AUI2601 Assignment 3 Semester 2
2020
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AUI2601
Assignment 3 Semester 2 2020
Unique Number: 891326
Solutions, Explanations, workings, and references
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QUESTION 1
1.1. Practical illustration of the different elements of an audit finding and develop a recommendation
Criteria Zintle (Pty) Ltd. Requires a performance audit on the ordering, sales
production and dispatch processes.
Condition The audit couldn’t find any signed official purchase order form but e-mail
confirmation of orders from customers.
Cause The official purchases order was drafted years back but never approved by
management and implemented.
Effect They have experienced increased fraudulent orders in the past year and the
company experienced a loss of R1.5 million
Recommendation The official purchases order should be reviewed by management and
implemented
1.2. Objectives and benefits of audit working papers
Working papers that document the engagement should be prepared by the internal auditor and reviewed by the
management of the internal audit activity. The working papers should record the information obtained and the
analyses made, and should support the bases for the observations and recommendations to be reported.
Engagement working papers generally:
Aid in the planning, performance and review of engagements.
Provide the principal support for the engagement results.
Document whether the engagement objectives were achieved.
Support the accuracy and completeness of the work performed.
Provide a basis for evaluating the internal audit activity’s quality assurance and improvement
program.
Facilitate third-party reviews.
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1.3. Discuss the purpose of sampling
The purpose of sampling is to provide a reasonable basis for the auditor to draw conclusions about the population
from which the sample is selected
1.4. Factors that determine the nature and scope of audit sampling
The following factors directly determine the nature and scope of audit sampling or testing:
the effectiveness of the system of internal control the more effective, the smaller the sample
materiality of the transactions – the more material, the larger the sample
volume of transactions (population size) does not affect the size of the sample
method of record keeping
relative risk associated with the transactions
nature of the evidence
suggestion of irregularities
unusual items in the population
1.5.1. Clear communications are easily understood and logical, avoiding unnecessary technical language and
providing all significant and relevant information.
1.5.2. Accurate communications are free from errors and distortions and are faithful to the underlying facts.
1.5.3. Concise communications are to the point and avoid unnecessary elaboration, superfluous detail,
redundancy, and wordiness.
1.5.4. Constructive communications are helpful to the engagement client and the organisation and lead to
improvements where needed.
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QUESTION 2
2.1. Audit procedures which can be used during fieldwork
Inspection – Inspection involves examinations of records or documents, whether internal or
external, in paper form, electronic form or in the form of other media, or a physical examination
of an asset.
Reperformance – The auditor independently executes procedures or controls that were
originally performed as part of the entity's internal control (e.g. reperformance of bank
reconciliation).
Inquiry - Inquiry entails seeking information, both financial and non-financial from
knowledgeable persons within or outside the entity. This can be done by questioning and
interviewing the relevant people.
Tracing - This involves the selection of documents for tracing to the relevant entries recorded in
the accounting records. The direction of testing allows for the detection of entries omitted and,
therefore, provides assurance related to the completeness assertion.
External confirmation - Obtaining external confirmation entails receiving a direct written
response from a third party to a request from the auditor to that third party.
Analytical procedures - Analytic procedures consist of evaluating financial information through
analysis of plausible relationships among financial and non-financial information.
2.2. Preventive or detective control
i. Preventive
ii. Detective
iii. Detective
iv. Preventive
v. Preventive
vi. Preventive
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QUESTION 3
3.1. In planning the engagement, internal auditors must consider:
The objectives of the activity being reviewed and the means by which the activity controls its
performance;
The significant risks to the activity, its objectives, resources, and operations and the means by
which the potential impact of risk is kept to an acceptable level;
The adequacy and effectiveness of the activity’s risk management and control processes
compared to a relevant control framework or model; and
The opportunities for making significant improvements to the activity’s risk management and
control processes
3.2. Audit procedure (test of control) that may be used to determine whether the control is working as
intended; and Indicate the kind of audit evidence obtained
Control Audit Procedure Audit Evidence
number
1 Observe the opening of mail that it is opened by two people , Physical evidence
and the recording of payment received in the remittance
register
Enquire from the relevant people responsible for opening the
mail regarding the process. Obtain signed confirmation of the Oral evidence
process from the abovementioned people as evidence
Documentary evidence
2 Obtain the copies of the reconciliations and inspect that they Documentary evidence
are signed off by the reviewer
3 Observe that the employees provide positive proof of Physical evidence
identification during the payout of wages and that they sign
the wages register as proof of acknowledgement of receipt
Inspect and compare the employee’s signature in the payroll
register to the signature in the employment contract or Documentary evidence
personnel file
4 For a period of a few consecutive months, obtain copies of Documentary evidence
exception reports and inspect that they have been signed by
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the financial director . Obtain a payment roll and check that no
payment was effected before the date the exception report
was signed off.
5 Select a sample of payments and inspect that all supporting Documentary evidence
documentation have been cancelled (stamped “paid” or
crossed out).
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We wish all the best!!
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