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Aue3701 Assignment 2 (2021) solutions
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Solutions to assignment 2. Please call 9 for additional assistance
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AUE3701 Assignment 2(2021)
FOR ADDITIONAL ASSISTANCE WITH
AUE/FAC/MAD/TAX MODULES
CALL/WHATSAPP 067 688 5479
1.
(a) Risk indicators (b) Description of risks of material misstatement at the
financial statement level
Conducting business The AFS may be materially misstated due to error as Cellular
internationally (most of conducts business internationally and the accounting
Cellular’s products are treatment for forex transactions is complex
sourced from China)
Related parties (Cellular is The AFS may be materially misstated due to error or
the parent company of App manipulation as the disclosure of related party relationships
Connect and Protect It) and transactions might be incorrect/incomplete in the
financial statements or might not be at arm’s length
Cellular group companies The AFS may be materially misstated as the entity might be
have to adhere to liable for legal damages for non-compliance resulting in
, regulations (the Consumer negative publicity for the entity. This might lead to the going
Protection Act 68 of 2009 concern assumption not being properly accounted for and/or
and Competition Act 89 of disclosed.
1998)
Third party reliance The AFS may be materially misstated due to manipulation as
(Audited financial directors might engage in fraudulent financial reporting
statements to be used for (overstatement of assets and profit and understatement of
supplier renewal application) liabilities and expenses) to ensure that the Cellular’s licence is
renewed
Going concern issues due The AFS may be materially misstated as the going concern
to : assumption might not be properly accounted for and/or
- Licence contributes 70% of disclosed due to the possible non-renewal of the licence.
annual turnover and to be
renewed withina month
after 31 March 2021 year-
end
Tight audit deadline The AFS may be materially misstated due to error as the
financial results prepared by the management of Cellular
might be incomplete due to time pressure or they may not
have sufficient time to identify, account for and disclose
subsequent events.
CEO is also 100%
shareholder of Cellular The AFS may be materially misstated due to manipulation
as management might engage in fraudulent financial
reporting by inflating the performance and position (eg
overstatement of revenue) of the entity or by reflecting a
poor performance and position (eg overstatement of
expenses) of the entity to save on taxation to be paid over
to the South African Revenue Services
Reliance on the work of The AFS may be materially misstated due to error and the
another auditor (Another other audit firm may not detect it due to not having
audit firm audits Protect It) experience in auditing Protect It
Cellular is a parent company The AFS may be materially misstated, as errors might occur
to two subsidiaries during consolidation because it involves an intricate process
possibly resulting in material misstatements.
The AFS may be materially misstated, as related party
transactions might not be eliminated on consolidation.
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