QUESTION 1

1. Background information

You are a third-year trainee accountant employed at Technical Inc. (‘Technical’) and
were assigned to the audit of Solar Power (Pty) Ltd (‘SP’) for the year ended
30 September 2025 (FY2025). SP is a South African company which operates in the
solar power industry. The company’s head office, assembly plant and warehouse are
located in Cape Town, with branches in several of the largest cities and towns in South
Africa. The branches are not independently managed, i.e. although there is a manager
at each branch, branches are subject to the business decisions taken by the
management at head office.

2. New computerised system

Since January 2025, SP’s accounting function has been centralised at head office in
Cape Town. Before this, branches had a greater responsibility as they performed their
own accounting functions, and the majority of the branches’ accounting processes
were manually performed. To enable the centralisation of the accounting function and
enhance automation, an integrated, cloud-based (online) enterprise resource planning
(ERP) system for medium-sized companies was acquired and implemented from
January 2025. Both accounting and operational functions are performed by the ERP
system. Technical’s in-house audit software is fully compatible with SP’s ERP system,
and SP gave Technical access to the system and permission to process test data
through the system.

Management of SP is aware of the cyber security risks that might arise from the
introduction of the new ERP system that is cloud-based. Technical Inc. Auditors have
been requested to provide their inputs in designing the general controls to protect SP
from cyber-attacks.

3. Customers and inventory management

The solar power systems are generally acquired by large customers such as
commercial office and industrial complexes, airports, shopping centers and malls, and
private electricity providers and used mostly for generating electricity for sale to other
consumers of electricity. Small businesses and homeowners also buy in smaller
quantities from time to time.

Raw materials consist of fragile high value components such as solar panels,
batteries, inverters, wiring, and consumables such as isolation tape, glue, etc. Some
of these components are imported free-on- board from suppliers in China by head
office and volume discounts are offered by Chinese suppliers. Finished goods consist
of assembled solar power systems.
The cost of raw materials included in finished goods, comprise all costs of purchase,
conversion and other costs incurred in bringing the inventories to their present location
and condition and are assigned on the first-in-first out basis.

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The inventory master file contains a significant number of items and can be extracted
from the ERP system. The management of SP encourages a paperless environment
and therefore some information relating to inventories is only available in electronic
format.

4. Matters relating to trainee accountants

In September 2025, you and two junior trainee accountants, Fun Dee and Aloe Jude,
went to SP’s premises for a week to obtain an understanding of the entity and its
environment in order to perform risk assessment procedures. While there, all of you
had to complete a compulsory online training course about recent updates to the
International Financial Reporting Standards 18 (‘IFRS 18’), which forms part of the
Technical trainee accountants’ continuous professional development program. The
instructions stated that all audit staff had to complete an online test after completing
the course and explicitly stated that no sharing of answers was allowed. Before you
completed the training and the online test, Fun Dee and Aloe Jude suggested the
following to you:

We were able to obtain the correct answers to the test from a fellow trainee who has
already completed the course. It will save us a lot of time if we all simply complete the
test using these answers and we won’t have to undertake the training course
ourselves. Besides, the audit firm won’t know!

You declined to take part in this, but you are aware that Fun Dee and Aloe Jude did
follow this suggestion.

5. New solar panel launch

SP is on the verge of launching the new solar panel that incorporates advanced
monocrystalline technologies, an event that has been eagerly anticipated by the public
for some time. The success of the launch is very important to SP, and SP has
committed to incentivise all employees with a bonus depending on the number of solar
panels that are sold at the launch.

One of the staff members at the assemble plant, Ms Asanda Van Zyl, whilst arranging
for the launch, overheard a discussion between SP’s CEO and assemble plant
manager at the assemble plant. They said that the new solar panel has a deadly flaw
in its electric circuit that tends to send uncontrollable solar energy that can damage
client’s electrical appliances. The CEO and the assemble plant manager decided to
ignore this deadly flaw and proceed with the launch.

6. Current year’s audit

The final materiality figure for the 2025 financial statements of SP is set at R1 200 000.

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You are currently busy with the year end audit of SP, and you have prepared the
following working papers for review by the senior manager on the audit:

Working paper Reference no.

Debtors age analysis - 30 September 2025 DD105
Outstanding audit work on creditors reconciliation AA201
Outstanding audit matters ZZ300

Client: SP Year end: 30 September 2025 DD105

Prepared by: You Date: 31 October 2025
Reviewed by: Date:
Audit section: Debtors age analysis - 30 September 2025
Audit procedure:
Identify any unusual items on the debtors age analysis shown below.

DEBTORS AGE ANALYSIS – 30 SEPTEMBER 2025

No. Name Total Current 30 days+ 60 90 120 days+
days+ days+
R R R R R R
0010 Chiefs (Pty) 122 725 122 725
Ltd
0002 Pirates (Pty) 612 645 612 645
Ltd
0013 Sundowns 499 312 499 312
0015 United Ltd (294 124) (294 124)
0005 Amazulu Inc 928 133 928 133
0008 Stellenbosch 711 586 711 586
(Pty) Ltd
0003 Arrows NPC 7 110 185 7 110 185
0016 Dummy001 552 125 552 125
0006 Cat Mantala 420 901 420 901
0005 Bay (Pty) Ltd 818 238 818 238
0004 Gallants Ltd 400 000 400 000
0001 Chippa FC 494 925 373 480 121 445
0009 Magesi 101 919 101 919
0014 Cape Town 945 111 945 111
CC
0007 Royal 833 842 812 511 21 331
0012 Galaxy CC 660 475 660 475
14 917 998 11 096 186 2 733 925 21 331 121 445 945 111

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 Client: SP Year end: 30 September 2025 AA201
Prepared by: You Date: 25 October 2025
Reviewed by: Date:
Audit section: Outstanding audit work on creditors’ reconciliation
The following creditors’ reconciliation for SA Electric (Pty) Ltd as at 30 September 2025,
prepared by SP’s credit clerk, was handed to the audit team:

Notes Amount
Balance per SA Electric (Pty) Ltd creditor’s statement at R730 150
22 September 2025
Less: Invoice INV168 1 (R31 500)
Less: Invoice INV149 2 (R16 800)
Balance per creditors’ ledger of SP as at 30 September R681 850
2025

Note 1:
Discount by SA Electric (Pty) Ltd for early settlement of this invoice not granted. SA Electric
(Pty) Ltd offers a 4% discount on all invoices paid within 15 days of date of delivery.

Note 2:
On 05 September 2025, 50 x 5 litres of glue were received and recorded in the inventory
records. It was only later realised that 50 x ½ litres of glue were ordered and not 50 x 5 litres.
All 50 of the 5 litres of glue were returned to SA Electric (Pty) Ltd on 28 September 2025.

Client: SP Year end: 30 September 2025 ZZ300

Prepared by: You Date: 25 October 2025
Reviewed by: Date:
Audit section: Outstanding audit matters
The following four uncorrected misstatements were still not addressed by management at
year end.

Matter 1

Included in trade receivables as of 1 October 2024 is a debtor amounting to R945 111,

relating to a Cape Town CC which SP’s management says owes SP the money for
installation of a new solar power system. However, Cape Town CC says that the installation
services never took place. On the 2025 audit, the audit team included the debtor on the
schedule of unadjusted differences as an overstatement of revenue and an overstatement
of current assets, as no audit evidence could be obtained supporting the debt owed.
Management has also not handed the debtor over to a debt collection agency. The audit
manager has made the decision to carry this matter over to the 2025 schedule of unadjusted
differences as an ‘effect of prior year matters on the current year’.

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 Client: SP Year end: 30 September 2025 ZZ300
Prepared by: You Date: 25 October 2025
Reviewed by: Date:
Audit section: Outstanding audit matters
Matter 2

Management calculated an allowance for credit losses for an amount of R298 360,
representing two percent (2%) of gross trade debtors as of 30 September 2025. However,
the audit team gathered sufficient appropriate audit evidence to support an allowance for
credit losses of R1 655 880.

Matter 3

While testing the cost prices of raw materials it was noted that the cost used in the inventory
system did not include any delivery cost charged for transporting raw materials from
suppliers. Raw material was therefore recorded at the incorrect cost as the transport cost
was recorded as an expense. The raw material balance at year end was R8 250 000. A
sample of raw materials to the value of R825 000 were selected for testing, and the incorrect
cost used caused an understatement of R80 500 for the sampled items.

Marks
QUESTION 1 – REQUIRED Sub- total Total
(a) With reference to the implementation of the new ERP systems,
describe at least five (5) control risks at overall financial statement 5 5
level for the 30 September 2025 financial statements of SP.
(b) Describe the risks of material misstatement at assertion level
relating to inventories for the 30 September 2025 financial 9
statements of SP.

X1: Communication skills: structure and layout 1 10