AUE2601/201/1/2013
Tutorial letter 201/1/2013
AUDITING THEORY AND PRACTICE
AUE2601
Semester 1
Department of Auditing
IMPORTANT INFORMATION:
This tutorial letter contains important information
about your module.
KEY TO ASSIGNMENT 01 FOR THE FIRST SEMESTER
1.
2
Jackson & Stent (2012: 1/14-1/15)
Comment:
SAICA is the body which looks after the interests of its members whether they are in public
practice, business or other pursuits. Therefore the financial director as a registered SAICA
member will be regulated by the SAICA Code of Professional Conduct (Option 2).
The IRBA has the responsibility of looking after the professional interests of registered
auditors. The financial director is not a registered auditor and will therefore not be
governed by the Auditing Profession Act, the Rules Regarding Improper Conduct or the
IRBA’s Code of professional conduct (Option 1, 3 and 4).
The IRBA’s Code of Professional Conduct for Registered Auditors makes reference to
“Registered Auditor”, where the SAICA Code of Professional Conduct makes reference to
“Chartered Accountant”. When an individual firm wishes to offer auditing services then it
must be registered with IRBA, hence the name registered auditor.
2.
3
SAICA Handbook 2012/2013 in ISA 200: para A45-A52
Comment:
The fact that that the auditor’s work is governed by regulatory bodies (option 3) is not an
inherent limitation of an audit as it only means that the conduct of registered auditors is
regulated. Options 1, 2 and 4 are all inherent limitations of an audit. Refer to the reference
for a comprehensive guideline on the inherent limitations of an audit. The auditor is not
expected to, and cannot eliminate audit risk. The auditor cannot therefore obtain absolute
assurance that the financial statements are free from material misstatements due to fraud
and error.
3.
1
SAICA Handbook 2012/2013 in ISA 315: para A111
Comment:
There are three categories of management assertions, namely:
• Assertions about classes of transactions and events for the period under audit.
• Assertions about account balances at the period end.
• Assertions about presentation and disclosure.
First ask yourself which category “trade and other receivables” falls under. Trade and other
receivables is an account balance at year end and all the assertions relating to an account
balance will therefore apply as stated in option 1. The other assertions of cut-off, accuracy,
occurrence and classification only apply to classes of transactions and events for the
period under audit. Separate assertions are given for presentation and disclosure.
4.
3
Jackson & Stent (2012:1/2 -1/3) and Study guide (Study unit 1.1.1.2)
Comment:
Refer to the prescribed textbook reference for detail on the different types of auditors and
the audit procedures which they normally perform. Option 3 is correct as this is the
description of an internal auditor.
Options 1, 2 and 4 are incorrect for the following reasons:
Option 1 is the description of a government auditor.
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Option 2 is the description of an external auditor.
Option 4 is the description of a forensic auditor.
5.
4
SAICA Handbook in ISA 200: paragraph 11; Jackson & Stent (2012:1/16-1/17) and
Study guide (Study unit 1.5).
Comment:
Option 4 is correct as (ii) and (iii) are stated as overall objectives in ISA200.
Options 1, 2, and 3 are incorrect as (i), (iv) and (v) are not objectives of the auditor in
terms of ISA 200 para 11 (a) & (b).
Item (i) is incorrect because it refers to absolute assurance when only reasonable
assurance is required.
Item (iv) is incorrect as it refers to the Institute of Internal Auditors.
Item (v) is incorrect as it refers only to when a report is required by the senior management
and the audit committee.
6.
4
SAICA Handbook 2012/2013 in Rules Regarding Improper Conduct: para 2.10 &
2.11 and SAICA Handbook 2012/2013 Accounting Ethics and Circulars in Code of
Professional Conduct: Part A: section 140.7 and Part B: section 240.7
Comment:
An auditor is guilty of improper conduct if any restraints are placed upon trainee auditors
after the date of termination of their training contracts as stated in option 4 (Rules
regarding Improper Conduct 2.10). Options 1 (SAICA Handbook Sec 240.7), 2 (SAICA
Handbook Sec 140.7), and 3 (Rules regarding Improper Conduct Sec 2.11) are all
permitted in terms of the Code of Professional Conduct and/or the Rules Regarding
Improper Conduct.
7.
4
Auditing: Legislation and Standards in Auditing Profession Act, 2005: section 46(3)
Comment:
The shareholder will have to bring a delictual action against the auditor and amongst other
things prove that the auditor knew or reasonably could have been expected know that the
third party would rely on the opinion. Option 4 is therefore the correct answer.
Take note that there is a distinction between the liability to clients and to 3rd parties. An
auditor’s liability to a client may be based on breach of contract. An auditor generally has
no contract with 3rd parties and breach of contract cannot therefore be used as a basis for
liability to 3rd parties.
8.
2
Companies Act No. 71 of 2008, Section 91(2(a) & 3(a-b)); Jackson & Stent (2012:
3/51) and Study guide (Study unit 2.2).
Comment:
Option 2 is incorrect; the audit committee has five business days after the proposal has
been delivered to them.
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Option 1, 3 and 4 are the procedures that have to be followed by the board of a company
when a vacancy arises in the office of auditor of a company.
9.
4
Auditing: Legislation and Standards in Auditing Profession Act, 2005: section 38
Comment:
As the question asks which option is not applicable. Option 4 is therefore correct as the
Act states that all partners in a partnership must be individuals who are themselves
registered auditors.
Options 1, 2 and 3 are all acceptable in terms of section 38 of the Auditing Profession Act.
10. 1
SAICA Handbook 2012/2013 in ISA 315: para A110-A113
Comment:
A credit sale transaction is classified as a transaction and event and the management
assertions relating to transactions and events will therefore apply. Take note that these are
not all the assertions relating to a transaction. Refer to the prescribed book reference for
the other assertions that will apply.
Options 2, 3 and 4 are incorrect for the following reasons:
Option 2 includes assertions which relate to an account balance.
Option 3 is incorrect because it relates to inventory and not to a credit sales transaction.
Option 4 is incorrect because it relates to inventory and not to a credit sales transaction.
11. 3
Auditing: Legislation and Standards in Auditing Profession Act, 2005: section 41(3)
Comment:
The Auditor General may appoint a person who is not a registered auditor to carry out an
audit in terms of the Public Audit Act, 2004 on his behalf as stated in option 3.
A person who is not a registered auditor may not accept an appointment as an auditor, act
as an auditor or engage in public practice as an auditor in terms of sec 41 of the Auditing
Profession Act, 2005. Options 1, 2 and 4 are therefore prohibited.
12. 1
Auditing: Legislation and Standards in Auditing Profession Act, 2005: section 37(2) &
(3)
Comment:
Option 1 is correct as all the requirements to register as a registered auditor have been
met.
Option 2 is incorrect as Vivian has only obtained the Certificate in the Theory of
Accountancy and has not yet written the qualifying examinations.
Option 3 is incorrect as Jimmy has not written the appropriate qualifying exams, he is in
possession of the CIA qualification which qualifies him a certified internal auditor.
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Option 4 is incorrect as Deviya has not yet completed her training contract.
To register as a member of IRBA, an individual must:
• Satisfy the educational requirements of SAICA, that is, obtain a recognised
qualification from an accredited university, and pass part 1 of the Qualifying Exam.
• Complete a learnership at a registered training officer.
• Obtain an audit specialisation qualification and pass the Public Practice Exam.
13. 4
SAICA Handbook 2012/2013 in ISQC1: para 16
Comment:
The objective of the firm in establishing a system of quality control is to provide the firm
with reasonable assurance that the firm and its personnel comply with professional
standards and applicable legal and regulatory requirements and that reports issued by the
firm or engagement partners are appropriate in the circumstances.
Assertions are representations by management, explicit or otherwise, that are embodied in
the financial statements, as used by the auditor to consider the different types of potential
misstatements that may occur.
Option 4 is therefore the correct answer as assertions is not an element of a quality control
system.
Options 1, 2, and 3 are all elements of a system of quality control. Refer to the prescribed
book reference for a full list of all the elements.
14. 3
Study guide (Study unit 1.2.1.3) and SAICA Handbook 2012/2013 in International
Framework for Assurance Engagements: para 11 & Appendix
Comment:
In a review engagement a moderate level of assurance is expressed in a negative form
and option 3 is therefore correct.
Option 1 is incorrect as no assurance is expressed in an agreed upon procedures
engagement.
Option 2 is incorrect as a reasonable level of assurance is expressed in an audit
engagement.
Option 4 is incorrect as no assurance is expressed in a compilation engagement.
15. 2
SAICA Handbook 2012/2013 Accounting Ethics and Circulars Volume 3 in Code of
Professional Conduct: Part A (section 110-150); Jackson & Stent (2012: 2/5-2/7 and
2/13) and Study guide (Study unit 2.3).
Comment:
The fundamental principles of Integrity, Confidentiality, Objectivity and Professional
Behaviour are being threatened as indicated by option 2. John Carter would contravene
the Insider Trading Act, acting dishonestly and making use of confidential information.
Objectivity is also compromised due to the fact that his wife purchased shares.
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Options 1, 3 and 4 are incorrect. Financial stability is not one of the fundamental
principles. Refer to the prescribed textbook reference for more detail on threats to the
fundamental principles.
16. 4
SAICA Handbook 2012/2013 in ISA 200: para 13(m)
Comment:
The auditor expresses a reasonable, but not absolute level of assurance in an audit
engagement; this is as a result of the inherent limitations of an audit. Option 4 is therefore
correct.
Option 1 is incorrect as no assurance is expressed in a compilation engagement.
Option 2 is incorrect as no assurance is expressed in an agreed upon procedures
engagement.
Option 3 is incorrect as a moderate level of assurance is expressed in a review
engagement.
17. 2
Jackson & Stent (2012:1/10-1/13) and Study guide (Study unit 1.3)
Comment:
Option 2 is not one of the eight (8) auditing postulates.
Option 1, 3 and 4 are auditing postulates as suggested by Mautz and Sharaf. Also refer to
the prescribed textbook reference for the remaining five (5) auditing postulates.
18. 2
Jackson & Stent (2012:1/2 -1/3) and Study guide (Study unit 1.1.1.2)
Comment:
Refer to the prescribed textbook reference for detail on the different types of auditors and
the audit procedures which they normally perform.
Option 2 is correct as the types of procedures relate to the types of auditors who perform
these procedures.
Options 1, 3 and 4 all include item (i) and (iii) and are therefore incorrect.
(i)
Government auditors normally perform audit engagements within government
departments that include the compliance with laws and regulations but not only a
compliance audit.
(iii)
An internal auditor performs an independent assignment on behalf of the board of
directors of the company and helps senior management to meet their responsibilities.
Internal auditors should be independent and should not be involved in the running of
the organisation and in making business decisions.
19. 3
Study guide (Study unit 1.4.2)
Comment:
To develop and maintain shareholder (NOT employee) relationships and enhance
performance, accountability and public confidence is one of the IRBA’s goals. Option 3 is
therefore not a goal of IRBA.
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Options 1, 2 and 4 are goals of IRBA.
20. 4
Jackson & Stent (2012:1/18) and Study guide (Study unit 1.5.2)
Comment:
Option 4 is the correct answer; this is the role of a director. Directors report the results of
their stewardship to the shareholders.
Options 1, 2 and 3 are incorrect and are therefore not roles of the shareholders.
1.
The shareholders receive the annual financial statements from the directors and can
provide finance for the business.
2.
It is the responsibility of the auditor to gather sufficient and appropriate audit
evidence to be in a position to give an independent opinion on whether the annual
financial statements issued by the directors to the shareholders present fairly, the
financial position and results of operations of the company, in terms of the applicable
financial reporting framework.
3.
Directors are responsible for running the business but don’t appoint auditors, the
latter is the responsibility of the shareholders.
LECTURERS: AUE2601
Mrs S Malan
Mrs G Richard
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