Read the Case Study below and answer the questions that follow: The general manager of your clients company has been using his own non-existent firm (company T) to supply goods to your client. Fictitious invoices were being sent out to the client and the accounting department has been making payments to company T without them actually supplying any goods to the company. Included in the list of duties for the general manager was matching of invoices with the goods received notes and he initials the invoice indicating that the matching process has been performed thereafter which the accountant enters the invoices in the purchases journal to prepare for payment. The company does not maintain any perpetual inventory records. Upon investigation, during the audit it, was found that the fraud involved a material loss of R63 million. The managing director of the company did not believe the auditor and sued the auditing firm for negligence.

QUESTION 1 (40) 1.1 What steps or procedures could the auditor have performed to ensure that the results of the audit were conclusive? Indicate what the procedure could help to identify. (11) 1.2 What are auditors duties with regard to immaterial fraud? (6) 1.3 When conducting the fraud audit in the above scenario the auditor can respond to the assessed risk of material misstatements in two categories. State these categories and what they include. (23)