CAUB 022– COURSE NOTES
CAUB022
MODULE 1: INTRODUCTION TO AUDITING
HANDBOOKS: AUDITING FUNDAMENTALS IN A SOUTH AFRICAN
CONTEXT (CHAPTER 1)
CONTENT
1. Study objective
2. Importance of topic
3. Exam technique
4. Questions
a. Class question(s)
b. Self-assessment question(s)
5. Sources
6. Class slides
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CAUB 022– COURSE NOTES
1. STUDY OBJECTIVES
On completion of this module, you should:
– Describe the purpose of and requirements for accounting records.
– Describe the Companies Act requirements relating to accounting records and
financial statements.
– Describe the assertions contained in the financial statements.
– Identify and formulate the assertions applicable to the account balances, classes
of transactions and disclosures contained in the financial statements.
– Define and external audit.
– Explain the need for an external audit.
– Contrast the external auditor’s responsibility in relation to the financial statements
with that of a company’s directors.
– Provide an overview of the steps in the audit process.
– Describe the inherent limitations of an audit.
– Differentiate between the types of assurance and non-assurance engagements
and types of auditors.
– Understand the history of auditing in major events in its history.
– State and describe the postulates in auditing.
– Briefly describe the structure of the auditing profession locally and internationally.
2. IMPORTANCE OF THE TOPIC
This section of the work can be examined in the form of theoretical and application
questions.
3. EXAM TECHNIQUES
THE BEST WAY TO PERPARE YOURSELF FOR TESTS AND EXAMS IS TO
WORK THROUGH AS MANY QUESTIONS UNDER EXAM CONDITIONS AS
POSSIBLE.
The following methods should be used to improve your understanding of the topic:
– Study the underlying concepts and principles form the course notes and the
relevant chapters of Auditing Fundamentals in a South African Context, Latest
Edition.
– Practice addressing the practical issues by working through the question bank
and class questions. You should attempt the class questions, compare your
solutions to the suggested solutions and analyse why differences exist.
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CAUB 022– COURSE NOTES
4. QUESTIONS
No Description Topic Type
1. Baloyi & Partners Introduction to auditing. Class question1
2. Repo Incorporated Introduction to auditing. Tutorial question
3. Auditing Fundamentals in a Introduction to auditing. Self-assessment
South African Context – question2
Chapter 1, Question 1.
1
Class questions and discussion questions are questions that you have to attempt (as if
under exam conditions). The lecturer will announce in class when you should attempt it and
during which class / lecture the question will be discussed. Please remember to always bring
your attempted question to the class / class as it may be taken in for marking AND may be
taken into account to determine your semester mark.
2
Self-assessment questions are questions that you have to attempt (as if under exam
conditions) on your own. These questions will help you with exam technique (if attempted
properly) and provide you with examples of how questions may be asked in a test or exam.
CLASS QUESTION
You are the Technical Manager of Baloyi & Partners Incorporated, a medium sized
auditing and accounting firm with a broad client base. You are also a Registered
Auditor. The following technical queries were raised by your fellow colleagues who
required your technical advice.
Query 1
One of my audit clients is of the opinion that the function of “external audit” includes
the preparation of the client’s annual financial statements.
Is this statement true? Please fully substantiate your responses.
Query 2
If external auditors express an unqualified audit opinion do they provide absolute
assurance that the financial statements are free from material misstatements due to
fraud and error? If not, why can’t the external auditor provide me with an “absolute
assurance” that the financial statements are free from material misstatements?
Query 3
I am currently busy with the audit of revenue transactions at one of my audit clients
and I have discovered that the treatment of revenue is not in accordance with IFRS
15: Revenue from Contracts with Customers accounting standard. Revenue is
recognised when the customer places an order (when the internal sales order is
generated) and not when the goods have been delivered to the customer (when the
risk and rewards of ownership has passed to the customer), which might result in an
overstatement of revenue for the year under audit.
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CAUB 022– COURSE NOTES
I have identified “accuracy and classification” as the assertions that are at risk for the
above revenue transactions, is this correct? In addition to this, may you also please
advise me on whether or not the remaining three assertions for revenue transactions
are also at risk? Please provide reasons to justify your responses.
Query 4
I read a newspaper article and I was shocked to receive the news that one of the
world’s giant media company (M&T Films and Production Ltd) had collapsed. It was
reported that the auditors of the company failed to detect the material misstatements
as a result of fraudulent activities committed by the company’s management, the
management had embezzled about $20 million dollars from the company.
Management created fictitious creditors where money was being paid to, for which
they were the recipient of the money. To conceal the fraud, they falsified the
supporting documents (supplier invoice, statements etc.) which was also provided to
the company auditors as audit evidence.
As I am currently busy with the audit at one of my biggest audit clients, I am a bit
sceptical about this and I wish to minimise this risk from happening at any of my
audit clients. Tell me, what could have been the major reason for the audit failure at
M&T Films and Production Ltd and why were the auditors unable to detect these
accounting irregularities?
YOU ARE REQUIRED TO:
1 Respond to all of the above technical queries that have been raised by your fellow
colleagues.
Please structure your answer as follows:
Query 1 3
Query 2 8
Query 3 8
Query 4 6
Communication skills: clarity of expression. 1
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CAUB 022– COURSE NOTES
Tutorial Question 24 Marks
QUESTION 1 [25 MARKS]
PART A [12 MARKS]
You are in the third year of your training contract as audit senior at Repo Inc.
(hereafter ‘Repo’), based in the Polokwane office. Repo is a large audit firm with
offices in all provinces across South Africa. The firm has a diverse client portfolio that
covers a variety of industries.
You are actively involved in Repo’s “Adopt a student” initiative. This is a mentorship
programme where employees at the Polokwane office adopt a student studying
towards their BCom Accounting degree at the University of Limpopo, and commits to
mentoring the student and providing support in whichever capacity they can. The
student you are mentoring, Relebogile Mabala, has just started with Auditing 111
and has requested your assistance with the following questions that form part of an
assignment he is busy with:
1.1 Why is there a need for external auditors?
1.2 Give any four (4) examples of accounting records.
1.3 Provide full names of the following organisations and a brief explanation of the
function of each:
1.3.1 IIA
1.3.2 SAIGA
YOU ARE REQUIRED TO:
1.1. Provide answers to the questions raised in Relebogile’s assignment. 12
Marks are allocated as follows:
Question 1.1 (4 Marks)
Question 1.2 (4 Marks)
Question 1.3.1 (2 Marks)
Question 1.3.2 (2 Marks)
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CAUB 022– COURSE NOTES
PART B [13 MARKS]
SafetyNet (Pty) Ltd (hereafter ‘SafetyNet’) is a small manufacturing company
situated in the industrial parts of Polokwane. SafetyNet manufactures Personal
Protective Equipment (PPE) used in mines. In addition, the company also owns
commercial property that it leases out to other businesses. SafetyNet is currently
undergoing an external audit of their annual financial statements for the financial
year ended 30 June 2025. The auditors raised the following issues:
1. The newly appointed accountant (a recent university graduate) failed to
recognise material revenue transactions that occurred during the month of
January and February 2025.
2. The provision for doubtful debts for the year ended 30 June 2025 has not
been calculated and recorded.
3. Rental income earned in July 2025 was incorrectly recognised in the
accounting records during June 2025.
4. The February 2025 depreciation amount for machinery was incorrectly
calculated.
5. The auditors could not locate two machines during their physical asset
verification procedures (inspection). The machines were however included in
the company’s fixed assets register and recorded in the company’s
accounting records.
6. Costs incurred for repairs done to machinery, were capitalised instead of
being expensed.
YOU ARE REQUIRED TO:
1.2. For each of the issues raised by the auditors of SafetyNet, provide 12
the relevant financial statement assertion at risk and the general
ledger account affected.
NOTE: Please IGNORE VAT.
Provide your response in tabular format as follows:
Issue number Assertion at Risk General ledger
account
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CAUB 022– COURSE NOTES
1.
1
Communication Skills: Communication skills - Students must be
able to present the information using the required tabular format.
NOTE: THE SOLUTION TO THE CLASS QUESTION and TUTORIAL QUESTION WILL BE
LOADED ON BLACKBOARD.
5. SOURCES
These course notes and lecture slides have been compiled from the following
sources:
Auditing Fundamentals in a South African Context (Latest Edition).
6. LECTURE SLIDES
Lecture slides will be made available on black board.
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