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100%-AUE2601-ASS5-GROUP A-SEMESTER 2-2023
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Distinction guaranteed, AUE2601 GROUP A -ASSIGNMENT 5-SEMESTER 2- 2023
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Group 5A -AUE2601Assignment 5A – Semester 2 -2023
Question 1
1.
1.1 Before accepting an audit client, several preconditions for an audit should be met to ensure the
audit can be conducted effectively and ethically. In the context of Garmax Watches (Pty) Ltd, here are
the preconditions that should be met:
• Independence and Integrity
• Legal and Regulatory Compliance
• Access to Information
• Adequate Internal Controls
1.1.5 Management Cooperation:
• No Conflicts of Interest:
• Financial Stability:
Acceptance of Audit Findings:
• The client should agree to accept and implement any necessary corrective actions or
adjustments identified during the audit. This includes addressing material misstatements or
control deficiencies.
1.2
1. Independence and Objectivity:
SMN will assess whether there are any conflicts of interest or business relationships that
could compromise their independence and objectivity in conducting the audit of Fitbat.
auditing standards.
2. Expertise and Competence: SMN will evaluate whether they have the necessary expertise
and competence to effectively audit Fitbat's financial statements.
3. Resource Availability: The audit firm will assess whether they have the necessary resources,
including qualified personnel and time, to perform the audit effectively.
4. Acceptable Audit Risk: SMN will analyze the inherent and control risks associated with
auditing Fitbat.
5. Audit Fee and Terms: The audit firm will negotiate the audit fee with Fitbat, ensuring that
the fee is both fair and reasonable for the scope and complexity of the audit.
6. Client Reputation and Integrity: SMN will assess Fitbat's reputation, integrity, and ethical
standards. They will consider whether Fitbat has a history of ethical business practices and
whether the client promotes a culture of integrity, which is critical for a successful audit.
, 7. Complexity of the Engagement: The audit firm will evaluate the complexity of Fitbat's
financial statements and operations. More complex clients may require additional time and
resources to conduct the audit effectively.
8. Communication and Reporting Expectations: SMN will establish clear expectations for
communication and reporting with Fitbat's management and board.
9. Client Acceptance Procedures: SMN will follow their internal client acceptance procedures
and consider whether they have any policies or guidelines that may influence their decision
to accept Fitbat as a client.
10. Regulatory and Legal Requirements: The audit firm will ensure that Fitbat complies with all
regulatory and legal requirements, including financial reporting and auditing standards. Any
non-compliance could pose risks to the audit engagement.
11. Potential Risks and Challenges: SMN will consider any specific risks or challenges associated
with Fitbat's industry, operations, or financial position. They will assess whether they can
adequately address these risks during the audit.
1.3 A review of historical financial statements constitutes a type of assurance engagement known as
a "Review Engagement." In a review engagement, the objective is to provide limited assurance that
there are no material modifications that should be made to the financial statements for them to
conform to the applicable financial reporting framework (e.g., generally accepted accounting
principles or International Financial Reporting Standards). It is a less extensive engagement
compared to a full financial statement audit.
Three specific matters that a practitioner needs to perform procedures on in a review engagement
include:
1. Inquiry and Analytical Procedures: The practitioner will conduct inquiries of the
management and, where considered appropriate, other personnel within the entity to obtain
an understanding of the entity, its operations, and the financial reporting process. They will
also perform analytical procedures to identify any unusual fluctuations or relationships in the
financial data.
2. Substantive Procedures: The practitioner will perform substantive procedures to obtain
evidence about specific account balances, classes of transactions, or disclosures within the
financial statements. This may include testing individual transactions, examining supporting
documentation, or reconciling account balances to external records.
3. Review of Financial Statements and Related Disclosures: The practitioner will review the
financial statements and related disclosures to assess whether they are in accordance with
the applicable financial reporting framework. This involves evaluating the presentation,
structure, and disclosures within the financial statements to determine if they are free from
material misstatements or misrepresentations.
Question 2
2.1 In the context of the internal controls described in the information provided, Control Aspect C1
and C2 are related to different components of the system of internal control:
• Control Aspect C1 relates to the Control Environment component.
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