AUE2601
EXAM PACK
,AUE2601 – AUDITING THEORY AND PRACTICE
EXAM QUESTIONS, ANSWERS AND EXPLANATIONS
1. Question: Which statement about an audit of financial statements is incorrect?
Answer: The auditor is responsible for designing internal controls to ensure that control
risk is reduced to an acceptable level.
Explanation: Management is responsible for establishing and maintaining the entity’s
internal-control system. The auditor evaluates and tests those controls but does not
take responsibility for designing them.
2. Question: Langley Consultants (Pty) Ltd has the given number of employees,
revenue, liabilities, equipment purchases and shareholders. What is its public-interest
score?
Answer: 202.
Explanation: The public-interest score is calculated using the prescribed criteria
relating to employees, turnover, liabilities and other relevant factors. Based on the
information provided in the question, the resulting score is 202.
3. Question: The managing director of Plant & Hire (Pty) Ltd is intimidating and
unwilling to cooperate with the audit team. What safeguards should be implemented?
Answer: The firm should use audit team members who can remain objective and resist
intimidation, together with quality-control procedures to determine whether the
professional relationship with the client should continue.
Explanation: Intimidating behaviour can create a threat to the auditor’s objectivity and
professional judgement. Appropriate safeguards help the audit team remain
independent and also allow the firm to reconsider the client relationship if the threat
cannot be reduced adequately.
,4. Question: Who may legally be appointed as auditor of Diva (Pty) Ltd under the
Companies Act?
Answer: Mr Darwin, a director of HIG Auditors Inc., because the firm last audited Diva
more than six years ago and has only provided occasional secretarial services since
then.
Explanation: The Companies Act places restrictions on certain relationships and
services that could compromise an auditor’s independence. In this situation, the
circumstances described do not prevent Mr Darwin from being appointed as auditor.
5. Question: Which statements correctly describe acceptable marketing of auditing
services?
Answer: An audit firm may not make exaggerated claims, such as claiming to be the
best auditing firm in the country. It may explain how professional fees are calculated,
but it should not advertise specific hourly rates for individual staff members.
Explanation: Professional advertising must be honest, objective and consistent with the
dignity of the profession. Exaggerated or misleading claims can undermine public
confidence in the auditing profession.
6. Question: Excellent Auditors has limited knowledge of copper mining and faces a
significant risk concerning the valuation of inventory. What should be included in the
audit strategy?
Answer: The audit strategy should make provision for an independent expert with
appropriate copper-mining expertise to assist with the inventory valuation.
Explanation: Where specialised knowledge is required, the auditor may need to use
the work of an appropriately qualified expert. An independent expert can provide
technical knowledge that the audit team does not possess.
, 7. Question: Which professional rules apply to Moses, a CA(SA) who works as a group
accountant and is a SAICA member only?
Answer: Parts 1 and 2 of the SAICA Code of Professional Conduct.
Explanation: The applicable sections depend on the nature of the professional’s role
and membership status. Since Moses is acting as a professional accountant in business
rather than as an auditor, Parts 1 and 2 are applicable.
8. Question: Which statements correctly identify the parties and evidence involved in
the assurance engagement for Grow Forever (Pty) Ltd?
Answer: The three parties are the practitioner, Grow Forever as the responsible party,
and the shareholders as intended users. Sufficient appropriate evidence allows the
practitioner to reach a reasonable conclusion that the financial statements are free from
material misstatement.
Explanation: An assurance engagement involves a practitioner, a responsible party
and intended users. The auditor gathers sufficient appropriate evidence to support the
conclusion expressed in the assurance report.
9. Question: Match each type of auditor with the appropriate description.
Answer:
Auditor who evaluates internal controls and business activities → Internal
auditor
Auditor who examines the financial affairs of government departments →
Government auditor
Auditor who investigates suspected fraud, theft or financial mismanagement →
Forensic auditor
Explanation: Internal auditors focus mainly on controls, governance and organisational
processes. Government auditors examine public-sector financial activities, while
EXAM PACK
,AUE2601 – AUDITING THEORY AND PRACTICE
EXAM QUESTIONS, ANSWERS AND EXPLANATIONS
1. Question: Which statement about an audit of financial statements is incorrect?
Answer: The auditor is responsible for designing internal controls to ensure that control
risk is reduced to an acceptable level.
Explanation: Management is responsible for establishing and maintaining the entity’s
internal-control system. The auditor evaluates and tests those controls but does not
take responsibility for designing them.
2. Question: Langley Consultants (Pty) Ltd has the given number of employees,
revenue, liabilities, equipment purchases and shareholders. What is its public-interest
score?
Answer: 202.
Explanation: The public-interest score is calculated using the prescribed criteria
relating to employees, turnover, liabilities and other relevant factors. Based on the
information provided in the question, the resulting score is 202.
3. Question: The managing director of Plant & Hire (Pty) Ltd is intimidating and
unwilling to cooperate with the audit team. What safeguards should be implemented?
Answer: The firm should use audit team members who can remain objective and resist
intimidation, together with quality-control procedures to determine whether the
professional relationship with the client should continue.
Explanation: Intimidating behaviour can create a threat to the auditor’s objectivity and
professional judgement. Appropriate safeguards help the audit team remain
independent and also allow the firm to reconsider the client relationship if the threat
cannot be reduced adequately.
,4. Question: Who may legally be appointed as auditor of Diva (Pty) Ltd under the
Companies Act?
Answer: Mr Darwin, a director of HIG Auditors Inc., because the firm last audited Diva
more than six years ago and has only provided occasional secretarial services since
then.
Explanation: The Companies Act places restrictions on certain relationships and
services that could compromise an auditor’s independence. In this situation, the
circumstances described do not prevent Mr Darwin from being appointed as auditor.
5. Question: Which statements correctly describe acceptable marketing of auditing
services?
Answer: An audit firm may not make exaggerated claims, such as claiming to be the
best auditing firm in the country. It may explain how professional fees are calculated,
but it should not advertise specific hourly rates for individual staff members.
Explanation: Professional advertising must be honest, objective and consistent with the
dignity of the profession. Exaggerated or misleading claims can undermine public
confidence in the auditing profession.
6. Question: Excellent Auditors has limited knowledge of copper mining and faces a
significant risk concerning the valuation of inventory. What should be included in the
audit strategy?
Answer: The audit strategy should make provision for an independent expert with
appropriate copper-mining expertise to assist with the inventory valuation.
Explanation: Where specialised knowledge is required, the auditor may need to use
the work of an appropriately qualified expert. An independent expert can provide
technical knowledge that the audit team does not possess.
, 7. Question: Which professional rules apply to Moses, a CA(SA) who works as a group
accountant and is a SAICA member only?
Answer: Parts 1 and 2 of the SAICA Code of Professional Conduct.
Explanation: The applicable sections depend on the nature of the professional’s role
and membership status. Since Moses is acting as a professional accountant in business
rather than as an auditor, Parts 1 and 2 are applicable.
8. Question: Which statements correctly identify the parties and evidence involved in
the assurance engagement for Grow Forever (Pty) Ltd?
Answer: The three parties are the practitioner, Grow Forever as the responsible party,
and the shareholders as intended users. Sufficient appropriate evidence allows the
practitioner to reach a reasonable conclusion that the financial statements are free from
material misstatement.
Explanation: An assurance engagement involves a practitioner, a responsible party
and intended users. The auditor gathers sufficient appropriate evidence to support the
conclusion expressed in the assurance report.
9. Question: Match each type of auditor with the appropriate description.
Answer:
Auditor who evaluates internal controls and business activities → Internal
auditor
Auditor who examines the financial affairs of government departments →
Government auditor
Auditor who investigates suspected fraud, theft or financial mismanagement →
Forensic auditor
Explanation: Internal auditors focus mainly on controls, governance and organisational
processes. Government auditors examine public-sector financial activities, while
