ACCN3009: Auditing III Exam Pack – Comprehensive Study Guide (Wits BAccSc)

This exam pack provides comprehensive, exam-focused notes for ACCN3009: Auditing III in the BAccSc programme at the University of the Witwatersrand (Wits). It is designed to align with typical third‑year auditing syllabi at Wits and comparable South African universities such as UNISA (e.g. AUE3702, AUE3761) and CUT (e.g. AUD30AS), and targets common search phrases like “ACCN3009 exam notes”, “Auditing 3 study guide Wits”, “UNISA AUE3702 past exam concepts”. The focus is on applied understanding, exam technique and South African context, particularly the Companies Act 71 of 2008, King IV, and the IRBA Code of Professional Conduct.

1. Auditing Framework, Principles and the South African Context

Third‑year auditing at Wits (ACCN3009) expects you to integrate first‑ and second‑year theory with standards, ethics, governance and real‑world application. Many questions in past exam papers from Wits, UNISA (AUE3702, AUE3761) and CUT (AUD30AS) test your ability to apply standards rather than merely quote them.

1.1 Nature and Purpose of an Audit

Definition (ISA 200)
An audit of financial statements is an independent examination of the financial statements of an entity by a registered auditor, in order to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

Key elements examinable in ACCN3009:

• Independence: Fulfilled in South Africa by registration with IRBA and compliance with the IRBA Code of Professional Conduct.
• Objective: To express a reasonable assurance opinion.
• Subject matter: Financial statements prepared under IFRS or applicable frameworks.
• Responsibility:
  • Management: preparation and fair presentation; internal control; going concern assessment.
  • Auditor: express an opinion; obtain sufficient appropriate audit evidence.

Reasonable vs Absolute Assurance

• Reasonable assurance:
  • High but not absolute level of assurance.
  • Achieved through risk‑based audit, sampling, and professional judgment.
  • Necessary because of limitations:
    • Use of sampling, test basis.
    • Inherent limitations of internal control (collusion, management override, human error).
    • Time and cost constraints.
• Absolute assurance:
  • Not achievable in practice.
  • ACCN3009 exams often ask for a discussion question where you must explain why users should not expect absolute assurance.

Link to UNISA‑style questions (e.g. AUE3702): You may get a scenario where a shareholder assumes auditors guarantee no fraud. You must correct this misconception using the concept of reasonable assurance and inherent limitations.

1.2 Types of Assurance Engagements (ISA and ISAE Framework)

Audit (Reasonable Assurance)

• Highest level of assurance that is practically obtainable.
• Example: Statutory audit of a Johannesburg‑listed company’s annual financial statements.

Review Engagement (Limited Assurance)

• Provides moderate assurance using primarily inquiry and analytical procedures.
• Often tested in comparison tables (e.g. “compare audit vs review”).
• Example: A small private company at CUT using AUD30AS coverage might engage for review rather than full audit.

Agreed‑Upon Procedures (No Assurance)

• Auditor performs procedures agreed with the client and reports factual findings only.
• Users draw their own conclusions; the auditor provides no opinion.
• Example: Verification of inventory balances for a bank loan covenant.

Compilation Engagement (No Assurance)

• Accountant compiles financial information without expressing assurance.
• Covered more in professional practice modules but can appear as a theory compare‑and‑contrast question in ACCN3009.

Exam tip: When a question mentions “assurance” generally, start by identifying:

1. Subject matter (financial statements, non‑financial info, controls).
2. Intended users.
3. Level of assurance required (reasonable, limited, none).

Then match to appropriate engagement and outline key procedures and reporting format (especially important in integrated case questions).

1.3 Audit Objectives, Assertions and Audit Evidence

Assertions (ISA 315 and 500) – Very frequently examined.

Assertion Category	Assertions (Remember Mnemonics like CAVECO, RIGHTSO)	Example (Inventory)
Classes of transactions	Occurrence, Completeness, Accuracy, Cut‑off, Classification	Sales recorded represent real dispatches.
Account balances	Existence, Rights & Obligations, Completeness, Valuation & Allocation	Inventory exists at year‑end and is owned.
Presentation and disclosure	Occurrence & Rights/Obligations, Completeness, Classification & Understandability, Accuracy & Valuation	Inventory disclosure complies with IFRS.

ACCN3009 exams often give you a risk (e.g. obsolete inventory) and require:

1. Identify relevant assertions (e.g. valuation, existence).
2. Design substantive procedures targeting each assertion.

Audit Evidence (ISA 500)

• Sufficiency: Quantity of evidence – affected by risk of material misstatement and quality of evidence.
• Appropriateness: Relevance and reliability – higher reliability from independent sources, direct auditor knowledge, effective controls.

Hierarchy of reliability (often tested as application):

• High: Bank confirmations, external legal letters, third‑party confirmations.
• Medium: Internal documents with strong controls, analytical procedures.
• Low: Oral representations from management (mitigated via management representation letter).

In South African context, mention common documents:

• CIPC filings.
• SARS assessments.
• Bank statements from major SA banks.
• Workmen’s compensation and UIF returns.

1.4 SA Regulatory Environment: IRBA, SAICA, Companies Act and King IV

Third‑year exams regularly integrate regulatory references. You are not expected to quote section numbers precisely, but you must know the principles and relationships.

Independent Regulatory Board for Auditors (IRBA)

• Statutory body for auditor registration, inspection and discipline.
• Issues the IRBA Code of Professional Conduct, based on the IESBA Code.
• Oversees compliance with International Standards on Auditing (ISA) as adopted in South Africa.
• IRBA’s disciplinary role is commonly referenced when discussing consequences of ethical breaches.

SAICA

• Professional body for chartered accountants (CAs(SA)).
• Sets and monitors professional competence, but not the statutory regulator (that’s IRBA).
• ACCN3009 exam questions may explicitly mention a trainee in a SAICA Training Office violating policies; you connect that to ethical standards and IRBA requirements.

Companies Act 71 of 2008

Key examinable aspects:

• Who must be audited:
  • Public companies and state‑owned companies: audit mandatory.
  • Other companies: depending on Public Interest Score (PIS) and others, may require audit or independent review.
• Appointment of auditor:
  • Appointed by shareholders at AGM; first auditor by directors.
  • Rotations: individual engagement partner rotation rules are driven by IRBA (e.g. 5‑year rotation for public interest entities).
• Audit committee:
  • Mandatory for listed and public companies.
  • Oversees independence, appointment, and remuneration of auditors.

King IV Report on Corporate Governance (2016)

Key themes relevant to ACCN3009:

• Principle 13‑15: deals with audit committees, assurance and technology governance (depending on classification).
• Emphasises combined assurance model:
  • 1st line: management.
  • 2nd line: internal controls, risk management.
  • 3rd line: internal audit.
  • 4th line: external audit and other external assurance providers.
• Exam questions may ask how external auditors fit into combined assurance and how they may use the work of internal auditors (ISA 610).

Linkages for exam answers:

When asked about audit committees, you can:

• Cite Companies Act (mandatory for public & state‑owned entities).
• Reference King IV for best practice (independent, skills, oversight of external and internal audit).
• Tie to ISA 260 (communication with those charged with governance).

1.5 Professional Skepticism and Judgment

Many ACCN3009 case questions test whether you can apply professional skepticism rather than blindly accept management assertions.

Professional skepticism (ISA 200):

• An attitude that includes a questioning mind, being alert to conditions which may indicate misstatement due to error or fraud, and a critical assessment of audit evidence.

Examples relevant to SA corporate scandals:

• If a JSE‑listed company shows consistent 40% revenue growth despite industry stagnation, a skeptical auditor would:

  • Challenge revenue recognition policies and cut‑off.
  • Compare to competitor ratios.
  • Investigate for possible fictitious sales or channel stuffing.

• If management resists allowing direct communication with key customers, you:

  • Elevate to engagement partner.
  • Consider implications for scope limitation and possible qualification or disclaimer of opinion.

Examiners may provide a short scenario and ask:
“Discuss the auditor’s application of professional skepticism and identify any deficiencies.”
You respond by:

• Pointing to red flags.
• Highlighting missing follow‑up procedures.
• Linking to ISA 240 (fraud) and ISA 500 (evidence).

2. Ethics, Independence and Professional Conduct (IRBA / IESBA Code)

Ethics and independence are core in ACCN3009, and large marks are often attached to scenario‑based questions. UNISA AUE3761 and Wits ACCN3009 both test nuanced application of the IRBA Code of Professional Conduct.

2.1 Fundamental Principles of Professional Ethics

The IRBA Code (aligned with IESBA) sets out five fundamental principles:

1. Integrity

   • Be straightforward and honest.
   • Example: Do not backdate working papers to hide late completion.

2. Objectivity

   • Avoid bias, conflict of interest, undue influence.
   • Example: Do not allow personal friendship with the financial director to influence judgments.

3. Professional Competence and Due Care

   • Maintain knowledge and skill at required level.
   • Act diligently in accordance with technical and professional standards.
   • Example: A Wits graduate working at a Big 4 firm cannot sign off on complex financial instruments without appropriate expertise.

4. Confidentiality

   • Respect information acquired; do not disclose without proper authority or legal obligation.
   • Exception: Duty to report reportable irregularities to IRBA (per the Auditing Profession Act).

5. Professional Behavior

   • Comply with relevant laws and regulations.
   • Avoid any conduct that discredits the profession.
   • Includes truthful advertising and fair competition.

Exam application: You are given a scenario (e.g. a trainee leaking client information on social media). Identify violated principle(s), discuss consequences, and suggest corrective action.

2.2 Threats to Independence and Objectivity

The IRBA Code categorizes five types of threats. ACCN3009 often expects you to:

• Identify the type of threat.
• Explain why it is a threat.
• Suggest safeguards or conclude that no safeguard can reduce threat to acceptable level.

1. Self‑interest threat

   • Financial or other interest that could inappropriately influence judgment.
   • Examples:
     • Audit partner holds shares in the client.
     • Large outstanding fees from prior year.
     • Dependence on fees from a single client (e.g. >15% of total firm fees).
   • Safeguards:
     • Dispose of shareholding.
     • Use different partner or firm.
     • Appoint independent reviewer.

2. Self‑review threat

   • Auditor reviews own work or the work of the firm.
   • Examples:
     • Preparing financial statements and then auditing them.
     • Providing valuation services that form a material part of the financial statements.
   • Safeguards:
     • Separate teams; not sufficient where amounts are material.
     • In many public interest entities, prohibition of such services.

3. Advocacy threat

   • Auditor promotes client’s position to the point of compromised objectivity.
   • Examples:
     • Representing client in legal dispute.
     • Marketing client’s shares in a public offering.
   • Safeguards:
     • Prohibit service.
     • Use different firm for such roles.

4. Familiarity threat

   • Due to long/close relationships, auditor becomes too sympathetic to client’s interests.
   • Examples:
     • Same partner on client for more than 5 years (for listed/public interest entity).
     • Close family member (e.g. spouse) is finance manager of the client.
   • Safeguards:
     • Partner rotation (per IRBA).
     • Independent quality reviews.
     • Removing staff with close relationships from the engagement.

5. Intimidation threat

   • Actual or perceived pressures that deter objective behavior.
   • Examples:
     • Client threatens to replace auditor if certain opinion is issued.
     • Senior partner threatens trainee for raising ethical concern.
   • Safeguards:
     • Involve more senior partners or ethics partner.
     • Document discussions and decisions.
     • Withdraw from engagement if necessary.

2.3 Independence: In Fact vs. In Appearance

Independence of mind (in fact):

• State of mind that permits expression of a conclusion without being affected by external influences.

Independence in appearance:

• Avoidance of facts and circumstances that a reasonable and informed third party would likely conclude compromise independence.

Exam scenarios frequently test appearance:

• A partner’s adult child owns 2% of client shares. Even if partner claims no influence, appearance is problematic.
• An audit manager accepts tickets to a major sports event from the client’s CFO.

Your answer must explain both aspects and apply the “reasonable and informed third party test”.

2.4 Gifts, Hospitality and Confidentiality

Gifts and Hospitality

• Acceptable only if:
  • Inconsequential and trivial.
  • Not intended to influence decision‑making.
  • Compliant with firm policies.
• Examples:
  • Acceptable: Branded notebook at a training event.
  • Risky: Fully paid overseas holiday.
• ACCN3009 questions often ask you to evaluate whether a specific gift is acceptable, then propose safeguards (e.g. disclosure to partner, refusal, returning the gift, rotation of staff).

Confidentiality

• Must not disclose client information to third parties without:
  • Proper and specific authority, or
  • Legal or professional duty to disclose (e.g. reportable irregularities to IRBA, money laundering to FIC under FICA).
• May share internally within the firm on a need‑to‑know basis.
• Exam answers should emphasise:
  • Legal obligations (e.g. Auditing Profession Act).
  • Balancing confidentiality with public interest.

2.5 Responding to Non‑Compliance with Laws and Regulations (NOCLAR)

The NOCLAR framework in the IRBA Code is examinable as conceptual understanding and practical steps.

Typical exam flow for a NOCLAR scenario:

1. Identify the suspected non‑compliance (e.g. tax evasion, non‑payment of statutory deductions).
2. Discuss with management and, if appropriate, those charged with governance.
3. Seek understanding of facts, circumstances and potential impact.
4. Evaluate:
   • Whether financial statements are materially misstated.
   • Whether there is an obligation to report to an authority.
5. Consider further actions:
   • Modify audit opinion if misstatement remains uncorrected.
   • Withdraw from engagement if appropriate.
   • Report to regulator if required by legislation (e.g. SARS, IRBA, FIC).

Example: If a South African client is deliberately underpaying VAT:

• Consider SARS implications.
• Assess if VAT liability is understated (material misstatement).
• Communicate with audit committee.
• Consider reportable irregularity to IRBA if intentional and material.

2.6 Ethical Conflicts in Practice and Exam Technique

Exam questions often provide complex, multi‑issue scenarios:

• Firm offers both tax planning and internal audit outsourcing to the same JSE‑listed client.
• Partner’s brother is CEO of the audit client.
• Firm relies on this client for 20% of its total fees.

To maximise marks:

1. Identify all relevant facts (underline or bullet in rough work).
2. Map each fact to a threat type (self‑interest, familiarity, etc.).
3. State relevant fundamental principle(s) affected (objectivity, integrity, etc.).
4. Evaluate the significance of the threat:
   • Is it clearly unacceptable (e.g. direct shareholding)?
   • Can safeguards reduce it?
5. Propose practical safeguards:
   • Rotation of partner/staff.
   • Decline or cease certain non‑assurance services.
   • Independent quality review.
6. Conclude explicitly:
   • Whether to accept or continue with the engagement.
   • Whether to resign as auditor.

Markers give credit for structured, logical analysis, correctly naming threat categories, and aligning with the IRBA Code.

3. Risk‑Based Audit Approach: Planning, Risk Assessment and Responses

ACCN3009 emphasises a risk‑based audit approach, consistent with ISAs and widely tested in Wits and UNISA past exam papers.

3.1 Overall Audit Process Overview

A concise high‑level sequence, often required in short questions:

1. Client acceptance / continuance (ethics, independence, risk profile).
2. Engagement letter (scope, objective, responsibilities).
3. Planning (ISA 300):
   • Overall audit strategy.
   • Detailed audit plan.
4. Risk assessment (ISA 315 and 240):
   • Understand entity and environment.
   • Identify and assess risks of material misstatement (RMM).
5. Design and perform responses:
   • Tests of controls (if relying on controls).
   • Substantive procedures (tests of details and analytical procedures).
6. Completion:
   • Overall review.
   • Subsequent events (ISA 560).
   • Going concern (ISA 570).
   • Final analytical review.
7. Reporting:
   • Draft and issue auditor’s report (ISA 700‑706).

3.2 Understanding the Entity and Its Environment (ISA 315)

You must demonstrate ability to identify business risks and translate them into audit risks.

Areas of understanding:

• Industry, regulatory and other external factors:
  • Example: A construction company subject to public sector procurement rules.
• Nature of entity:
  • Business model, ownership, governance structure (board, audit committee).
• Objectives, strategies and related business risks:
  • Expansion into new markets, aggressive growth targets.
• Measurement and review of financial performance:
  • KPIs used (profit margin, ROE, revenue growth).
• Internal control components:
  • Control environment, risk assessment, information system, control activities, monitoring.

Exam‑style application:

Scenario: A mid‑size technology company with:

• Rapid 35% revenue growth.
• Complex software licensing revenue.
• Bonuses based on revenue.

You must:

• Identify fraud risk factors (ISA 240).
• Link to financial statement areas at risk (revenue recognition).
• Propose risk assessment procedures (e.g. walkthroughs of revenue process, inquiries, observation).

3.3 Materiality and Performance Materiality

Materiality (ISA 320)

• Information is material if its omission or misstatement could influence economic decisions of users.
• Determined using both quantitative and qualitative considerations.

Quantitative bases commonly used in South African firms:

• 5–10% of profit before tax (for profit‑oriented entities).
• 0.5–1% of total revenue.
• 1–2% of total assets or equity.

Example:

• Profit before tax: R2,500,000
• Use 5%: Materiality = R125,000

Performance materiality:

• Set at a level lower than materiality to reduce probability that aggregated uncorrected misstatements exceed materiality.
• Often 50–75% of overall materiality, depending on risk.
• Example: If overall materiality is R125,000, performance materiality might be R80,000.

Exam considerations:

• Show calculations clearly.
• Mention qualitative factors:
  • Breach of loan covenant.
  • Director remuneration misstatement.
  • Misclassification between “revenue” and “other income”.

Even small misstatements may be material if they change a key ratio (e.g. interest cover) or mask a trend (e.g. turning a loss into profit).

3.4 Inherent Risk, Control Risk and Detection Risk (Audit Risk Model)

Audit risk (AR) = Risk that auditor expresses inappropriate opinion when financial statements are materially misstated.

Components:

• Inherent Risk (IR):

  • Susceptibility of an assertion to misstatement assuming no controls.
  • High IR examples: Complex estimates, new accounting standards, cash‑intensive businesses.

• Control Risk (CR):

  • Risk that misstatement will not be prevented or detected and corrected by internal controls.
  • Weak segregation of duties, lack of reconciliation processes.

• Detection Risk (DR):

  • Risk that auditor’s procedures will not detect misstatement.
  • Controlled by nature, timing, and extent of audit procedures.

Relationship: AR = IR × CR × DR

• If IR and CR high → DR must be low → more substantive testing.
• If entity has strong controls and low IR → DR can be higher → more reliance on controls, less substantive work.

Exam answers should explicitly mention that auditors cannot influence IR and CR (these are entity‑level risks), but they can adjust DR by changing their procedures.

3.5 Risk of Material Misstatement and Significant Risks

Risk of Material Misstatement (RMM) = IR × CR
Assessed at:

• Financial statement level.
• Assertion level.

Significant risks:

• Risks requiring special audit consideration, typically:
  • Non‑routine transactions (e.g. major acquisitions).
  • Matters requiring significant judgment (e.g. impairment).
  • Fraud risk (particularly revenue recognition, per ISA 240).

Example scenario for exam:

• Client has entered into complex derivative contracts with notional value of R50 million.
• The risk here:
  • Complexity of measurement (valuation).
  • Incomplete recognition/disclosure.

You must:

• Identify as significant risk.
• Indicate planned audit response:
  • Use of auditor’s expert for valuation.
  • Detailed review of contracts.
  • Confirmations from counterparties.

3.6 Documenting and Responding to Risks

Planning documentation often examined as “list the items you would include in the risk assessment documentation”:

• Description of entity and environment.
• Identified risks at FS level and assertion level.
• Linkage of each risk to relevant accounts and assertions.
• Planned audit response:
  • Overall responses (e.g. assigning more experienced staff, increased supervision).
  • Specific procedures (tests of controls, substantive tests).

Design of audit procedures:

1. Tests of controls:

   • Applied where you intend to rely on controls.
   • Example: For a retail entity, test of control over daily cash reconciliations.

2. Substantive procedures:

   • Tests of details:
     • Confirmations, vouching, recalculations.
   • Substantive analytical procedures:
     • Ratios, trend analysis, reasonableness tests.

Examiners often want specific procedures rather than general statements.
Example: Instead of “check revenue”, say:

• “Select a sample of sales recorded in December and inspect delivery notes and customer acknowledgements to confirm occurrence and cut‑off.”

3.7 Planning Meetings and Communication with Those Charged with Governance

Planning meetings (internal):

• Attendees: engagement partner, manager, senior, key staff.
• Agenda:
  • Discussion of prior year issues.
  • Changes in business and environment.
  • Key risk areas.
  • Team assignments and deadlines.
• Emphasise professional skepticism, fraud risk, and independence considerations.

Communication with those charged with governance (ISA 260):

• Required communications:
  • Auditor’s responsibilities and planned scope.
  • Significant findings, including:
    • Significant risks.
    • Significant difficulties encountered.
    • Uncorrected misstatements.
  • Independence issues and safeguards.

Exam scenarios can involve an audit committee at a Wits‑style integrated case, where you must draft or outline the matters to discuss at planning or completion stage.

4. Audit Procedures for Major Cycles and Balances

While ACCN3009 emphasises higher‑order risk and reporting, you still need solid knowledge of procedures for key cycles. Wits, UNISA (AUE3702), and CUT (AUD30AS) repeatedly test audit procedures for specific assertions.

4.1 Revenue and Receivables

Revenue is a presumed fraud risk under ISA 240, so expect exam questions.

4.1.1 Risks and Assertions

Common risks:

• Overstatement of revenue (fictitious sales, premature recognition).
• Incorrect cut‑off at year‑end.
• Related‑party sales at non‑arm’s length prices.
• Incorrect classification (e.g. finance vs operating revenue).

Relevant assertions:

• Occurrence (revenue recorded relates to real transactions).
• Completeness (all revenue transactions are recorded).
• Accuracy.
• Cut‑off.
• Classification.

Receivables assertions:

• Existence.
• Rights and obligations.
• Valuation and allocation (allowance for doubtful debts).
• Presentation and disclosure.

4.1.2 Typical Controls

• Credit checks and approval procedures.
• Sequential numbering of invoices.
• Independent matching of:
  • Customer order.
  • Delivery note.
  • Invoice.
• Monthly statements to customers; investigation of queries.
• Segregation of duties between:
  • Sales.
  • Dispatch.
  • Invoicing.
  • Receipts.

For tests of controls, design procedures such as:

• Inspect evidence of credit approval for sampled new customers.
• Re‑perform reconciliation between sales registers and general ledger.

4.1.3 Substantive Procedures – Revenue

Examples of substantive procedures targeting assertions:

• Occurrence:

  • Select sample of sales invoices and trace to:
    • Delivery notes.
    • Orders.
    • Customer acceptance or signatures.

• Completeness:

  • Trace sample of delivery notes (pre‑numbered) to invoices and general ledger.
  • Perform cut‑off tests around year‑end:
    • Compare delivery date with invoice date.

• Accuracy:

  • Recalculate invoices (prices, quantities, discounts).
  • Confirm VAT treatment.

• Analytical procedures:

  • Compare monthly revenue trends vs prior year.
  • Compare gross margin percentages by product line.
  • Investigate significant unexplained variances.

4.1.4 Substantive Procedures – Trade Receivables

• Existence and rights:

  • External debtor confirmations (positive/negative).
  • For non‑responses:
    • Inspect subsequent cash receipts.
    • Inspect supporting docs (invoices and delivery notes).

• Valuation:

  • Review age analysis.
  • Discuss old debts with management.
  • Review correspondence with customers.
  • Recalculate allowance for doubtful debts using historical loss rates.

• Classification and disclosure:

  • Check related‑party receivables separately disclosed.
  • Review long‑outstanding balances for possible reclassification or impairment.

Exam question example:
“List and explain substantive procedures you would perform to obtain sufficient appropriate audit evidence regarding the existence and valuation of trade receivables at 31 December 20X5.”
You would structure answer by assertion and include procedures similar to above.

4.2 Inventory and Cost of Sales

Inventory is a high‑risk area due to valuation complexity and susceptibility to theft.

4.2.1 Risks and Assertions

Common risks:

• Overstatement (to boost profit).
• Obsolescence not provided.
• Improper cut‑off between inventory and cost of sales.
• Existence issues for inventory stored at third‑party warehouses.

Relevant assertions:

• Existence.
• Rights and obligations.
• Completeness.
• Valuation and allocation.
• Cut‑off.

4.2.2 Attendance at Stock Count (ISA 501)

Key exam area:

• Objectives of attending inventory count:
  • Evaluate management’s instructions and procedures.
  • Observe performance of count procedures.
  • Inspect inventory.
  • Perform test counts.
• Procedures:
  • Obtain copy of stock count instructions.
  • Observe compliance (segregation of duties, tagging, marking counted items).
  • Perform test counts:
    • From floor to count sheets (completeness).
    • From count sheets to floor (existence).
  • Review treatment of:
    • Damaged or obsolete stock.
    • Consignment stock (belongs to others).
  • Check cut‑off:
    • Confirm last goods received and dispatched before count.

If auditor cannot attend (for valid reasons), they must perform alternative procedures (e.g. roll‑back test, reviewing perpetual records, and testing subsequent sales).

4.2.3 Valuation and Obsolescence

• Verify costing method (FIFO, weighted average) is consistently applied and appropriate (per IAS 2).
• Test unit costs:
  • Match purchases invoices to inventory items.
  • Recalculate standard cost build‑ups.
• Assess net realisable value (NRV):
  • Compare selling price to cost.
  • Review post‑year‑end sales.
  • Consider sales trends and ageing.
• Review management’s provision for obsolete stock:
  • Ageing reports.
  • Slow‑moving items.
  • Technological changes.

Exam technique: Many questions ask you to design procedures to address inventory valuation risk, especially in industries like clothing retail or electronics (where obsolescence is significant).

4.3 Cash and Bank

Cash is prone to misappropriation; however, bank accounts are usually well controlled through bank reconciliation.

4.3.1 Risks and Assertions

Risks:

• Undisclosed bank overdrafts or loans.
• Incorrect cash balances due to unrecorded transactions.
• Fraudulent disbursements or fictitious bank accounts.

Assertions:

• Existence.
• Rights and obligations.
• Completeness.
• Accuracy.

4.3.2 Substantive Procedures

• Obtain bank confirmations for all accounts (current, savings, loans, overdrafts).
• Inspect year‑end bank reconciliation:
  • Trace balance per bank confirmation to reconciliation.
  • Test reconciling items:
    • Outstanding cheques: review post‑year‑end bank statement.
    • Deposits in transit: check if they appear on bank statement after year‑end.
• Perform cut‑off tests:
  • Review last receipts and payments before and after year‑end.
• Inspect bank statements for:
  • Large unusual transactions near year‑end.
  • New loan facilities or guarantees.

For petty cash:

• Surprise cash counts.
• Reconcile vouchers to petty cash book.

Examiners may ask: “Describe the substantive procedures you would perform on the bank reconciliation.” Provide a structured answer covering each component: bank balance, reconciling items, and cash book balance.

4.4 Property, Plant and Equipment (PPE)

PPE is usually material, with risks around existence, valuation, depreciation and impairment.

4.4.1 Risks and Assertions

• Unrecorded disposals (overstated assets).
• Incorrect depreciation or useful lives.
• Capitalisation of expenses that should be expensed.
• Impairment not recognised (especially during downturns).
• Incorrect classification (investment property vs PPE).

Assertions:

• Existence.
• Rights and obligations.
• Completeness.
• Valuation and allocation.
• Presentation and disclosure.

4.4.2 Substantive Procedures

• Existence:

  • Inspect selected assets physically.
  • Match asset tags to asset register.

• Rights and obligations:

  • Inspect purchase agreements and title deeds.
  • Confirm no assets are pledged as security (or disclose if they are).

• Valuation:

  • Recalculate depreciation:
    • Ensure useful lives and methods are consistent with policy.
  • For revalued assets:
    • Inspect valuation reports.
    • Check valuer’s competence.
  • Assess for impairment indicators:
    • Declining profitability.
    • Obsolescence.
    • Asset damage.

• Completeness:

  • Review repair and maintenance accounts for items that should have been capitalised.
  • Inspect minutes for approval of major acquisitions or disposals.

• Presentation and disclosure:

  • Check classification of leased assets under IFRS 16 (right‑of‑use assets).
  • Verify disclosure of:
    • Revaluation surplus.
    • Restrictions on title.
    • Assets pledged as security.

4.5 Provisions, Contingent Liabilities and Going Concern

These areas require substantial judgment, making them high‑risk and popular exam topics.

4.5.1 Provisions and Contingent Liabilities (IAS 37)

Key criteria for a provision:

1. Present obligation (legal or constructive) as a result of a past event.
2. Probable outflow of resources.
3. Reliable estimate can be made.

Exam tasks:

• Evaluate if criteria are met.
• Design procedures to assess completeness and valuation.

Procedures:

• Inquire with management and legal counsel about:
  • Pending litigation.
  • Warranties.
  • Environmental obligations.
• Inspect correspondence with attorneys (subject to privilege).
• Review minutes of board meetings.
• Review post year‑end events (settlement of lawsuits).

Contingent liabilities:

• If outflow is possible but not probable → disclose only.
• If remote → normally no disclosure.

4.5.2 Going Concern (ISA 570)

Going concern assessment is a classic ACCN3009 topic.

Indicators of doubt:

• Negative operating cash flows.
• Loan covenant breaches.
• Loss of major customer.
• Net liability position.

Auditor procedures:

• Evaluate management’s assessment (covering at least 12 months from reporting date).
• Review cash flow forecasts and assumptions.
• Review loan agreements and breach waivers.
• Analyse subsequent events (e.g. refinancing).

Outcomes:

• If material uncertainty exists and disclosure is adequate:
  • Include Material Uncertainty Related to Going Concern section (non‑modified opinion).
• If disclosure inadequate:
  • Modify opinion (qualified or adverse depending on pervasiveness).
• If going concern basis inappropriate:
  • Adverse opinion.

Exam technique: You may be required to identify indicators, design procedures and discuss reporting implications.

5. Completion and Reporting: Opinions, Modifications, and Exam Technique

Exams in ACCN3009 regularly assess your ability to understand and draft audit reports, identify when modifications are required, and explain the rationale in line with ISA 700‑706.

5.1 Elements of an Unmodified Auditor’s Report (ISA 700)

Know the standard headings and their content:

1. Title – “Independent Auditor’s Report”.
2. Addressee – Usually shareholders.
3. Opinion – Clearly labelled; placed first in revised ISA report.
4. Basis for Opinion – Reference to ISAs, independence, ethical requirements.
5. Material Uncertainty Related to Going Concern (if applicable).
6. Key Audit Matters (KAM) – For listed entities.
7. Responsibilities of Management and Those Charged with Governance.
8. Auditor’s Responsibilities for the Audit of the Financial Statements.
9. Other Reporting Responsibilities (e.g. Companies Act requirements).
10. Auditor’s signature, name of audit firm, IRBA registration, date and address.

Exam tasks may include:

• Identify missing or incorrect elements in a draft report.
• Rearrange paragraphs into correct order.
• Draft specific paragraphs based on a scenario.

5.2 Types of Audit Opinions (ISA 705)

There are two dimensions of modification:

1. Nature of matter:

   • Material misstatement in financial statements.
   • Inability to obtain sufficient appropriate audit evidence (scope limitation).

2. Pervasiveness:

   • Not pervasive → Qualified opinion.
   • Pervasive → Adverse or Disclaimer.

Summary table:

Situation	Material?	Pervasive?	Opinion Type
Misstatement (e.g. incorrect inventory valuation)	Yes	No	Qualified (Except for)
Misstatement (multiple FS areas, fundamental)	Yes	Yes	Adverse
Scope limitation (inventory count inaccessible)	Yes	No	Qualified (Except for)
Scope limitation (e.g. records destroyed, major area)	Yes	Yes	Disclaimer

Exam application:

Scenario: Auditor unable to attend inventory count at 31 December and no alternative procedures possible. Inventory is material but not pervasive.
→ Qualified opinion due to limitation of scope.

You must:

• State the type of opinion.
• Explain the reasoning (material but not pervasive; limitation of scope).
• Outline key components of the Basis for Qualified Opinion paragraph.

5.3 Emphasis of Matter and Other Matter Paragraphs (ISA 706)

Emphasis of Matter (EOM):

• Draws attention to matter appropriately presented or disclosed in FS that is fundamental to users’ understanding.
• Does not modify the opinion.
• Example:
  • Major subsequent event disclosed in notes (e.g. fire after year‑end).
  • Significant uncertainty (other than going concern) properly disclosed.

Other Matter:

• Refers to matters not presented or disclosed in FS but relevant to users’ understanding of the audit, auditor’s responsibilities, or report.
• Example:
  • Prior period was not audited or was audited by another auditor.

Exam questions often require you to distinguish between:

• EOM paragraph vs Material Uncertainty Related to Going Concern vs Modified opinion.
• Provide justification for each.

5.4 Key Audit Matters (KAM) – ISA 701

KAMs are required for listed entities and sometimes voluntarily used in large public interest entities. Wits ACCN3009 expects conceptual understanding and ability to draft a KAM.

Process:

1. Identify matters that required significant auditor attention:
   • High risk areas.
   • Significant judgment.
   • Significant events or transactions.
2. Select those of most significance as KAMs.
3. Describe in the report:
   • Why it is a KAM.
   • How it was addressed in the audit.

Example KAM:

• Impairment of goodwill of R120 million:
  • Subjective cash flow forecasts.
  • Sensitive discount rates.

Not a substitute for modified opinion – if misstatement exists or scope limitation, treat under ISA 705.

In an exam:
You may receive a short case with a major risk and be asked to draft KAM wording (high‑level description, no need to memorise exact ISA phrasing).

5.5 Subsequent Events (ISA 560) and Final Analytical Review

Subsequent events:

• Type 1: Provide evidence of conditions existing at reporting date → adjust FS.
• Type 2: Indicate conditions arising after reporting date → disclose if material.

Procedures:

• Inquire of management and those charged with governance.
• Review subsequent management accounts.
• Inspect minutes of meetings after year‑end.
• Read subsequent lawyers’ letters.

If management refuses to adjust/disclose a material subsequent event, auditor may need to modify opinion.

Final analytical review (ISA 520):

• Performed near completion to assess if FS are consistent with auditor’s understanding.
• Compare actual results:
  • With budgets.
  • With prior periods.
  • With ratios.
• Investigate unexpected relationships or deviations.

Exam questions may ask you to list procedures at completion stage, where final analytic review and subsequent events are key items.

5.6 Reporting on Other Legal and Regulatory Requirements in SA

For South African audits, the report may include references to:

• Companies Act responsibilities, such as:
  • Report on directors’ report consistency with FS.
  • Compliance with certain sections.
• Public Finance Management Act (PFMA) or Municipal Finance Management Act (MFMA) for public sector audits.
• Regulatory frameworks (e.g. JSE Listings Requirements).

While ACCN3009 is primarily private sector‑focused, being able to recognise public sector audit elements is helpful, especially if exam scenarios mention a state‑owned company.

5.7 Exam Technique: Case Study and Integrated Questions

ACCN3009 exam packs often include integrated case questions worth 30–40 marks. These combine:

• Ethics and independence.
• Risk assessment.
• Design of procedures.
• Reporting implications.

To tackle them effectively:

1. Read scenario carefully, underline:

   • High‑risk areas (e.g. rapid growth, management pressure).
   • Ethical issues (fees, gifts, relationships).
   • Control weaknesses.
   • Events after year‑end.

2. Structure your answer in subheadings:

   • “Ethical and independence issues”
   • “Risk of material misstatement”
   • “Audit procedures”
   • “Reporting implications”

3. Use headings requested in the question:

   • If asked “identify and discuss”, do both.
   • If asked for “audit procedures”, do not waste time on ethics discussion unless explicitly requested.

4. Apply South African context:

   • Mention IRBA Code for ethics.
   • Reference Companies Act and King IV where governance is involved.
   • Use realistic examples (e.g. SARS, CIPC, JSE rules).

5. Time management:

   • Allocate time roughly proportional to marks (e.g. 1.5 minutes per mark in a 3‑hour paper).
   • Do not over‑answer low‑mark subsections.

6. Comparative Perspective: ACCN3009 vs UNISA AUE3702/AUE3761 and CUT AUD30AS

Although this guide is centred on Wits ACCN3009 (Auditing III), many students cross‑refer with materials from UNISA (AUE3702, AUE3761) and Central University of Technology (CUT AUD30AS). Understanding overlaps can help in broadening practice sources and searching online (“AUE3702 audit risk notes”, “AUD30AS ISA 700 summary”).

6.1 Content Overlaps and Differences

Common themes across Wits, UNISA and CUT:

• Risk‑based approach to auditing (ISA 200, 300, 315, 330).
• Ethics and independence (IESBA/IRBA Code).
• Audit evidence and assertions.
• Internal control and tests of controls.
• Reporting – modified opinions, EOM, KAM.

Wits ACCN3009 emphasis:

• Integration with corporate governance (King IV).
• Case‑based questions with strong South African regulatory context.
• More discussion‑style questions requiring evaluation and recommendation.

UNISA AUE3702 / AUE3761 emphasis:

• Often more standard‑heavy and systematic; many students rely on detailed ISA and IRBA reading.
• Long form, practice‑driven questions replicating distance learning exam style.

CUT AUD30AS emphasis:

• Similar content but sometimes with more practical, smaller firm focus.
• Strong attention to working papers, documentation and smaller‑entity audits.

6.2 Using Cross‑Institution Material for ACCN3009 Preparation

When searching online for “AUE3702 study notes”, “AUE3761 exam pack” or “AUD30AS past papers”, you can use them as supplementary material:

• Risk assessment topics:
  • UNISA notes on ISA 315/330 often provide additional examples of business risks and related audit responses that you can adapt.
• Ethics case studies:
  • IRBA Code summaries and application cases are broadly relevant.

However, always map back to ACCN3009 outline:

• Ensure you can relate to Wits‑specific case scenarios.
• Make sure you understand South African company law references; some UNISA material may include more public sector detail than Wits requires.

6.3 Practical Preparation Strategy for ACCN3009

A structured plan for final revision:

1. Week 1–2: Core Concepts Review

   • Read through Wits ACCN3009 lecture notes.
   • Use this study guide to reinforce:
     • Audit framework and objectives.
     • Ethics and IRBA Code.
     • Risk‑based approach.

2. Week 3–4: Procedures and Standards

   • Work through cycles:
     • Revenue & receivables.
     • Inventory.
     • Cash.
     • PPE.
     • Provisions and going concern.
   • For each, summarise:
     • Typical risks.
     • Relevant assertions.
     • Key controls.
     • Substantive procedures.

3. Week 5: Reporting and Advanced Topics

   • Memorise the structure of auditor’s report (ISA 700).
   • Understand modifications (ISA 705–706).
   • Practice drafting short EOM/KAM paragraphs.

4. Week 6: Past Papers and Integrated Cases

   • Attempt at least 3 full ACCN3009 past exam questions under timed conditions.
   • Supplement with:
     • UNISA AUE3702 – risk and procedure questions.
     • UNISA AUE3761 – ethics and reporting questions.
   • Review answers critically:
     • Did you identify all issues?
     • Did you structure logically?
     • Did you reference relevant principles?

5. Last Few Days: High‑Yield Revision

   • Create one‑page summaries:
     • Ethics threats/safeguards.
     • Opinion types and reporting conditions.
     • Key ISA references (200, 240, 300, 315, 330, 500, 520, 560, 570, 700–706).
   • Drill high‑frequency topics:
     • Revenue fraud risks.
     • Going concern.
     • Inventory count procedures.

This ACCN3009: Auditing III Exam Pack provides the conceptual depth and practical structure expected in Wits BAccSc exams, while aligning with common search and study patterns at South African universities such as UNISA and CUT. Use it alongside official course notes, tutorial questions and past papers to develop the applied judgment and clear writing style that examiners reward.