Auditing 3A

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CENTRE FOR OPEN AND LIFELONG LEARNING POLYTECHNIC OF NAMIB

ASSIGNMENT BOOK

ALL PARTICULARS REQUIRED MUST BE FURNISHED BY THE STUDENT

Refer to Information

Manual for Distance

Education

Students/Information

Circular

DATE STAMP (RC,

SSDO, SSO)

Indicate your Regional Centre with an

X

Gobabis Centre

KatimaMulilo Centre

Keetmanshoop Centre

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X Windhoek COLL Office

DATE STAMP (REGIONAL CENTRE) DATE STAMP (COLLWINDHOEK)

SEE LECTURER/TUTORS COMMENTS ON LAST PAGE

Lecturer/Tutors Signature:____________________________

Date Marked: _____________________________________

Student Number 200606573

ID Number 1988/06/11

Course e.g. Introduction to

Mathematics

AUDITING 3A

Course Code e.g. ITM111S AUD311S

Assignment Number 1

Lecturer/Tutors name Prof/Dr/Mr/Ms Ms Akwenye

Tel No: 0813155844

Due Date 05 March 2014

Extended due date of assignment in case

of study material issued late

WINDHOEK

BOX6647,Ausspanplatz

DAGDMANUEL

Writeournameand

ostaladdr

ess

STATEMENT BY STUDENT

I declare that I have read the currentrules andinstructions on submission of assignments andundertake to comply with these rules.

I declare that this is my own, original workprepared specifically for this course and that allthe sources I have used or quoted have beenindicated and acknowledge by means ofcomplete references.

I declare that I have read the currentrule AC3.2

on academic honesty and integrity andundertake to comply with this rule.

Students Signature: GD Manuel

%


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Question 1

a)

1. A bookkeeper - keeps a record of transactions in the business.

2. Financial Accountant - Prepares financial statements and prepares an analysis of

those statements

3. Management accountant - prepares costing and manufacturing type statements as

well as cost budgets

4. External Auditor - performs an audit in accordance with specific laws or rules on the

financial statements of a company, other legal entity, and is independent of the entity

being audited.

5. Internal Auditor - An employee of a company charged with providing independent and

objective evaluations of the company's financial and operational business activities,

including its corporate governance.

6. Government Auditor: Government auditors are considered a subset of internal

auditors, and are employed by federal, state, and local agencies.

b)

Person Procedure

1 c

2 f

3 d

4 a

5 b6 e


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Question 2

a. Objectivity

The principle of objectivity imposes the obligation on all professional accountants to be

fair, intellectually honest, and free of conflicts of interest.

b. Integrity

An auditor should have the quality of being honest and having strong moral principles.

c. Independence

It is having a position to take an unbiased viewpoint in the performance of audit tests,

analysis of results, and attestation in the audit report.

d. Confidentiality

Professional accountants have an obligation to respect the confidentiality of information

about a clients (or employers) affairs acquired in the course of professional services

e. Professional Competence and Due Care

A professional accountant, in agreeing to provide professional services, implies that he

is competent to perform the services. Professional competence requires a high standard

of general education followed by specific education.

Question 3

Internal Auditors

The deter fraud. When employees know that there is an internal auditor, they

lessen their likelihood to steal.

The community benefits from less people in prison

External Auditors

Provides the community with reasonable assurance about assertions made by

company directors


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Enhance the community image by validating directors claims, if there are true


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Question 4

a. Internal Auditor

A person who helps an organization accomplish its objectives by bringing a systematic,

disciplined approach to evaluate and improve the effectiveness of risk management,

control, and governance processes.

b. Forensic Auditor

A forensic auditor specializes within the field of accounting, and often provide expert

testimony during trial proceedings in order to prosecute a party for fraud, embezzlement

or other financial claims.

c. Postulates of Auditing

Postulates were the basis, the assumptions, and the starting point for building the

auditing structure and are matters which are assumed to be true and are taken for

granted.

d. Professional Scepticism

It is an attitude that includes a questioning mind, being alert to conditions which may

indicate possible misstatement due to error or fraud, and a critical assessment of audit

evidence.

e. Reasonable Assurance

In most assurance services the audit conclusion is expressed in the positive form which

indicates that, given the evidence gathering procedures and the characteristics of the

subject matter, the auditor has obtained sufficient appropriate evidence.


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Question 5

Due to the inherent limitations of audit, auditors are only able to offer 'reasonable

assurance' over the truth and fairness of the financial statements rather than absolute

assurance. Inherent limitations of audit are discussed below.

Use of Professional Judgment

Audit involves the use of judgment in the identification of audit risks, selection of

appropriate auditing procedures and the interpretation of audit evidence. Although

auditing standards provide guidelines to assist auditors in forming sound professional

judgments, it is inevitable that an auditor may at times misjudge a situation which may

cause the auditor to overlook a misstatement in the financial statement.

Use of Sampling

Auditors apply sampling techniques to limit the number of transactions and balances

selected for audit testing in order to perform the audit efficiently and cost effectively. The

results derived from the selected transactions and balances may not however be

representative of the entire population. There is therefore an inherent risk that the audit

procedures may fail to detect a material misstatement in the financial statements due to

the inability of auditors to perform detailed testing of the entire population of

transactions and balances.

Management Representations

Generally, external evidence is considered to be a more reliable form of audit evidence

than internal evidence produced by the management. Although auditors collect audit

evidence from a range of sources, too often they have to rely on the representations of

management in order to assess the reasonableness of the matters concerning financial

statements. This is particularly the case in matters that involve the use of judgment by

the management as it is usually difficult to corroborate management representations

about the appropriateness of their judgments with external evidence.


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Risk of Fraud

By their very nature, frauds are intended to be concealed by the perpetrators and

therefore pose a very high risk of remaining undetected by the auditors even in spite of

the application of sound audit methodology and procedures.

Time Constraints

In practice, auditors face strict time constraints within which they have to provide their

opinion on the financial statements. Auditors tend to prioritize tasks that are essential for

the effective performance of the audit. In some cases, particularly where there is legal

requirement for companies to publish their financial reports within a certain time frame,

the auditors may, in a bid to meet the assignment deadlines, fail to consider an

important matter in the finalization of the audit report.

Independence Threats

Whereas the ethical guidelines issued by IFAC and other professional bodies attempt to

minimize the instances of loss of objectivity of auditors, certain level of conflicts of

interest are inevitable in practice. The perceived independence of an auditor is for

instance impaired where a client accounts for a significant portion of the revenue of the

audit firm.


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Question 6

Assurance engagement means an engagement in which a practitioner expresses a

conclusion designed to enhance the degree of confidence of the intended users other

than the responsible party about the outcome of the evaluation or measurement of a

subject matter against criteria . This different from non-assurance engagements which

are not meant to express opinion about a subject matter.


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Question 7

1. True

2. True

3. True

4. True

5. False

6. True

7. False

8. True

9. True

10. False


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Question 8

a)

Assertions are representations of management that are embodied in all financial

statement components or classifications. Specific audit objectives are developed in

each audit area to evaluate the appropriateness and reasonableness of relevant

financial statement assertions.

b)

For classes of transactions and events:

1. Occurrence All transactions and events that have been recorded have occurred

and pertain to the entity.

2. Completeness All transactions and events that should have been recorded have

been recorded.

3. Accuracy Amounts and other data relating to recorded transactions and events

have been recorded appropriately.

4. Cutoff Transactions and events have been recorded in the correct accounting

period.

5. ClassificationTransactions and events have been recorded in the proper

accounts

For account balances at the period end:

1. ExistenceAssets, liabilities and equity interests exist.

2. Rights and ObligationsThe entity holds or controls the rights to assets, and

liabilities are the obligations of the entity.

3. CompletenessAll assets, liabilities, and equity interests that should have been

recorded have been recorded.

4. Valuation and allocationAssets, liabilities, and equity interests are included in the

financial statements at appropriate amounts and any resulting valuation or allocation

adjustments are appropriately recorded.


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For presentation and disclosure:

1. Occurrence and Rights and ObligationsDisclosed events and transactions have

occurred and pertain to the entity.

2. CompletenessAll disclosures that should have been included in the financial

statements have been included.

3. Classification and UnderstandabilityFinancial information is appropriately

presented and described and disclosures are clearly expressed.

4. Accuracy and ValuationFinancial and other information are disclosed fairly and at

appropriate amounts

c)

Sufficiency is the measure of quantity of audit evidence i.e. the amount of evidence

obtained must be enough that it can be used and considered by the auditor. The

quantity of audit evidence required depends on the assessment of risk conducted by the

auditor. If the risk of material misstatement is high then higher quantity of audit evidence

is required to establish (confirm) by the application of audit procedures.

Appropriateness on the other hand is the measure of quality of audit evidence. Audit

evidence is said to be appropriate if it is relevant and reliable in the given set of

circumstances. However, the appropriateness of audit evidence is affected by the time,

source and the circumstances under which such evidence is obtained.

Auditing 3A

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