AUE3761 TEST 4
1. With reference to the prior year deficiencies in internal control: Discuss the ethical threats to
fundamental principles that are applicable to the predecessor auditor.
The predecessor auditor may have faced several ethical threats to fundamental principles, including:
Professional competence and due care: By not formally communicating the deficiency in internal control
in writing, the auditor may have compromised the principle of documentation and communication. The
auditor should have ensured that the deficiency was properly documented and communicated to the
finance team and other relevant parties.
Objectivity: The auditor's decision to not insist on correction of the error in the prior year financial
statements may have threatened the principle of objectivity. The auditor should have remained
impartial and insisted on correction of the error to ensure that the financial statements were presented
fairly.
Integrity: The auditor's failure to formally communicate the deficiency in internal control and insist on
correction of the error may have compromised the principle of integrity. The auditor should have acted
with integrity and transparency in their communication and actions.
2. With reference to the prior year deficiencies in internal control: Assuming you were the predecessor
auditor, provide two recommendations to strengthen the general IT and application controls at Afri-
Elec.
Two recommendations to strengthen general IT and application controls at Afri-Elec could be:
1. Implement automated controls to prevent duplicate invoice nnumber: Afri-Elec should implement
automated controls in their revenue application to prevent duplicate invoice numbers from being
generated. This could include using unique identifiers for each invoice or implementing a check to
ensure that invoice numbers are not duplicated.
2. Conduct regular reviews and testing of the revenue application**: Afri-Elec should conduct regular
reviews and testing of the revenue application to identify and address any potential issues or errors. This
could include testing the application's controls and performing regular audits to ensure that the
application is functioning correctly.
3. With reference to the inventory business process: Describe the substantive procedures to test the
accuracy, valuation and allocation of inventory as at 30 June 2025.
1. With reference to the prior year deficiencies in internal control: Discuss the ethical threats to
fundamental principles that are applicable to the predecessor auditor.
The predecessor auditor may have faced several ethical threats to fundamental principles, including:
Professional competence and due care: By not formally communicating the deficiency in internal control
in writing, the auditor may have compromised the principle of documentation and communication. The
auditor should have ensured that the deficiency was properly documented and communicated to the
finance team and other relevant parties.
Objectivity: The auditor's decision to not insist on correction of the error in the prior year financial
statements may have threatened the principle of objectivity. The auditor should have remained
impartial and insisted on correction of the error to ensure that the financial statements were presented
fairly.
Integrity: The auditor's failure to formally communicate the deficiency in internal control and insist on
correction of the error may have compromised the principle of integrity. The auditor should have acted
with integrity and transparency in their communication and actions.
2. With reference to the prior year deficiencies in internal control: Assuming you were the predecessor
auditor, provide two recommendations to strengthen the general IT and application controls at Afri-
Elec.
Two recommendations to strengthen general IT and application controls at Afri-Elec could be:
1. Implement automated controls to prevent duplicate invoice nnumber: Afri-Elec should implement
automated controls in their revenue application to prevent duplicate invoice numbers from being
generated. This could include using unique identifiers for each invoice or implementing a check to
ensure that invoice numbers are not duplicated.
2. Conduct regular reviews and testing of the revenue application**: Afri-Elec should conduct regular
reviews and testing of the revenue application to identify and address any potential issues or errors. This
could include testing the application's controls and performing regular audits to ensure that the
application is functioning correctly.
3. With reference to the inventory business process: Describe the substantive procedures to test the
accuracy, valuation and allocation of inventory as at 30 June 2025.
