Exam (elaborations)
AUE2601 Exam pack 2025(Auditing Theory and Practice)
- Course
- Auditing Theory and Practice
- Institution
- University Of South Africa
AUE2601 Exam pack 2025(Auditing Theory and Practice)
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AUE2601 EXAM PACK2025
QUESTIONS AND
ANSWERS
FOR ASSISTANCE CONTACT
EMAIL:gabrielmusyoka940@gmail.com
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May/June 2016
Questions Answers
1.1 B
1.2 D
1.3 D
1.4 C
1.5 A
1.6 A
1.7 A
1.8 A
1.9 B
1.10 B
Question 2
Efficiency ,
Number of economy and
statement effectiveness Audit procedure
I Randomly select one month and check if orders made through email,
Efficiency fax and telephone were written down on the diary
II Take a sample of production cards for one month, check if there are
Efficiency production orders which were approved by the sales department first.
Complete the audit by tracing back to reception to see if there
sufficient audit evidence that orders were send by the receptionist.
Check the time taken from the receiving of an order by the reception
to the time when the order was processed.
II Efficiency Take a given sample of orders with highest amounts. Check if they
were approved by the sales department before production.
IV Calculate the average number of orders each sales staff member can
complete per day under ideal standards. Compare with the current
average number of orders each staff member is currently completing
Economy per day. Find the difference between the numbers of orders
completed by different staff members in order to determine staff
members with ideal time.
V Take a sample of invoices from the system. Check the length of time
Efficiency between approval of an order for every invoice and the time when
invoice was made.
VI Determine the basis for pricing and review if planned manufacturing
Economy cost is equal to actual manufacturing cost.
VII Inspect if there is no idle space in the warehouse. Ask management
Efficiency and the reason for having huge warehouse when production is done
Economy according to customers orders.
VIII Compare the cost of purchasing and the cost of lease over a long
Economy period of time. Ask management their basis for deciding to lease.
IX Economy Check from previous periods if there was no production disruptions
due to delays in supply of raw materials
X Economy Ask management if there is a purchasing policy
XI Economy Enquire management the basis for recruitment used by the
organisations.
XII Effectiveness Identify reasons for poor quality as specified by customers, for
example broken items and wrong design. Check if management have
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taken any appropriate action to avoid the same problems from
occurring.
XIII Effectiveness Check if there are controls over sales to customers. These include
matching delivery notes to sales order so that only ordered goods are
supplied to customers.
2.2) based on the observation made in A1, draft an audit finding providing a practical
illustration of the different elements of an audit finding. (10)
1. Not orders made through email, fax and telephone were written down on the diary
(Statement of condition) because the receptionist fails to accommodate pressure (cause).
2. Some production orders take more time than expected to be processed due to delays made by
the reception department in sending them to the production department (Statement of
condition).
3. Some production cards did not have signed production orders meaning there was no approval
by the sales department (Statement of condition).
4. Sales staff members serve different number of orders per day staff member (Statement of
condition). This may be due to some members who ten to relax at work and expecting other
work colleagues to be in charge of everything (criteria).
5. Not all invoices were processed as soon as the order is approved (Statement of condition).
Production orders processed towards launch may have invoices not processed resulting in the
organisation losing money (effect).
6. The production department does not have a clear basis for determining the price of the
products (Statement of condition). For this reason, the price must be determined using
production costs in line with International accounting standards (recommendation and
criteria).
7. The warehouse has an idle space since current inventory is not able to fill it (Statement of
condition).
8. Costs of leasing exceed costs of purchase in the long term and for this reason, the organisation
must forgo leasing and purchase its own machinery in order to minimise cash outflows in the
long term (recommendation).
9. There are some instances when supplies are not made in time when the organisation is in need
of them. The organisation has to make use of the economic order quantity (recommendation.
10. There are higher chances for fraud to occur. Vetting process must be done first when making
a choice of suppliers in order to avoid the room for fraud to occur standards
(recommendation and criteria). There is no sufficient evidence to show the criteria which
was used to choose the supplier (Statement of condition).
Question 3
Identify the weakness in the distribution department’s operating procedures that would
encourage fraudulent behaviour and for each weakness briefly describe why this would be the
case. (10)
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Answer
1. Drivers may arrange for fake raiding with third parties in order to take the books. This is
because poor ethical culture within an organisation.
2. Recruitment of drivers is not based on merit basis (job specification and job description)
giving room to the employment of unqualified drivers when they pay bribes.
3. Drivers may intentionally delay in the road in order to claim higher wages through long
working hours. This is because the basis for payment is number of hours and there are is no
use of trackers to monitor drivers in transit.
4. Fraudulent behaviour is not communicated to the organisation, for example when an
employee is fired due fraudulent acts, existing employees are not informed. This weakens the
ethical culture within an organisation.
5. Newly appointed employees are not questioned about their background. For this reason, the
organisation may fraudsters who were fired in their former organisations.
3.2) describe eight (8) audit procedures that could be used to provide assurance with regard to
economical purchase of the new equipment (12)
Answer
1) The auditor must find request the reasons why the new equipment or vehicles must be
purchased.
2) The department in need must satisfy the auditor why available current equipments or vehicles
are not enough to serve the purposes.
3) The auditor has to determine if the situation which leads to the need for new equipments or
vehicles is permanent or temporarily. If it is temporarily, buying new equipment must be
forgone and the organisation has to go for leasing. If the auditor is satisfied that there is need
for new vehicles in order to meet the increase in sales, he has to compare the cost of purchase
and the cost of leasing in the useful life of the asset. The auditor has to recommend the less
cost one.
4) The auditor has to determine if the entity has sufficient funds to make the purchase or if future
cash flows will be sufficient to purchase the assets.
5) The auditor has to identify the criteria used by management when purchasing new
equipments. He can do this by looking on past information when buying decisions were done.
6) The auditor has to look on vetting process done by management when choosing the best
supplier of equipment. He must check on issues management emphasise on. Issues must
include, economical useful life (quality or durability) and previous performance of assets
bought form same suppliers.
7) The auditor must verify the independence of the buyer. This include issues related to buying
from suppliers the auditor has some interest with or is familiar to in order to reap some
personal advantages.
8) The auditor has to check segregation of duties between the department in need of the
equipment, the department making a purchase and the department which makes a payment in
order to reduce chances for fraud to occur.
3.3) Indicate how the tasks of the internal auditor during a fraud investigation would differ
from the tasks performed during a performance audit of the distribution department (6)
Answer
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