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AUE3702 EXAM PACK 2023
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AUE3702EXAM
PACK
2023
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AUE3702 2013 S1 – QUESTION (UNISA)
You are the audit manager for the 2013 audit of Tiger Trailers (Pty) Limited, a manufacturer of standard l
duty trailers. Their financial year end is 28 February and they have been your client for four years. The
manufacturing process of trailers is not a complex process and can be easily understood by observing th
production process. The audit plan indicated no unusual risk of misstating inventory at the assertion leve
You attended the client’s annual inventory count and are satisfied with the counting procedures. You hav
copy of the final stock count sheets and you are satisfied that the descriptions and quantities provide a tr
reflection of the inventory count at year end. The stock count sheets are computerised and reflect the foll
information: product code with a description, quantity, cost price and selling price. The cost accountant
provided you with the costing records. Every trailer model has a blueprint with the exact specifications
(diagrams), product codes of raw materials used in the manufacturing process and costing. From this blu
the cost price of a trailer is determined and used on the inventory sheets.
Tiger Trailers (Pty) Limited employs a registered production engineer, Mike Evans, on a contractual basis
has been a contract worker for five years and is responsible for ensuring the accuracy of the blueprints a
also certifies the stage of the work in progress. The cost accountant is responsible for costing the items.
Cost is determined on the first-in-first out (FIFO) basis. Direct costs of manufacturing and a proportion of
manufacturing overheads, based on normal operating capacity, are included in the cost of manufactured
Inventories at cost on 28 February 2013 R’000 2012 R’000
Finished goods 4 280 3 845
Work-in-progress (70% complete) 1 190 1 084
Raw materials 995 799
Journal entry: Credit Note Policy
Tiger Trailers (Pty) Limited accepts returns of goods sold and has a policy that makes provision relating t
before year-end. It is company policy to provide for 2% of the February sales.
The journal entry for this provision is:
28/2/1 Sales (Dr) R59 500.24
3 Provision for credit notes (Cr) R59 500.24
February sales credit note provision per policy document R2
975 012 x 2%
Subsequent events
On reviewing the previous year’s audit programme for subsequent events you noticed that the audit
procedures were either poorly formulated or incomplete. You plan to reformulate them so that the audit
trainee is able to understand exactly what he has to do when executing them. In preparing the audit train
perform the subsequent events procedures you explained the accounting principles of subsequent event
him.
Audit reporting issues
On completion of the audit the audit partner gave you the following schedule of issues that could affect th
audit report. He requested you to complete the following schedule:
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Issue Conclusion in audit file Nature of the Effect of Effect on
matter that misstatement report/
gave rise to the on financial Type of
modification (if statements audit
applicable) opinion
E.g. No cash records Insufficient Fundamental Disclaimer
appropriate
evidence –
scope limitation
1 The provision in respect of the credit note policy 6.1 6.2 6.3
was understated by a material amount.
2 The ability of Tiger Trailers to continue as a going
6.4 6.5 6.6
concern in the foreseeable future depends on
negotiations which will be finalised after the
annual financial statements (AFSs) are issued.
Disclosure of this fact has been made in the AFSs.
3 Various transactions took place during the year 6.7 6.8 6.9
between the audit client and a related party.
These transactions took place well below the
market price. No disclosures of the related party
transactions have been made in the AFSs. This
has a major affect on the AFSs and as a result
causes the AFSs to be misleading as a whole.
REQUIRED:
1. Describe the substantive procedures that you will perform to ensure that finished goods are(30)
correctly valued at year end.
2. Describe the aspects that you will consider before relying on the work of the engineer, Mike
(15)
Evans.
3. Describe the audit procedures that you will perform to audit the journal entry providing for(18)
credit notes.
4. Explain the two types of subsequent events identified by ISA 560 Subsequent events and (6)the
respective accounting treatment thereof.
5. List the audit procedures to identify subsequent events. (18)
6. Complete the audit reporting schedule of issues that could affect the audit report. Number (13)
your answer in accordance with the schedule – 6.1, 6.2, etc.
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AUE3702 2013 S2 – (QUESTION)
QUESTION 1
The audit firm where you are a trainee accountant has been appointed as the new auditor of
Agrichem Ltd, a wholesaler of agricultural chemicals and pesticides. The period under review, for
which you are responsible, covers the year ended 31 August 2013. The company has one central
warehouse and sells its products to distributors and large fanning operations throughout the
country. Inventory is a material figure on the trial balance.
Opening balances
Since this is the first time that your firm is performing the audit, permission was obtained from the
client to contact the previous auditors to obtain more information regarding the opening balances.
The previously appointed auditor simply informed you that he was pressed for time and had to rush
the 2012 audit. He is therefore reluctant to allow you review the 2012 audit working papers. This
immediately made you wonder how reliable the opening balances are and why the auditor has
issued an unmodified audit report.
Inventory
While visiting the central warehouse at Agrichem Ltd you established that perpetual inventory
records are maintained. Goods received notes and invoices are used to capture inventory
movements. While discussing the date and time to perform the physical annual inventory count, the
store manager informed you that the previous auditor has never attended the inventory count. You
also noticed that the warehouse appeared somewhat untidy and it was extremely hot in the
warehouse. You wondered about the effect of extreme temperatures on the shelf life of the
chemicals. You immediately made a note that damaged and obsolete inventory should be identified
during the count and that the value of inventory could possibly be overstated. The assistance of an
expert may therefore be justified to determine the effect of heat on the chemicals.
During your attendance of the physical inventory count at year end, the technical product manager
also assisted with the counting. During informal conversations held with him, he informed you that a
lawsuit has been filed against Agrichem Ltd because of a specific chemical sold to a farmer that
destroyed his entire crop. Apparently the product is not registered for that particular weed and the
sales person therefore sold the incorrect product to this customer. The value of the failed crops was
substantial - R44 000 000.
Trade payables
As part of the verification procedures for purchases you decided to satisfy yourself as to the validity
of the reconciling items appearing on the trade payable's reconciliation of Adhoc Chem
Manufacturers Ltd at 31 August 2013. Agrichem's policies require that all purchases must be
accompanied by an authorised order and goods received note.
The following trade payable's reconciliation for Adhoc Chem Manufacturers Ltd was prepared by the
accountant:
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