Please enable JavaScript.
Coggle requires JavaScript to display documents.
Based on AUE3761 Test 1 (April 2024) - Coggle Diagram
Based on AUE3761 Test 1 (April 2024)
The exam tests application of auditing standards, critical analysis of case studies, and ethical judgment. Key topics include:
Inherent risk factors
(ISA 315).
Risks at the assertion level
(ISA 330).
Overall audit strategy
(ISA 300).
Corporate governance
(King IV, Companies Act).
Ethics
(SAICA Code of Professional Conduct).
Question 1: Inherent Risks of Material Misstatement (12 marks)
Ability to
identify inherent risk factors
(complexity, uncertainty, susceptibility to fraud) and
assess risks
(magnitude, likelihood, spectrum).
Key steps to answer:
1.) Link each risk to ISA 315’s inherent risk factors:
Example
: RISK 1 (GOING CONCERN) →
change
(loss after 20 years),
uncertainty
(future viability),
complexity
(estimates for going concern).
2.) Assess magnitude and likelihood:
Magnitude
: How severe is the impact on financial statements?
Likelihood
: How probable is the misstatement?
3.) Place on the spectrum (low/medium/high).
Common mistakes:
Failing to
justify assessments with case-specific details
(e.g., "first loss in 20 years").
Confusing
inherent risk factors with detection risks
.
Learning focus:
Practice linking case facts to these factors (e.g., "bird flu outbreak" → uncertainty).
Memorize
ISA 315’s inherent risk factors
(complexity, subjectivity, change, uncertainty, susceptibility to fraud).
Question 2: Assertion-Level Risks (7 marks)
Identifying specific risks
(e.g., overstatement of receivables) and linking them to assertions (e.g., existence, completeness).
Key steps to answer:
1.) Identify the account/transaction:
Example: Accounts receivable → increased significantly.
3.) State the risk:
Example: Overstatement due to fictitious debtors.
2.) Link to assertion:
Example: Existence (are the debtors real?).
Common mistakes:
I
gnoring case details
(e.g., "economic downturn" → impacts allowance for credit losses).
Listing assertions
without linking to a specific risk
(e.g., "completeness, accuracy, existence").
Learning focus:
P
ractice mapping risks to assertions using case facts
(e.g., "dispute over legal fees" → completeness of payables).
M
emorize audit assertions
(existence, completeness, accuracy, valuation, rights/obligations).
Question 3: Overall Audit Strategy (9 marks)
Developing a strategy
covering scope, timing, and direction.
Key steps to answer:
1.)
Scope
: What activities are needed?
Example: JSE compliance checks, reliance on internal audit.
2.)
Timing
: When to perform procedures?
Example: Inventory counts at year-end.
3.)
Direction
: Focus areas.
Example: Fraud risk due to going concern issues.
Common mistakes:
Generic answers (e.g., "
use CAATs" without explaining why
).
Missing case-specific details (e.g., "
multiple agricultural sites" → decentralisation risk
).
Question 4: King IV, Companies Act)
Ability to
evaluate compliance with corporate governance principles
(King IV, Companies Act).
Key steps to answer:
Compare case facts to requirements:
Example: EPS’s audit committee includes the CEO (non-independent) and farmers (lack financial literacy).
Conclude on compliance gaps:
Example: "The committee lacks independence and financial expertise, violating King IV."
Identify governance requirements:
Example: Audit committees must be independent (CEO/CFO cannot serve), appointed by shareholders (not the CEO), and have financial expertise.
Common mistakes
Failing to cite specific regulations
(e.g., "Section 90 of the Companies Act").
Overlooking qualitative issues
(e.g., "farmers’ industry knowledge ≠ financial literacy").
Learning focus
Memorize King IV principles
(independence, expertise, AGM appointments).
Practice linking governance failures to real-world consequences
(e.g., biased financial reporting).
Question 5: SAICA Code of Professional Conduct (5 marks)
Identifying breaches of ethical principles (confidentiality, integrity, professional behavior).
Key steps to answer:
Link to case facts:
Example: Roz disclosed EPS’s potential legal fee dispute without permission.
Explain the breach:
Example: "Sharing confidential data for personal gain violates SAICA’s Code."
State the relevant principle:
Example: Confidentiality (Roz shared client information with her uncle).
Common mistakes
Vague answers (e.g., "Roz acted unprofessionally" without citing the principle).
Missing secondary breaches (e.g., integrity for lying about the leak).
Learning focus:
Memorize SAICA’s five fundamental principles: Integrity, Objectivity, Competence, Confidentiality, Professional Behavior.
Use the "SAICA test" for ethics questions:
Which principle was breached?
How did the action violate it?
What are the consequences?