CAUB022 TEST ONE SOLUTION 2023 CAUB022 TEST ONE SOLUTION 2023

QUESTION ONE

a) Respond to all of the above technical queries that have been raised by
your fellow group members:
Please structure as follows:
6
Query 1

UNIVERSITY OF LIMPOPO Query 2 8

Communication: clarity of expression 1

FACULTY OF MANAGEMENT & LAW
Query 1
SCHOOL OF ACCOUNTANCY Professional accountants do not always provide assurance as they may engage in non- 1
assurance engagements.
DEPARTMENT OF AUDITING
Non-assurance engagements mainly consist of advisory services relating to accounting, 1
business performance amongst others.
This suggested solution is 10 pages including the cover page.
The professional accountant does not issue an opinion or report to third parties. 1
The two levels of assurance engagements provided by professional accountants are:
Student No :
1. Reasonable assurance engagements: 1
Surname and initials - These are engagements performed in line with the international auditing 1
standards (ISA’s).
Q1 : Query 1 - The auditor issues a report and the opinion expressed is in the positive form “in 1
Query 2 our opinion…”
2. Limited assurance engagements 1
Q2.a - These are engagements performed in line with the international standards on 1
Q2.b review engagements (ISRE2400).
- The auditor issues a report and the opinion expressed is in a negative form 1
Q2.c “nothing has come to our attention…”
Q3 Part A Available 9
Maximum 6
a
b
Query 2
Q3 Part B
Your understanding of the assertions is partially correct, please see my comments below: 1
a
Incorrect assertions
b Cut-off is not an assertion relating to account balances this relates to whether transactions 1
c and events have been recorded in the correct accounting period.
Completeness concerns itself with ensuring that all items of PPE that should have been 1
d
recorded have been recorded not the existence of PPE.
Bonus Marks Accuracy is an assertion relating to the mathematical correctness of the transactions and 1
events recorded.
Total Marks
Accuracy, valuation and allocation is the assertion relating to PPE. 1
Percentage This assertion is about ensuring that all items of PPE have been recorded at the 1
appropriate amount and any resulting valuation and allocation adjustments (i.e.,
depreciation) are appropriately recorded.

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 CAUB022 TEST ONE SOLUTION 2023 CAUB022 TEST ONE SOLUTION 2023
Missing assertions: Act diligently and in accordance with applicable technical and 1
Existence 1 professional standards.
This relates to ensuring that all PPE items recorded at year-end actually exists and no 1
fictious items have been recorded. 4. Confidentiality 1
Rights 1 To respect the confidentiality of information acquired as a result of 1
The entity holds or controls the rights to the PPE items recorded. 1 professional and/or business relationships.
Classification 1
All PPE items have been recorded in the appropriate accounts. 1 5. Professional behavior 1
Your explanation relating the presentation assertion is correct. 1
The professional accountant must:
Available 13
Maximum 8  Comply with relevant laws and regulations. 1
Communication: clarity of expression 1
 Behave in a manner consistent with the profession’s responsibility
1
to act in the public interest in all professional activities and
business relationships.
QUESTION TWO 1
 Avoid any conduct that the professional accountant knows or
should know might discredit the profession.
a) List and describe the five (5) fundamental principles that Professional 10
Accountants are required to comply in terms of the SAICA Code of Available 17
Professional Conduct. Maximum 10
Note to marker: description of principle is limited to 1 mark
1. Integrity 1
The professional accountant must be straightforward and honest in all 1
professional or business relationships.
b) With reference to the last statement made by Frans fully discuss any 9
threats to compliance with the SAICA Code of Professional Conduct.
Integrity involves fair dealing, truthfulness and having the strength of 1
character to act appropriately even when faced with pressure to do Note: Your discussion must be limited to section 270 of the SAICA Code
otherwise or when doing so might create potential adverse personal or of Professional Conduct. You are not required to discuss any safeguards.
organisational consequences.
Issue: Frans is threatening Jamela to ensure that she does not disclose the 1
A professional accountant may not knowingly be associated with any 1 illegal activities occurring.
statement, account or return that contains false or misleading statements,
issued recklessly or omits or obscures information. Step 1: Is the CPC applicable ?

2. Objectivity 1 Jamela is a CA(SA) currently employed as financial manager at Straata, thus, 1

a PA in business and therefore needs to comply with Part 1 and 2 of the SAICA
To exercise professional or business judgement without being 1 CPC.
compromised by;Bias, Conflict of interest or Undue influence of, or undue
Step 2: Identify and explain the threat
reliance on individuals, organisations, technology or other factors
There is an intimidation threat, 1
3. Professional competence and due care 1 as Frans threatened her to ensure that she does not disclose the information, 1
1 therefore putting pressure on her to breach her fundamental principles (270).
To attain and maintain professional knowledge and skill at the level
required to ensure that the employing organisation or client receives Self-interest threat 1
competent professional service, based on current technical and Jamela may not want to disclose the information (thereby breaching her
1
professional standards and relevant legislation. fundamental principles) as she may worry about losing her job.

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 CAUB022 TEST ONE SOLUTION 2023 CAUB022 TEST ONE SOLUTION 2023
Step 3: Identify and explain which fundamental principle is being Intentional or unintentional 1
threatened.
The action is intentional as the Frans is aware that this is illegal but considers 1
Integrity 1 this is how business is done.
Jamela’s integrity is being threatened as she may not be able to act 1
appropriately given the pressure she is currently facing, thus, being associated He also told Jamela that he is not willing to lose any business because of 1
with fraudulent activities by obscuring the information from relevant persons. employees who do not know how to keep their mouths shut, which shows that
he did it deliberately.
Objectivity
1
Jamela is being unduly influenced by Frans, this may cause her professional Committed by the employing organisation or those charged with 1
judgement to be compromised. 1
governance, by management or other individuals working for, or under
Professional behaviour 1 the direction of the employer;
Jamela may not act in a manner that is in the public interest as required for 1
This has been committed by the Frans who is an executive director of Straata. 1
professional accountants.
That is contrary to the prevailing laws or regulations. 1
Step 4: Evaluating the level of the threat All laws and regulations which affect material amounts and disclosures 1
in financial statements; and
The threat is not at an acceptable level as: 1 Other laws and regulations that are fundamental to the entity’s business. 1
 Frans is in a position of power and exerting pressure to Jamela which will 1
breach her fundamental principles. Paying bribes to government officials is an act of corruption and this is in 1
 Frans actions display the leadership of the organisation does not promote 1 contravention of the Prevention and Combating of Corrupt Activities Act, 2004.
an ethical culture therefore this is likely to increase the pressure on Jamela
to breach her fundamental principles. Therefore, based on the above, the actions by the Frans constitutes a NOCLAR 1
 The actions by Frans are illegal and pressure is being placed on her to not 1 and Jamela should take the following actions:
comply with the law and ethical responsibility, thus might be causing
disrepute to the profession.  Investigate the matter to obtain a better understanding. 1

Available 16  Discuss the matter with those charged with governance at Straata. 1
Maximum 9
 Inform management and those charged with governance that this 1
constitutes a NOCLAR and must be rectified and reported.

 Discuss the matter with the external audit firm’s engagement partner. 1

 Consider getting legal advice. 1

 Consider reporting the matter to the relevant authority. 1

 Consider resigning 1
c) With reference to the above scenario, discuss whether the actions taken 14
by Frans constitutes a NOCLAR in terms of the SAICA Code of  Jamela must document the following: 1
Professional Conduct and discuss whether there are any actions that o The NOCLAR matter. 1
Jamela should take. o Significant judgement and conclusions made. 1
Jamela is a CA(SA) currently employed as financial manager at Straata, thus, 1
o Discussions with management and how they reacted and. 1
a PA in business and therefore needs to comply with Part 1 and 2 of the SAICA
o Further actions to consider and decisions made by Jamela. 1
CPC.
Note to marker Safeguards limited to 4 marks
NOCLAR comprises any acts or omission, 1
Available 25
Straata has been paying bribes to government officials for Straata to obtain 1 Maximum 14
tenders.

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 CAUB022 TEST ONE SOLUTION 2023 CAUB022 TEST ONE SOLUTION 2023
QUESTION THREE
PART A
Required a and b adapted from graded questions on auditing 2023 b) With reference to “Annual audit” heading, discuss any concerns you 9
might have in terms of the Companies Act 71 of 2008.
a) With reference to “Monthly profit breakdown” heading, keeping in mind that
an assurance engagement has five elements. The first element is the three- Communication: Logical argument
party relationship and the second is the subject matter. 1
Section 24 requires that companies must keep accounting records :
3  In written form or other manner and 1
i. Identify the three parties in this assurance engagement.
The Practitioner, (1) – ABD Inc. (Registered auditors) (1) 2  For a minimum period of 7 years. 1
The responsible party, (1) – The party centre managers (1) 2 Papakilo’s keeps accounting records for a maximum of 2 years, this is in 1
The intended user, (1) –Papakilo’s (Pty) Ltd (Those charged with 2 contravention with the companies act.
governance) (1)
Available 6 Section 28 requires companies to keep accurate and complete accounting 1
Maximum records.
3
Section 29 states that the company may not produce financial statements 1
that are false, or misleading in any material respect, or incomplete.
a) With reference to “Monthly profit breakdown” heading, keeping in mind that The accounting records of Papakilo’s are not complete as they do not include 1
an assurance engagement has five elements. The first element is the three- the necessary information or documentation (i.e. a breakdown of the income,
party relationship and the second is the subject matter. expenses is not provided).

ii. Describe the subject matter. 1

Section 29 requires the company to comply with presentation 1
Monthly profit figures supplied by the party centre managers. 1 requirements by:
Available 1  Satisfying any prescribed financial reporting standards applicable 1
Maximum 1 to the company (IFRS, IFRS for SME’s) as to the format and content
of the financial statements.
With reference to “Monthly profit breakdown” heading, keeping in mind The accounting records of Papakilo’s are not in accordance with the reporting 1
a)
that an assurance engagement has five elements. The first element is the requirements of IFRS (IAS 1) as the financial statements are not in the required
three-party relationship and the second is the subject matter. format and no disclosures have been included.
iii. Identify and explain with reference to the scenario, the other three 6
elements of assurance engagement.  Set out the date on which the financial statements were produced 1
Suitable criteria 1 and the accounting period to which they relate.
The terms and costs of each party centre’s hire. The financial statements do not set out the date they were prepared and the 1
1
ABD Inc will familiarise themselves with the terms and conditions of fees financial year end/period to which it relates is not set out. 1
1
charged. In effect these (and information such as the number of parties hosted
and the number of children attending) are the criteria for the calculation of the  On the 1st page of the financial statements, contain a note stating 1
profit. whether the financial statements have been audited or
independently reviewed.
Sufficient appropriate evidence 1  The name and professional designation of the person who 1
ABD Inc. must gather sufficient appropriate evidence to pass an opinion on 1 prepared or supervised the preparation of the financial statements
whether the figures presented by the party centre managers are fairly must also be included.
presented. The financial statements do not state whether they have been audited or not 1
This would probably include such procedures as inspection of invoices, credit The name of the preparer is not included on the 1st page of the financial 1
1 statements.
notes, cash sales records etc.

Written assurance report 1 Section 30 requires that the company must prepare financial statements 1
This is the conclusion which ABD Inc. will draw as a result of gathering audit within 6 months after year end. The financial statements must :
1
evidence. There is no indication on whether the financial statements were prepared within 1
The conclusion (whether the information provided by the party centre managers 6 months after year end.
1  Include an auditor’s report.
is fair) will be reported to Papakilos (Pty) Ltd. 1
Available 9 An auditor’s report has not been included as the document is only 1 page. 1
Maximum 6  Include a director’s report. 1

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 CAUB022 TEST ONE SOLUTION 2023 CAUB022 TEST ONE SOLUTION 2023
No director’s report has been included. 1
 include disclosures about directors’ remuneration in the financial 1 d) List the four (4) stages in the audit process. 4
statements for companies that must be audited. 1.Pre-engagement activities 1
Papakilo’s has not disclosed the director’s remuneration. 1 2.Planning 1
Available 24 3.Obtaining audit evidence 1
Maximum 9 4.Evaluation, concluding and reporting 1
Communication: logical argument 1 Available 4
Maximum 4

PART B BONUS MARKS

YOU ARE REQUIRED TO answer the below independent short questions: 4 Marks
NOTE: For required a-c you are required to choose and write the correct You are required to answer the following questions :
answer in your answer book. a) Which state-owned entities's board of directors did Yakhe Kwinana sit 1
a) Which of the following risks can be controlled by the auditor? 1 on?
1. Inherent risk.
2. Significant risk. South African Airways (SAA) 1
3. Control risk. Available 1
4. Detection risk. Maximum 1
5. Business risk.
4.Detection risk 1 b) How many charges was Yakhe Kwinana found guilty of ? 1
13 of the 14 charges against her 1
Available 1 Available 1
Maximum 1 Maximum 1
b) Risk assessment procedures are performed to: 1
1. Identify fraud that occurred during the year.
2. Obtain sufficient audit evidence about the going concern
assumption. c) Name two by-laws that Yakhe Kwinana was found guilty of breaching. 2
3. Provide a basis of understanding in order to identify and assess  conducted herself in a manner which is discreditable, dishonorable, 1
the risk of material misstatements. dishonest, irregular or unworthy, or which is derogatory to the Institute,
4. Test whether the internal controls are functioning for the whole or tends to bring the profession of accountancy into disrepute (4.2.6)
period under reliance.  conducted herself in a grossly negligent manner (4.2.2) 1
5. None of the above.  Failing to comply with the code of conduct (4.1.7) 1
3.Provide a basis of understanding in order to identify and assess the risk of 1 Available 3
material misstatements. Maximum 2
Available 1
Maximum 1

c) Which of the following statement would NOT be seen as a significant 1

risk:
1. A risk where the likelihood of occurrence and the magnitude of
the potential misstatements is at the lower end.
2. Significant related parties.
3. A risk of which the assessment is close to the upper end of the
spectrum of inherent risk.
4. A risk of fraud.
5. None of the above.
1.A risk where the likelihood of occurrence and the magnitude of the potential 1
misstatements is at the lower end.
Available 1
Maximum 1

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