You are an Audit Manager at an audit firm called Finley's Auditors. You have been

working at this firm for more than ten years.

You are currently busy finalising the audit of Grace Valley Ltd $("$Grace$")$ for the $2023$

financial yearend. Grace has been Finley's Auditors' client since Grace's inception.

Grace has a February financial yearend. Grace has been listed on the Johannesburg

Stock Exchange $("$JSE$")$ for more than ten years now.

Grace is a manufacturing and distribution company that produces a variety of instant

foods. Grace owns the manufacturing plant but is renting the entity's Head Office

building. Inventory is the largest balance on the company's Statement of Financial

Position and consists of raw materials, work in progress, and finished goods. Raw

materials are purchased from both local and foreign suppliers.

All of Grace's finished goods are distributed and sold in bulk from the entity's

warehouses across South Africa. The entity also recently started selling online in

smaller quantities to the general public and since then, the online platform has really

grown the company and specifically the sales figure.

The materiality is set at R$6$ million for the February $2023$ financial yearend audit.

During the audit, and while conducting substantive audit procedures the following

unadjusted audit differences were identified:

During the inspection of invoices, while testing expenses, the First Year Audit

Clerk found an invoice for the purchase of a new machine, on credit, that is

used in the manufacturing process. The invoice date was $1$ January $2023,$ for

an amount of R$7\mathrm{.}5$ million. Grace's policy is to write depreciation off on this

machinery over five years, according to the straight$-$line method, and no

residual value. No entries regarding this machine were made in the $2023$

financial yearend accounting records. This matter was discussed withRegarding the machine purchased in note $1,$ you noticed that the authorisation

for the purchase of the machine was inadequate. After you enquire from the

Chief Financial Officer, he mentions that all assets purchased above R$5$ million

need the approval of the Board of Directors. However, this acquisition was

approved by the Financial Manager.

Whilst auditing the revenue figure the audit team detected that some of the

sales were fictitiously recorded, such sales amounted to R$8$ million. You

discussed this with the Financial Director and he responded that he is aware of

these sales. This journal was made to increase sales and it will be reversed

after the financial yearend. The Senior Auditor mentioned to you that the

directors' bonuses are depended on the company's sales figures.

Whilst inspecting the rental agreement for the Head Office building, you noticed

that a deposit $($a prepayment of rent$)$ of R$350000$ was paid during August $2022$

which relates to the prepayment of rent expense for the $2024$ financial year.

Grace recognised the payment as an expense in the $2023$ financial statements.

REQUIRED:

$1\mathrm{.}1$ Discuss the materiality of each of the unadjusted misstatements and explain

which of these misstatements have to be adjusted to enable Finley's Auditors

to express an unmodified opinion.

$1\mathrm{.}2$ Formulate the analytical procedures that would be performed in general as part

of your audit procedures to verify the trade payables of Grace Valley Ltd$.$

$(10$ marks$)$

management, and they are not willing to process any adjustments.