UNIVERSITY EXAMINATIONS. UNIVERSITEITSEKSAMENS Am ay UNISA lezen AUE1501 October/November 2017 Introduction to Auditing Duration 2 Hours 100 Marks EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT. Use of a non-programmable pocket calculator 1s permissible ‘Closed book examination ‘This examination question paper remains the property of the University of South Africa and may not be removed from the examination venue (TURN OVER]UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS ee fm UNISA exe. AUE1501 oberhoveroer 2017 Introduction to Auditing buwanon 2H 100 sas EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT. Use of a non-programmable pocket calculator 1s permissible Closed book examination ‘This examination question paper remains the property of the University of South Africa and may not be removed from the examination venue THIS EXAMINATION QUESTION PAPER CONSISTS OF NINE (9) PAGES. This paper consists of (six) 6 questions and includes the following main topics PART MAIN TOPIC MARKS 1 Multiple choice questions 24 2 Components of internal control 10 3. Internal auditors and control 26 4, Acquisition and payment cycle and bank reconciliation 40 109 NOTE: Although the primary purpose of the examination is to test a candidate's knowledge and application of the subject matter, the examiner will consider the ability to organise and present such knowledge in acceptable wntten language (TURN OVER]AUE1501 October/November 2017 QUESTION 1 24 marks This section consists of 16 multiple-choice questions counting 1% marks each REQUIRED For each question, select only one alternative that you consider to be the most appropnate Your answers will not be marked negatively. Answer the questions in numencal sequence and set out your answer as follows in your script. QUESTION 4 oA 2 Bletc) 1. Complete the following sentence Eskom is an example of a A personal liable company, B public company; C state-owned company, D non-profit company 2. Complete the following sentence Maole's Spaza Shop is an example of a . A sole propnetor, B private company, © close corporation, D nonprofit company 3. Complete the following sentence relating to the components of internal control Reconciling the cash payments and receipts journal (cash book) balance with the bank statement balance falls in the category of A control environment, B__nsk assessment process, [TURN OVER]-3- ‘AUE1501 October/November 2017 C control actimty, D monitoring of controls 4. King IV requires of a company to be and be seen as a responsible corporate citizen Select the alterative that illustrates good corporate citizenship A Pay executives exorbitant bonuses B — Stnve to build a factory in an area that could create jobs but will deplete the water resources within three years C Award contracts to parties known to be involved in fraudulent activities D__ Establish a social and ethics committee in compliance with the Companies Act 5. Identify the correct similanty between internal and external auditors A Both the internal and external auditors have to be registered with SAICA B Both the internal and external auditors are subject to the same Code of Ethics C Both the internal and external auditor issues an audit report in the form of an audit opinion on the financial statements D_ Both the internal and external auditors must maintain an independent mental attitude when performing their duties Which one of the following alternatives best completes the following sentence? ts an unbiased mental attitude that allows auditors to pertorm engagements in such a manner that others do not exert undue influence A Confidentiality B Objctiity © Integnty D Due care [TURN OVER}10. AUE1501 October/November 2017 Select the correct assertion to complete the following statement If the auditor compares the date on the last sales invoice for the financial year with the date of recording the transaction in the sales journal, then the auditor 1s focussing on. A cut-off B dlassification C presentation D occurrence Select the correct assertion to complete the following statement if the auditor recalculates the sales invoice details, then the auditor is focussing on A existence B completeness. C cutoff D accuracy Audit risk has three components, Which one of the following in not a component of audit sk? A Control nsk B Matenality risk C Inherent nsk D__ Detection risk The following statements relate to the term matenality in an auditing context Select the correct alternative. ‘A if an amount is left out im the annual financial statements and if you knew about that amount, then you would have reacted differently when granting a loan, based ‘on the annual financial statements B If you are the external auditor and you rely on the client's intemal controls, then you would reduce the matenality figure (TURN OVER}W 12. 13, “5: AUE1501 October/November 2017 If you are the external auditor and you are assessing the risk assessment procedures, then the concept materality does not feature in your assessment procedures Matenality is a key foundation stone of the King IV Report on Governance Select the alternative that best descnbes the pnmary difference between the terms substantive procedures and tests of controls A There 1s no conceptual difference between substantive procedures and tests of controls Tests of controls are performed on balances and transactions, while substantive procedures are performed on control actwities. In the case of substantive procedures, audit evidence regarding the design of accounting and internal control systems are obtained, while tests of controls seek to substantiate the transactions balances mcluding analytical procedures Tests of controls are performed on accounting systems and related control activities, while substantive procedures are performed to provide evidence to support the financial statement assertions Which one of the following statements 1s correct when considering whether or not a private company is subject to an audit? ‘A Apnivate company that has a public interest score of more that 350 1s not subject to an audit BA private company that has a public interest score of less than 100 but had its annual financial statements for that year compiled internally, 1s subject to an audit A pnvate company that has a public interest score of more than 350 is subject to an independent review D A pnvate company that has a public interest score of more than 350 1s subject to an audit Indicate the most correct alternative to complete the following sentence relates to the quantity of audit evidence A B Rehability Appropriateness [TURN OVER}4 15. 16. -6- ‘AUE1501 October/November 2017 C Sufficiency D Relevance Select the source document that fits the following purpose In the revenue and receipts cycle, this document 1s made out by the company itself to record the details of the goods returned by a customer A Delivery note B Customer order. Goods returned voucher D Remittance advice Select the source document that fits the following purpose In the acquisition and payments cycle, this document 1s produced by the supplier when damaged or unwanted goods are returned by the purchasing company A Delivery note. B Creditors statement C Credit note D Requisition note Dunng the preparation and payout of wages certain nsks exist Select the risk that does not apply to the preparation and payout of wages. ‘A Embezzlement of unclamed wages B_ Errors made dunng the making up of paypackets C Theft of cash at the payout D Clocking a card for a fictitious employee [TURN OVER]-7- AUE1501 ‘October/November 2017 QUESTION 2 10 marks A useful framework to understand internal control 1s the suggestion that internal control consists of five components. These components are the control environment the risk assessment process the information system the control activities moo > the monitonng of controls REQUIRED Link each of the actions or measures stated below to one of the relevant components of internal control listed above Your answer should reflect the component as A, B, C, D or E only For example, the communication and enforcement of integnty and ethical values by an entity can be finked to the control environment, that 1s, A Your answer will contain the question number and A Answer the questions in numerical sequence, and set it out as follows in your script: QUESTION 2 oA 2 Bletc) The following are actions or measures introduced by a business entity that you must link to ‘one of the components, namely A, B, C, D or E : 1 Appomntment of competent employees ts a managenal pony 2 Employees are aware of their assigned authonty and responsibilities 3 The business objectives of the company are formally defined 4, Management put in place appropriate information systems in response to risks 5. Documents are properly designed to assist in processing accuracy and completeness of recording transactions [TURN OVER]-8- ‘AUE1501 ‘October/November 2017 6 _ Non-routine journal entnes are formally authonsed before processed 7 Proper physical secunty exists before accessing assets. 8 — Measuring performance against budgets, forecasts, and departmental targets 9 The internal audit department checking whether bank reconciliations are accurate and cared out tmeously 10 Segregation of duties QUESTION 3 26 marks You are applying for a job as an intemal auditor at a government institution During the interview, you were asked the following three questions REQUIRED Marks 3.1 List four (4) differences between the external and the internal auditor (Set out your answer in the tabular format.) @® 3.2 Descnbe six (6) limitations of internal contro! ® 3.3 Desonibe six (6) considerations that the external auditor should consider to evaluate the adequacy of the work of intemal auditors () QUESTION 4 40 marks You are employed as a junior intemal auditor of Tau (Pty) Ltd, a large manufactunng company While the internal audit senior was discussing the audit of the acquisition and payment cycle with you, he asked if you could think of the following factors to aid you in Performing the audit of the acquisition and payment cycle © Associated nsks * Internal controls that should be in place to mitigate the identified risks to an acceptable level. ‘Common documents used in the acquisition and payment cycle Performing a bank reconciliation (TURN OVER]-9- AUE1501 October/November 2017 REQUIRED Marks 41 Describe TEN (10) risks associated with the payment for goods (15) 4.2 List the controls that can be implemented to mitigate the following identified nisks associated with the receipt of goods (acquisition/payment cycle) (10) Risk Related controls 4.21 The risk that goods may be taken for| _(3marks) personal use 2x Controls 42.2 The risk that the types of goods received| (ive marks) are not the type of goods ordered 4 x Control 42.3 The risk of poor quality andlor defectwe | (ave marks) goods being received or that the incorrect} 3.x Controls goods or an incorrect quantity may be received 43 List the steps in performing a bank reconciliation (15) unisa 2017