100%
AUE3761
EXAM PACK
DISTINCTION QUALITY
UNISA EXAM
,AUE3761 Test June 2026
Marking tick Meaning
A tick with a number. This indicates
that the answer is correct and the
value of that mark is 1. We only award
1 mark or no mark. No half marks are
awarded.
This indicates that the answer is
incorrect.
An upside-down tick indicates that the
mark for the same or similar concept
was already awarded.
A straight line in the margin means
that the answer was considered and
is either irrelevant, incorrect or stated
as theory.
Notes:
No marks are awarded for theory. An answer should be applied to the scenario
to earn a mark.
In some cases, students are provided with comments by the marker to assist
them with identifying weaknesses in their answers, however, students are
encouraged to work through their answer files and the solution and identify their
own weaknesses where no comments are included. The solution therefore
contains detailed comments to assist students.
1
,Required 1: Complete items 1.1 to 1.10 on Working Paper A100 related to the
identification and assessment of inherent risks of material misstatement
at the financial statement level that another audit team member left MARKS
incomplete. Provide your answers in a list format as 1.1, 1.2, 1.3 and so forth, in
accordance with the numbering in the working paper. Each answer counts one mark.
References: Lesson 3.3; ISA 315 (Revised 2019)
1.1 Susceptibility to misstatement due to management bias or fraud. (Note: For
the inherent risk factor, susceptibility to misstatement due to management bias or
fraud – the full name should be provided to earn a mark. Susceptibility alone is not
sufficient for example).
1.2 Likelihood is high as management might be motivated to commit fraud to reflect a
healthy financial position.
1.3 This risk can therefore be placed on the higher/upper end of the spectrum of
inherent risk.
1.4 Uncertainty/change.
1.5 Magnitude is high as it affects business operations as a whole.
1.6 Complexity/ subjectivity OR uncertainty (limited to one mark).
1.7 The magnitude is low, as only the cocoa used in Lion’s products is imported
(information given in the scenario) and only contributes approximately 8% of Lion’s total
revenue. Therefore, it may not have a significant impact on the AFS.
1.8 The likelihood is low, as staff members seem to be competent and experienced.
1.9 Conclusion on the spectrum of inherent risk is set as low/ medium
1.10 Likelihood is high as management, as there is a subsequent event with uncertainty
of its outcome and how it should be disclosed in the AFS.
Available (10 x 1) 10
Maximum 10
2
, 1 •
Comments
Likelihood of a misstatement is the possibility that the misstatement may occur.
(Ask yourself, is it likely to happen?)
• To determine the magnitude of a misstatement, qualitative and quantitative
aspects should be considered; for example, determine if the misstatement is
material based on the entity’s size, nature or circumstances. (Ask yourself, what
will the impact be?)
• When assessing inherent risk, the likelihood and magnitude of the
misstatement based on each of the inherent risk factors should be determined
to establish if it should be placed on the lower or higher spectrum of inherent
risk. This is where the auditor should use professional judgment, which may
vary based on the nature, size and complexity of the entity.
• The higher the combination of likelihood and magnitude, the higher the
assessment of inherent risk, and vice versa. It should be noted that inherent
risk need not be high for it to be assessed as high. Sometimes there may be a
low likelihood but a very high magnitude; therefore, inherent risk should still be
assessed as high. Refer to examples in ISA 315 (Revised 2019), paragraph
A220.
• The auditor may also allocate risks of material misstatement in categories along
the spectrum of inherent risk. Therefore, it is not necessary to have one
spectrum of inherent risk for every risk of material misstatement.
Remember that the goal of placing risks of material misstatement on the spectrum of
inherent risk is to determine whether the inherent risk should be assessed as high or
low. The higher the inherent risk, the better the internal controls should be to mitigate
the risk; or the auditor should be required to perform many substantive procedures. If
the inherent risk is lower, the auditor should perform fewer substantive procedures.
3
AUE3761
EXAM PACK
DISTINCTION QUALITY
UNISA EXAM
,AUE3761 Test June 2026
Marking tick Meaning
A tick with a number. This indicates
that the answer is correct and the
value of that mark is 1. We only award
1 mark or no mark. No half marks are
awarded.
This indicates that the answer is
incorrect.
An upside-down tick indicates that the
mark for the same or similar concept
was already awarded.
A straight line in the margin means
that the answer was considered and
is either irrelevant, incorrect or stated
as theory.
Notes:
No marks are awarded for theory. An answer should be applied to the scenario
to earn a mark.
In some cases, students are provided with comments by the marker to assist
them with identifying weaknesses in their answers, however, students are
encouraged to work through their answer files and the solution and identify their
own weaknesses where no comments are included. The solution therefore
contains detailed comments to assist students.
1
,Required 1: Complete items 1.1 to 1.10 on Working Paper A100 related to the
identification and assessment of inherent risks of material misstatement
at the financial statement level that another audit team member left MARKS
incomplete. Provide your answers in a list format as 1.1, 1.2, 1.3 and so forth, in
accordance with the numbering in the working paper. Each answer counts one mark.
References: Lesson 3.3; ISA 315 (Revised 2019)
1.1 Susceptibility to misstatement due to management bias or fraud. (Note: For
the inherent risk factor, susceptibility to misstatement due to management bias or
fraud – the full name should be provided to earn a mark. Susceptibility alone is not
sufficient for example).
1.2 Likelihood is high as management might be motivated to commit fraud to reflect a
healthy financial position.
1.3 This risk can therefore be placed on the higher/upper end of the spectrum of
inherent risk.
1.4 Uncertainty/change.
1.5 Magnitude is high as it affects business operations as a whole.
1.6 Complexity/ subjectivity OR uncertainty (limited to one mark).
1.7 The magnitude is low, as only the cocoa used in Lion’s products is imported
(information given in the scenario) and only contributes approximately 8% of Lion’s total
revenue. Therefore, it may not have a significant impact on the AFS.
1.8 The likelihood is low, as staff members seem to be competent and experienced.
1.9 Conclusion on the spectrum of inherent risk is set as low/ medium
1.10 Likelihood is high as management, as there is a subsequent event with uncertainty
of its outcome and how it should be disclosed in the AFS.
Available (10 x 1) 10
Maximum 10
2
, 1 •
Comments
Likelihood of a misstatement is the possibility that the misstatement may occur.
(Ask yourself, is it likely to happen?)
• To determine the magnitude of a misstatement, qualitative and quantitative
aspects should be considered; for example, determine if the misstatement is
material based on the entity’s size, nature or circumstances. (Ask yourself, what
will the impact be?)
• When assessing inherent risk, the likelihood and magnitude of the
misstatement based on each of the inherent risk factors should be determined
to establish if it should be placed on the lower or higher spectrum of inherent
risk. This is where the auditor should use professional judgment, which may
vary based on the nature, size and complexity of the entity.
• The higher the combination of likelihood and magnitude, the higher the
assessment of inherent risk, and vice versa. It should be noted that inherent
risk need not be high for it to be assessed as high. Sometimes there may be a
low likelihood but a very high magnitude; therefore, inherent risk should still be
assessed as high. Refer to examples in ISA 315 (Revised 2019), paragraph
A220.
• The auditor may also allocate risks of material misstatement in categories along
the spectrum of inherent risk. Therefore, it is not necessary to have one
spectrum of inherent risk for every risk of material misstatement.
Remember that the goal of placing risks of material misstatement on the spectrum of
inherent risk is to determine whether the inherent risk should be assessed as high or
low. The higher the inherent risk, the better the internal controls should be to mitigate
the risk; or the auditor should be required to perform many substantive procedures. If
the inherent risk is lower, the auditor should perform fewer substantive procedures.
3
