(CONFIDENTIAL)

COLLEGE OF ACCOUNTING SCIENCES

SUPPLEMENTARY EXAMINATION: 25 NOVEMBER 2024

PAPER 1: AUE4862/NAU4862/ZAU4862
APPLIED AUDITING
Time and Duration: 3 hours and 20 minutes

25 NOVEMBER 2024 – MONDAY – AUE4862

MORNING 08:30 – 08:40 Question paper download and activation of IRIS.
SESSION AUE4862/NAU4862/ZAU4862 Paper 1 (available under
Assignment 7).
08:40 – 12:00 AUE4862/NAU4862/ZAU4862 Paper 1 (100 marks).
12:00 – 12:20 Scan and upload AUE4862/NAU4862/ZAU4862 paper 1
answer book (to Assignment 7).

EXAMINATION PANEL AS APPOINTED BY THE UNIVERSITY

This AUE4862/NAU4862/ZAU4862 (Applied Auditing) paper consists of twelve (12) pages including the
required of two (2) pages. The marks allocated are 100 marks.

THE USE OF A NON-PROGRAMMABLE CALCULATOR IS PERMISSIBLE.

PLEASE NOTE:

• The exam is a limited open-book exam: Students are allowed to use ONE COPY of the 2023/2024
version of the SAICA Student Handbooks or any version published in one of the previous years.
• Ensure that you use the allocated time after completion of the exam to scan your answer, check
that the file you would like to upload is the correct file and that it is complete. Further ensure that
you upload your answer to myExams timeously and make sure that the submission process is
complete since NO EMAIL OR LATE SUBMISSIONS WILL BE MARKED.
• Please complete the cover page of the answer book in full.
• Please ensure that you use the time allocation as stipulated.
• Please upload your full script within the stipulated time i.e. by 12:20 for the morning session and
by 17:20 for the afternoon session on the myExams site and submit the hard copy at the
venue.
• This examination paper remains the property of the University of South Africa.
• Please ensure that you have completed your details in full i.e. name, surname, student number,
module code and paper number on your script before submission.
• Students who have been approved for extra time would have received separate communication on
their mylife email account to provide them with guidance regarding the submission.
• All tests and examinations should be answered in ENGLISH only.
• Round off all amounts to the nearest Rand.

HYBRID ASSESSMENT GENERAL PROVISIONS

• Students must ensure that their devices are fully functional.

• All venues will be proctored by Unisa staff.
• You may not communicate with fellow students at any time.
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• Your smartphone is to be switched off and stowed away until the end of the writing time, after which
it may be switched on to be used for scanning and uploading your answer sheet.
• Your laptop/computer must only be used to download the applicable question paper. After
downloading, close all other windows. Only the question paper must be open and visible.
• Students suspected of dishonest conduct during the assessment will be subjected to disciplinary
processes. Unisa has a zero tolerance for plagiarism and/or any other forms of academic
dishonesty.

IRIS Proctoring

• At the start of your assessment, please ensure you have activated the IRIS proctoring tool for
invigilation of your assessment session.
• Students must note that the IRIS invigilation tool monitors the student’s computer/laptop screen
which includes browser/internet activity.
• Students who have not utilised invigilation or proctoring tools (IRIS) will be deemed to have
transgressed Unisa’s examination rules and will have their marks withheld.
• Listening to audio (music) or utilisation of audio-to-text software is strictly prohibited during your
assessment session unless such usage of the software is related to a student’s assisted device
which has been so declared. Failure to do so will be a transgression of Unisa’s examination rules
and will have student marks withheld.
• The IRIS invigilation tool is time-bound and only starts once students open their assessment sites
and stops when students’ answer script uploading time ends.
• IRIS will flag suspicious behaviour throughout the assessment which will be reviewed by the exams
department to establish any possible academic dishonesty. Consequently, affected students may
not receive the exam results until the disciplinary processes have been concluded.

Submission

• Non-adherence to the processes for uploading answer scripts will not qualify the student for any
special concessions or future assessments.
• NO typed responses will be accepted, only handwritten scripts will be accepted.
• Once the session duration ends, students have 20 minutes to upload their answer scripts to
myExams on the module sites.
• Submissions made after the official assessment time will be rejected and will not be marked.
• Students should note that the IRIS invigilation tool does not accept answer scripts. Email or late
submissions (submission after the closing time or assessment duration) are not allowed.
• Once the answer script uploading time ends, IRIS invigilation recordings are automatically
uploaded.
• Should students experience technical challenges in uploading IRIS results, they have 24 hours to
ensure that their IRIS Invigilation results are uploaded. Please note that the results upload does
not refer to the answer script upload as IRIS does not keep a copy of your script.
• If you finish uploading your answer script and IRIS has not stopped recording, click on “stop
sharing” and then click on “finished recording”.
• Submissions will only be accepted from registered student accounts.
• Students must upload their answer scripts in a single PDF file (answer scripts must not be password
protected or uploaded as “read only” files). Incorrect file format and uncollated answer scripts will
not be considered.
• Students are advised to preview submissions (answer scripts) to ensure legibility and that the
correct answer script file has been uploaded. The mark awarded for an illegible scanned
submission will be the student’s final mark. No opportunity for resubmission will be granted.
• Incorrect answer scripts and/or submissions made on unofficial platforms (e.g. emails) will not be
marked and no opportunity will be granted for resubmission.

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QUESTION 1

Background information

Digital Technologies Ltd (D-Tech) is a technology company that focuses on e-commerce and has a large
on-line platform from which it provides several products and services such as customer sales orders,
advertisements and customer support. The on-line sales order platform from where D-Tech sells its own
products and hosts vendors' products (for a fee) is streamlined, and the software between these
products is integrated so that it appears as one on-line store. D-Tech’s sales team uses artificial
intelligence to create effective advertisements resulting in sales from its on-line platform and its customer
relations staff pride themselves in addressing and resolving customer queries effectively and efficiently.

On 1 October 2023, D-Tech was converted from a private company to a public company to raise funds
and facilitate its expansion. This was also done to be even more competitive to address the loss of
profits they were experiencing due to numerous companies entering the e-commerce market. D-Tech
was also listed on the Johannesburg Stock Exchange (JSE) as part of the conversion from a private to
a public company. These strategic initiatives were implemented by the newly appointed Chief Executive
Officer (CEO), Lekota Dlamini, who has ambitions for D-Tech to become a world-renowned e-commerce
company with an international footprint. Lekota Dlamini stated that the expansion into international
markets has already materialised and is supported by the company’s state of the art business systems
that incorporates all the latest technologies like cloud-based computing and artificial intelligence. Lekota
Dlamini is known in the industry for her aggressive management style to reach her personal goals, as
well as those set for the company that she leads. In her previous management roles, this “do or die”
attitude has caused some friction with internal and external parties, including regulatory authorities. D-
Tech established only the Audit and Risk (A & R) committee as part of the conversion from a private to
a public company and appointed Professional Growth Auditors Inc. (PG Auditors) to perform the audit
for the 31 August 2024 financial year end. D-Tech will establish the Remuneration committee and any
other required committees during the following financial year.

You are the audit manager at PG Auditors, a medium-sized firm with offices in Cape Town, Durban,
Johannesburg and Pretoria. PG Auditors has four partners and 28 professional staff members.

Derrick Segoa CA (SA) was assigned as the engagement partner responsible for the audit of D-Tech.
You, as the audit manager, and two trainee auditors were assigned to this audit. On 12 August 2024
shortly after accepting the D-Tech audit, Derrick Segoa scheduled a Microsoft Teams meeting to inform
you about several matters relating to this engagement, including his thoughts on a possible audit
strategy. The transcription with the content of the Microsoft Teams meeting was printed and was included
in the audit correspondence file (see Annexure A).

On 18 October 2024, after the 2024 audit was performed, the A & R committee prepared the final draft
of their report (see Annexure B) for inclusion in the 2024 Integrated Report.

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Implementation of a new costing system

Lekota Dlamini believes that the implementation of a new costing system based on Activity-based
Costing (ABC) principles would be more appropriate to determine the cost per product-service offered.
Lekota Dlamini also proposed that alternative software applications should be considered in the future
to facilitate the new costing system. Currently fixed overhead costs are assigned equally to each
product-service rendered and she is of the opinion that this is not a fair reflection of the resources
consumed. D-Tech’s fixed operating overhead costs form the largest part of its product-service cost and
thus accurate assignment of fixed overhead costs to specific product-services will assist with better cost
management and allow for dynamic sales price setting.

She and the operational manager did a thorough investigation of fixed overhead costs and activities and
obtained the following data for the 2024 financial year:

• 900 000 customer orders were placed of which 65% related to D-Tech’s own product sales and
the remainder related to vendors’ sales for which sales staff placed a combined total of 119 400
adverts. D-Tech managed to obtain 15 000 new vendors and retain 65 000 repeat vendors.

• Fixed overhead costs consisted of the following costs:

Fixed overhead costs Note R

Salaries 1 16 800 000
Facilities lease 2 3 245 000
Security 3 1 800 000
IT costs 4 18 500 000
Other 5 1 300 000
TOTAL 41 645 000

Notes

1. Salaries: During 2024, its 60 employees worked a combined total of 146 820 hours. Employees
spend 6 minutes per customer order and 6 minutes per advertisement placed, one hour per new
vendor and 12 minutes per repeat vendor. The remaining employee hours are spent assisting
customers with queries and complaints on their orders.

2. Facilities lease: Eight percent of the 840 m2 facilities is occupied by sales staff responsible for
placing adverts and 84 m2 of the space is occupied by support staff assisting with new and repeat
vendors and customer queries (equally shared). The remainder of the facilities are utilised as
storage space per m2 and is allocated according to the percentage of orders placed.

3. Security cost: The cost relating to storage of all products held and available for ordering at its
facilities.

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4. Information Technology (IT) costs: D-Tech is highly reliant on its IT systems and data analysis
to remain competitive and to efficiently run its on-line sales platform. IT costs include hardware,
software licencing, maintenance and data costs. The total processing time in 2024 was 585 000
minutes. The total processing time for orders was 210 000 minutes and 180 000 minutes for
advertising. 150 000 minutes relates to registering and system integration with new vendors.
15 000 minutes relate to repeat vendor system maintenance and 30 000 minutes to customer
queries.

5. Other operating expenses: These expenses are consumed evenly by each type of product
services offered.

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ANNEXURE A

Transcription of a Microsoft Teams meeting between yourself and Derrick Segoa:

Date: 12 August 2024 12:00
Subject: Audit of D-Tech for the financial year end 31 August 2024

You: Good afternoon, Derrick. How are you?

Derrick Segoa: I am fine and you?

You: I am also fine, thank you.

Derrick Segoa: I thought we could have a quick Teams meeting to discuss the outcome of my meeting with
D-Tech’s directors before my next meeting.

At the meeting it was agreed that our firm (PG Auditors) will perform D-Tech’s 2024 external audit. As we
performed tax services for D-Tech (including the preparation of D-Tech's 2023 tax return), we have already
gathered information about the company and developed a good working relationship with them. In the
meeting, the directors requested that the audit be finalised by mid-October 2024, as they would like to use
D-Tech’s audited financial statements for the 2024 financial year to raise funds for D-Tech’s planned
expansion to be able to address the competitive market in the digital environment. I assured the directors
of D-Tech that we will definitely be able to finalise the audit by mid-October 2024 given our history with the
client.

The 2023 financial statements of D-Tech were subject to an independent review by Stone & Partners.
However, I persuaded the directors that it would be easier for them to raise funds based on audited (rather
than reviewed) financial statements, and I further pointed out that Stone & Partners are not competent to
do the audit, as they are merely chartered accountants (CA (SA)) and not registered auditors (RA) as it is
in any way a requirement to do an audit when a company are listed on the JSE. I am delighted that Stone
& Partners lost this client, given that Jeffrey Stone had the audacity to leave PG Auditors Inc. after
completing his training contract and setting up his own firm to be one of our industry competitors.

The fee for the 2024 audit was fixed at R85 000, but the directors of D-Tech agreed that, should they be
successful in raising funding based on the audited financial statements, an additional once-off fee of
R50 000 will be payable to PG Auditors. As an incentive to the members of the audit team, I am willing to
pay a bonus of R3 000 to each team member upon receipt of the R50 000. Please communicate this to the
team members.

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In my opinion, we will be able to meet the deadline for the 2024 audit of D-Tech if we are very efficient in
the way we undertake the audit. May I suggest the following:
• Please use analytical procedures to identify balances that are not in line with the prior year.
• Then ask the right questions to the right people and you will be able to cut back significantly on the
detailed testing.
• Wherever possible, we should obtain 3rd party evidence and confirmations (e.g. bank confirmations,
debtors’ confirmations, and creditors’ confirmations) to further speed up the audit process.
• You must also contact Stone & Partners to request permission to inspect the firm’s 2023 workpaper
file to save time in respect of the audit of the opening balances.
• Finally, we must include reference to all material assertions in a written representation letter to be
signed by the directors of D-Tech.

As an incentive for you taking “ownership” of this audit as part of your development, I will follow a “hands-
off” approach, but I have diarised the morning of 9 October 2024 to thoroughly review the audit workpaper
file. Even though this is only your second audit as audit manager after completing your articles, I have full
confidence in you, and this is an excellent opportunity to fast-track your career with us. It is now up to you
to prove me right in giving you this opportunity!

You: Thank you for availing me this opportunity, it is a great honour. I will not disappoint you!

Derrick Segoa: All the best with the audit. Goodbye.

You: Goodbye.

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ANNEXURE B

FINAL DRAFT

DIGITAL TECHNOLOGIES LIMITED

AUDIT & RISK COMMITTEE REPORT

D-Tech’s Audit & Risk (A & R) Committee is a formal statutory committee in terms of the Companies
Act and a sub-committee of the board. The A & R Committee functions within documented terms of
reference and complies with the relevant legislation, regulation, and governance codes. The report of
the A & R Committee is presented to shareholders in compliance with the requirements of the
Companies Act and the revised King Rep of Governance principles (King IV).

The A & R Committee is pleased to present its inaugural report on its activities for the financial year
ended 31 August 2024.

Background
Following the board’s approval to convert D-Tech from a private company to a public company, the A
& R Committee was established on 1 October 2023 to act as an independent statutory committee.

Terms of reference
The A & R Committee adopted a written charter that was approved by D-Tech’s executive management
committee. The A & R Committee is satisfied that the charter, available from the company secretary,
James Versace CA(SA), has been complied with.

Objective and scope

The purpose of the A & R Committee is to assist the board in:
• Identifying the major risks facing D-Tech, and strategies to mitigate these risks;
• Appointing D-Tech’s external auditor;
• Compiling D-Tech’s annual financial statements; and
• Performing other duties, as advised by the company secretary.

Membership
The A & R Committee comprises of the following members, who are experienced managers or owners
of businesses in the digital industry:

• Wayne Ford (non-executive director); and

• Papathle Khumalo (chairperson; non-executive director appointed with effect from 1 October
2023).

By standing invitation, the meetings of this A & R Committee are also attended by D-Tech’s external
auditors and James Versace CA (SA), the Chief Financial Officer despite not being members of this A
& R Committee.

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The A & R Committee is pleased to report that in October 2023, Lekota Dlamini, the Chief Executive
Officer (CEO) approved a fee of R2 500 per hour for members attending the A & R Committee
meetings. As a direct consequence, the attendance of the meetings increased significantly, and the
average length of the A & R Committee meetings increased from one hour to five hours. In the 2024
financial year the A & R Committee held nine meetings in total.

External audit
Up until the 2023 financial year, D-Tech was subjected to an independent review which was undertaken
by Stone & Partners. As a result of D-Tech’s conversion to a public company, PG Auditors was
appointed as their first registered auditors and the A & R Committee is satisfied with the auditing firm’s
independence.

The A & R Committee recommends to the board the renewal of the appointment of PG Auditors as the
registered auditors of D-Tech Ltd for the 2025 financial year. The recommendation is based on the
existence of a good working relationship between the A & R Committee and PG Auditors.

Chief Financial Officer

The A & R Committee is satisfied that James Versace CA (SA), the company’s Chief Financial Officer
(CFO) has the appropriate expertise and experience to meet the responsibilities of his position.

Major risks facing D-Tech

The following were identified as the major risks facing D-Tech at a meeting of the A & R Committee
held in October 2023:
• The inability to secure sufficient funds required for D-Tech’s expansion/to refund shareholder
loans;
• Loss of profits because new competitors (including new online technologies) enter the market
and put pressure on D-Tech’s sales figures; and
• Adverse consequences resulting from non-compliance with the numerous laws and regulations
that apply to D-Tech.

The A & R Committee tasked, Lekota Dlamini, D-Tech’s CEO and the other board members with
drafting proposed strategies to address these risks – but due to the heavy workload, this has not yet
been attended to.

Annual Financial Statements

The A & R Committee provided assistance with the compilation of the annual financial statements in
the following manner:
• Critically reviewed the adoption of D-Tech ’s accounting policies;
• Advised on the calculation and implementation of Activity-based Costing; and
• Approved the appointment of Stone & Partners to assist with the compilation of the 2024 annual
financial statements of D-Tech Ltd to ensure continuity in the financial reporting process.

Based on the measures mentioned above, the A & R Committee had no hesitation in making a
recommendation to the board to approve the 2024 annual financial statements.
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Conclusion
The unmodified opinion contained in the auditor’s report on the 2024 annual financial statements
should be evident of the success of the A & R Committee’s efforts.

P Khumalo
Papathle Khumalo
Chairperson Audit & Risk Committee
[to be dated once the 2024 annual financial statements are approved]

*This is the only disclosure made by the audit and risk committee in the Integrated Report.

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REQUIRED

QUESTION 1

Marks
Sub- Total
total
(a) Write a memorandum to the audit partner, Derrick Segoa, in which you briefly
discuss how D-Tech’s conversion from a private company to a listed public
company will increase the audit risk for the 31 August 2024 financial year end.
Limit your answers to the following factors: Regulatory Environment; Corporate
Governance and Financial Reporting 12

X1: Communication skills – Layout and structure 1 13

(b) With reference to the “Background information” only, discuss the factors
that PG Auditors should have considered before accepting the audit
engagement of the financial statements of D-Tech. 12 12
(c) Using Activity-based Costing (ABC) principles and techniques, calculate the
fixed overhead cost per product-service rendered for all D-Tech’s
product-service types. 15 15
(d) Advise on the appropriateness of applying an ABC system to D-Tech’s product-
services. 4

X1: Communication skills – Logical argument 1 5

(e) With reference to the implementation of the new costing system, assume
that D-Tech’s management developed a new software application and retired/
decommissioned the old software application.

(i) Discuss the risks D-Tech could be exposed to when to converting

to the new software application and retiring/decommissioning the
old software. 6

(ii) Discuss the measures/controls that should be implemented to

reduce the risks discussed. 8 14

Notes:
1. Do not provide your answers in a table format.

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Marks
Sub- Total
total
(f) With reference to Annexure A:
Discuss any concerns you have about the professional conduct of Derrick
Segoa in terms of the International Standards on Auditing (ISA’s) and the SAICA
Code of Professional Conduct (CPC). 20

Notes:
2. Limit your answer to the content of Annexure A.
3. Exclude reference in your answer to the IRBA’s rules
Regarding Improper Conduct and SAICA’s By-Laws.
4. Exclude significance of threats as well safeguards from your
answer.
5. Exclude any concerns related to the acceptance of D-Tech as
a client.

X1: Communication skills – Logical argument 1

Y5 – Professional scepticism 1 22
(g) With reference to Annexure B:
Discuss any statutory and corporate governance concerns that you might have
in terms of the Companies Act and the King IV Code for D-Tech the year ended
31 August 2024. 18

X1: Communication skills – Logical argument 1 19

TOTAL 100 100

©
UNISA 2024

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