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Tutorial Question 2

The document outlines an audit scenario for Talkalot, an online retailer, as of March 31, 2024, highlighting potential risks of material misstatement (ROMM) at both the financial statement and assertion levels, particularly concerning inventory. Factors contributing to ROMM include the relationship between the audit firm and Talkalot's CFO, the economic decline affecting sales, and challenges in measuring inventory due to system limitations. The audit is time-sensitive, as the report is required for regulatory submission to the Competition Commission of South Africa.

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9 views2 pages

Tutorial Question 2

The document outlines an audit scenario for Talkalot, an online retailer, as of March 31, 2024, highlighting potential risks of material misstatement (ROMM) at both the financial statement and assertion levels, particularly concerning inventory. Factors contributing to ROMM include the relationship between the audit firm and Talkalot's CFO, the economic decline affecting sales, and challenges in measuring inventory due to system limitations. The audit is time-sensitive, as the report is required for regulatory submission to the Competition Commission of South Africa.

Uploaded by

4154295
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

AUD 322 2024 Final Exams

QUESTION 1 (22 marks)

You are a senior audit manager at AUZ Incorporated (“AUZ”), and a member of the
audit team performing the 31 March 2024 year-end audit of Talkalot (Proprietary)
Limited (“Talkalot”). The following information about the company is available to you.

BACKGROUND INFORMATION
Talkalot offers an extensive range of locally supplied and imported products via online
retailing. Talkalot owns a warehouse in Cape Town where they store the products to
ensure timeous delivery. Talkalot outsources the delivery of goods to a company
called Courier Girl (Proprietary) Limited (“Courier Girl”).

The online retailer industry is regulated by the Competition Commission of South


Africa (CCSA). AUZ was appointed as the auditors of Talkalot in November 2023 using
a tender process. Mr Pantsy Pants is the managing partner of AUZ and the partner in
charge of the audit. Even though AUZ was appointed as one of the best audit firms
from all the firms that tendered, Mr Pantsy Pants is the father of Talkalot’s CFO which
raised a suspicion of favouritism when awarding the audit. The fact that the audit firm
renders audit services mainly in the mining industry also raised some of these
suspicions. The directors of Talkalot requested that the audit should be completed
within two weeks after the financial year-end, as they would need to submit the
auditor’s report to the CCSA for regulation purposes.

Owing to the current economic climate, Talkalot has seen a decline in the demand for
online sales as a general trend in the past few months. This appears to be a big
concern for the management of Talkalot as their bonuses are determined based on
the profits made by the company. Most of Talkalot’s systems are automated. During
the financial year, measuring the inventory balance has presented certain challenges,
mainly due to the limitations of the accounting system which affects all classes of
transactions and account balances. Inventory is measured at the lower of cost or net
realisable value and the cost price is determined in terms of the first-in-first-out (FIFO)
cost formula.

Marks
QUESTION 1 – REQUIRED Sub- total Total
(a) With reference to the background information:
Describe the risks of material misstatement (ROMM) at the 12 12
financial statement level for Talkalot for the year ended 31
March 2024. Discuss only the factors that increase the
ROMM.
(b) With reference to the background information:
i. Describe the risks of material misstatement (ROMM) at the
assertion level relating to the inventory balance in the 10 10
statement of financial position on 31 March 2024. Discuss
only the factors that increase the ROMM.
QUESTION 1 – TOTAL 22

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