NOVEMBER 2013 EXAMINATION DATE: 13 NOVEMBER 2013 DURATION: 3 HOURS PASS MARK: 40% (BUS-IA2)

Transcription

1 INTBUS2 NOVEMBER 2013 EXAMINATION DATE: 13 NOVEMBER 2013 TIME: 09H00 12H00 TOTAL: 100 MARKS DURATION: 3 HOURS PASS MARK: 40% (BUS-IA2) INTERNAL AUDITING 2 THIS EXAMINATION PAPER CONSISTS OF 4 SECTIONS: SECTION A: CONSISTS OF: (i) 10 MULTIPLE-CHOICE QUESTIONS (10 MARKS) (ii) 5 TRUE OR FALSE QUESTIONS (10 MARKS) SECTION B: SECTION C: SECTION D: CONSISTS OF 5 SHORT QUESTIONS CONSISTS OF 3 LONG ANSWER QUESTIONS CONSISTS OF 2 INTERPRETATIVE QUESTIONS ANSWER ONE OF THE QUESTIONS (20 MARKS) INSTRUCTIONS: 1. Read the following instructions carefully before answering the paper, as failure to act upon them will result in a loss of marks. 2. Write your answers in your answer book, which is provided in the exam. 3. Ensure that your name and student number are clearly indicated on your answer book. 4. Write your answers in either blue or black ink in your answer book. 5. Read each question very carefully before you answer it and number your answers exactly as the questions are numbered. 6. Begin with the question for which you think you will get the best marks. 7. Note the mark allocations for each question give enough facts to earn the marks allocated. Don't waste time by giving more information than required. 8. You are welcome to use diagrams to illustrate your answers. 9. Please write neatly we cannot mark illegible handwriting. 10. Any student caught cheating will have his or her examination paper and notes confiscated. The College will take disciplinary measures to protect the integrity of these examinations. 11. If there is something wrong with or missing from your exam paper or your answer book, please inform your invigilator immediately. If you do not inform your invigilator about a problem, the College will not be able to rectify it afterwards, and your marks cannot be adjusted to allow for the problem. 12. This paper may be removed from the examination hall after the examination has taken place. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 1 OF 7

2 SECTION A (20 MARKS) (i) MULTIPLE-CHOICE QUESTIONS Choose the correct option for each of the following. Write only the question number and your chosen answer. For instance, if you think that the correct answer for number 1 is, then write it as A company's accounts receivable turnover rate decreased from 7,3 to 4,4 over the last 3 years. What is the most likely cause for the decrease? an increase in the discount offered for early payment a more liberal credit policy a change in net payment due, from 30 to 25 days increased cash sales 2. When is it acceptable to grant an extension of the time frame for a corrective action? when the auditor cannot perform the follow-up audit as scheduled when the auditee determines that the proposed corrective action is not cost-effective when the corrective action plan requires more time than originally anticipated when there has been a change in operators who perform the task 3. Auditors can use flowcharts in their work in order to: analyse the causal factors of process dispersion. understand the overall process or system being audited. distinguish variations in a process over time. determine process capability and uniformity. 4. A petty cash float is kept for: lending money to staff for lunch. paying for items that should not be reflected in the books. small payments. large payments where a discount can be obtained. 5. Evidence gathered by the auditor: must be acceptable to the CEO. must be a true reflection of the activities of the organisation. must be proven in a court of law to be included in the financial statements. does not have to be sufficient to enable the auditor to conclude, as long as the evidence is legitimate. DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 2 OF 7

3 6. One of the audit objectives for payments to Creditors is to: ensure that the goods purchased are in working order. ensure that all outstanding debtors have paid their accounts. compare the available funds to the projected budget. ensure that all payments were authorised and made to valid Creditors. 7. The audit of the production and inventory cycle can be divided into two parts. The one is an enquiry into the controls over production and the issue of goods. The other part of the audit is: to analyse errors discovered. the verification and valuation of inventory. to verify if credit limits of customers were approved. to investigate errors discovered. 8. An example of substantive testing is to: re-perform arithmetic checks on sales invoices. test the results of the external audit. discuss the audit report with management. write the audit report. 9. Sample sizes are affected by a number of factors, such as: the number of employees in an organisation. the total number of errors discovered in an audit. the expected error. the rand value of the transactions. 10. The auditor's study and evaluation of internal control involves three phases. Which of the following is not one of these phases? systems enquiry and documentation tests of control authorising and executing transactions systems evaluation [10] (ii) TRUE OR FALSE QUESTIONS Indicate whether the following statements are True or False. Motivate all your answers. 1. The organisation of work and records is a method used by auditing to ensure that the objectives it has set are achieved. 2. Audit procedures are also employed by auditors to ensure that the objectives it has set are achieved. 3. When carrying out an audit every transaction should be audited. 4. Sampling does not contain an element of uncertainty. 5. Risk implies uncertainty. [5 2 = 10] [20] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 3 OF 7

4 SECTION B: SHORT QUESTIONS QUESTION 1 The auditor has many responsibilities. List the major responsibilities of the auditor. [8] QUESTION 2 Give five examples of intentional fraud that the auditor can detect. [5] QUESTION 3 Name the two types of errors an auditor will look for. [2] QUESTION 4 Describe what is implied by the following terms: substantive tests; and (3) compliance tests. (2) [5] QUESTION 5 Transactions can be grouped in five cycles for internal control purposes. Name all five cycles and give an example of each. (5 2 = 10) [10] [30] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 4 OF 7

5 SECTION C: LONG ANSWER QUESTIONS QUESTION 1 The issue of the audit report is the final stage in the audit of annual financial statements. The Opinion Paragraph is one of the basic elements of the audit report. Discuss the 'Opinion Paragraph'. [10] QUESTION 2 Discuss the control objectives of wages and the activities that the auditor must execute to determine whether the objectives were met. [10] QUESTION 3 Name five audit objectives for payments to creditors. Name one risk applicable to each of the audit objectives identified. [5 2 = 10] [30] DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 5 OF 7

6 SECTION D: INTERPRETATIVE QUESTIONS (20 MARKS) ANSWER ONE OF THE QUESTIONS QUESTION 1 The main activity of NABAKI AFRICA LTD (NA) is the extraction and supply of building materials including sand, gravel, cement and similar aggregates. The company's year-end is 31 May and your firm has audited NA for a number of years. The main asset on the balance sheet relates to non-current assets. A junior member of staff has attempted to prepare the non current asset note for the financial statements. The note has not been reviewed by the senior accountant and so may contain errors. Plant and Machinery Motor Vehicles Railway Trucks Total Cost 01 June Additions Disposals ( ) ( ) ( ) 31 May Depreciation 01 June Charge Disposal ( ) ( ) ( ) 31 May Net Book Value 31 May Net Book Value 31 May Depreciation rates stated in the financial statements are all based on cost and calculated using the straight-line basis. The rates are: Plant and machinery 20% Motor vehicles 33% Railway trucks 20% Disposals in the motor vehicles category relate to vehicles that were five years old. You are required to: List the audit work you should perform on railway trucks. [10 2 = 20] OR DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 6 OF 7

7 QUESTION 2 Explain why it is common for auditors to send confirmation requests with 'zero balances' on the client's accounts payable listing but uncommon to follow the same approach in verifying accounts receivable. (10) Explain why the emphasis in auditing property, plant and equipment is on the current period acquisitions and disposals rather than on the balances in the account carried forward from the preceding year. Under what circumstances will the emphasis be on the balances carried forward? (5 2 = 10) [20] [20] Section A: 20 marks Section B: 30 marks Section C: 30 marks Section D: 20 marks TOTAL: 100 MARKS DAMELIN CORRESPONDENCE COLLEGE NOVEMBER 2013 PAGE 7 OF 7