QUESTION 3 (40 marks) You are an employee at an audit firm called Clarke Incorporated and were recently promoted to Audit Manager. You are responsible for the audit of Vegan Growth (Pty) Ltd (Vegan) for the financial year ending 28 February 2023. Vegan is a mediumsized company who displays potential for growth. Vegan manufactures and sells vegan products to wholesalers and retailers. The products are claimed to be environmentally friendly, and Vegan has the potential to become an international supplier. Vegan has one manufacturing plant and three branches from which it trades and sells products to wholesalers and retailers.

Credit Sales All sales are on credit. Products are only sold to approved customers, and transactions are initiated once a customer order has been received. Customers can buy products at different branches or order online. When an order is received, an invoice is prepared in triplicate consisting of white, yellow, and blue copies. Before picking up the goods from the branch, the Branch Clerk is presented with a picking slip (which is the yellow copy of the invoice). The customer signs the delivery note on receipt of the goods (the blue copy of the invoice). Sales are accounted for in the sales journal on the invoice date and accounts receivable are automatically updated.

PAYE, Pension Funds Contribution, or Medical Aid Contributions During the audit of salaries and wages at a specific branch, it was identified that Vegan failed to pay third-party amounts (contributions) withheld from salaries and wages often referred to as PAYE, Pension Funds Contributions, or Medical Aid Contributions. The person responsible for these payments is the Financial Manager. Management is, however, not aware of these non-payments. After obtaining this information, you had a meeting with the audit team and sent an email to the Chief Financial Officer (CFO) of Vegan that included a report of the incident. The CFO acknowledged receipt of the email and attached report but did not take any steps to pay the amounts to the third parties.

REQUIRED: 3.1 Describe the Analytical Procedures to be performed on the credit sales and accounts receivable for the financial year ended 28 February 2023. (15 marks)

3.2 Refer to the information under the heading PAYE, Pension Funds Contribution, or Medical Aid Contributions and discuss, with reasons, the effect that the above transaction will have on the audit report for the financial year ended 28 February 2023. In your answer, include the auditors responsibility in terms of the Auditing Profession Act (APA),. (25 marks)