7 Study the scenario and complete the question that follows: Report of the External Auditor To the Board of Directors of Ithuta Education Limited We have audited the financial statements of Ithuta Education Limited, as set out in the annual report, which statements comprise the state of financial position as at 31 December 2015, the statement of comprehensive income, the statements of changes in equity, and the statement of cash flows for the year ended. Directors' responsibility for the financial statements The company's directors are responsible for: The preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa; and Such internal controls as the directors deem necessary in order to enable the preparation of financial statements free from material misstatement, whether as a result of fraud or error. Basis for unqualified opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Ithuta Education Limited as at 31 December 2015, as well as its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and requirements of the Companies Act of South Africa. Emphasis of matter The International Standards on Auditing require us to alert the users of the financial statements where any form of non-compliance with laws and regulations have occurred. We hereby emphasise the fact that a reportable irregularity took place, in that the Board of Directors did knowingly hold back returns from the South African Revenue Service relating to the Value Added Tax Act No. 89 of 1991. [Insert auditor's signature here] JDF & Lovitz Incorporated Registered Auditors Per: S Johnston CA(SA) RA: Director 31 Graceway Blue Hills Crowburgh COAGB2-B44-Deferred Take-Home Assessment Block 4 2021 | V1.0 Page 12 of 13 Identify the errors and omissions in the audit report. (20 Marks) Question 6 Study the scenario and complete the questions that follow: The following is an extract from the annual financial statements of Renergen Ltd annual financial statements for the year ended 28 February 2021: CONSOLIDATED AND SEPARATE STATEMENTS OF FINANCIAL POSITION GROUP COMPANY 2000 2020 HON-CURRENT ASSETS 3 3004 70% 270 . 7 34206 . 2739 174605 305775 CURRENT ASSETS 00 77 346 Cash and ch 12 TOTAL ASSETS EQUITY AND LIABILITIES State Cap TOTAL EQUITY 1376 8500 7536 8500 COAGB2-844-Deferred Take-Home Assessment Block 4 2021 | V1.0 246 Page 10 of 13 6.1 Which assertions need to be tested on the statement given in the scenario? (10 Marks) 6.2 Explain how you would go about testing property, plant, and equipment in the statement. (15 Marks) Question 5 Study the scenario and complete the question that follows: You are a first-year trainee accountant of Ofenste & Kelebogile Incorporated (O&K), a firm of registered auditors recently appointed as the statutory auditors of Foodworth Limited (Foodworth) for the 30 June financial year end. Foodworth is a retail company that manufactures and sells its mainly organic food products to upper- and middle-income customers. Foodworth, which has thirty-two outlets situated in upper-class suburban areas country-wide, has a factory in Cape Town and a farm on the outskirts of the city, where it grows its products. Head office is in Johannesburg. The company has been listed on the Johannesburg Stock Exchange (JSE) since 1999. O&K became aware that Foodworth would be changing its statutory auditors when Mrs Jacobs, the wife of the audit partner in charge of the audit of Foodworth, advised him to tender for the audit. She considered O&K to be the most appropriate auditors for the company, as the majority of O&K's clients are in the food retail industry. Mrs Jacobs is the chief financial officer (CFO) at Foodworth. After O&K was awarded the tender, Mrs Jacobs requested O&K to assist the company with the following no- assurance services: The identification of potential investors to invest in Foodworth (the investments will be used to expand into the East African market); and The preparation of the company's tax returns (the CFO will take full responsibility for the returns, including any significant judgement made) For the year ended 30 June, Foodworth's reported profit for the year was R13 million. The processing of all transactions is done using Data-Adapta-System (DAS) accounting software, and, in order to create a greener environment and cut down on the use of paper, all communications with suppliers and bankers are electronic. Foodworth has a strong, competent internal audit department that assists in evaluating and monitoring the assessed risks. The team members of the Foodworth audit comprise the audit partner, the audit manager, and yourself. The CFO has informed the audit partner that the audited financial statements, which will be used in order to assist management of Foodworth on strategies for expanding its market share in South Africa, as well as the signed audit report, are required three weeks after year end. Discuss the factors that O&K should have considered prior to accepting the statutory audit engagement of Foodworth Limited for the year ended 30 June. (25 Marks) You are a member of the team responsible for the annual audit of MISA (Pty) Ltd, a large company that retails men's clothing. The company has outlets throughout Southern Africa, which sell both imported and locally manufactured goods. Whilst conducting routine audit tests on payments, you notice that at reasonably regular intervals, ATM cash withdrawals for amounts ranging from R5 000 to R10 000 are paid to a supplier and simply referred to as "Cash." You also notice that these payments coincide with consignments imported from China, but for which there are no documents reflecting entry into South Africa. Puzzled, you approach Walter Melon, who is a chartered accountant and the financial manager of MISA (Pty) Ltd. His response was as follows: "Don't worry about it - it's a pretty normal business practice in the clothing industry. We land the goods in Zimbabwe, change the 'Made in China' labels in the garments to 'Made in South Africa' labels, repackage them, and bring them in through the border post in one of our delivery trucks. Our distribution manager gives the cash to the driver in case any customs officials don't want to accept that the goods are being returned to our local depot from out Zimbabwean outlets. The cash certainly helps them to see it our way! I raised this issue a year or two ago with the financial director and he nearly exploded! He told me to just ignore it and get on with my job. So, I did - he is not the right person to get on the wrong side of!" Comment on Walter Melon's response in terms of his compliance with the South African Institute of Chartered Accountants (SAICA) Code of Professional Conduct. (20 Marks) Auditors are regularly described as boring, conservative, or, more rudely, as "little grey men (or women)" or bean counters, a description which has grown out of the popular image of auditors, serious- looking individuals, in their grey suits with laptops tucked under their arms! And yet, despite the slightly mocking image, there is a general acceptance that auditing is a serious business and that auditors have a very important role to play in society. So important is the role of an auditor that the profession is regulated by the Companies Act 71 of 2008 and the Auditing Professions Act 26 of 2005. Auditors need to have complied with prescribed education, training, and competency requirements and adhere to a code of professional conduct. In addition, an auditor can be refused registration with the Independent Regulatory Board of Auditors (IRBA) based on misconduct. Indicate whether each of the following statements is true or false. Where you have selected false, provide a brief explanation. 1.1 The primary objective of the external audit of a company is to provide an opinion on the fair presentation of the annual financial statements of a company. 1.2 Directors are appointed by the shareholders of a company. 1.3 Auditors are appointed by the shareholders of the company to prepare the accounting records of the company. 1.4 An audited set of annual financial statements can be classified as absolutely accurate and complete. 1.5 Partnerships may not register with the IRBA unless all the partners are registered. 1.6 A person not registered with the IRBA may perform audits of Private Companies only. 1.7 An auditor may share a portion of professional fees with a person not registered as an auditor. 1.8 An independent auditor needs to avoid a conflict of interest with a client. (10 Marks) Question 6 Study the scenario and complete the questions that follow: The following is an extract from the annual financial statements of Renergen Ltd annual financial statements for the year ended 28 February 2021: CONSOLIDATED AND SEPARATE STATEMENTS OF FINANCIAL POSITION GROUP COMPANY 2000 2020 NON-CURRENT ASSETS 3 3004 70% 270 14 " 9 36 905 2739 CURRENT ASSETS 00 77 Cash and chan 12 150 TOTAL ASSETS EQUITY AND LIABILITIES State Cap TOTAL EQUITY 604603 305775 1376 8500 7536 101477 8500 100 COAGB2-844-Deferred Take-Home Assessment Block 4 2021 | V1.0 Page 10 of 13 6.1 Which assertions need to be tested on the statement given in the scenario? 6.2 Explain how you would go about testing property, plant, and equipment in the statement. (10 Marks) (15 Marks)