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OF SCIENCE HHD TECHNOLOGY

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE

QUALIFICATION: BACHELOR OF ACCOUNTING

QUALIFICATION CODE: 07BOAC LEVEL: 6

COURSE CODE: AUT621$ COURSE NAME: AUDITING 202

SESSION: NOVEMBER 2017 PAPER: THEORY

DURATION: 3 HOURS MARKS: 100

FIRST OPPORTUNITY EXAMINATION QUESTION PAPER

EXAMINER(S) MS. W Gertze

MODERATOR: Mr. A Simasiku

INSTRUCTIONS

This question paper is made up of four (4) questions.

Answer ALL the questions in blue or black ink.

Start each question on a new page in your answer booklet.

Questions relating to this examination may be raised in the initial 30 minutes after the

start of the paper. Thereafter, candidates must use their initiative to deal with any

perceived error or ambiguities and any assumption made by the candidate should be

clearly stated.

PWN!"

THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including this front page)

Question 1 (20 marks)

You are the auditor in charge of the year-end audit of Hazeldene (Pty) Ltd, a fruit canning factory

operating in the Boland area. Hazeldene (Pty) Ltd is required to be audited in terms of the Companies

Act. During the course of the audit you discovered that the financial director and managing director (the

two executive directors on the Board) both of whom own shares in the company, have been falsifying

the monthly VAT returns by claiming VAT on purchases to which the company is not entitled. You are

satisfied that a reportable irregularity (in terms of Sec 45) has taken place.

YOU ARE REQUIRED TO:

1)

3)

Identify and comment briefly on each of the matters which you would have considered in "satisfying

yourself” that a reportable irregularity has taken place. In your answer, make reference to the

definition of a reportable irregularity as per sec 45 of the Auditing Professions Act. (5)

Outline the procedure which you would have followed on satisfying yourself that a reportable

irregularity was taking place. (7)

State whether you would still report the irregularity if:

the financial director and managing director were not shareholders of the

company. (2)

the financial director and managing director realised before you made your first report,

that you suspected what was going on, and offered to notify SARS and pay all VAT and

penalties owed. (2)

you had discovered the fraud whilst conducting other work (non—audit work) for

Hazeldene (2)

the managing director had in no way been involved in the fraud and could not

reasonably be expected to be aware of it. (2)

Question 2 (20 marks)

You have been seconded by your firm in Johannesburg to come to Namibia to help Jonas & Jenny (J&J) —

a firm of auditors who are experiencing a heavy work load currently. On your arrival the Senior audit

clerk ofJ&J seeks your opinion on the issues raised from 1 to 7 below. You are required to explain each

of the issues raised professionally and independently to the senior clerk.

1. Maya chartered accountant in public practice hold shares in a company if he is a member

(but not the engagement partner) of the audit team of that company? Discuss in full.

(3)

2. May a chartered accountant in public practice hold the position of director of a company

which is not a client but which is the major competitor of one of his audit clients? Discuss

your views on this in full. (3)

3. Broadly stated, a chartered accountant in public practice may divulge confidential information

about a client, without the client's permission, under two circumstances. Identify these two

circumstances. (2)

4. Du Toit and Buys, conducts the audit of a large listed group. The audit fee is N$12 million.

At the completion of the audit, the financial director offers, as a gift, to take the entire audit

team to Mauritius . In view of the large audit fee, some members of the audit team

consider that it would be permissible to accept. Discuss your views on this in full.

(3)

5. State the principles on which a practitioner should base his relationship with other

practitioners. (3)

6. Philcoun(Pty) Ltd, which is audited by King and Kline registered auditors, has

approached you, a chartered accountant in public practice, to carry out an investigation

into a suspected fraud taking place in their purchasing department. Due to the sensitive

nature of the matter, they have requested that you do not inform King and Kline of the

approach. How would you respond to this request? Explain in full. (3)

7. What threats does a chartered accountant face in a situation where he is approached by

a non—client to give an opinion of financial information on which another chartered

accountant has already given an opinion? (3)

Question 3 (30 marks)

You are senior trainee in a firm of registered accountants. One of your partners Morne Olivier has been

approached by the chairman of Bulle (Pty) Ltd, a large textile manufacturer to accept an appointment as

a non-executive director of the company. There is no connection between Morne Olivier or your firm and

Bulle (Pty) Ltd. Morne Olivier had been recommended to the chairman by a mutual friend. Before

considering the appointment, Morne informed the chairman that he would like to get an idea of the

company’s adherence to sound corporate governance requirements, and particularly to the King Ill, The

chairman replied that he personally didn’t know much about ”that stuff" but that Morne Olivier could

come to the offices and look through the minutes of Board of Directors meetings if it would help.

Morne has sent you a copy of the following minutes to have a look, and report back. Herewith the

following minutes:

Minutes of the second and final meeting of the Board of Directors for the financial year 2017 held at

9am on 15 May 2017 at the company’s head office

1. Attendance

*quorum

All directors either attended the meeting or tendered their apologies. As five directors were

present, the quorum of four were met.

*Chairperson: Hermie Meyer, the chairperson of the board was present* the directors present were as follows:

Wynand Nel: Chief Financial Officer and deputy chairperson

Frik Welsh: Production Director

Akon Ndungane: Non—executive director

Lucas Watson: Human Resources director

*Apologies

Barry Botha: Non-Executive director and Bulle (Pty) Ltd Ltd’s major supplier

Pieter Spies: Non-Executive director and 20% shareholder in Bulle (Pty) Ltd

Danny Rouwsow: Marketing Director

*also in attendance

2.

Hennie Adams: internal Audit manager

Victor Hatfield: Company Secretary

Company performance

Hennie Meyer, in his capacity as Chief Executive Office, delivered his report on the company’s

performance for the year to date.

Copies of this report and all Board Committees have been lodged with the company secretary.

3. Board Committee Reports

Reports from all Board Committees were tabled at the meeting:

Audit Committee: Wynand Nel, in his Capacity as chairperson outlined the successes of the audit

committee over the year which he attributed largely to the appointment to the committee at the start of

the year to Barry Botha, who he said had brought a wealth of experience to the committee. He also

explained that much of the audit committee’s time had been taken up reviewing the reports of various

compliance audits which he had instructed internal audit to carry out, based on a random selection of

systems and cycles within the company. Hennie Adams, the internal audit manager and third member of

the three-person audit committee, then outlined the discussions held with the external auditors

pertaining to the upcoming audit of the annual financial statements for the 30 June 2017 year-end.

Remunerations Committee: Due to the absence of Barry Botha, the chairperson of the remunerations

committee, Lucas Watson the other member of the committee, took the meeting through the ”Directors’

Remuneration” Schedule to be included in the annual financial statements for the financial year 2017.

Hennie Meyer congratulated Lucas Watson on the well laid out schedule.

YOU ARE REQUIRED TO critically evaluate Bulle (Pty) Ltd’s corporate governance and compliance with the

requirements of the King Ill based on the information presented above. You may assume that the minutes

are an accurate reflection of all the matters discussed in the meeting.

Question 4 (30 marks)

1. Explain the concept of business process. What are the main categories of business process.

(4)

2. What are the objectives of business process and what are the outcomes of setting clear

objectives? (4)

3. State and explain any four of the possible limitations of business processes?

(2)

4. One component of internal control system is control activities. Briefly explain the control

activities of a sound system of internal control and indicate the relevance of each activity by use

of examples.

(14)

5. Give reasons for the following control procedures (and how it relates to the specific control

activity), all of which contribute to a sound system of internal control:

a. The supermarket cash register records a total not accessible to the cashier.

b. The store man signs a Goods Received Note as evidence that he has counted and checked

goods received.

c. Together, the company's receptionist and the managing director's secretary open all

incoming mail and record details of all monies received. (6)