101 2013 3 Aue1501

AUE1501/101/3/2013
Tutorial letter 101/3/2013
INTRODUCTION TO AUDITING
AUE1501
Semesters 1 & 2
Department of Auditing
IMPORTANT INFORMATION:
This tutorial letter contains important information
about your module.

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CONTENTS
Page
1 INTRODUCTION ............................................................................................................................ 3
2 PURPOSE OF AND OUTCOMES FOR THE MODULE ............................................................... 4
2.1 Purpose .......................................................................................................................................... 4
2.2 Outcomes ....................................................................................................................................... 4
3 LECTURERS AND CONTACT DETAILS ...................................................................................... 4
3.1 Lecturers......................................................................................................................................... 4
3.2 Department ..................................................................................................................................... 5
3.3 University ........................................................................................................................................ 5
4 MODULE-RELATED RESOURCES .............................................................................................. 7
4.1 Prescribed books ............................................................................................................................ 7
4.2 Recommended books..................................................................................................................... 7
4.3 Electronic Reserves (e-Reserves) .................................................................................................. 7
5 STUDENT SUPPORT SERVICES FOR THE MODULE................................................................ 7
6 MODULE-SPECIFIC STUDY PLAN............................................................................................... 7
7 MODULE PRACTICAL WORK AND WORK-INTEGRATED LEARNING..................................... 8
8 ASSESSMENT ............................................................................................................................... 8
8.1 Assessment plan ............................................................................................................................ 8
8.2 General assignment numbers......................................................................................................... 9
8.2.1 Unique assignment numbers .......................................................................................................... 9
8.2.2 Due dates for assignments ............................................................................................................. 9
8.3 Submission of assignments ............................................................................................................ 9
8.4 Assignments ................................................................................................................................. 10
8.4.1 Semester 1: Compulsory assignment 01................................................................................... 10
9 ADDITIONAL ASSESSMENT...................................................................................................... 23
10 EXAMINATION............................................................................................................................. 26
11 FREQUENTLY ASKED QUESTIONS.......................................................................................... 26
12 SOURCES CONSULTED............................................................................................................. 26
13 CONCLUSTION ........................................................................................................................... 27
14 ADDENDUM................................................................................................................................. 27

AUE1501/101
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1 INTRODUCTION
Dear Student
It gives us great pleasure to welcome you as an AUE1501 student in the Department of
Auditing. We, as lecturers, are at your disposal and will gladly assist you in your studies. Be
assured of our willingness to support you with advice during your study programme.
You will receive a number of tutorial letters during the semester. A tutorial letter is one way of
communicating with you about teaching, learning and assessment. Please read the my Studies
brochure in combination with this tutorial letter (Tutorial Letter 101) as it gives you an idea of
generally important information when studying within our College.
Right from the start we would like to point out that you must read all the tutorial letters you
receive during the semester immediately and carefully, as they always contain important and,
sometimes, urgent information.
This tutorial letter contains important information that will assist you in your studies. Please
read it carefully and keep it at hand when working through the study material, preparing the
assignments, preparing for the examination and addressing questions to your lecturers. We
trust that you will benefit from everything that this module has to offer.
Study material
You will be supplied with the following tutorial material for this module by the Despatch
Department:
• Study guide and
• Tutorial Letters
All tutorial material will be mailed to you upon registration. Tutorial matter that is not available
when you register will be posted to you as soon as possible, but is also available on myUnisa.
To contact the Department of Despatch regarding tutorial material that you have not received,
use only the telephone numbers indicated in the booklet entitled my Studies @ Unisa (which
you received with your tutorial material).
If you have access to the Internet, you can access the tutorial letters for the modules for which
you are registered on the University’s online campus, myUnisa, at http://my.unisa.ac.za. You
can also use myUnisa to confirm that you have received all the tutorial letters.
Note: Some of this tutorial matter may not be available when you register. Tutorial matter that
is not available when you register will be posted to you as soon as possible. When you register,
you will also receive an inventory letter containing information about your tutorial matter. See
also the booklet entitled: my Studies @ Unisa (which you received with your tutorial matter).

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2 PURPOSE OF AND OUTCOMES FOR THE MODULE
2.1 Purpose
The purpose of this module is stated in the “introduction to the module” in your study guide.
2.2 Outcomes
For the learning outcomes of this module we refer you to the different topics in your study guide
for this module. In the “introduction to the module” you will also find an overview of the module
and we also explain our teaching strategy and how the study guide should be used to guide you
through the study material.
During the semester you should:
- work through your study material, make summaries and complete the “do” activities.
- answer the questions contained in Tutorial Letter 102 and compare your answers with the
suggested solutions contained in Tutorial Letter 103.
- complete and submit assignment 01 (compulsory assignment for examination admission)
and assignment 02 before the due dates and complete the self evaluation assignment. All
the compulsory assignments and the self evaluation assignment is included in this tutorial
letter.
- prepare yourself for the examination (for examination preparation and technique refer to
the my Studies @ Unisa brochure).
All students will receive the solutions to the assignments, even if they do not submit their
assignments.
3 LECTURERS AND CONTACT DETAILS
3.1 Lecturers
Lecturers for AUE1501
The lecturer responsible for this module, and to whom you should direct your enquiries, is:
Lecturer:
Mr KN Motubatse
E-mail: nmotubat@unisa.ac.za
Course co-ordinator:
Prof HJ Theron
E-mail: therohj@unisa.ac.za
PLEASE NOTE: Personal appointments should be arranged beforehand.
Always have your student number and module code ready when you contact the
university!!!

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3.2 Department
Department of Auditing:
If you wish to write to us, letters should be addressed to:
The Module leader: AUE1501
Department of Auditing
PO Box 392
UNISA
0003
Secretary:
Tel: 012 429 4707/ +27 12 429 4707
Departmental Webpage:
http://www.unisa.ac.za/Default.asp?Cmd=ViewContent&ContentID=194
The Department of Auditing is situated on the 2nd level of the AJH van der Walt building on the
main campus in Pretoria and our telephone number is +27 12 429 4707. Professor JM van
Staden is the chair of the department.
3.3 University
If you need to contact Unisa about matters not related to the content of this module, please
consult the brochure my Studies @ Unisa, which you should have received with your study
material. In this document you will find the contact details of various administrative departments.
If you did not receive this document and have access to the Internet, you can find it on myUnisa
under the ‘Resources’ option. Remember to always have your student number ready when
making an enquiry.
Please ensure that you contact the correct section or department for each enquiry as this
will result in a speedy resolution of the enquiry.
The contact details are:
Fax number (RSA only) (012) 429-4150
Fax number (international) +27 12 429-4150
Other means of contacting the university are:
Physical address University of South Africa
Preller Street
Muckleneuk
Pretoria
City of Tshwane
Postal address University of South Africa
PO Box 392
UNISA
0003

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Online address http://my.unisa.ac.za
Unisa website http://www.unisa.ac.za
E-mail addresses
First enquiries (prospective students) study-info@unisa.ac.za
All international students international@unisa.ac.za
(registration-related enquiries)
Other departments
Aegrotat exams aegrotats@unisa.ac.za
Assignments assign@unisa.ac.za
Despatch, study material despatch@unisa.ac.za
Examinations exams@unisa.ac.za
Graduation affairs gaudeamus@unisa.ac.za
Remark papers remark@unisa.ac.za
Recheck papers recheck@unisa.ac.za
Finance finan@unisa.ac.za
Student information
Fellow student names condiscipuli@unisa.ac.za
Student counselling and career development counselling@unisa.ac.za
Enquiries about prescribed books vospresc@unisa.ac.za
Library
The my Studies @ Unisa booklet, which is part of your registration package, lists all the services
offered by the Unisa library.
General library catalogue enquiries bib-oasis@unisa.ac.za
Library Web co-coordinator bib-web@unisa.ac.za
Inter-library loans enquiries libr-ill@unisa.ac.za
Enquiries about subject databases bib-dbase@unisa.ac.za
Library information desk bib-help@unisa.ac.za
Enquiries about training presented by the library bib-oplei@unisa.ac.za
Send a question to the library staff bibrefq@unisa.ac.za
Short SMS codes
Send an SMS direct query with your name, student number/ID number and a short description
of your query.
Applications and registrations 43578
Assignments 43584
Exams 43584
Study material 43579
Student accounts 31954
myUnisa/myLife 43582
NB: Lecturers cannot assist you with registration, payments, module codes and the like.
These are administrative issues which should be discussed with the relevant sections.

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4 MODULE-RELATED RESOURCES
The resources at your disposal are classified into two categories.
4.1 Prescribed books
There are no prescribed books for this module. The study guide and the tutorial letters that you
will receive during the semester are your study material.
4.2 Recommended books
There are no recommended books for this module.
4.3 Electronic Reserves (e-Reserves)
There are no electronic reserves prescribed for this module.
5 STUDENT SUPPORT SERVICES FOR THE MODULE
For student support services you are referred to the my Studies @ Unisa brochure.
UNISA LIBRARY LOGIN
You will be required to provide your login details, i.e. your student number and your myUnisa
password, in order to access the library’s online resources and services.
This will enable you to
• view or print your electronic course material
• request library material
• view and renew your library material
• use the library’s e-resources
Electronic requests
The preferred way of requesting books is online via the library’s catalogue.
Go to http://oasis.unisa.ac.za, or
via myUnisa, go to http://my.unisa.ac.za > Login > Library > Library catalogue, or
for mobile access (AirPAC), go to http://oasis.unisa.ac.za/airpac.
Telephonic book requests
This can be done on +27 (0)12 429-3133. Please supply the reservation order number (RON).
6 MODULE-SPECIFIC STUDY PLAN
We provide you in the study material with a table indicating the minimum time required to
master the various topics of this module. Plan your studies accordingly to spread your studies
evenly throughout the semester.

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Also use the my Studies @ Unisa brochure for general time management and planning.
7 MODULE PRACTICAL WORK AND WORK-INTEGRATED LEARNING
There is no practical work for this module.
8 ASSESSMENT
8.1 Assessment plan
Assignments
Assignments are seen as part of the learning material for this module. As you do the
assignments, study the reading texts, consult other resources, discuss the work with fellow
students or tutors or do research, you are actively engaged in learning.
You are required to submit the compulsory assignment 01 before the due date to obtain
admission to the examination. Admission will be obtained by submitting compulsory
assignment 01 and not by the marks you obtain for it.
The marks you obtain for assignment 01 and assignment 02 will contribute towards your year
mark.
Commentaries and feedback on assignments
The solution to assignment 01 will be provided to you in Tutorial Letter 201 which will only be
distributed after the due date of assignment 01. The solution to assignment 02 will be sent to
you in Tutorial Letter 202 which will only be distributed after the due date of assignment 02.
As soon as you have received the commentaries, please check your answers. The
assignments and the commentaries on these assignments constitute an important part of your
learning and should help you to be better prepared for the next assignment and the
examination. The solution and commentary on the self evaluation examination paper will be
included in Tutorial Letter 202 which will enable you to mark your assignment.
Year mark
The marks that you obtained for assignment 01 and assignment 02 will contribute towards your
year mark for the module.
Your year mark contributes 10% towards your final examination mark. A student requires a final
mark of 50% to pass a module. The final mark is calculated as follows:
5% x mark obtained for compulsory assignment 01 plus
5% x mark obtained for compulsory assignment 02 plus
90% x mark obtained in the examination (sub-minimum of 40%)
The sub-minimum of 40% implies that if you obtain a mark of less than 40% in the examination,
your year mark will not be taken into account.

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Please ensure that your assignment 01 and assignment 02 reach the University before the due
date – late submission of these assignments will result in you not receiving marks that
count towards your year mark.
THUS:
TO GET ADMISSION TO THE EXAMINATION, YOU MUST SUBMIT ASSIGNMENT 01
BEFORE OR ON THE DUE DATE
YOUR MARKS FOR BOTH ASSIGNMENTS 01 AND 02 WILL BE USED TO
DETERMINE YOUR YEAR MARK
8.2 General assignment numbers
Assignments are numbered consecutively per module, starting from 01. Only Arabic numerals
are used, for example: Assignments 01, 02, 03, and so on.
8.2.1 Unique assignment numbers
In addition to the general assignment number (eg 01), each assignment has its own unique
assignment number (eg 102717). This number must be written on the mark reading sheet or
assignment cover page in the designated area.
8.2.2 Due dates for assignments
Assignment FIRST SEMESTER
Due date if you are
registered for the first
semester
SECOND SEMESTER
Due date if you are
registered for the second
semester
01 (Compulsory)
02 (Compulsory)
6 March 2013
Unique number: 344337
3 April 2013
28 August 2013
25 September 2013
8.3 Submission of assignments
You may submit written assignments and assignments done on mark reading sheets either by
post or electronically via myUnisa. Assignments may not be submitted by fax or e-mail. For
detailed information and requirements as far as assignments are concerned, see the brochure,
my Studies @ Unisa, that you received with your study material.
To submit an assignment via myUnisa:
• Go to myUnisa.
• Log in with your student number and password.
• Select the module from the orange bar.
• Click on assignments in the left-hand menu.

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• Click on the assignment number you want to submit.
• Follow the instructions on the screen.
Please ensure that your assignment 01 reaches the University before the due date – late
submission of assignment 01 will result in you not being admitted to the examination.
PLEASE NOTE: You must submit assignment 01 in order to be admitted to the
examination while both assignments 01 and 02 must be submitted for purposes of
determining your year mark. No extension of the due dates can be given by the lecturers
for these assignments.
General remarks
For enquiries about assignments (eg whether or not the University has received your
assignment or the date on which an assignment was returned to you) please refer to the contact
information in 3.1 of this tutorial letter. You may also find this information on myUnisa. To go to
the myUnisa website, start at the main Unisa website, http://www.unisa.ac.za, and then click on
the “login to myUnisa” link under the myUnisa heading on the screen. This should take you to
the myUnisa website. You can also go there directly by typing in http://my.unisa.ac.za.
Assignments should be addressed to:
The Registrar
PO Box 392
UNISA
0003
Completion of assignment cover
PLEASE NOTE: Make sure that you read the instructions on the assignment cover carefully
before completing it. Make sure that you complete the cover correctly. Please make sure that
the following information appears on the COVER of your assignment.
Name.
Address (and postal code).
Student number.
Subject code (e.g. AUE1501).
Correct assignment number.
Correct unique assignment number (applicable only to assignments 01 and 02).
Label with bar code.
8.4 Assignments
8.4.1 Semester 1: Compulsory assignment 01
Instructions:
(1) Write the correct unique assignment number in the six blocks provided on the mark
reading sheet.
(2) Write the ordinary assignment number (01) in the two blocks provided on the mark reading
sheet.

AUE1501/101
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(3) Consult my Studies @ Unisa for an example of how a computer mark reading sheet
should be filled in.
(4) If you do not follow these instructions, the computer will reject your answer sheet and it will
be returned to you unmarked. Also consult: my Studies @ Unisa when you answer
multiple-choice assignments.
Special instruction regarding the answering of this assignment
(1) This assignment consists of 15 multiple choice questions.
(2) This assignment covers topics 1-5 of the study guide and Tutorial letter 104.
ASSIGNMENT 01: MULTIPLE-CHOICE QUESTIONS
(compulsory)
UNIQUE ASSIGNMENT NUMBER FOR THE FIRST SEMESTER:
344337
DATE OF SUBMISSION
First semester: 6 March 2013
QUESTION 1 15 marks
REQUIRED
Select for each question only ONE alternative that you consider to be the most correct and then
mark on myUnisa or on the mark reading sheet the digit that corresponds to the digit of the
alternative which you have selected as your answer. Answer the sub-sections of this question
in numerical sequence, for example, as follow:
1. 1
2. 3
(1 marks per question)
Each correctly answered multiple-choice question will receive 1 mark.
1.1. An entity often needs small amounts of cash to pay for everyday expenditure where it is
not practical to make the payment by cheque or electronic funds transfer. This small
amount of cash is known as ...
1 predetermined amount.
2 petty cash.
3 investments account.
4 bank reconciliation.

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1.2 Internal auditing advises the management of an entity regarding how to better achieve its
objectives. Which of the following alternatives best describes the need for internal
auditing in an organisation?
(i) Reviewing and appraising the soundness, adequacy and application of accounting,
financial and other operating controls.
(ii) Ascertaining the extent of compliance with established company policies, plans and
procedures.
(iii) Ascertaining the reliability of management data developed within the entity.
(iv) Appraising the quality of performance in carrying out assigned responsibilities.
Choose the correct alternative:
1 (i) only.
2 (i) and (ii) only.
3 (i), (ii) and (iv) only.
4 (i), (ii), (iii) and (iv).
1.3 Which one of the following types of audit procedures is concerned only with obtaining
evidence from a third party?
1 Observation.
2 Analytical procedures.
3 External confirmation.
4 Inquiry.
1.4 Which one of the following alternatives best defines tests of controls?
1 An audit procedure designed to evaluate the operating effectiveness of controls in
preventing, detecting and correcting material misstatements at the assertion level.
2 An audit procedure designed to detect material misstatements at the assertion level.
3 A process of dividing a population into sub populations, which have similar
characteristics.
4 A process to appraise the quality of work performed and conclusions reached by others.
1.5 Which one of the following alternatives best describes the person in charge of the
internal audit activity?
1 Chief audit executive (CAE).
2 Registered auditor (RA).
3 Chief executive officer (CEO).

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4 Chief operating officer (COO).
1.6 Internal control is defined as the process designed, implemented and maintained by
those charged with governance, management and the use of other personnel to provide
reasonable assurance about the achievement of an entity’s objectives. Select the
alternative that best relates to the element of internal control that deals with those
policies and procedures that help ensure that management directives are carried out.
1 Control activities
2 Control environment
3 Risk assessment
4 Monitoring
1.7 Which one of the following is an element of the control environment?
1 Management’s philosophy and operating style
2 Theft of money by staff members
3 A dynamic activity that can differ significantly from entity to entity
4 It is more expensive to operate
1.8 Choose the combination of the following alternatives that best describe the users of
financial statements of the company.
(i) Creditors.
(ii) Investors.
(iii) Trade unions.
(iv) Government agencies.
(v) None of the above.
1 (v) only
2 (i) (ii) (iii) and (iv) only
3 (i) and (v) only
4 (iii) only
1.9 Complete the following sentence: the level of testing to be conducted in an audit is
referred to as the _____ of testing.
1 nature
2 timing

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3 extent
4 reliability
1.10 Choose the alternative that best describes the primary difference between the terms
substantive procedures and tests of controls.
1 There is no difference.
2 Tests of controls are performed on accounting systems and related control activities,
while substantive procedures are performed to provide evidence to support the financial
statement assertions.
3 Tests of controls are performed on balances and totals, while substantive procedures are
performed on related accounts and control activities.
4 In the case of substantive procedures, audit evidence regarding the design of accounting
and internal control systems are obtained, while tests of controls seeks to substantiate
the transactions.
1.11 Which one of the following alternatives best describes the duty of an external auditor?
1 An accountant who needs to have a thorough understanding of Generally Accepted
Accounting Principles (GAAP)
2 An auditor who needs to follow audit processes
3 An auditor who is regulated by the Independent Regulatory Board for Auditors (IRBA)
4 An auditor engaged to express an independent opinion on whether the annual financial
statements of the company presents fairly, in all material respects, the financial position
and results of its operations in accordance with an applicable financial reporting
framework.
1.12 Which one of the following alternatives is an advantage of sole proprietorship?
1 A single owner has limited skills
2 The owner can only get business capital as an individual
3 The owner is free to make his or her own decision
4 All business debts are the owner's responsibility
1.13 Audit risk has three components. Which one of the following is not a component of audit
risk?
1 Materiality
2 Inherent risk
3 Control risk

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4 Detection risk
1.14 Which one of the following alternatives is not a characteristic of good corporate
governance?
1 Independence
2 Accountability
3 Materiality
4 Transparency
1.15 Which one of the following is applicable to both a private company and a close
corporation?
1 Juristic person
2 Business managed by an appointed director
3 Share capital
4 An accounting officer is appointed
---x---
Instructions:
(1) Consult my Studies @ Unisa for instructions on how to submit written assignments.
(1) This assignment covers the whole syllabus.
(2) All questions must be answered.
(3) Only selected questions will be marked.
ASSIGNMENT 02: ESSAY TYPE QUESTIONS
UNIQUE ASSIGNMENT NUMBER FOR THE FIRST SEMESTER:
362425
DATE OF SUBMISSION
First semester: 3 April 2013

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QUESTION 1 24 marks
Revenue and receipt cycle
1.1 The revenue and receipts cycle is a recurring set of business activities and includes the
related information associated with providing of goods and/or services to customers and
collecting cash in payment for those goods and/or services. The cycle includes credit
sales, sales returns, cash received from debtors and cash sales.
REQUIRED Marks
Describe the risks associated with the invoicing and recording functions in the revenue
and receipts cycle under the following headings:
• Recording of receipts (6)
• Invoicing and the related recording (12)
Risks in payment transactions
1.2 A petty cash fund is necessary to provide cash to business units to cover minor
expenses in the organisation. The organisation should have effective and efficient internal
controls over petty cash to manage risk.
REQUIRED Marks
Explain the common risks associated with petty cash transactions. (6
QUESTION 2 11 marks
Inventory cycle
2.1 With the audit of the inventory balance of a company at year-end, the auditor’s main
purpose is to gather audit evidence that will support the assertions made by management in
the financial statements.
REQUIRED Marks
2.1.1 Explain the word "assertion" in an auditing context. (3)
2.1.2 Name and explain the assertions that relate to the inventory account
balance at year end. Note that the assertions relating to presentation and
disclosure are not required. (8)
---x---
Instructions:
(1) Write the correct unique assignment number in the six blocks provided on the mark
reading sheet.

AUE1501/101
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(2) Write the ordinary assignment number (01) in the two blocks provided on the mark
reading sheet.
(3) Consult my Studies @ Unisa for an example of how a computer mark reading sheet
should be filled in.
(4) If you do not follow these instructions, the computer will reject your answer sheet and it
will be returned to you unmarked. Also consult: my Studies @ Unisa when you answer
multiple-choice assignments.
(1) This assignment consists of 15 multiple choice questions.
(2) This assignment covers topics 1-5 of the study guide and Tutorial letter 104.
ASSIGNMENT 01: MULTIPLE-CHOICE QUESTIONS
(compulsory)
UNIQUE ASSIGNMENT NUMBER FOR THE SECOND SEMESTER:
396747
DATE OF SUBMISSION
Second semester: 28 August 2013
QUESTION 1 15 marks
REQUIRED
Select for each question only ONE alternative that you consider to be the most correct and then
mark on myUnisa or on the mark reading sheet the digit that corresponds to the digit of the
alternative which you have selected as your answer. Answer the sub-sections of this question
in numerical sequence, for example, as follow:
1. 1
2. 3
(1 marks per question)
Each correctly answered multiple-choice question will receive 1 mark.
1.1 Which one of the following alternatives is not a type of audit procedure to obtain audit
evidence?
1 Observation.
2 Cut-off.
3 Inquiry.
4 Analytical procedure.

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1.2 Which one of the following alternatives is not a category to which the assertions used by
an auditor may be applied to consider different types of potential misstatements?
1 Presentation and disclosure.
2 Transactions and events.
3 Control activities.
4 Account balances.
1.3 Which one of the following alternatives is an advantage of a business owned and run by
one person?
1 A single owner has limited skills.
2 It is subject to many legal requirements.
3 It is adaptable for small, medium and large entities.
4 The owner is free to make his or her own decision.
1.4 Choose the correct alternative to complete the following sentence. Advantages of a
partnership include all of the following, except ...
1 all business debts are each partner’s responsibility.
2 it is simple to set up and manage.
3 each partner has a personal interest in the entity.
4 all the partners’ skills benefit the entity.
1.5 Internal control is any action that management takes to ensure the likelihood that the
organisation’s objectives are met. Which of the following alternatives can hinder internal
control to achieve the intended objectives?
(i) The possibility of human error.
(ii) The possibility of dishonest employees.
(iii) The possibility of management overriding internal controls.
(iv) The possibility that conditions may change in the organisation.
1 Only (i).
2 Only (i) and (ii).
3 Only (i), (ii) and (iv).
4 (i), (ii), (iii) and (iv).

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1.6 Choose the most correct alternative to complete the following sentence. The best reason
for establishing a code of conduct within an organisation is that such codes ...
1 are typically required by governments.
2 express standards of individual behaviour for members of the organisation.
3 provide a quantifiable basis for personnel evaluations.
4 have tremendous public relations potential.
1.7 Choose the most correct alternative to complete the following sentence. In applying the
standards of conduct set forth in the Institute of Internal Auditors’ code of ethics, internal
auditors are expected to ...
1 exercise their individual judgment.
2 compare them to standards of other professions.
3 be guided by the desires of the client.
4 use discretion in deciding whether or not to use them.
1.8 In a financial statement audit, the auditor considers a certain concept to (1) narrow the
amount of transaction testing, (2) decide what constitutes a misstatement that would
affect the audit opinion, and (3) judge the seriousness of weaknesses in internal controls.
The key concept used by auditors in these various ways is ...
1 management assertions.
2 materiality.
3 sampling.
4 Committee of Sponsoring Organisations (COSO).
1.9 Choose the correct alternative to complete the following sentence. If the auditor is
considering whether the statement of financial position (balance sheet) includes obsolete
inventory at the lower of net realisable value and historical cost, the most relevant
assertion is ...
1 rights and obligations.
2 valuation.
3 presentation and disclosure.
4 completeness.

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1.10 Indicate the most correct alternative to complete the following sentence:
Internal control is a process designed to provide ___________ regarding the achievement of
organisational objectives.
1 inherent risk
2 reasonable assurance
3 control risk
4 detection risk
1.11 Which one of the following activities is not the responsibility of the management of an
entity in relation to accounting and auditing?
1 Planning and conducting the external audit.
2 Maintaining appropriate accounting systems.
3 Designing and implementing adequate internal controls.
4 Preparing the financial statements in compliance with an applicable financial reporting
framework.
1.12 Which one of the following alternatives cannot be regarded as a user of the financial
statements?
1 The government.
2 Professional behavior.
3 Banks.
4 The general public.
1.13 The definition of internal auditing outlines three main roles of an internal auditor. Which
one of the following is not part of the roles that the internal auditor should fulfill?
1 Participation in governance decisions.
2 Improvement of risk management.
3 Evaluation of internal control.
4 Evaluation of governance process.
1.14 Which of the following statements are correct regarding the codes of professional
conduct of external auditors? Code of conduct ...
(i) ensure that auditing services are provided on a cost-effective basis.
(ii) ensure that ethical conduct is adhered to when performing the audit function.
(iii) ensure that the standards are maintained.

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(iv) ensure that persons guilty of offences are punished.
1 (i) only.
2 (ii) and (iv) only.
3 (iv) only.
4 (i) (ii) (iii) and (iv).
1.15 Choose the correct alternative to complete the following sentence. Materiality can best
be defined as ...
1 the reliance on the effectiveness of audit procedures.
2 an omission or misstatement that could influence the economic decisions of users taken
based on the financial statements.
3 the risk that a material misstatement that could occur in an assertion.
4 the risk that an auditor may express an inappropriate audit opinion.
---x---
Instructions:
(1) Consult my Studies @ Unisa for instructions on how to submit written assignments.
(1) This assignment covers the whole syllabus.
(2) All questions must be answered.
(3) Only selected questions will be marked.
ASSIGNMENT 02: ESSAY TYPE QUESTIONS
UNIQUE ASSIGNMENT NUMBER FOR THE SECOND SEMESTER:
207478
DATE OF SUBMISSION
Second semester: 25 September 2013

22
QUESTION 1 24 marks
Purchases and payments cycle
1.1 The purchase and payments cycle is a recurring set of business activities associated
with the purchase of and payment for goods and services. The cycle includes credit
purchases, purchases returns, payments to creditors and cash purchases.
REQUIRED Marks
Describe ten (10) risks associated with the payments for goods in the purchases
and payments cycle. (15)
Audit process
1.2 Audit planning is undertaken by the auditor to ensure that the audit is conducted in an
efficient and effective manner.
REQUIRED Marks
Give six (6) reasons why it is important to plan an audit. (9)
QUESTION 2 18 marks
Cash and bank cycle
2.1 A good accounting system has built-in controls which ensure that errors are eliminated,
where possible, and financial records are accurate and reliable.
REQUIRED Marks
Explain the activities that usually take place in the accounting system for cash
and bank. (9)
Inventory cycle
2.2 The business functions of the inventory cycle are sometimes associated with a conversion
cycle and warehousing cycle. It entails the keeping of records on purchases, sales and
returns, raw materials, work in progress, finished goods and the costs of production
processes.
REQUIRED Marks
Identify the potential control risks that could exist relating to recording in the
inventory cycle. (9)
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AUE1501/101
23
9 ADDITIONAL ASSESSMENT
An examination paper which serves as a self evaluation assessment is included hereafter.
Special instructions and remarks regarding the answering of this assessment
opportunity
It is advised that you complete this assessment opportunity under examination conditions within
two hours without consulting your study material.
After having completed this, you should compare your answers with the key in Tutorial Letter
202. This assessment opportunity must not be sent to the University.
QUESTION 1 16 marks
REQUIRED
Indicate whether the following statements are true or false and provide reasons to support your
answers. Write down only the number of the subsection and the word “True” or “False” and the
supporting reason next to it. Answer the questions in numerical sequence, for example:
1.1 True – and state the supporting reason for your answer.
Each question counts two (2) marks. Half (½) a mark for the true or false statement and one and
a half (1½) marks for the explanation.
1.1 An auditor who is employed by an organisation and renders an auditing service to the
management and the board of directors of that organisation is called an external auditor.
1.2 The control environment as a key component of internal control provides procedures to
assess the actual performance against anticipated performance.
1.3 The government, general public, banks and creditors are some of the users of the
financial information presented in the audited financial statements.
1.4 Inherent risk is the risk that the auditor’s procedures will not detect a misstatement that
exists in an assertion and that could be material.
1.5 A credit application form is used for sales authorisation and is an important document
when orders are given orally by customers.
1.6 An analytical procedure is a type of procedure used to analyse the significant ratios and
trends including the results of fluctuations and relationships that are inconsistent with
other relevant information or that deviate from predicted amounts.
1.7 One of the important aspects of planning the audit is to ensure that an appropriate
amount of time is allocated to identify risk areas.
1.8 Control risk would be rated as high if you could place high reliance on the internal control
system.

24
QUESTION 2 30 Marks
2.1 You are a trainee accountant and have just started with your training contract. Your first
client is Juju (Pty) Ltd, a company that supplies sportswear. You will be responsible for
auditing the inventory cycle with the assistance of the audit senior. You need to set up a
working paper to document your audit procedures and the work to be performed.
REQUIRED Marks
Describe nine (9) basic tasks on which the auditor should focus during the
audit of inventory. (15)
2.2 Mr Mbalula is an auditor appointed to conduct the audit of Gwede (Pty) Limited. During
the course of the audit, Mr Mbalula was not allowed to attend the counting of the physical
inventories on 31 January 2012. Mr Mbalula realises that he must carry out reasonable
assurance procedures to obtain sufficient appropriate audit evidence to support his audit
opinion.
REQUIRED Marks
2.2.1 Define audit evidence. (3)
2.2.2 Explain how the auditor could use an external confirmation as a
source of audit evidence. (4)
2.3 You are part of the audit team that will audit the non-current assets of Santaco Taxi
Company. The taxi company’s assets register indicates that the company owns an airbus
with a book value of R25 million. You were requested to advise on the internal control
activities relating to the assets of Santaco Taxi Company and to audit the asset register
at year-end.
REQUIRED Marks
2.3.1 Describe the aspects that should be included in an internal control system for non-
current assets under the following heading:
• Information and communication (5)
2.3.2 Explain two (2) procedures involved in restricting access to the assets
(physical security). (3)
QUESTION 3 20 marks
3.1 The bank reconciliation is carried out to compare the entries in the cash book (cash
receipts and payments journal) and the items on the bank statement. During the audit,
the reconciliation statement should be carefully followed up and reconciling items traced
to the bank statements for the next period.
REQUIRED Marks
3.1.1 Explain the steps that the auditor should follow in reperforming the
bank reconciliation (15)
3.1.2 List five (5) examples of reconciling items that could form part of a
bank reconciliation. (5)

AUE1501/101
25
QUESTION 4 20 marks
4.1 Internal auditing is an independent and objective assurance and consulting activity
designed to add value and improve an organisation’s operations. It helps an organisation
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve effectiveness of risk management, control and governance processes.
REQUIRED Marks
4.1.1 Explain what the following terms mean to the auditor in the context
of the above description of internal auditing:
• Independence (7)
• Objective (6)
4.2 You are the internal auditor at Zakozi, a global company in the financial service industry.
The external auditors decided to rely on the work of the internal auditors for their audit of
the company’s procurement and sales procedures. The work performed by the internal
audit activity on the procurement and sales procedures includes reviewing the sales and
procurement procedures. At the same time the chief audit executive is instructed by the
audit committee to liaise with the external auditors to ensure that the scope of the planned
internal audit engagements for all the company’s business processes will satisfy the needs
of the external auditors and, if necessary, to increase the internal audit work until it is
possible for the external auditors to place reliance on internal auditors’ work.
REQUIRED Marks
Explain how the external auditor could use the work of internal auditors. (7)
QUESTION 5 14 marks
Thabo Maloi has just matriculated and would like to start his own information technology (IT)
business. He is not sure whether he should conduct the business as a sole proprietor or in
partnership with his brother.
Thabo Maloi asked you to give him some background on the different types of entities for
operating a business, as well as the advantages and disadvantages of each. This will enable
him to make the appropriate choice.
REQUIRED Marks
5.1 Name four (4) types of business entities found in South Africa. (2)
5.2 Explain what a close corporation is. (4)
5.3 Tabulate four (4) differences between a private company and a close corporation in the
following format: (8)
Private company Close corporation
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26
10 EXAMINATION
Requirements for admission to the examination
Submission of the compulsory assignment 01 by its due date will give a student admission to
the examination in this module. Admission will be obtained by submitting this assignment in
time and not by the marks you obtain for it. Please ensure that this assignment reaches the
University before or on the due date. Late submission of the assignment will result in you
not being admitted to the examination. No extension will be given for the late
submission of assignments 01 and 02.
The Examination Period
This module is offered in both semesters. This means that if you are registered for the first
semester, you will write the examination in May/June 2012 and the supplementary examination
will be written in October/November 2012. If you are registered for the second semester you
will write the examination in October/November 2012 and the supplementary examination will
be written in May/June 2013.
During the semester, the examination section will provide you with information regarding the
examination in general, examination venues, examination dates and examination times.
The Examination Paper
Note that your self evaluation assignment is an example of an examination paper. It will be
included in this tutorial letter under point 10. Please refer to this assessment opportunity for the
format of the examination paper and type of questions you can expect in the examination.
Previous Examination Papers
Previous examination papers are available to students on myUnisa. Suggested solutions are
not provided. You may, however, accept that the type of questions that will be asked in the
examination will be similar to those found in your study material.
Use the my Studies @ Unisa brochure for general guidance for the examination as well as for
your preparation for the examination.
11 FREQUENTLY ASKED QUESTIONS
The my Studies @ Unisa brochure contains an A-Z guide of the most relevant study
information.
12 SOURCES CONSULTED
The following sources were consulted in the study material for this module:
• Study guide: AUE1501
• Jackson, RDC.& Stent, WJ 2011. Auditing notes for South African Students (8th
edition)
Durban: LexisNexis.
• International Professional Practice Framework of the Institute of Internal Auditors
• South African Institute of Chartered Accountants (SAICA). SAICA Handbook 2011/2012.
Durban: LexisNexis.

AUE1501/101
27
13 CONCLUSTION
Wishing you every success with your Auditing studies! We are here to assist you where we can
with the content of the module. Please make the most of your opportunity to learn about this
module.
14 ADDENDUM
There are no addendums to this tutorial letter.

101 2013 3 Aue1501

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