AUE2601/202/1/2016

Tutorial Letter 202/1/2016

AUDITING THEORY AND

PRACTICE

AUE2601

Semester 1

Department of Auditing

IMPORTANT INFORMATION:
KEY TO ASSIGNMENT 02 AND OTHER
ASSESMENT METHODS FOR THE FIRST
SEMESTER 2016
Assignment 2: Essay-type questions
1. Materiality

1.1 Explain what is meant by planning materiality and performance materiality.

References: - SAICA Student Handbook 2015/2016, Volume 2A, ISA 320, par 10 to 11;
- Jackson & Stent (2014:7/24–7/27);
- Study guide (study unit 3.5)

Planning materiality is determined at the planning stage and amounts to the auditor setting
limits or levels at this stage.  When establishing the overall audit strategy, the auditor
determines materiality for the financial statements as a whole.  During the planning stage the
auditor may also determine the materiality level to be applied to a particular class of transaction,
account balance or disclosure.  Planning materiality assists the auditor in determining the
nature, timing and extent of risk assessment procedures,  determining the nature, timing and
extent of further audit procedures,  as well as, identifying and addressing the risks of material
misstatements. 
Max 5

Performance materiality levels are set when the auditor performs tests on specific account
balances or classes of transactions.  The auditor must determine performance materiality for
the purpose of assessing the risks of material misstatement and determining the nature,
timing and extent of further audit procedures. 
Max 3
1.2 State whether or not the performance materiality figure should be set at a lower level than
the planning materiality figure. Give a reason for your answer.

References: - SAICA Student Handbook 2015/2016, Volume 2A, ISA 320, par A12;
- Jackson & Stent (2014:7/24–7/27);
- Study guide (study unit 3.5)

Yes 

Performance materiality is set by the auditor at lower than materiality for the financial
statements as a whole in order to reduce to an appropriately low level ^ the probability that the
aggregate of undetected and uncorrected misstatements exceeds materiality for the financial
statements as a whole. ^
Yes (1 x 1 = 1)
Reason (1.5 x 2 = 3)

Comments
You will not be expected to calculate materiality. We will always give you a scenario with the
materiality already calculated. However, we will expect you to understand why performance
materiality should be lower than planning materiality.

2. Internal Controls

For each of the activities in the “property, plant and equipment” paragraph, list the internal
controls in place and link each control to the control activity.

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References: - SAICA Student Handbook 2015/2016, Volume 2A, ISA 315.A96;

- Jackson & Stent (2014:5/6);
- Study guide (study unit 3.2)

 An acquisition form must be completed and approved before any items can be purchased.
Control activity – Authorisation. 
 On a monthly basis a physical verification of assets is performed and the asset register is
updated. Control activity – Physical controls. 
 The financial accountant reviews and signs the fixed asset register once it has been
updated.Control activity – Performance review. 
Identify control (1 x 3 = 3)
Link control activity (1 x 3 = 3)
Max 6

Comments
Control activities are the policies and procedures that help ensure that management directives
are carried out. Examples include authorisation, performance reviews, information processing,
physical controls and segregation of duties (ISA 315, par A88).

3. Identifying and assessing the risk of material misstatement

References: - SAICA Student Handbook 2015/2016, Volume 2A, ISA 315.A96;

- Jackson & Stent (2014:5/6);
- Study guide (study unit 3.2)

3.1 The identified risk indicator 3.2 Management assertion that may be affected
The head storeman signed the goods Existence 
received note once the delivery had been Completeness 
received, and did not offload the entire 
inventory at the warehouse. 

There are no surveillance cameras in the Existence 

warehouse and the head storeman is the
only employee responsible for receiving
goods. 
(1 x 2 = 2) (1 x 2 = 2)
Layout 
Max 5

Comments
ISA 315 requires that the risks of material misstatement be identified and assessed at financial
statement level and at assertion level. Risks at the financial statement level are risks that affect
the financial statements as a whole and filter down to the account balances and totals which
make up the financial statements. Risks at the financial statement level relate to the client’s
control environment and are not necessarily identifiable with specific assertions at transaction,
account balance or disclosure level.

Please make sure that you understand what is meant by an “increase” or a “decrease” in the
risk of material misstatement. Students sometimes mix up the two terms and lose marks
unnecessarily. Also, note that 1.5 marks are awarded for identifying the component of audit risk

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and for the reason. It is important to read the questions carefully to understand exactly what is
required of you.

The difference between risk at assertion level and risk at financial statement level can be
explained by the following table:

Risk at assertion level Risk at financial statement level

Description Risk at assertion level Risk at the financial statement level
affects account balances affects the financial statements as a
and transactions, that is, whole, and may filter down to the
assertions relating to that account balances and totals which
account balance. make up the financial statements.
Example For a company that sells A lack of integrity on the part of
diamonds, a risk of management will be a risk at financial
misstatement of the statement level as it may give rise in a
valuation assertion general sense to the risk of material
applicable to its inventory misstatement by manipulation of the
will be present. It is obvious financial statements. It is not a risk
and specific. specific to an assertion.

4. Fundamental ethical principles

References: - SAICA Student Handbook 2015/2016, Volume 2B, Code of professional

conduct, Sec 200 to 290;
- Jackson & Stent (2014:2/5–2/24)

4.1 Explanation of why 4.2 The 4.3 The 4.4 The safeguard to be applied
the circumstance fundamen- type of to reduce or eliminate the
creates a threat tal princi- threat threat
ple(s) being
threatened
Mr Nokia offers Mr Objectivity ^ Self-interest  Mr Senior must not accept the
Senior 1 000 shares in Integrity ^ ^ offer of shares.^
BB if he issues an Professional  Firm policy prohibiting
unmodified audit report. behaviour ^
This will pose a threat to acceptance of gifts from
Mr Senior’s clients.^
independence and he  Firm policy regarding
may not report findings procedures for monitoring
because he will not want prohibitions and disciplinary
to lose the shares in BB. follow-ups for any
^
transgressions. ^

Mr Nokia asked you to Objectivity ^ Self-review The person who prepares the
prepare the financial ^ financial statements should not
statements for the year form part of the audit
ended 31 March 2016. If team.^
you prepare the financial
statements you will be
auditing your own work
and you will not report
any errors in the financial
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4.1 Explanation of why 4.2 The 4.3 The 4.4 The safeguard to be applied
the circumstance fundamen- type of to reduce or eliminate the
creates a threat tal princi- threat threat
ple(s) being
threatened
statements because it
will look as if you had
made the error. ^
(1.5 x 2 = 3) (1.5 x 4 = 6) (1.5 x 2 = 3) (1.5 x 2 = 3)
Layout 
Max 16

Comments
Refer to the diagram below which will assist you in understanding the flow of this question

5. International Standards on Quality control

List and describe the following elements of a system of quality control for an audit firm.

5.1 Leadership responsibilities for quality within the firm.

5.2 Acceptance and continuance of client relationships and specific engagements.

References: - SAICA Student Handbook 2015/2016, Volume 2A, ISQC 1, par 1 to 18,
20, 26, 29, 32, 48 and A1 to A3:
- Jackson and Stent (2014:6/2–6/6);
- Study guide (study unit 2.4)
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5.1 Leadership responsibilities for quality within the firm – the firm should establish policies
and procedures designed to promote an internal culture  recognising that quality is
essential in performing engagements. 
Max 3

5.2 Acceptance and continuance of client relationships and specific engagements – the firm
should establish policies and procedures  for the acceptance and continuance of client
relationships and specific engagements, designed to provide the firm with reasonable
assurance  that it will only undertake or continue relationships and engagements where
the firm is competent, complies with ethical requirements and considers the integrity of the
client. 
Max 3

Comments
Note that ISQC1 establishes an audit firm’s responsibility for its system of quality control, while
ISA 220 provides guidance on the quality control for audit engagements.

6. Companies Act 71 of 2008

6.1 Discuss what is required in terms of the Companies Act 71 of 2008 with regard to the
“rotation of auditors”.

References: - SAICA Student Handbook 2015/2016, Volume 2C; Companies Act,

section 92;
- Jackson & Stent (2015:3/52–3/53);
- Study guide (study unit 2.2)

In terms of section 92 of the Companies Act:

 The same individual may not exceed five consecutive financial years as the auditor or
designated auditor of a company. 
 If an individual has served as the auditor or designated auditor of a company for two or
more consecutive financial years and then ceases to be the auditor or designated auditor,
the individual may not be appointed again as the auditor or designated auditor of that
company until after the expiry of at least two further financial years. 
 If a company has appointed two or more persons as joint auditors, the company must
manage the rotation required by this section in such a manner that all of the joint auditors
do not relinquish office in the same year. 
(1 x 3 = 3)
Max 3

6.2 List six (6) duties of the audit committee in terms of the Companies Act.

References: - SAICA Student Handbook 2015/2016, Volume 2C; Companies Act,

section 94(7);
- Jackson & Stent (2015:3/53–3/54);
- Study guide (study unit 2.2)

An audit committee of a company has the following duties to:

 Nominate, for appointment as auditor of the company, a registered auditor who, in the
opinion of the audit committee, is independent of the company 
 Determine the fees to be paid to the auditor 
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 Determine the auditor’s terms of engagement 

 Ensure that the appointment of the auditor complies with the provisions of this Act and any
other legislation relating to the appointment of auditors 
 Determine the nature and extent of any non-audit services that the auditor may provide to
the company, or that the auditor must not provide to the company, or a related company

 Pre-approve any proposed agreement with the auditor for the provision of non-audit
services to the company 
 Prepare a report to be included in the annual financial statements describing how the audit
committee carried out its functions 
 Receive and deal appropriately with any concerns or complaints relating to the accounting
practices, internal audit or any related matter 

 Perform oversight functions as determined by the board 
(1 x 9 = 9)
Max 6

OTHER ASSESSMENT METHODS

QUESTION 1

1.1 Elements of an assurance engagement

References: - Study guide (study unit 1.2)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 20 to 38
- Jackson & Stent (2014:1/6–1/9)

Element Example
A three party relationship involving Wolf 
a practitioner/auditor,  a responsible Susta  and shareholders 
party  and intended users 
Appropriate subject matter  The financial statements,  including the statement of
financial position, the statement of profit or loss and
other comprehensive income, the statement of changes
in equity and the statement of
cash flows 

Suitable criteria  International Financial Reporting

Standards (IFRS) 
Sufficient and appropriate audit The audit evidence obtained during the
evidence  audit process 
A written assurance report  The auditor’s report 
Max 10

Common mistakes made by students:

 Some students showed a lack of understanding of what was being asked. In some
instances the students provided assertions to be addressed or provided the difference
between a reasonable assurance engagement and a limited assurance engagement.

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 Some students could not provide examples for each element. For example, students would
give a statement of financial position as the example for the suitable subject matter. This
example is partially incorrect as the subject matter for an assurance engagement will be the
financial statements in their entirety.

Tips for revision:

 You should study the elements of an assurance engagement and demonstrate
understanding by providing the suitable examples for each of the elements stated.

1.2 Validity of accounts payable

References: - Study guide (study unit 1.2)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework: par 11 and
Appendix
- Jackson & Stent (2014:1/8)

1.2.1 Non-assurance engagement  Assurance engagement 

1.2.2 Agreed-upon procedures engagement 
Review engagement 
1.2.3 The auditor is engaged to carry out The auditor is engaged to provide limited
procedures which have been agreed assurance about the validity of accounts
upon payable. 
by the parties involved. 
1.2.4 No assurance is given.  Limited assurance is given. 
(1 x 4 = 4)

Common mistakes made by students:

 Students could not differentiate between an assurance and a non-assurance engagement.
In some instances students stated that limited assurance would be provided for a non-
assurance engagement or that reasonable assurance would be provided as the level of
assurance in a review engagement. This clearly demonstrates the lack of understanding
between each type of engagement and assurance to be provided.

Tips for revision:

 You must make sure that you understand the different types of engagement and which
assurance levels will be provided for each engagement.

1.3.1 The concept of “inherent risk

References: - Study guide (study unit 3.6)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 48 to
49, ISA 200 13(c), 13(n) A32 to A33 and A37 to A44
- Jackson & Stent (2014:7/4–7/7)

Inherent risk is the susceptibility of an assertion about a class of transaction, account balance or
disclosure, to a misstatement that could be material,  either individually or when aggregated
with other misstatements,  before consideration of any related controls. 
(1 x 3 = 3)

Common mistakes made by students:

 Most students were unable to describe inherent risk. In some cases students provided
examples of inherent risk without describing the concept.

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Tips for revision:

 This is pure theory and you should be able to obtain maximum marks for the question.

1.3.2 High inherent risk assessment for trade receivables

References: - Study guide (study unit 3.6)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 48 to
49, ISA 200 13(c), 13(n) A32 to A33 and A37 to A44
- Jackson & Stent (2014:7/4–7/7)

• A declining industry is characterised by a large number of business failures ^ –

management could manipulate this line item in order to improve the image of the company
and the perception of the shareholders.
• A lack of sufficient working capital to continue operations is experienced ^ – management
could manipulate this line item in order to increase the possibility of receiving funding from
financial institutions.
• New company incorporated on 1 December 2013. ^
• Failure of municipalities to pay on time. ^
(1.5 x 4 = 6)
Max 3

Common mistakes made by students:

 Some students provided general overall financial statement risk and did not use the
information provided in the question.
 Some students confused risk at an assertion level with risk at the overall financial statement
level.

Tips for revision:

 You must be able to apply the theory to the scenario provided. Make sure that you
understand the question in order to provide the applicable answer.

1.3.3 The concept “audit risk”

References: - Study guide (study unit 3.6)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 48 to
49, ISA 200 13(c), 13(n) A32 to A33 and A37 to A44
- Jackson & Stent (2014:7/4–7/7)

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated. 
(1 x 2 = 2)

Common mistakes made by students:

 Some students were unable to define audit risk and only provided components of audit risk.

Tips for revision:

 This is pure theory and you should be able to obtain maximum marks for the question.

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1.3.4 Components of audit risk

References: - Study guide (study unit 3.6)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 48 to
49, ISA 200 13(c), 13(n) A32 to A33 and A37 to A44
- Jackson & Stent (2014:7/4–7/7)

Detection risk  Inherent risk  Control risk 

(1 x 3 = 3)
Max 3

Common mistakes made by students:

 Most students were able to provide the correct components to audit risk.

Tips for revision:

 This is pure theory and you should be able to obtain maximum marks for the question.

1.3.5 The relationship between the components of audit risk

References: - Study guide (study unit 3.6)

- SAICA Student Handbook 2015/2016, Volume 2A: Framework par 48 to
49, ISA 200 13(c), 13(n) A32 to A33 and A37 to A44
- Jackson & Stent (2014:7/4–7/7)

For a given level of audit risk, the acceptable level of detection risk bears an inverse
relationship ^ to the assessed risks of material misstatement at the assertion level. As a
result of the high assessment of the risk of material misstatement, the auditor can accept
less detection risk ^ and, accordingly, the audit evidence required by the auditor will have to
be more persuasive. ^ The lower detection risk will result in an acceptable level of audit risk.
^
(1.5 x 4 = 6)
Max 5

Common mistakes made by students:

 Most students provided the audit risk equation as provided in the study guide without
explaining the relationship.
 Students failed to mention that there was an inverse relationship between the risk of
material misstatement and detection risk.
 Some students provided the definitions of each of the components of the audit risk and did
not provide the relationship between the different components.

Tips for revision:

 You must be able to apply the theory to the scenario provided. You should ensure that you
understand the question in order to provide the applicable answer.

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QUESTION 2 38 Marks

2.1 Control environment and control activity

References: - Study guide (study unit 3.2)

- SAICA Student Handbook 2015/2016, Volume 2A: ISA 315 par 12 to 24,
A49 to A50, A58 to A117 and Appendix
- Jackson & Stent (2014:5/5–5/19 & 7/14–-7/19)

Correct format 

2.1.1 Control activity/

Internal control 2.1.2 Category or activity that
control
observation observation relates to
environment
(b) Control activity (x) 
(c) Control environment (ix) 
(d) Control activity (iii) 
(e) Control environment (v) 
(f) Control environment (i) 
(g) Control activity (vi) 
(h) Control activity (iv) 
(i) Control activity (viii) 
(j) Control environment (vii) 
Max 9 Max 9

Common mistakes made by students:

 Students did well in matching the observations to the characteristics given.
 Some students confused the characteristics of a control environment with those of control
activities.

2.2.1 Difference between planning materiality and performance materiality

References: - Study guide (study unit 3.5)

- SAICA Student Handbook 2015/2016, Volume 2A: ISA 320 par 6, 9, 10
and 11, and A1 and A12
- Jackson & Stent (2014:7/24–7/27)

 Planning materiality is determined at the planning stage and amounts to the auditor
setting limits or levels at the planning stage. 
 When establishing the overall audit strategy, the auditor should determine materiality
for the financial statements as a whole. 
 During the planning stage the auditor may also determine the materiality level to be
applied to a particular class of transaction, account balance or disclosure. 
 Planning materiality assists the auditor in determining the nature, timing and extent of
risk assessment procedures,  determining the nature, timing and extent of further
audit procedures,  as well as identifying and addressing the risks of material
misstatements.  Max 2
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 Performance materiality levels will be set when the auditor performs tests on
specific account balances or classes of transactions. 
 The auditor must determine performance materiality for the purpose of assessing the
risks of material misstatement  and determining the nature, timing and extent of
further audit procedures.  Max 2

2.2.2 Yes 

 Performance materiality is set by the auditor at lower than materiality for the financial
statements as a whole in order to reduce to an appropriately low level,  the probability
that the aggregate of undetected and uncorrected misstatements exceeds
materiality for the financial statements as a whole. 
(1 x 3 = 3)
Common mistakes made by students:
 Students did not understand what was required. Most students were unable to differentiate
between planning materiality and performance materiality.
 Students generally gave the definitions of performance materiality and planning materiality,
rather than the difference between them.

Tips for revision:

 This is pure theory and you should be able to obtain maximum marks for the question.

2.3 Preliminary engagement information

References: - Study guide (study unit 4.2)

- Jackson & Stent (2014:6/10–6/11)

 Previous auditors 
 Those charged with governance: discussion with the client’s directors, senior financial
personnel, audit committee and others 
 External sources: enquiry of the firm’s bankers, legal counsel and others (permission
would have to be sought) 
 External information: background searches of relevant databases, for example, on the
internet 
 Internal documentation: review of any documentation, either public or made
available by the prospective client, for example, group reports, management reports 
 Auditors firm: with regard to independence, enquiry and analysis of the status of the firm
and its employees in relation to the potential client 
 Financial press: search financial magazines for relevant information 
Max 6

Common mistakes made by students:

 Most students did not know the procedures to follow to obtain pre-engagement information.
 Some students provided procedures to be performed after the engagement had been
accepted.
 Some students did not mention sufficient examples of where the information could be
obtained. Students would just state enquire without mentioning to whom the enquiry should
be made.

Tips for revision:

 This is pure theory and you should be able to obtain maximum marks for the question.

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2.4.1 Reliability of audit evidence

References: - Study guide (study unit 3.3)

- SAICA Student Handbook 2015/2016, Volume 2A: ISA 500 5(a), 5(e) and
A31 to A33
- Jackson & Stent (2014:5/21)

The source  of the information and its nature and the circumstances under which it was
obtained. 
(1 x 3 = 3)
Max 2

Common mistakes made by students:

 Most students did not know the audit evidence theory. They did not know that the quality of
audit evidence was made up of relevance and reliability. As such students provided
examples referring to the relevance of the audit evidence.
 Some students provided examples of factors that make audit evidence reliable. However,
the examples provided were only for one of the factors, that is, the nature or the source.
 Many students mentioned quantity and quality of information.

Tips for revision:

 You need to understand the question asked in order to provide the appropriate answer. You
must study the audit evidence principles.

2.4.2 Rank the sources of audit evidence

References: - Study guide (study unit 3.3)

- SAICA Student Handbook 2015/2016, Volume 2A: ISA 500 5(a), 5(e) and
A31 to A33
- Jackson & Stent (2014:5/21)

3
1
4
2
(1 x 4 = 4)

Common mistakes made by students:

 Some students did not rank the information provided. They stated “less reliable” or “most
reliable” without ranking. As such students failed to demonstrate that they understood the
hierarchy of the audit evidence provided.

Tips for revision:

 You need to understand the question asked in order to provide the appropriate answer. You
must study the audit evidence principles.

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QUESTION 3

3.1 Fundamental ethical principles

References: - Study guide (study unit 2.3)

- SAICA Student Handbook 2015/2016, Volume 2B: Code of Professional
Conduct 100 to 150
- Jackson & Stent (2014:2/5–2/12)

Communication skills 

Matter 1
 Rose has not complied with the principle of professional behaviour. 
 She has discredited the profession by making a degrading comment  and has set a very
poor example for the members of her audit team. ^
Max 2.5

Matter 2
 Jasmine has not complied with the principle of integrity. 
 It is dishonest to charge for a service not rendered, and such an action is a discredit
to the profession. ^
 Her action is also in breach of professional behaviour,  as her action could affect
the good reputation of the profession. ^
Max 5

Matter 3
 This action by Reed amounts to non-compliance with the principle of professional
competence and due care. 
 A competent auditor would not fail to carry out a final review of the audit team’s working
papers. ^
 This could have serious consequences for the audit and is a failure to comply with the
international auditing standards. ^
 It also reflects a lack of due care on the part of Reed. ^
 Reed has also breached the principle of objectivity. 
 He has allowed himself to be negatively influenced (making a poor decision) based on the
fact that to carry out the review would have meant that the budget would have been
exceeded. ^
 This is not an acceptable reason for failing to carry out important audit procedures. ^
Max 5

Matter 4
 Ray has not acted with integrity  because he failed to confirm whether the vehicle
was actually owned by the company and he was dishonest in the conclusion to the working
paper. ^
 He has also not acted with professional competence and due care  as he has not
acted diligently in accordance with the technical and professional standards. ^
 Ray has not complied with the principle of professional behaviour  as he has
discredited the profession. ^
Max 7.5

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Matter 5
 Sage’s objectivity  has been compromised as her father, who is a direct family
member, is in a position to exert direct and significant influence over the
information which she will be auditing. ^
 Sage has not maintained confidentiality. 
 She has disclosed confidential information about the audit carried out and does not have
authority to disclose confidential client information. ^
Max 5

Common mistakes made by students:

 Most students understood what was required of them.
 Students did not provide all the applicable fundamental principles for each scenario and
therefore lost marks.
 Some students did not understand what each fundamental principle meant and therefore
incorrectly applied the information to the wrong principle.
 Some students only provided the description of each fundamental principle and did not
apply the information provided.

Tips for revision:

 You should study the theory and be able to apply it to the scenario provided in the
questions.

3.2.1 Procedures to be followed upon discovery of a reportable irregularity

References: - Study guide (study unit 2.1)

- SAICA Student Handbook 2015/2016, Volume 2C, Auditing Profession
Act, section 45
- Jackson & Stent (2014:3/85–3/89)

 Ginger Berry must, without delay, send a written report to the Independent Regulatory Board
for Auditors (IRBA). 
 The report must give particulars of the reportable irregularity and must include such
other information and particulars as Ginger Berry considers appropriate. 
 Within three days of sending the report to the IRBA,  Ginger Berry must notify the
members of the management board of the entity in writing of the sending of the report to
the IRBA and supply them with a copy of the report sent to the IRBA. 
 As soon as possible, but within 30 days after the date on which the report was sent to
the Regulatory Board, …
(a) take all reasonable measures to discuss the report with the members of the
management board of the entity 
(b) give the members of the management board of the entity the opportunity to make
representations in respect of the report 
(c) send another report to the Regulatory Board,  which report must include
(i) a statement that the registered auditor is of the opinion that …
- no reportable irregularity has taken place or is taking place;  or
- the suspected reportable irregularity is no longer taking place and that
adequate steps have been taken for the prevention or recovery of any loss as
a result thereof; or
- the reportable irregularity is continuing 
(ii) detailed particulars and information supporting the statement. 
Max 9

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3.2.2 Processing by bookkeeper

No 

This would not constitute a reportable irregularity as the bookkeeper is not a responsible for
the management of Susta. ^ / The act is not unlawful. ^ / The act is a human error. ^ /
The bookkeeper should have provided the auditors with supporting documents. ^
(1 x 1 = 1)
(1 x 1.5 = 1.5)
Max 2

Common mistakes made by students:

 Most students did well in this question.
 Some students did not provide all the steps to be performed once an auditor has identified a
reportable irregularity.
 Some students were confused when the IRBA and management would be informed of the
reportable irregularity, with most stating that management would be communicated with first.
In addition, students did not state that after 30 days another report would be sent to the
IRBA informing it of the status of the reportable irregularity.
 Most students stated yes that the unauthorised expense would be a reportable irregularity
and did not give attention that the matter was performed by the bookkeeper as opposed to
management as required by section 45 of the Auditing Profession Act.

Tips for revision:

 You should study the theory and be able to apply it to the scenario provided in the
questions.

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