Question

The following audit report was drafted by a trainee on the audit of Golf (Pty) Ltd (“Golf”), a company which manufactures golf clubs. The trainee was asked to draft the report at the conclusion of the audit for the financial year end 31 March 2017 as part of on-the-job training and you have to evaluate his report. The shareholders of Golf included a clause in the company’s Memorandum of Incorporation which requires that the company’s annual financial statements are extremely audited.

Independent Report

To the board of directors.

We have evaluated the accompanying financial statements of Golf for fairness based on our annual audit carried out in terms of the Memorandum of Incorporation of the company.

Management is responsible for the preparation of the financial statements and for the prevention of fraud.

The auditor’s responsibility is to perform the audit and in doing do, to detect any fraud which may have material effect on the financial statements not having been prevented by the directors.

We report on the following aspects of the audit:

1. With regard to the detection of fraud, we detected a small wage fraud relating to unauthorized overtime. We reported this to management who subsequently dismissed the guilty persons.

2. An expert was engaged by our firm to assist in the valuation of the work-in-progress. Due to the complexity of the some of the company’s golf clubs, the risk of misstatements in the work-in-progress warranted this.

3. The company is currently being sued by a former employee who suffered personal injury at work whilst testing certain golf clubs during quality control procedures. In our opinion, except for the matters raised in 1 to 3 above, there are no outstanding issues arising from the audit which was conducted in terms of the International Standards on Auditing and the International Financial Reporting Standards.

Emphasis of matter

There are no matters which require emphasis.

ABD Audit Kings

31 March 2017

Windhoek Namibia

YOU ARE REQUIRED TO: Detail the errors / deficiencies in the audit report presented to you for evaluation (give explanations where necessary). You are NOT required to redraft the report.

Answer 1

The following errors can be identified from the audit report presented:

- The title of the report is erroneous. The title should be " Independent Auditor's report" as against " Independent Report".

- The report should be evaluated for correctness and fairness and not merely fairness.

- As against writing that management is responsible for the financial statements, the drafting should be that " management is responsible for the views expressed in the financial statements".

- The auditor's responsibility is not only to detect fraud but also to express a view on the financial statements. This statement is missing from the drafted audit report.

- Instead of being blunt about management dismissing the guility persons, the wording no action was taken would be more appropriate.