AUE2601 Assignment 2 Semester 1 & 2

AUE2601 Assignment 2 Semester 1 & 2. List the requirements in terms of the Auditing Profession Act of 2005 that the registered auditors of Nkwana Auditors Inc would have had to comply with to be registered with the IRBA. The only firms that may be registered are 1) Partnerships of which all the partners are individuals who are themselves registered auditors. 2) Sole proprietors where the proprietor is a registered auditor. 3) Companies which comply with the following: i. The company must be incorporated and registered in terms of the Companies Act  with a share capital and  its Memorandum of Incorporation must provide that its directors and past directors shall be jointly and severally liable with the company for its debts and liabilities contracted during their periods of office. ii. Only individuals who are registered auditors may be shareholders. (If the company is to be a private company, its membership is not limited to 50). iii. Every shareholder must be a director and every director must be a shareholder. iv. The Memorandum of Incorporation of the company provides that the company may, without the confirmation of the Court, purchase any shares held in it and allot those shares in accordance with the company’s Memorandum of Incorporation. v. Only a shareholder may act as proxy for another shareholder, i.e. no outsiders may attend, speak or vote at, any meeting of the company. This must be stipulated in the MOI. 1.2. List the elements to be included in the calculation of Fantasy World’s public interest score. An entity’s public interest takes into account  average number of employees during the financial year  turnover  3rd party liability at year end  individual who directly or indirectly has a beneficial interest in any of the company’s shares/members’ interests. An entity’s public interest score will be the sum of  a number of points equal to the average number of employees during the financial year  one point for every R1 million (or portion thereof) of turnover  one point for every R1 million (or portion thereof) of 3rd party liability at year end  one point for every individual who directly or indirectly has a beneficial interest in any of the company’s shares/members’ interests. S - The study-notes marketplace Downloaded by: RoyalAcademy804 | Distribution of this document is illegal S - The study-notes marketplace 1.3. Calculate the public interest score of Fantasy World and explain whether the financial statements of the company should be audited or independently reviewed in terms of the Companies Act requirements. Calculation of public interest score 1 point for every one of the average number of employees employed during the year, therefore 120 points. 1 point for every R1 million (or portion thereof) in third party liability of the company at the financial year-end, therefore 12 points. 1 point for every R1 million (or portion thereof) in turnover during the financial year, therefore 21 points 1 point for every individual who at the end of the financial year, is known by the company to directly or indirectly have a beneficial interest in the company’s issued securities, therefore 6 points. Public interest score of: 159 (120 + 12 + 21 + 6) Audit since AFS internally compiled S - The study-notes marketplace Downloaded by: RoyalAcademy804 | Distribution of this document is illegal S - The study-notes marketplace QUESTION 2 2.1. Explain why it is important for the auditor to obtain an understanding of an entity’s internal control as part of the risk assessment procedures Auditors should obtain a sufficient understanding of control activities relevant to the audit in order to assess the risks of material misstatement at the assertion level, and to design further audit procedures to respond to those risks. The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.