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⋆
AUE3761: The Audit Process
May/June Examination 2026
Covering Past Papers: 2023 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
[ Auditing — College of Accounting Sciences [
_ Exam Revision Guide
AUE3761
Module Code:
The Audit Process
Module Name:
May/June 2023, May/June 2024, May/June 2025
Papers Covered:
May/June 2026 Examination
Prepared For:
100 marks per paper
Total Marks:
3 hours (closed book)
Duration:
Use this guide to revise thoroughly. Focus on application and understanding, not
rote memorisation.
Exam Revision Notes | AUE3761 | 2023–2025 Papers
,AUE3761 | Exam Revision The Audit Process — May/June 2026
PAPER 1: MAY/JUNE 2025 EXAMINATION
AUE3761 — The Audit Process | 100 Marks | 3 Hours
Page 2 of 18
,AUE3761 | Exam Revision The Audit Process — May/June 2026
Question 1 [30 marks]
Question: Prestige Components (Pty) Ltd manufactures electronic components for the
automotive industry. During the planning phase of the audit, the following information
about their production cycle was shared with the audit team:
1. Purchase orders for raw materials are placed verbally by the production foreman and
confirmed via email after the fact.
2. A single stores clerk receives raw materials, updates the inventory records, and also
prepares the materials requisition notes for the production floor.
3. Inventory counts are performed annually by the same stores clerk who maintains the
inventory records.
4. There is no formal system matching goods received notes (GRNs) to purchase orders
before materials are accepted into the stores.
5. Component wastage and scrap are not formally recorded; the production supervisor
estimates them monthly.
Required:
(a) Identify the weaknesses in the production cycle described above and for each weak-
ness make suitable recommendations for improvement. Focus on: (i) source
documentation, (ii) controls over component inventory items, (iii) segregation of
duties, and (iv) inventory records. (20 marks)
(b) Briefly explain the overall audit strategy and describe the matters an auditor con-
siders when establishing it. (10
marks)
(a) 20 marks
Question: Weaknesses and recommendations relating to the production cycle of Prestige
Components (Pty) Ltd.
Page 3 of 18
, AUE3761 | Exam Revision The Audit Process — May/June 2026
Answer: (i) Source Documentation
Weakness: Purchase orders are placed verbally and only confirmed by email after the
order has already been placed. There’s no formal, pre-approved written purchase order
before the transaction occurs — that’s a glaring gap.
Recommendation: A pre-numbered, written purchase order must be raised and au-
thorised by the purchasing manager before any order is placed. The email confirmation
process should be replaced with a formal PO system (manual or electronic), so there’s a
proper paper trail from the start.
Weakness: Component wastage and scrap are estimated informally by the production
supervisor rather than being formally measured and recorded.
Recommendation: Introduce formal scrap and wastage records — pre-numbered docu-
ments signed off by both the production supervisor and an independent reviewer (such
as the financial manager). Reconcile scrap quantities against production output reports
monthly.
(ii) Controls Over Component Inventory Items
Weakness: There is no matching of GRNs to purchase orders before raw materials are
accepted into stores. Materials could be received without any authorisation, creating risk
of theft, over-ordering, or receiving incorrect goods.
Recommendation: Implement a three-way matching process: every delivery must
be matched to an authorised PO and a GRN before materials are accepted. The store-
keeper should sign a GRN only after confirming that quantities and specifications match
the purchase order.
Weakness: Annual inventory counts give very little assurance across the year. Errors
and losses can accumulate undetected.
Recommendation: Move to a continuous or cycle-counting approach — counting
portions of inventory throughout the year. High-value or fast-moving items should be
counted more frequently.
(iii) Segregation of Duties
Weakness: One stores clerk receives materials, updates inventory records, and raises
materials requisition notes. Concentrating all three functions in one person is a classic
segregation failure — errors and fraud could go undetected.
Recommendation: Split these functions across at least two people. The receiving
Page 4 of 18
⋆
AUE3761: The Audit Process
May/June Examination 2026
Covering Past Papers: 2023 – 2025
⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆ ⋄ ⋆
[ Auditing — College of Accounting Sciences [
_ Exam Revision Guide
AUE3761
Module Code:
The Audit Process
Module Name:
May/June 2023, May/June 2024, May/June 2025
Papers Covered:
May/June 2026 Examination
Prepared For:
100 marks per paper
Total Marks:
3 hours (closed book)
Duration:
Use this guide to revise thoroughly. Focus on application and understanding, not
rote memorisation.
Exam Revision Notes | AUE3761 | 2023–2025 Papers
,AUE3761 | Exam Revision The Audit Process — May/June 2026
PAPER 1: MAY/JUNE 2025 EXAMINATION
AUE3761 — The Audit Process | 100 Marks | 3 Hours
Page 2 of 18
,AUE3761 | Exam Revision The Audit Process — May/June 2026
Question 1 [30 marks]
Question: Prestige Components (Pty) Ltd manufactures electronic components for the
automotive industry. During the planning phase of the audit, the following information
about their production cycle was shared with the audit team:
1. Purchase orders for raw materials are placed verbally by the production foreman and
confirmed via email after the fact.
2. A single stores clerk receives raw materials, updates the inventory records, and also
prepares the materials requisition notes for the production floor.
3. Inventory counts are performed annually by the same stores clerk who maintains the
inventory records.
4. There is no formal system matching goods received notes (GRNs) to purchase orders
before materials are accepted into the stores.
5. Component wastage and scrap are not formally recorded; the production supervisor
estimates them monthly.
Required:
(a) Identify the weaknesses in the production cycle described above and for each weak-
ness make suitable recommendations for improvement. Focus on: (i) source
documentation, (ii) controls over component inventory items, (iii) segregation of
duties, and (iv) inventory records. (20 marks)
(b) Briefly explain the overall audit strategy and describe the matters an auditor con-
siders when establishing it. (10
marks)
(a) 20 marks
Question: Weaknesses and recommendations relating to the production cycle of Prestige
Components (Pty) Ltd.
Page 3 of 18
, AUE3761 | Exam Revision The Audit Process — May/June 2026
Answer: (i) Source Documentation
Weakness: Purchase orders are placed verbally and only confirmed by email after the
order has already been placed. There’s no formal, pre-approved written purchase order
before the transaction occurs — that’s a glaring gap.
Recommendation: A pre-numbered, written purchase order must be raised and au-
thorised by the purchasing manager before any order is placed. The email confirmation
process should be replaced with a formal PO system (manual or electronic), so there’s a
proper paper trail from the start.
Weakness: Component wastage and scrap are estimated informally by the production
supervisor rather than being formally measured and recorded.
Recommendation: Introduce formal scrap and wastage records — pre-numbered docu-
ments signed off by both the production supervisor and an independent reviewer (such
as the financial manager). Reconcile scrap quantities against production output reports
monthly.
(ii) Controls Over Component Inventory Items
Weakness: There is no matching of GRNs to purchase orders before raw materials are
accepted into stores. Materials could be received without any authorisation, creating risk
of theft, over-ordering, or receiving incorrect goods.
Recommendation: Implement a three-way matching process: every delivery must
be matched to an authorised PO and a GRN before materials are accepted. The store-
keeper should sign a GRN only after confirming that quantities and specifications match
the purchase order.
Weakness: Annual inventory counts give very little assurance across the year. Errors
and losses can accumulate undetected.
Recommendation: Move to a continuous or cycle-counting approach — counting
portions of inventory throughout the year. High-value or fast-moving items should be
counted more frequently.
(iii) Segregation of Duties
Weakness: One stores clerk receives materials, updates inventory records, and raises
materials requisition notes. Concentrating all three functions in one person is a classic
segregation failure — errors and fraud could go undetected.
Recommendation: Split these functions across at least two people. The receiving
Page 4 of 18
