CASE 5 : 8 SUGGESTED SOLUTION

Page 1 of 2 pages

1. Compare the individual line items in the monthly projections for BSP for FY2025 to the
equivalent line items which served as the basis for computing the projected amounts (e.g.
the actual/audited amounts for FY2024), and (1)
1.1. enquire from the CFO about the reasons for any significant differences. (1)
2. Identify, by inspection of the actual income/expense line items in the trial balance for the
2024 financial year, whether there are any material omissions in the line items used in the
projections. (1)
3. Compare the amounts in the projections on a month-to-month basis, and investigate any
unusual fluctuations by enquiry from the CEO/CFO. (1)
4. Evaluate the reasonableness and internal consistency of the assumptions used in making
the estimates by inspecting supporting documents and enquiry from management. (1)
5. Enquire from the board of directors and inspect board minutes to ascertain whether any
additional facts/information have become available since the projections were prepared –
in addition to the new information already obtained. (1)
6. Inspect the minutes of the board meeting/executive management meeting where these
projections were presented for any comments relating to the reasonableness of the
projections, and whether the board accepted the projections. (1)
7. Regarding the loss of supplies from Shanghai Exports:
7.1. To ascertain whether other suppliers may also stop supplying BSP:
7.1.1. Enquire from the CFO / CEO as to the reasons why Shanghai Exports is no longer
willing to supply BSP. (1)
7.1.2. Inspect the email sent by Shanghai Exports for any reason(s) why they will no
longer be supplying BSP. (1)
7.1.3. Inspect Shanghai Exports’ statement for any long outstanding amounts, and if
this is identified, inspect the creditors age analysis/other major suppliers’
statements to ascertain if their debts are also long outstanding. (1)
7.2. To ascertain whether the effect of Shanghai Export’s decision to cease supply to BSP
has been appropriately incorporated into the forecasts:
7.2.1. Enquire from the CFO/CEO whether an alternative supplier has been
identified/contracted to supply the parts previously supplied by the Chinese
supplier. (1)
7.2.2. If alternative arrangements have been made, inspect the purchase
orders/communications with the new supplier(s) to ensure that they will be able
to fill the gap left by the Chinese supplier (specifically which parts they will be
able to supply). (1)
7.2.3. Using ATTs, extract a report for all products that cannot be sourced from
alternative suppliers reflecting:
• the value of such products sold during FY2024; and (1)
• the quantities of such products on hand at 31 August 2024. (1)
7.2.4. For the amounts in 7.2.3, request the CFO to update the projections, as necessary,
and inspect the calculations supporting the revised projections to ensure that the
CFO has appropriately excluded the revenue previously earned from these
products. (1)
7.3. Regarding the lawsuit filed against BSP:
7.3.1. Request that the management of BSP completes a representation letter, for
review and sign-off by the company’s external legal practitioner in accordance
with the process prescribed by SAAPS 4 – to enable the auditor to assess the
likelihood and amount of any cash flow that will result from the claim. (1)
CASE 5 : 8 SUGGESTED SOLUTION
Page 2 of 2 pages

• This representation letter should be sent by the auditor to the external legal
practitioner, and the client should give the external legal practitioner permission
to correspond directly with the auditor. (1)
7.3.2. Enquire from the management of BSP whether any counter-claim against the
supplier is envisaged – if so, this should also be included in the external legal
practitioner representation letter. (1)
7.3.3. If there is substance to the claim from Mack’s Repair Shop, enquire from
management whether the defective part has been removed from BSP’s stores and
recalled – and request that the CFO update the projections for the impact of
revenue / expenses relating to these products. (1)
• Inspect the revised projections to ensure that the appropriate adjustments have
been made (i.e. by performing procedures similar to 7.2.3 and 7.2.4 above). (1)
7.3.4. Inspect minutes of the board meeting for the approval of a recall of the defective
product and the estimated costs thereof. (1)
7.4. Regarding the fresh issue of shares in BSP:
7.4.1. Inspect the minutes of the board meeting of BSP after year-end where a decision
was taken to issue additional shares, as well as the number of shares to be issued
and the issue price per share. (1)
7.4.2. Inspect the Memorandum of Incorporation of BSP, as well as the company’s
register of members (shareholders), to ascertain if there are sufficient unissued
authorised shares to enable the planned share issue or whether plans have been
documented/put in place by the board of directors to increase the company’s
authorised share capital. (1)
7.4.3. Inspect the minutes of a board meeting of MMH for a resolution to subscribe for
shares in BSP / Obtain a written confirmation from MMH that it intends to
subscribe for shares in BSP, as well as the number of shares and issue price for
this subscription, and the timing thereof. (1)
7.4.4. Inspect MMH's annual financial statements to verify that it has sufficient cash
resources available to fund this additional investment in BSP. (1)

Maximum (19)
Communication skills (clarity of expression) (1)