Exam (elaborations)
2022 Mock Exam 3
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Topics covered: Evaluation of misstatements Going Concern Audit opinion
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AuditingTOPICS COVERED: Evaluation of misstatements
Going Concern
Audit opinion
AUE Integrated Question test 3 Reading time: 12 minutes
You are a trainee accountant at CA Auditors Inc. (herein referred to as CAA) a
medium sized firm of registered auditors. CAA has been the auditors of HairCare
(Pty) Ltd (herein referred to as HairCare) for the past 3 years. This is your first audit
engagement.
HairCare operates in the personal service industry, offering a range of hair-related
services, such as hair cutting, colouring and styling, as well as facial hair grooming.
HairCare also retails hair and personal grooming products such as shampoos,
conditioners, scissors and razors to name a few.
It is the 25th of May 2020 and the audit team is in the process of finalising the audit
for the year ended 31 March 2020. The audit has taken a lot longer than expected
as a result of South Africa’s nationwide lock down due to the Covid 19 Pandemic.
Luckily HairCare has an automated accounting system and all supporting
documents are kept electronically so the audit team have been able to perform the
audit remotely.
Impact of Covid 19
HairCare was set to have its best financial year since incorporation until Covid 19
hit South Africa on the 5th of March 2020 and sales in March steadily declined as
customers cancelled orders and appointments in order to self-isolate as instructed
, by government. On 26 March 2020 South Africa was put into lockdown for 21 days
and HairCare recorded no further sales from this date in their 2020 financial period.
HairCare management were concerned for their businesses future however their
conservative approach to business in the early years meant that they had sufficient
reserves to make it through the 21 days without any income.
On the 9th of April 2020 the South African president announced the lockdown
would be extended for a further 2 weeks and thereafter the lockdown would be
gradually lifted to allow the economy to open. The personal service industry was
highlighted as low priority and therefore it was likely that HairCare would not
commence trading for at least 2 months.
It was on the back of this announcement that management reassessed their initial
going concern assessment and at this point decided to enter into voluntary
business rescue proceedings.
The following working papers have been prepared by the audit team:
Description Working paper reference
Audit findings A4
Press release G2
Client HairCare (Pty) Ltd Working Paper:
Year End 31 March 2020 A4
Prepared by: Candy De Date: 15 May 2020
Reviewed by: Rudy Chop Date: 25 May 2020
Audit findings:
Final materiality has been set at R220 000.
The following audit findings have been highlighted for discussion:
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