AUE3761
EXAM PACK
, lOMoARcPSD|21997160
AUE3761
Jan/Feb 2024
SUGGESTED SOLUTION
General comments:
- Remember that this memorandum is only a guideline. Read each answer provided
by the student carefully.
- If the student described it in a different manner, but it relates to a point provided in
the memorandum, please award the marks.
PART 1:
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
References: Tutorial letter 102; Lesson 3.3; ISA 315 (Revised 2019), TL 102 AND 105:
Companies Act
1. Establish whether pre-conditions for an audit are present.
1.1 SADA’s expectations that ABC Inc assist with If any of the preconditions of the audit are not
the preparation of accounting information/ present, the auditor should discuss the
setting the audit deadline is concerning (1). matter with management and decline the
audit engagement (1).
1.2 This is an indication that the management of The auditor should obtain an agreement
SADA do not fully accept responsibility for the from management where management
preparation of financial statements (1) as they clearly acknowledges and understands
required the prior auditor to assist in preparing their responsibility especially in terms of
financial statements that are free from material preparation of the financial statements
misstatement and fired them when this was not (this is usually stated in the engagement
done. letter as well) (1).
2. Investigate prospective client
2.1 ABC Inc did not investigate the prospective ABC Inc should have performed an
client (1) such as considering the integrity of the investigation into SADA and consider
client (1) and reasons for changing auditors (1). reasons for the sudden proposed
appointment and non-renewal of the
engagement with the previous firm (1).
1
, lOMoARcPSD|21997160
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
2.2 ABC Inc did not contact the previous auditors ABC Inc should obtain permission from the
to investigate the reason for qualifications client to contact the previous auditors to
issued/disagreements with management (1). investigate the reason for the issues
experienced (1).
3. Determine skills, competence, and resources
3.1 There is a self-interest threat (1) to ABC Incorporated should increase the
professional competence and due care (1) as number of personnel on the audit team at
the audit firm might not have enough personnel SADA to counter the limited timeframe OR
(resources) on the audit to finalise the audit
within the limited/given timeframe. (1) extend, with SADA’s consent the timeframe
MAX (1)
3.2 The client is highly computerised and the audit ABC Inc should consider including
firm did not consider the competence of staff toexperienced team members in auditing
address the computerised environment (1). computerised audit systems or hire an audit
expert (1).
4. Consider statutory and ethical requirements
4.1 There is a self-interest threat (1) to ABC Inc may not be involved in
professional behaviour (1) and objectivity (1) accounting or operational functions
as the technical audit manager is required to including ensuring the financial statements of
compile accounting information for the SADA are free of material misstatement-;and
financial statements of SADA in the should therefore not accept SADA as an
preparation of financial statements to ensure audit client OR
free from material misstatement/unqualified (1)
and to offer strategic guidance in terms of ABC Incorporated should consider obtaining
operations (1). This is also a contravention of legal advice. OR
section 90 of the Companies Act. (1)
SADA should consider to appoint someone
else to compile financial statements.
MAX (1)
4.2 ABC Inc should have considered if the
ABC Inc should discuss with management
appointment followed the necessary
the non-compliance with section 91(3) of the
channels/compliance processes for
Companies Act, resign or obtain ratification
appointment, i.e. Section 91(3) of the Companies
2
, lOMoARcPSD|21997160
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
Act (1). There is a self interest (1) threat to by the board after commendation from the
professional behaviour (1) as appointment is not audit committee (1).
in terms of the Co Act.
or
ABC Inc was not proposed by the board to the
audit committee for approval, in this case the
board has unanimously approved the
appointment without the recommendation
from the audit committee. (1).
4.3 There is a familiarity threat (1) to objectivity The audit partner (Ms Sandy Mahlangu)
(1) as the CFO and the engagement audit partner should not be involved in the audit; and
in charge of the audit are friends. The audit partner another audit partner at the firm should be
is therefore not independent from the audit client. allocated to the audit, if possible. If this is not
(1) possible, the audit should not have been
accepted. (1)
5. Establish terms of the engagement
5.1 SADA’s expectations of ABC Inc regarding the SADA should not dictate the conditions of the
setting the audit deadline is concerning (1) audit and therefore no audit deadline should
be included in the engagement letter. (1)
Available (32 x 1 ) 32
Maximum marks 18
Communication skills – Clarity of expression 1
Total part 1 19
3
EXAM PACK
, lOMoARcPSD|21997160
AUE3761
Jan/Feb 2024
SUGGESTED SOLUTION
General comments:
- Remember that this memorandum is only a guideline. Read each answer provided
by the student carefully.
- If the student described it in a different manner, but it relates to a point provided in
the memorandum, please award the marks.
PART 1:
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
References: Tutorial letter 102; Lesson 3.3; ISA 315 (Revised 2019), TL 102 AND 105:
Companies Act
1. Establish whether pre-conditions for an audit are present.
1.1 SADA’s expectations that ABC Inc assist with If any of the preconditions of the audit are not
the preparation of accounting information/ present, the auditor should discuss the
setting the audit deadline is concerning (1). matter with management and decline the
audit engagement (1).
1.2 This is an indication that the management of The auditor should obtain an agreement
SADA do not fully accept responsibility for the from management where management
preparation of financial statements (1) as they clearly acknowledges and understands
required the prior auditor to assist in preparing their responsibility especially in terms of
financial statements that are free from material preparation of the financial statements
misstatement and fired them when this was not (this is usually stated in the engagement
done. letter as well) (1).
2. Investigate prospective client
2.1 ABC Inc did not investigate the prospective ABC Inc should have performed an
client (1) such as considering the integrity of the investigation into SADA and consider
client (1) and reasons for changing auditors (1). reasons for the sudden proposed
appointment and non-renewal of the
engagement with the previous firm (1).
1
, lOMoARcPSD|21997160
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
2.2 ABC Inc did not contact the previous auditors ABC Inc should obtain permission from the
to investigate the reason for qualifications client to contact the previous auditors to
issued/disagreements with management (1). investigate the reason for the issues
experienced (1).
3. Determine skills, competence, and resources
3.1 There is a self-interest threat (1) to ABC Incorporated should increase the
professional competence and due care (1) as number of personnel on the audit team at
the audit firm might not have enough personnel SADA to counter the limited timeframe OR
(resources) on the audit to finalise the audit
within the limited/given timeframe. (1) extend, with SADA’s consent the timeframe
MAX (1)
3.2 The client is highly computerised and the audit ABC Inc should consider including
firm did not consider the competence of staff toexperienced team members in auditing
address the computerised environment (1). computerised audit systems or hire an audit
expert (1).
4. Consider statutory and ethical requirements
4.1 There is a self-interest threat (1) to ABC Inc may not be involved in
professional behaviour (1) and objectivity (1) accounting or operational functions
as the technical audit manager is required to including ensuring the financial statements of
compile accounting information for the SADA are free of material misstatement-;and
financial statements of SADA in the should therefore not accept SADA as an
preparation of financial statements to ensure audit client OR
free from material misstatement/unqualified (1)
and to offer strategic guidance in terms of ABC Incorporated should consider obtaining
operations (1). This is also a contravention of legal advice. OR
section 90 of the Companies Act. (1)
SADA should consider to appoint someone
else to compile financial statements.
MAX (1)
4.2 ABC Inc should have considered if the
ABC Inc should discuss with management
appointment followed the necessary
the non-compliance with section 91(3) of the
channels/compliance processes for
Companies Act, resign or obtain ratification
appointment, i.e. Section 91(3) of the Companies
2
, lOMoARcPSD|21997160
Question 1: Discuss, based only on the information included in the above stated information, the
matters of concern that ABC Incorporated should have considered before it accepted the audit
engagement with SADA for the financial year ended 30 November 2023. Recommend
improvements to be put in place for each concern.
19 MARKS
Matters of concern Improvements to be put in place
Act (1). There is a self interest (1) threat to by the board after commendation from the
professional behaviour (1) as appointment is not audit committee (1).
in terms of the Co Act.
or
ABC Inc was not proposed by the board to the
audit committee for approval, in this case the
board has unanimously approved the
appointment without the recommendation
from the audit committee. (1).
4.3 There is a familiarity threat (1) to objectivity The audit partner (Ms Sandy Mahlangu)
(1) as the CFO and the engagement audit partner should not be involved in the audit; and
in charge of the audit are friends. The audit partner another audit partner at the firm should be
is therefore not independent from the audit client. allocated to the audit, if possible. If this is not
(1) possible, the audit should not have been
accepted. (1)
5. Establish terms of the engagement
5.1 SADA’s expectations of ABC Inc regarding the SADA should not dictate the conditions of the
setting the audit deadline is concerning (1) audit and therefore no audit deadline should
be included in the engagement letter. (1)
Available (32 x 1 ) 32
Maximum marks 18
Communication skills – Clarity of expression 1
Total part 1 19
3
