CONFIDENTIAL

UNIVERSITY EXAMINATIONS

Oct/Nov 2025

AUE3761

The Audit Process

100 marks
Duration: 245 minutes

This paper consists of ELEVEN (11) pages.

IMPORTANT INSTRUCTIONS:

i. This is a limited open-book test – You may use only SAICA Student Handbooks Volume 2A and 2B.
ii. This is a PROCTORED examination.
iii. This examination question paper consists of four (4) questions.
iv. Answer all the questions.
v. Start each question on a new (separate) page.

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Please follow the instructions on the App. Take note that you are still required to upload your
answer script to the relevant UNISA portal.
8) Keep the Invigilator App open on your smartphone during the assessment. You are not allowed
to leave or minimise the Application. You cannot minimise the Application and use your
smartphone for typing. If you wish to use a smartphone for typed responses, you will
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need an additional smartphone.
9) After completing the invigilation in The Invigilator mobile App you should upload the App data
collected as soon as possible. Take note that uploading App data after 48 hours of your
assessment is considered non-compliance and will result in your assessment not being
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10) If you experience technical difficulties on The Invigilator App, contact the technical helpdesk
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YOUR EXAM QR CODE & EXAM ACCESS CODE

Exam Access Code: 292e82eb

11) Honesty declaration

By submitting my examination solution, I declare the following:
• I know what plagiarism is, that plagiarism is wrong and that disciplinary steps might be taken
against me if I am found guilty of plagiarism.
• This examination solution, submitted by me, is my own work.
• I have not assisted any other student in any manner, nor have I received the assistance of any
other person, in completing this examination.
• I know that if I am found to violate this declaration, I will receive 0% for this examination.
Note: You do not have to sign the declaration. By submitting your solution, you automatically declare
that you adhere to all the above regarding this specific examination.

12) Submission instructions

Suggestion: Start uploading your answer file at 11.20, AT THE LATEST, to allow enough time for
any delays in the process.

You MUST submit your answers in ONE PDF file.

The file name of your PDF document must be in the following format: Student number, space, AUE3761.
For example: 33445566 AUE3761.

Submission method:
13) Go to myExams at https://cas.myexams.unisa.ac.za and log in with your myUnisa credentials, namely
your student number and password.
14) Click on the name of the specific examination site.
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15) Scroll through the site tabs on the horizontal navigation bar and click on the eAssessment tool in the
left-hand navigation menu.
16) Once the eAssessment page has loaded, select the assessment for which you want to upload the
examination answer file by clicking on the link under the heading “Assignment Title.”

This paper deals with the following main topics:

PROPOSED SCHEDULE FOR ANSWERING THE QUESTIONS

(Try not to deviate from this.)

Question Topic Marks Time in

minutes
Reading time 15
1 Corporate governance, Companies Act and ISAE 25 50
3000 (revised)
2 Reliance on the work of internal auditors (ISA 610 28 56
revised) and internal controls
3 Audit evidence, sampling and subsequent events 17 34
4 Evaluation of misstatements, audit opinion, and 30 60
substantive procedures
Time taken to complete the examination 100 200
Examination answer file upload time (in 30
minutes)
Total time 245

NOTE:

The main objective of the examination is to test your knowledge and ability to apply the study
material. However, the examiners will also consider your ability to organise and present that
knowledge in writing at an acceptable standard.

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CASE STUDY 100 marks

READ THE “REQUIRED” PART ON PAGES 10 AND 11 BEFORE CONTINUING.

Background information

Your audit firm, Auditors Inc., has been re-appointed for the audit of Tumilever Ltd (Tumilever),
a multinational consumer goods company, headquartered in South Africa. Tumilever is a public
company listed on the Johannesburg Stock Exchange (JSE). Tumilever prepares its financial
statements in accordance with International Financial Reporting Standards (IFRS). The
company’s financial year-end is 31 August 2025.

Tumilever’s portfolio comprises the manufacture and retail of consumable products, which
include beverages, cleaning agents and personal care products. In recent years, Tumilever has
advocated for implementing corporate sustainability, thereby aligning its operations with a
sustainable business model that integrates environmental, social and governance (ESG)
considerations, including ethical sourcing, stakeholder inclusivity and transparency. The
company’s commitment to sustainability is also reflected in its integrated reporting and risk
management practices, which increasingly incorporate financial disclosures in accordance with
evolving global standards. Tumilever is regulated by additional Acts in South Africa that support
food safety and transparency for consumers. These include, but are not limited to, the Consumer
Protection Act (No. 68 of 2008) and the Foodstuffs, Cosmetics and Disinfectants Act (No. 54 of
1972). The information that follows provides specific information obtained during the audit for the
period under review.

1. Composition of the board

Board of Directors
• Ms T Mokoena – Board Chairperson, Doctor of Business Administration (DBA)
• Mr L Dlamini – Chief Executive Officer (CEO), Chartered Global Management Accountant
(CGMA)
• Ms R Naidoo – Chief Financial Officer (CFO) CA(SA)
• Ms K Mthembu – Independent Non-Executive, Master of Commerce (MCom) in Corporate
Governance
• Mr J van der Merwe – Chief Operating Officer (COO) (Strategic role), CA(SA)
• Ms Z Molefe – Human Resources Director, BCom (Honours) in Organisational Psychology
• Mr N Khumalo – Independent Non-Executive, BCom (Honours) in Labour Relations
Management

2. Governance matters

The below is an excerpt from the minutes of the directors' meeting held on 21 August 2025:

1. The COO informed the board of directors that the previous auditor, Auditors Inc, would
continue as the appointed auditor for the 2025 year-end audit. The COO has requested
Auditors Inc to allocate Mr Kenny G, CA (SA), who is a new engagement partner at
Auditors Inc, as the engagement partner for the year-end 31 August 2025 audit. Mr Kenny
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G previously served as a non-executive board member at Tumilever for the period 2021
to 2023. Mr Kenny G is currently in the process of being appointed as a registered auditor
with the Independent Regulatory Board for Auditors (IRBA). The expected date for the
auditors' report to be signed is 15 October 2025.

2. Additionally, it was resolved to elect a social and ethics committee (SEC) for the next
financial period. The composition of the committee will include Ms Naidoo, Ms Molefe and
Mr Dlamini. The board requests the SEC report and remuneration report to be presented
at the next directors’ meeting, which is on 21 November 2025.

3. The directors resolved that Tumilever transition from polystyrene-based packaging to

bamboo-based alternatives across several product lines. The directors resolved to
contract with Bamboo Warehousing (Pty) Ltd. The value of the change is not material, but
the related event is disclosed in the annual financial statements.

4. The transition to bamboo alternatives aligns with Tumilevers’ broader sustainable sourcing
strategy; however, the original supplier of polystyrene, Poly and Plastics (Pty) Ltd, was
unhappy, citing a breach of the terms and conditions of their contract. These are related
to a requirement for Tumilever to present Poly and Plastics with a sufficient notice period
in the case of cancelling their contract. However, due to the urgency of the transition, the
contract was cancelled unilaterally and without adhering to the notice period.

While the performance of audit procedures to verify the accuracy and completeness of the
sustainability reporting information disclosed in the annual financial statements was underway,
you received an anonymous tip-off from a Tumilever employee (identity was withheld) via the
Ethics Hotline. This call revealed that the innovation partner at Bamboo Warehousing, Mr Tim
du Toit, is the son-in-law of the COO. This tip-off alarmed you, as this matter was not disclosed
in the register of directors’ interests in contracts for 2025 nor in the minutes to the meetings in
which the supplier Bamboo Warehousing was selected. The below represents an excerpt of
disclosure from the 2025 annual financial statements relating to sustainability reporting using
GRI standards:

Sustainable sourcing:

As part of Tumilever Ltd’s commitment to sustainable sourcing and environmental stewardship,

the company has taken significant steps to reduce its reliance on non-renewable materials in
packaging.

In the 2025 financial year, Tumilever successfully transitioned from using Polystyrene to
Bamboo. Polystyrene, a petroleum-derived plastic, poses long-term environmental risks due to
its non-biodegradable nature and challenges in recycling. In contrast, bamboo is a rapidly
renewable resource that is biodegradable, compostable, and requires minimal processing. By
replacing polystyrene with bamboo, Tumilever anticipates a significant reduction in its carbon
footprint (18%) and a a reduction of plastic waste in landfills and oceans (of 12 tons) within the
next 12 months. This initiative aligns with Tumilever’s broader sustainable sourcing strategy in
compliance with King IV, which emphasises the use of responsibly sourced, renewable and low-
impact materials.

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3. Tots Morning Crunchers

Tumilever has recently introduced a new food product for sale. The product, which is a boxed
cereal called “Tots Morning Crunchers’’, was directly marketed to toddlers aged one to three
years. The product was marketed with the slogans “Packed with essential vitamins and minerals’’
and “All natural ingredients – a great start to your toddler’s day”. During a walkthrough on the
production processes, you identified that whilst the cereal does contain some added vitamins
and minerals, it also includes at least 12 grams of added sugar per serving, which is more than
double the recommended daily intake for toddlers according to paediatric nutrient guidelines.
This high sugar content was not disclosed on the packaging, on instructions from the Board
through communication from Ms Naidoo.

4. Inventory management and internal audit

Inventory is considered significant to Tumilever. Large volumes of fast-moving consumer goods

require inventory tracking across multiple warehouses and regions. Inventory is valued at the
lower of cost and net realisable value. The year-end stock count took place on 31 August 2025.
The company utilises automation to sort and pack materials handling within warehouses. These
processes increase efficiency and speed within warehouses and reduce turnaround times.
Inventory management is automated using a perpetual Inventory Management Application (IMA)
that is linked to the accounting software. The users are assigned specific roles in line with their
responsibilities.

The internal audit function was previously outsourced to another assurance provider, EFG Inc,
but the CFO, together with the board, decided that it should rather be an internal function under
the management of the finance division. This division is headed by John Abraham, who holds
a BCom degree in Accounting Sciences and has completed his training programme at EFG Inc
but has opted not to pursue any professional qualifications or memberships at present. The
internal audit division also comprises two other employees who are recent graduates with IT
experience. John is a good friend of the members of the board and usually reports directly to the
CFO, who then reports to the audit committee. John has, for many years, overseen external
audits at EFG Inc. and markets himself as a leader with assurance experience. He has utilised
his previous experience as a trainee auditor to showcase how to perform an internal controls
assessment to the other members of the internal audit team. John has informed us (the external
audit team) that the internal audit working papers are of good standard, as he had used artificial
intelligence (AI) to create some templates. Additionally, some of the internal audit working papers
are based on external audit templates he has used whilst in employment of EFG Inc . Because
of his experience in external audit, he urged us (the external audit team) to place reliance on
some of the work done by Tumilever’s internal audit function.

John has provided you with various working papers completed by the internal audit function. The
below represents an excerpt of the inventory controls assessment for the year ended 31 August
2025:

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Prepared by: M Martinez Date: 31 July 2025
Reviewed by: Unallocated Date:

Internal Audit Working Paper: Inventory Controls Assessment FY2025

WP: IC 1
Objective
To evaluate the effectiveness of internal controls related to automation and system integrity at
Tumilever.

Scope
This audit covers the assessment of automation and system integrity of the inventory management
application (IMA).

Findings and Assessment

Checklist Item Yes/No Record of work done
1. Are access controls in Yes Through discussions with the inventory manager, it was
place for the IMA? established that Tumilever implements a role-based access
control system in which permissions are assigned based on
job function. Access rights are reviewed quarterly and
updated as needed. Users are provided with unique
usernames and passwords. Passwords are changed
monthly. All activities related to accessing the IMA are logged
with unsuccessful attempts followed up by management, and
activity reports are printed monthly. These controls were
observed by the internal audit function during a walkthrough
of controls.
2. Are automated system Partially Inventory reconciliations between system-recorded
outputs reconciled with inventory and physical inventory counts are usually done
financial records quarterly, but delays were experienced in the second and
regularly? third quarters. These controls were discussed with two
regional inventory supervisors and confirmed to be true.
3. Are data change Yes All changes to inventory master data - such as item
management controls descriptions, cost and pricing, and supplier information - are
implemented for any subject to a formal change request that is sequentially
changes to the master numbered. Requests must be approved by relevant
data of the IMA? department heads, such as the inventory manager or CFO,
and logged in the system. We maintain audit trails for all
changes, and periodic reviews are conducted to ensure data
integrity. These controls were observed by the internal audit
function during a walkthrough of controls.

Conclusion
Based on the discussions with the CFO and supervisors within the inventory management application
controls were working effectively for the period under review.

5. Payroll business process and finalisation of the audit

Tumilever comprises a large global workforce and aims to comply with fair labour practices,
including a diverse and inclusive workforce. Due to the implementation of automation within the
inventory and supply chain processes, the directors discussed a possible reduction in warehouse
staff. It is anticipated that up to 40% of the warehouse staff will be retrenched by 31 October
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2025. AI technologies such as robotic systems can perform the previously manual tasks more
effectively and will greatly reduce the operational costs of Tumilever in the future. You are
satisfied with the operating effectiveness of controls on payroll, and your audit software is
compatible with Tumilevers’ payroll application. Employee costs for the year ended 31 August
2025 were reflected in the Annual Financial Statements as follows:

Extract from the Annual Financial Statements

Note 11: Employee Costs

The total employee costs recognised in profit or loss for the year ended 31 August 2025 are as
follows:

2025 2024 Additional

Description Amount (R) Amount (R) information
relevant to the
case study
Salaries expense 22,500,000 21,792,000 Note 1
Provision for retrenchment costs 0 550,000 Note 2
Directors’ emoluments:
- Directors’ salaries and fees 9,200,000 7,121,000
- Bonuses 3 750,000 1 681,000
- Other benefits 1 450,000 820,000
Total employee costs 36,900,000 31,964,000

Note 1:
During the audit of salary expenses, a vacation work candidate described their understanding
of collecting sufficient appropriate audit evidence for salaries and wages.

“To obtain sufficient appropriate audit evidence for the payroll business process, especially
focusing on salary expenses, we must ensure that the evidence is both

• sufficient: enough in quantity to support conclusions, and

• appropriate: relevant and reliable in quality.

To achieve this objective, we should randomly select items, say 10 items from the payroll
journal, and agree the amounts on the payslips, as the payroll business process was operating
effectively for the year under review and sufficient authorisation and approvals were made by
management on the payroll runs. This will ensure the amounts are accurate, complete and that
employees exist.’’

Note 2:
During August 2025, the board of directors discussed the intention to formally retrench
approximately 120 employees across its regional operations. The plan was communicated to
affected employees on 15 September 2025. The retrenchment process is expected to take place
within the next six months. Management has not yet accounted for this matter and requests your
advice.

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6. Machinery and Equipment held for sale

Tumilever operates in various regions in South Africa. Because of continuous unrest and
difficulties experienced in the East London region, a decision was made by the board to shut
down a manufacturing facility in the East London region on 31 May 2025. The land and buildings
at the East London facility were leased, and the terms allowed for cancellation of the contract.
However, the machinery and equipment at the manufacturing facility are owned and accounted
for as fixed assets in the accounting records of Tumilever using the principles of IAS 16-
Property, Plant and Equipment.

On 31 May 2025, these assets were identified as highly probable for sale. Tumilever contracted
with “The Valuator Grouping’’ who specialise in plant, machinery and equipment valuations, to
value the machinery and equipment at the East London facility. The fair value of machinery and
equipment as at 31 May 2025 was determined by The Valuator Grouping to be R8 500 000.
Costs to sell as at 31 May 2025 were estimated by The Valuator Grouping as R50 000.

Management passed the following journal entry at year-end to account for the reclassification:

Journal Entry 100: Reclassification of Machinery and Equipment to Assets Held for Sale

Date Account Debit (Dr) Credit (Cr)

31 August 2025 Assets Held for Sale: East London R 8 250 000
manufacturing facility
Accumulated Depreciation – Machinery and R6 750 000
Equipment
Machinery and Equipment: at cost R15 000 000

Additional audit matters:

During the audit of machinery and equipment, and specifically of journal entry 100, you identified
an error in the application of IFRS 5 related to the reclassification of the machinery and
equipment at the East London region to the assets held for sale general ledger account. This
error is related to depreciation charged for the full year instead of up to the point of the decision
made to sell, being the 31 May 2025. This difference was accepted by management, and journal
162 was posted to correct this error.

Journal Entry 162: Correction of depreciation charged on Machinery and Equipment

Date Account Debit (Dr) Credit (Cr)

30 September Assets Held for Sale: East London R375 000
2025 manufacturing facility
Depreciation expense R375 000

The revised carrying amount of assets held for sale included in the financial statements at 31
August 2025 was now reflecting as R8 625 000. Final materiality was set at R15 000 000, and
the clearly trivial threshold at R500 000.

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REQUIRED PART MARKS

1 With reference to the Background information, 1. Composition of the

board, 2. Governance Matters and 3: Tots Morning Crunchers:

1.1 Discuss, in terms of King IV principles, any ethical concerns that may
arise from the marketing of “Tots Morning Crunchers’’. You should
only focus on principles under Parts 5.1, 5.3, and 5.5 of the King IV Code. (6)

Communication mark: logical argument (1)

1.2.1 Discuss your considerations of non-compliances and related

consequences as a result of the decisions of the board and its directors
in terms of the Companies Act and Regulations.

Only address the information in Parts 1 and 2 of the case study. (10)

1.2.2 Discuss the remedies available to parties other than the board or
directors under Section 159 of the Companies Act in the event of
retaliation by the company.

Only address the information in Parts 1 and 2 of the case study. (2)

1.3 Identify and describe your considerations for determining whether the
preconditions for the engagement are present, in accordance with
ISAE 3000 (Revised). Refer to the ISAE 3000 (Revised) Appendix for
roles and responsibilities. (6)

2 With reference to 4: Inventory management and internal audit:

2.1 Describe your concerns about the newly established internal audit
function at Tumilever and work done in WP: IC 1 in accordance with the
requirements of ISA 610 (Revised). Your answer should address
concerns across the following requirements:

i. Organisational status and relevant policies

ii. Level of competence
iii. Systematic and disciplined approach
(14)
iv. Scope, relevance and evaluation of work done

2.2 Formulate the tests of controls that you will perform to evaluate
Tumilever’s manual and automated internal controls of the inventory
management application. You should only address the controls related to
(14)
Points 1 and 3 of the checklist.

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3 With reference to 5. Payroll business process and finalisation of the
audit:

3.1 Critique the candidate’s suggestion regarding the collection of sufficient

appropriate audit evidence for salary expenses. Your answer should
(10)
address both positives and negatives.

Communication mark: logical argument (1)

3.2 Discuss how the retrenchment costs should be treated in Tumilever’s

financial statements at 31 August 2025, based on IAS 37 and ISA 560. (6)

4 With reference to 6. Machinery and Equipment held for sale

4.1 Describe the misstatement arising from the revised carrying amount
used on machinery and equipment reclassified to assets held for sale and
the effect of this misstatement on the audit opinion. Include a schedule
of unadjusted audit differences using the accounting equation. (14)

4.2 Formulate substantive procedures to address the accuracy, valuation

and allocation and completeness of machinery and equipment held for
sale as at 31 August 2025. (14)

Communication mark: appropriate style and clarity of expression (2)

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