Fluffy $($Pty$)$ Ltd

Fluffy $($Pty$)$ Ltd $($Fluffy$)$ is a wholly owned subsidiary of All Things Nice. Fluffy manufactures knitted scarfs, jackets and jerseys. During the audit of All Things Nice, the audit partner realised that Fluffy has not paid any value$-$added tax $($VAT$)$ to the South African Revenue Service $($SARS$)$ for the last three years. Upon enquiry, the financial director of All Things Nice informed the audit partner that he is aware of this, but Fluffy does not have enough cash to pay this tax liability now. The financial director also mentioned that Fluffy does not have a permanent financial accountant and is looking to fill this position as soon as possible.

$5.$ With reference to the information under Fluffy $($Pty$)$ Ltd:

$5\mathrm{.}1$ Discuss whether the scenario described represents a reportable

irregularity in terms of the Auditing Profession Act. $(9)$

$5\mathrm{.}2\mathrm{.}1$ Identify three risks of material misstatements relating to the financial

statements of Fluffy which will be considered as part of the audit of All

Things Nice. $(4(1)/(2))$

$5\mathrm{.}2\mathrm{.}2$ Identify for each of the risks identified in $5\mathrm{.}2\mathrm{.}1$ whether the risk is a risk of material misstatement at the financial statement level or a risk of material

misstatement at the assertion level. $(4(1)/(2))$