AUE3701 EXAM SOLUTIONS
MAY / JUNE EXAM 2017 PAPER 1 SOLUTIONS
QUESTION 1 ( a )
MANAGEMENTS INTEGRITY IS IN QUESTION
MANAGEMENT HAS HAD A DISAGREEMENT WITH THE PREVIOUS AUDITORS
REGARDING INVENTORY VALUATION, THIS COULD BE ASSOCIATED WITH
SUSPICIOUS ACTIVITIES
DIRECTORS ARE NOT WILLING TO ALLOW US TO CONTACT THE PREVIOUS AUDITORS
FOR INFORMATION, THIS COULD BE DUE TO A SERIOUS DISPUTE OR DISAGREEMENT
THE DIRECTORS MAY HAVE SOMETHING TO HIDE AS THEY WILL NOT GIVE US
PERMISSION TO DISCUSS PREVIOUS AUDIT MATTERS WITH THE PREVIOUS
AUDITORS
THE RESTRICTIONS PLACED ON US BY THE CLIENT COULD LIMIT THE SCOPE OF THE
AUDIT AND NEEDS TO BE CONSIDERED IF WE WOULD BE ABLE TO PERFORM THE
AUDIT AS REQUIRED
THE COMPETENCE OF THE FIRM, IN TERMS OF ITS CAPABILITIES, TIME AND RESOURCES TO
PERFORM THE AUDIT AS REQUIRED
MUGGLES IS A SMALL AUDIT FIRM, AND THE CLIENT IS LISTED ON THE JSE. IT IS
LIKELY THAT THE AUDIT FIRM WOULD NOT BE ABLE TO COMPLETE THE
ENGAGEMENT WITHIN THE DEADLINE PROVIDED AS THEY HAVE BEEN PLACED
UNDER IMMENSE PRESSURE TO COMPLETE THE AUDIT IN A SMALL AMOUNT OF
TIME
MUGGLES NORMALLY RENDERS AUDIT SERVICES IN THE FAMRING INDUSTRY AND
THEREFORE ITS AUDIT PERSONNEL MAY NOT HAVE THE KNOWLEDGE / EXPERIENCE
IN THE JEWELERY INDUSTRY WITH REGARDS TO THE RELEVANT REPORTING AND
REGULATORY REQUIREMENTS
THE AUDIT SOFTWARE NEEDS TO BE CHECKED TO SEE IF IT IS COMPATIBLE WITH
THE AUDIT CLIENTS SOFTWARE
DOES THE AUDIT TEAM MEET ALL THE COMPLIANCE AND ETHICAL REQUIREMENTS
THE AUDIT PARTNER IS NOT INDEPENDENT FROM THE AUDIT CLIENT AS HE IS
RELATED TO THE MANAGING DIRECTOR
DUE TO THE HIGH AUDIT FEE WHICH WILL BE RECEIVED, IT POSES A THREAT TO THE
INDEPENDENCE TOWARDS THE AUDIT
WE NEED TO CONSIDER IF THE CLIENT WILL BE ABLE TO PAY THE LARGE AUDIT FEE AS THEY
MAY BE FACING GOING CONCERN ISSUES
RISING INPUT COSTS AND DECREASING DISPOSABLE HOUSEHOLD INCOME
LOSS OF CUSTOMERS
PROFITS CONTINUOUSLY DECLINING
WILL MANAGEMENT OF HORCRUX BE WILLING TO ACCEPT THE TERMS OF ENGAGEMENT
STATED ON THE ENGAGEMENT LETTER
BASED ON THE ABOVE REASONS, THE ENGAGEMENT SHOULD NOT BE ACCEPTED
MAY / JUNE EXAM 2017 PAPER 1 SOLUTIONS
QUESTION 1 ( a )
MANAGEMENTS INTEGRITY IS IN QUESTION
MANAGEMENT HAS HAD A DISAGREEMENT WITH THE PREVIOUS AUDITORS
REGARDING INVENTORY VALUATION, THIS COULD BE ASSOCIATED WITH
SUSPICIOUS ACTIVITIES
DIRECTORS ARE NOT WILLING TO ALLOW US TO CONTACT THE PREVIOUS AUDITORS
FOR INFORMATION, THIS COULD BE DUE TO A SERIOUS DISPUTE OR DISAGREEMENT
THE DIRECTORS MAY HAVE SOMETHING TO HIDE AS THEY WILL NOT GIVE US
PERMISSION TO DISCUSS PREVIOUS AUDIT MATTERS WITH THE PREVIOUS
AUDITORS
THE RESTRICTIONS PLACED ON US BY THE CLIENT COULD LIMIT THE SCOPE OF THE
AUDIT AND NEEDS TO BE CONSIDERED IF WE WOULD BE ABLE TO PERFORM THE
AUDIT AS REQUIRED
THE COMPETENCE OF THE FIRM, IN TERMS OF ITS CAPABILITIES, TIME AND RESOURCES TO
PERFORM THE AUDIT AS REQUIRED
MUGGLES IS A SMALL AUDIT FIRM, AND THE CLIENT IS LISTED ON THE JSE. IT IS
LIKELY THAT THE AUDIT FIRM WOULD NOT BE ABLE TO COMPLETE THE
ENGAGEMENT WITHIN THE DEADLINE PROVIDED AS THEY HAVE BEEN PLACED
UNDER IMMENSE PRESSURE TO COMPLETE THE AUDIT IN A SMALL AMOUNT OF
TIME
MUGGLES NORMALLY RENDERS AUDIT SERVICES IN THE FAMRING INDUSTRY AND
THEREFORE ITS AUDIT PERSONNEL MAY NOT HAVE THE KNOWLEDGE / EXPERIENCE
IN THE JEWELERY INDUSTRY WITH REGARDS TO THE RELEVANT REPORTING AND
REGULATORY REQUIREMENTS
THE AUDIT SOFTWARE NEEDS TO BE CHECKED TO SEE IF IT IS COMPATIBLE WITH
THE AUDIT CLIENTS SOFTWARE
DOES THE AUDIT TEAM MEET ALL THE COMPLIANCE AND ETHICAL REQUIREMENTS
THE AUDIT PARTNER IS NOT INDEPENDENT FROM THE AUDIT CLIENT AS HE IS
RELATED TO THE MANAGING DIRECTOR
DUE TO THE HIGH AUDIT FEE WHICH WILL BE RECEIVED, IT POSES A THREAT TO THE
INDEPENDENCE TOWARDS THE AUDIT
WE NEED TO CONSIDER IF THE CLIENT WILL BE ABLE TO PAY THE LARGE AUDIT FEE AS THEY
MAY BE FACING GOING CONCERN ISSUES
RISING INPUT COSTS AND DECREASING DISPOSABLE HOUSEHOLD INCOME
LOSS OF CUSTOMERS
PROFITS CONTINUOUSLY DECLINING
WILL MANAGEMENT OF HORCRUX BE WILLING TO ACCEPT THE TERMS OF ENGAGEMENT
STATED ON THE ENGAGEMENT LETTER
BASED ON THE ABOVE REASONS, THE ENGAGEMENT SHOULD NOT BE ACCEPTED
