 Name (3) three safeguards that an auditor/s or firm can use against threats that may
arise as a result of Section 210 – Engagement acceptance. (3)
2.3 Name (3) three types of fees the auditor may charge for an audit engagement. (3)
2.4 Under what circumstance can a client’s private information be disclosed? (2)
2.5 List three safeguards created by profession or legislation that can help to address or
reduce threats generally. (3)
2.6 List and Explain (3) three types of audit opinion an auditor can express. (6)

_________________________________________________________________________

[PLEASE TURN OVER]

_________________________________________________________________________________
Page 2 of 5
SSAO MODULE CODE: AIC22A2
_________________________________________________________________________________

QUESTION 3 [ORANGE BOOK] [25 MARKS]

PART A

“King IV is structured as a report that includes a code which contains both principles and
recommended practices aimed at achieving governance outcomes.”

(Source: KPMG https://home.kpmg/za/en/home/insights/2016/10/king-iv-summary-

guide.html)

REQUIRED:

3.1 Explain what “Corporate Governance” means. (3)

3.2 What are the objectives of King IV? (4)
3.3 From the list of statements below, select the type of information that King IV would
encourage to be reported in an integrated report of a company: (2)
a. “We have improved our BEE status and are now a certified level 1 BBBEE
Compliant Entity”
b. “Shareholder profitability is the highest it has been in 4 years”
c. “Our company has reduced pollution by 5% in the last financial year”
d. “Net profit before tax has increased by 27%”

PART B

REQUIRED:

Answer the following questions in terms of the provisions set out in the Companies Act of 2008

3.4 What responsibility does the audit committee have in relation to the appointment of an
auditor? (2)
3.5 List instances under which a director of a company may not be indemnified for any loss
that arises as a result of the actions of that director. (3)
3.6 The nomination committee of Purple Raindrops Ltd is putting together a list of possible
directors that the shareholders can vote for at the next AGM. They are worried that they
might accidentally include a disqualified person on the list.
How can they check whether a certain person is ineligible or disqualified from being a
director? (2)
3.7 On 1 January 2019, the following appointments were made at Pink Burger Ltd:
 Mrs. Chubby was appointed as the new Chief Operating Officer (COO)
 Mr. Skinny is an employee of Pink Burger Ltd. He was appointed as a member
of the audit committee, but he is not on the Board of directors.
3.7.1 What is the definition of a “director” in terms of the Companies Act? (1)
3.7.2 Is Mr. Skinny a director of the company for the purposes of the Companies Act?
Provide a brief reason for your answer. (1)
3.7.3 Mrs. Chubby is aware that the Companies Act sets out standards for how she
should behave and conduct herself. List some of the requirements set out in the
Companies Act that apply to Mrs. Chubby. (3)

_________________________________________________________________________________
Page 3 of 5
SSAO MODULE CODE: AIC22A2
_________________________________________________________________________________

QUESTION 3 [CONTINUED] [25 MARKS]

3.8 State whether the following statements are True or False and provide a reason for your
answer:
3.8.1 Mr. Thanos is the auditor of StanLee Ltd. Mr Thanos is allowed to attend the AGM
of StanLee Ltd. (2)
3.8.2 Mr. Adam is the financial director of Heaven Ltd. He intentionally recorded the
expenses of the company as assets so that it would look like the company had a
high value. In terms of the Companies Act, he will face a jail sentence for a period
of 25 years. (2)

_________________________________________________________________________

QUESTION 4 [YELLOW BOOK] [25 MARKS]

The auditor’s objective is to be in a position to form an opinion on whether the financial

statements fairly present, in all material respects, the financial position of the company at a
particular point in time, and the results of its operations for a period which ended at that point
in time. The auditor goes through a process called the audit process to achieve this objective.

REQUIRED:

4.1. List the elements an auditor needs to consider when thinking about quality control for
the audit of financial statements. (5)
4.2. The processes listed below represent the sub-stages of the main steps an auditor should
perform when conducting an audit. You are required to:
4.2.1. List the main steps in the audit process (in column A below) in the CORRECT
ORDER. Note: you will not get a mark for the applicable stage if you write
the correct stage in the incorrect order
4.2.2. Allocate the sub-stage provided below to the correct main step (in column B
below). Note: you are only required to write the applicable letter and not re-
write the whole process
You are required to do it in a table format as shown below: (11)

4.2.1 Column A 4.2.2 Column B

Main step in audit process Sub-stage
1. Name of step number 1 d, a
2. Name of step number 2 etc. f,b etc.

a. Conduct risk assessment procedures

b. Conduct preliminary engagement activities
c. Carry out further and other audit procedures to gather evidence
d. Establish the (preliminary) audit strategy and materiality
e. Evaluate audit evidence and report accordingly
f. Plan “further” audit procedures based on the risk assessment and plan “other”
procedures
g. Plan risk assessment procedures

_________________________________________________________________________________
Page 4 of 5
SSAO MODULE CODE: AIC22A2
_________________________________________________________________________________

QUESTION 4 [CONTINUED] [25 MARKS]

4.3. In lectures you learnt that audit evidence is very important in the audit function. It is what
the auditor is required to collect in order to issue an audit opinion.
4.3.1. Identify the two factors an auditor needs to consider about the audit evidence
before he/she can issue the audit report. (2)
4.3.2. The “hierarchy of the reliability of audit evidence” means that some forms of audit
evidence are more reliable than others. Explain four (4) of the factors that an
auditor is required to consider when assessing the reliability of audit evidence (4)
4.3.3. List three (3) substantive procedures an auditor can perform in order to collect
audit evidence (3)

THE END

_________________________________________________________________________________
Page 5 of 5