AUE3761 Test 1 Solution
April 2023
AUE3761 Test 1
April 2023
SUGGESTED SOLUTION
Dear Student,
Carefully study the feedback we give you in the solution to Test 1.
Required 1: Statutory concerns relating to the appointment of the engagement MARKS
partner
References: Lesson 1.2; APA and Companies Act
1. Mr Marole may not be appointed as the engagement partner on the audit of BR Retail
as he would have been the engagement partner for more than five consecutive ^
years. (1½) (Section 92 of the Companies Act)
2. Mrs Martin, as a previous CFO of BR Retail, is disqualified to take over as the
engagement partner as she is not yet eligible to do so before another year has
passed (five years should lapse and she is only in year four) (1½) (Section 90 of ^
the Companies Act)
3. Although both Mr Marole and Mrs Martin:
• are registered with IRBA (they are partners at a registered firm of auditors) (1½)
^
(Section 90 of the Companies Act and Section 37 of APA),
• except for the issues identified in points 1 and 2 above no other independence ^
issues are identified (Section 90 of the Companies Act) (1½),
neither of them qualifies to be appointed as the engagement partner on BR Retail’s
audit. (1½) (If only one person is mentioned as not complying, award 1 mark only.) ^
4. It is therefore suggested that another partner in the audit firm takes on this
responsibility. (1½) ^
Available (6 x 1½ = 9) 9
Maximum 6
Comments
Take note of the following comments for the solution of Required 1:
• It was not clear whether or not students understood the term “statutory
requirements” as some students did not address the required in terms of the requirements
prescribed in the relevant Acts. To answer this required, students had to identify which
Acts should be complied with when appointing an engagement partner of an engagement.
1
, AUE3761 Test 1 Solution
April 2023
From your studies, you should have identified that the APA definitely applies as well certain
sections in the Companies Act.
• A lot of students provided us with a theoretical answer which was incorrect. As you
may know by now, for this module you should know the theory but more importantly be
able to apply it to a practical scenario. This means you had to look at the case study
and identify what information indicates whether they comply or not with statutory
requirements (the Acts).
• Some students only focused on Mrs Martin and not on Mr Marole as well.
• It is also evident that students do not understand that you also have to be registered with
IRBA to be appointed as an engagement partner.
• Also note that all partners of a partnership (as in the case with SBG Incorporated) should
be registered at IRBA (this is required by law). Therefore, if we indicate that SBG
Incorporated is a registered firm of auditors, it means that all partners are indeed registered
with IRBA. You should be able to deduct this from the information provided.
• Note that it was not necessary for you to provide the Acts and section numbers in
your answer. It was only given in this solution for reference purposes.
Required 2: Identification, description and assessment of inherent risks of
MARKS
material misstatement at the financial statement level due to complexity and
change
References: ISA 315 (Revised 2019); Lesson 3.3
(a) (b)
Description of inherent risks of Assessment of each inherent risk,
material misstatement, which arise citing reasons for your
because of complexity and change assessment, according to its
• Magnitude (1½ marks)
(1½ marks each) • Likelihood (1½ marks) and
• placement on the spectrum
of inherent risk (1½ marks)
DUE TO COMPLEXITY
1. The AFS may be materially misstated 1.
due to error as BR Retail imports Magnitude of misstatement is
products and the accounting medium/high as there are a few products ^
treatment of forex transactions is being imported (even though it is only 5%, ^
complex. (1½) it is still material (qualitatively but possibly ^
also quantitively if you consider the ^
yearend balance of inventory)). (1½)
Likelihood of misstatement is
medium/high as these types of
transactions are complex and might be
measured incorrectly (also considering the
under declaring of import taxes which
makes it more complex). (1½)
2
April 2023
AUE3761 Test 1
April 2023
SUGGESTED SOLUTION
Dear Student,
Carefully study the feedback we give you in the solution to Test 1.
Required 1: Statutory concerns relating to the appointment of the engagement MARKS
partner
References: Lesson 1.2; APA and Companies Act
1. Mr Marole may not be appointed as the engagement partner on the audit of BR Retail
as he would have been the engagement partner for more than five consecutive ^
years. (1½) (Section 92 of the Companies Act)
2. Mrs Martin, as a previous CFO of BR Retail, is disqualified to take over as the
engagement partner as she is not yet eligible to do so before another year has
passed (five years should lapse and she is only in year four) (1½) (Section 90 of ^
the Companies Act)
3. Although both Mr Marole and Mrs Martin:
• are registered with IRBA (they are partners at a registered firm of auditors) (1½)
^
(Section 90 of the Companies Act and Section 37 of APA),
• except for the issues identified in points 1 and 2 above no other independence ^
issues are identified (Section 90 of the Companies Act) (1½),
neither of them qualifies to be appointed as the engagement partner on BR Retail’s
audit. (1½) (If only one person is mentioned as not complying, award 1 mark only.) ^
4. It is therefore suggested that another partner in the audit firm takes on this
responsibility. (1½) ^
Available (6 x 1½ = 9) 9
Maximum 6
Comments
Take note of the following comments for the solution of Required 1:
• It was not clear whether or not students understood the term “statutory
requirements” as some students did not address the required in terms of the requirements
prescribed in the relevant Acts. To answer this required, students had to identify which
Acts should be complied with when appointing an engagement partner of an engagement.
1
, AUE3761 Test 1 Solution
April 2023
From your studies, you should have identified that the APA definitely applies as well certain
sections in the Companies Act.
• A lot of students provided us with a theoretical answer which was incorrect. As you
may know by now, for this module you should know the theory but more importantly be
able to apply it to a practical scenario. This means you had to look at the case study
and identify what information indicates whether they comply or not with statutory
requirements (the Acts).
• Some students only focused on Mrs Martin and not on Mr Marole as well.
• It is also evident that students do not understand that you also have to be registered with
IRBA to be appointed as an engagement partner.
• Also note that all partners of a partnership (as in the case with SBG Incorporated) should
be registered at IRBA (this is required by law). Therefore, if we indicate that SBG
Incorporated is a registered firm of auditors, it means that all partners are indeed registered
with IRBA. You should be able to deduct this from the information provided.
• Note that it was not necessary for you to provide the Acts and section numbers in
your answer. It was only given in this solution for reference purposes.
Required 2: Identification, description and assessment of inherent risks of
MARKS
material misstatement at the financial statement level due to complexity and
change
References: ISA 315 (Revised 2019); Lesson 3.3
(a) (b)
Description of inherent risks of Assessment of each inherent risk,
material misstatement, which arise citing reasons for your
because of complexity and change assessment, according to its
• Magnitude (1½ marks)
(1½ marks each) • Likelihood (1½ marks) and
• placement on the spectrum
of inherent risk (1½ marks)
DUE TO COMPLEXITY
1. The AFS may be materially misstated 1.
due to error as BR Retail imports Magnitude of misstatement is
products and the accounting medium/high as there are a few products ^
treatment of forex transactions is being imported (even though it is only 5%, ^
complex. (1½) it is still material (qualitatively but possibly ^
also quantitively if you consider the ^
yearend balance of inventory)). (1½)
Likelihood of misstatement is
medium/high as these types of
transactions are complex and might be
measured incorrectly (also considering the
under declaring of import taxes which
makes it more complex). (1½)
2
