UNIVERSITY OF ZULULAND University of Zululand, Private Bag X1001, KwaDlangezwa, 3886 W: www.unizulu.ac.za FACULTY OF COMMERCE, ADMINISTRATION & LAW DEPARTMENT OF ACCOUNTING AND AUDITING WEEK 3: Auditing the Cycles: Revenue Tutorial - 2022 CAUD302, CADD302, 2AUD302 & 2AUT302 - AUDITING 3B Both Questions have been adapted from the Auditing Fundamentals - Graded Question book by Hamel & Kunz (Chapter 6). The focus of these Tutorial Questions is to develop the skills relating to the topic at hand, but also topics that you are expected to know as to date, hence the Question 1 - which focuses on Detection Risk (which is one of the components of Audit Risk). Remember the Audit Risk is three items: Inherent Risk + Control Risk and Detection Risk). Both Questions are SEEN - this is to ensure that you go to the Tutorial on Monday with an intention to focus on having a fruitful discussion - where the Tutor will be asking you many questions. So come prepared with your own questions directed to the Tutor. Don't be shy in a Tutorial: You are there to learn! Question 1: Audit Risk (Detection Risk) [UNSEEN] HKL Auditors Inc. (HKL), with its main office in Johannesburg, is currently engaged in planning the audit of Diamond Hardware (Pty) Ltd (Diamond Hardware) for the client's 31 December 2021 financial year. Diamond Hardware is a large wholesaler of hardware equipment situated in Johannesburg. During the audit planning meeting, where only some of the junior audit team members were present, the susceptibility (vulnerability) of the client's financial statements to material misstatement was discussed. The engagement partner, Hein Williamson, addressed the audit team members present and made the following comments: The budget for the 31 December 2021 year-end audit of Diamond Hardware is unfortunately very tight. The two managers, who are also owners of the company have specifically asked me to keep the audit fees the same as last year, otherwise HKL might get replaced by another audit firm next year. This, despite Diamond Hardware having installed a new accounting system in 2021, which meant a change to a significant part of the company's system of internal controls. I would also like to announce that Karina Mckay, a 2nd year audit trainee at our firm, will be the responsible audit senior on the audit seeing that the prior year's audit senior is currently on study leave. In addition, the audit manager, who is newly assigned to the audit, should not be bothered at that time. Karina, although we know you have not been on the audit of this client in prior years, we are forced to throw you into the deep end. We trust that you will be able to cope! To take some pressure off the audit team, I will ensure that the sample sizes used in substantive audit procedures are smaller than usual.
Also keep in mind that the audit manager on the prior year's audit of Diamond Hardware, Terence Radebe, has recently been appointed as the financial manager of