UNIVERSITY OF ZULULAND RESTRUCTURED FOR RELEVANCE FACULTY OF COMMERCE, ADMINISTRATION AND LAW DEPARTMENT OF ACCOUNTING AND AUDITING Auditing 3B (CADD 302 and CAUD 302) January 2017 Re-examination Duration: 180 minutes Total marks: 120 Internal Examiner: Mr MC Gwala CA(SA) Internal Moderator: Mr JD Chambers CA(SA) External Moderator: Mr W. Coetzee CA(SA) (UCT) Instructions to candidates 1. This paper consists of 2 questions (set out on pages 2 to 5). Ensure that your paper is complete. Question 1 60 marks 90 minutes Question 2 60 marks 90 minutes Total 120 marks 180 minutes 2. Fill in all the details as required on the front of each answer book handed in. 3. Answer each question in a separate answer book and clearly identify the question answered on the cover of the answer book. 4. Use only blue or black ink. Do not write in pencil; pencil-written work will not be marked. 5. On completion, insert all answer books in numerical order under the cover of the answer book for Question 1. 6. Work neatly and logically. A maximum of 10% of the marks will be awarded for communication skills (language, clarity of style, presentation, logical and well-constructed answers). 7. In answering the questions, record any assumptions you may consider necessary. No questions will be answered by invigilators during the exam. 1
60 marks (90 minutes) Question 1 You are a second year trainee accountant at Isibaya Inc. ('Isibaya'), a firm that provides auditing and advisory services to a wide range of clients. Isibaya is the newly appointed external auditor of Mpiyakhe Holdings Limited ('Mpiyakhe') for the year ended 31 December 2016 (FY2016). You are a member of the team that is busy with the audit of Mpiyakhe. The audit team has been granted access to all records of the previous auditors. Mpiyakhe provides its customers with a range of integrated motor car solutions, including car fleet rental, fleet management and used car sales through its subsidiaries and divisions. Mpiyakhe's policy is to use new rental cars for a maximum period of two years. The cars are then replaced with new cars as part of standing contracts with suppliers of new cars. The directors are concerned with the slow sales of used cars by the company. This combined with the average idle time (time not in use) for cars estimated at approximately 23 days a month (meaning cars are out with clients approximately 7 days of the month) is a cause for concern. Further to this, Mpiyakhe currently does not have sufficient cash reserves to fund potential growth opportunities. Planning materiality A first year trainee accountant that has been assigned the task of determining the planning materiality for the audit has indicated to you that he does not know how this is done. You will have to review the materiality before it is reviewed by the manager. As part of your second year responsibilities, you are expected to assist first year trainees in understanding their tasks. Risk of material misstatement Risks of material