AUE3702 LATEST EXAM PACK 2021.

AUE S2 – QUESTION (UNISA) You are an audit senior at Bean Counters Inc. ("Bean Counters"), a firm of registered auditors. Bean Counters were appointed as the auditors of Banana Limited ("Banana") on 1 August 2014, and you were assigned to the statutory audit of Banana for its financial year ended 30 September 2014. Suppose that you are Victor Sitabule. You are responsible tor auditing opening balances, deciding on whether or not reliance may be placed on the work performed by the internal audit unit of Banana, formulating the substantive procedures for property, plant and equipment, identifying subsequent events and considering the impact of material misstatements on the audit report. Banana was incorporated during 1994 in South Africa and is listed on the Johannesburg Stock Exchange. Banana is a leader in the retail industry of cellphones and cellphone accessories. PART A: OPENING BALANCES Client: Banana Limited Year end: 30 September 2014 I - 110 Prepared by: Victor Sitabule Preparation date: 15 August 2014 Reviewed by: Alwyn Conrade Review date: 10 September 2014 Subject: Understanding the opening balance of inventory This is the first time that Bean Counters is performing the audit of Banana. Permission was granted by Banana's management to contact the previous auditors to access their working papers, in particular pertaining to the opening balances. I contacted the previously appointed auditor, Ms Numazu Nkosi, and she provided me with all her working papers on which she based her audit report for the previous year (30 September 2013). I worked through all the previous years' working papers and concluded that, except for inventory, we can rely on the work performed by Ms Nkosi. The reason for not relying on the audit work performed on inventory is that Ms Nkosi did not attend the 30 September 2013 inventory count. In terms of the annual financial statements, inventory constitutes a material amount. Based on a planning working paper in the current year's audit file, I concluded that the existence of inventory posed a significant risk for the audit. On 30 September 2013 the warehouse manager, Mr Hands Free, performed an inventory count and updated the inventory balance. These inventory count sheets and the inventory count policies and procedure are available from Mr Hands Free. Banana makes use of a computerised perpetual inventory system whereby inventory receipts are captured from the goods received notes and issuances are captured from the invoices. Banana uses the first-in-first-out (FIFO) method to value its inventory. A detailed perpetual inventory list for the 30 September 2013 inventory is available. This perpetual inventory list contains the following fields: • Quantity on hand • Product code and description • Cost price of each inventory item • Selling price of each inventory item (corresponding to the year-end approved price list) The selling price of inventory did not increase in the current year. Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School PART B: INTERNAL AUDIT UNIT Banana has an internal audit unit. Ms Gladys Malema is the head of this unit. The internal audit unit was required to plan and attend the inventory counts at the various Banana warehouses in Pretoria, Durban, Polokwane, Mbombela and Cape Town on 31 August 2014. If we (Bean Counters) can rely on the work undertaken by the internal audit unit, then we can perform "roiling forward" and "reconciliation procedures". Intended reliance on the work performed by the internal audit unit is based on an argument put forward by Banana's Audit Committee that if reliance can be placed on the work of the internal auditors, then Bean Counters can accordingly adjust the extent of their audit procedures, thus reducing the audit fee. Details of the work performed by Banana's internal audit unit are documented in the following working paper. This working paper was prepared by the internal audit unit: Banana Limited Internal Audit Year end: 30 September 2014 I - 400 Prepared by: Preparation date: Reviewed by: Review date: Subject: Inventory count attendance plan and execution Planning the inventory count 1. Inventory on hand at 31 August at the respective warehouses were as follows: Warehouse Amount (Rand) Pretoria 45 million Durban 21 million Polokwane 5 million Mbombela 5 million Cape Town 25 million  Carrying value 100 million TB Tick legends: - casted correctly TB - Corresponds with final trial balance at 31 August 2014 2. The internal audit unit consists of 14 people, including Ms Malema Work performed 3. 100% of the inventory was counted at the Pretoria, Mbombela and Polokwane warehouses. All warehouses were selected with an inventory value that was equal to or exceeded R5 million. 4. Our count procedures are designed to address both the existence and completeness of the inventory items at the selected warehouses. Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School PART C: PROPERTY, PLANT AND EQUIPMENT Client: Banana Limited Year end: 30 September 2014 R - 600 Prepared by: Victor Sitabule Preparation date: 15 August 2014 Reviewed by: Alwyn Conrade Review date: 1 October 2014 Subject: Property, plant and equipment – computer and network equipment Computer and network equipment make up 40% of the total value of Banana's assets. This equipment is used to run the day-to-day activities of Banana. Computer equipment is earned at cost, less accumulated depreciation and accumulated impairment losses in terms of IAS 16 - Property, Plant and Equipment. Depreciation is charged on a straight-line basis over the estimated useful life (three years) of these Items. There were no changes to the accounting policy during the financial year and no impairment testing was performed during the year ended 30 September 2014. There were no additions and disposals of computer and network equipment during the financial year. All items of property, plant and equipment are paid for in cash. Sandri Marks provided the following: • fixed asset register • depreciation calculation • accounting policy relating to fixed assets PART D: SUBSEQUENT EVENTS AND AUDIT REPORTING Client: Banana Limited Year end: 30 September 2014 A - 101 Prepared by: Victor Sitabule Preparation date: 5 October 2014 Reviewed by: Alwyn Conrade Review date: 8 October 2014 Subject: Legal dispute Lady Gaga's agent is suing Banana for $150 000. This amount exceeds materiality. She is suing - because Banana released her new hit single "Do what you want” before the agreed release date - in terms of a signed contract between the two parties. The date of release in terms of the contract for this hit single was 5 September 2014. However, Banana made the hit available for download to its registered users on 1 September 2014. Lady Gaga's manager became aware of this on 1 October 2014 and filed for legal action on the same day. The legal team of Banana is of the opinion that Banana will, in all likelihood, have to pay the amount of $150 000 because all evidence indicated that Banana was in breach of the terms of the contract. The court date is 20 October 2014. The management of Banana refuses to adjust the financial statements because the incident is too close to year-end. Management is of the opinion that Lady Gaga will forget the incident and eventually withdraw the case. The financial statements will be approved and signed by the directors on 31 October 2014 and the auditor's report will be issued on the same day. There are no other material disagreements/misstatements evident from the audit performed. Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School REQUIRED 1. To answer this question, first refer to Part A of the case study: Formulate the substantive audit procedures to audit the opening balance for inventory. (Exclude CAATs-related procedures) (24) Marks awarded for communication (1) Total (25) 2. To answer this question, first refer to Part B of the case study: Write a letter to the audit committee of Banana Limited, in which you explain your concerns relating to the work documented by the internal audit unit and conclude whether or not you will place reliance on the work performed by them. (21) Marks awarded for communication (3) • Format, introduction, logical argument and conclusion Total (24) 3. To answer this question, first refer to Part C of the case study: Formulate the substantive procedures that you will perform to audit the existence and valuation of computer and network equipment at year-end. (Do not concern yourself with analytical procedures and exclude from your answers any substantive procedures by making use of CAATs and possible deferred tax implications). (12) Marks awarded for communication (1) Total (13) 4. To answer this question, first refer to Part D of the case study: Assume that the transaction referred to in Part D will have no impact on the going concern ability of Banana. Discuss the impact of the legal dispute on the annual financial statements of Banana Limited for the year ended 30 September 2014. (12) Marks awarded for communication (1) Total (13) 5. This question is based on theory: List twelve examples of events or conditions which may indicate that an entity's ability to continue as a going concern may be doubtful. Total (12) 6. To answer this question, first refer to Part D of the case study: Explain the impact of management's refusal, to adjust the financial statements, on the audit report to your audit assistant. (12) Marks awarded for communication (1) Total (13) Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School AUE S1 – QUESTION (UNISA) 1. BACKGROUND INFORMATION You are a senior trainee accountant at Bean Counters Inc (Bean Counters), a large firm of registered auditors. You have been assigned to the audit of Edison (Proprietary) Limited (Edison) for the year ended 30 June 2015. Edison is a large manufacturing and retail company that manufactures and sells clothing and shoes to the South African public through their 70 retail stores. On 1 April 2015 Edison added "Jozi Jeans" to their existing clothing line by importing high- quality, no-name brand jeans from Quality Clothing International (QCI) in Southern California, United States of America. Once these imported jeans are received by Edison, the Edison clothing design team sew the "Jozi Jeans" brand logo onto each garment. These jeans are then sold in Edison's largest and most successful retail stores situated in Melrose Arch, Sandton, Menlyn and Cape Town, for R850 each. Edison does not make use of hedge accounting as stipulated in IAS 39 – Financial Instruments: Recognition and measurement. Market research performed by Edison indicates that the "Jozi Jeans" are in high demand. Edison is a registered VAT vendor in terms of Section 23(1) of the Value-Added Tax Act 89 of 1991. Edison's financial reporting framework is the International Financial Reporting Standards (IFRS). 2. TRADE PAYABLES The following is an extract from the final trial balance of Edison as at 30 June 2015. Note Trade payables 000 1 and 2 Note 1 On 1 April 2015, Edison ordered 4 500 no-name brand jeans from QCI. The goods ordered were invoiced on 30 April 2015 for an amount of $225 000 and were shipped free on board (FOB) on 31 May 2015. On 31 May 2015, the US$/ZAR exchange rate was R10.52 to the dollar. The goods ordered arrived at the Durban harbour on 15 June 2015. You ascertained from the E-filing returns filed with the South African Revenue Services (SARS) that R364 518 (VAT) and R283 500 (Customs Duty) was paid to SARS. On 16 June 2015 the goods were transported to the Edison head office in Johannesburg, at a cost of R90 000. The transport costs were paid to the delivery company by means of electronic fund transfer (EFT), upon arrival of the goods at the Edison head office on 17 June 2015. On this date the purchase clerk at the Edison head office issued a goods received note (GRN). The invoice from QCI is payable on 31 August 2015, 90 days from the shipment date. This is considered to be normal payment terms for goods shipped internationally. On 18 June 2015 Edison's clothing design team commenced sewing the "Jozi Jeans" brand logo onto each of the jeans received at a cost of R71 per jean. This was completed on 23 June 2015 and the branded "Jozi Jeans "was distributed to Edison's Melrose Arch, Sandton, Menlyn and Cape Town retail stores on 25 June 2015. At year end Edison had 4 000 "Jozi Jeans "in stock. Note 2 • At 30 June 2015 the trade payables consisted of 28 individual creditors' accounts (2014 - 25 accounts) Downloaded by: aviva9296 | Distribution of this document is illegal Downloaded by: ResourceCentre9 | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material S - The study-notes marketplace © Edge Business School • QCI IS the only foreign creditor of Edison. • You have access to the trade payables' (creditors') list, trade payables ledgers, trade payables control account, suppliers statements and suppliers correspondence files. 3. BANK You have received the following bank reconciliation which relates to the current account of Edison: BANK RECONCILIATION AT 30 JUNE 2015 Account number: Account type: Current account Bank: Med Bank R Balance per cash book at 30 June Add: Outstanding cheque (Cheque 13521) 1 455 698 Deduct: Outstanding deposits (Receipt 1369) (62 569) Bank error (*) (220 000) Balance per bank statement as at 30 June * Med bank informed Edison that there had been a system error during June 2015 and that an amount of R220 000 had been incorrectly deducted from Edison's current account. This error will be corrected during July 2015. 4. SUBSEQUENT EVENTS You have not yet performed the procedures to identify possible subsequent events that relate to Edison. 5. UNRESOLVED MATTERS The following materiality levels were set for the audit: Performance materiality R4 000 000 Final materiality R3 500 000 The following unresolved matters were identified during the audit: Unresolved matter 1 The trade receivables balance of R in the final trial balance was in fact overstated. You have discussed the matter with the management of Edison. However, they refuse to adjust the financial statements to correct the overstatement of R3 800 000. Unresolved matter 2 Due to the numerous power failures which occurred throughout the year in the Melrose Arch, Sandton and Menlyn areas, several weeks' worth of accounting information was lost, as Edison has neither backup facilities nor an uninterruptible power supply (UPS). The accounting Information lost relates to various transa