Auditing
TOPICS COVERED: Materiality
Risk assessment
Responding to risks
Revenue cycle
,AUE Integrated Question test 1 Reading time: 12 minutes
You are a first-year trainee accountant at CA Campus Inc. (herein referred to as CAC) a
firm of registered auditors. CAC is a medium-sized audit firm in South Africa with offices
situated in all the major cities. You have been assigned to the audit of the Lego Limited
group (herein referred to as Lego) for the year ended 28 February 2019. CAC has been
the auditors of Lego and its foreign subsidiary Plastic Limited for the past three years.
Background:
Lego specializes in the manufacture and retail of plastic toys with their signature line being
the lego block. Lego was established in 1945 and has enjoyed many years of success as
the leaders in the toy industry. In November of the current year a competitor “LeNo” entered
the market and for the first time since incorporation Lego is experiencing a drop in market
share. In order to regain the lost market share Lego management have applied to list on the
Johannesburg Stock Exchange (JSE). The listing is dependent on the results of the 28
February 2019 audited financial statements and as such management have requested that
the audit be completed by 30 March 2019.
In order to meet the audit deadline, the partner on the audit, Frodo Baggins, assigned 3 first
year trainees (yourself included) to the audit for the full month of March. The partner and the
3 clerks will fly to China for a week during the month in order to complete the audit of Plastic,
and leave the final week for the audit of the consolidated financial statements. You are all
familiar with lego blocks and therefore the partner felt you would be best suited for the audit.
While you are stationed in South Africa, each clerk will be required to visit the various
manufacturing plants and the central dispatching warehouse in order to perform test counts
of inventory.
You had a meeting with Harry Potter (Financial director) in order to gain an understanding
of any significant events that took place during the financial period. Harry Potter informed
you that the CEO, Tinky Bel, has been placed on suspension while the allegations of
fraudulent misconduct were being investigated. A whistle-blower has provided footage of
Tinky Bel falsifying customer orders, manipulating bank statements and creating false
documents to support the year end journals processed.
, Harry Potter requested that you do not make contact with Tinky Bel but promised to
provide you with any information required for the audit. He concluded the meeting and
presented you with the draft consolidated financial statements.
TOPICS COVERED: Materiality
Risk assessment
Responding to risks
Revenue cycle
,AUE Integrated Question test 1 Reading time: 12 minutes
You are a first-year trainee accountant at CA Campus Inc. (herein referred to as CAC) a
firm of registered auditors. CAC is a medium-sized audit firm in South Africa with offices
situated in all the major cities. You have been assigned to the audit of the Lego Limited
group (herein referred to as Lego) for the year ended 28 February 2019. CAC has been
the auditors of Lego and its foreign subsidiary Plastic Limited for the past three years.
Background:
Lego specializes in the manufacture and retail of plastic toys with their signature line being
the lego block. Lego was established in 1945 and has enjoyed many years of success as
the leaders in the toy industry. In November of the current year a competitor “LeNo” entered
the market and for the first time since incorporation Lego is experiencing a drop in market
share. In order to regain the lost market share Lego management have applied to list on the
Johannesburg Stock Exchange (JSE). The listing is dependent on the results of the 28
February 2019 audited financial statements and as such management have requested that
the audit be completed by 30 March 2019.
In order to meet the audit deadline, the partner on the audit, Frodo Baggins, assigned 3 first
year trainees (yourself included) to the audit for the full month of March. The partner and the
3 clerks will fly to China for a week during the month in order to complete the audit of Plastic,
and leave the final week for the audit of the consolidated financial statements. You are all
familiar with lego blocks and therefore the partner felt you would be best suited for the audit.
While you are stationed in South Africa, each clerk will be required to visit the various
manufacturing plants and the central dispatching warehouse in order to perform test counts
of inventory.
You had a meeting with Harry Potter (Financial director) in order to gain an understanding
of any significant events that took place during the financial period. Harry Potter informed
you that the CEO, Tinky Bel, has been placed on suspension while the allegations of
fraudulent misconduct were being investigated. A whistle-blower has provided footage of
Tinky Bel falsifying customer orders, manipulating bank statements and creating false
documents to support the year end journals processed.
, Harry Potter requested that you do not make contact with Tinky Bel but promised to
provide you with any information required for the audit. He concluded the meeting and
presented you with the draft consolidated financial statements.
