QUESTION $2(70$ MARKS$)$

You are part of the audit team assigned to the year$-$end audit of Exclusive Evening Wear $($Pty$)$ Ltd$,$ a

leading retail company specializing in tailor$-$made evening wear. The company operates a high$-$end retail

business, offering custom$-$designed dresses and formal wear, catering to luxury clientele, celebrities, and

high$-$profile events.

To support its expanding operations, Exclusive Evening Wear has invested heavily in high$-$tech computer

systems and advanced software solutions. The company relies significantly on cloud$-$based data storage,

allowing seamless real$-$time data access, inventory tracking, customer management, and order

processing across its retail outlets and manufacturing facilities. The company operates multiple retail

outlets across Gauteng and the Western Cape, serving a growing clientele.

Recently, Exclusive Evening Wear began exporting its custom evening wear to Europe, marking a

strategic expansion into international markets. This requires compliance with international trade

regulations, foreign exchange controls, and new financial reporting standards related to export sales.

During the audit planning meeting, the Chief Executive Officer $($CEO$)$ outlined a list of key concerns, for

which you have been assigned to provide detailed explanations and insights.

Required:

$2\mathrm{.}1$ Clarify to the Chief Executive Officer the $($a$)$ concept of$,$ and $($b$)$ relationship between internal controls

versus internal auditors. Include practical examples applicable to Exclusive Evening Wear $($Pty$)$ Ltd in the

explanation.

$(15$ Marks$)$

$2\mathrm{.}2$ Describe how the internal controls established in the procurement and sales divisions contribute to

the efficiency and effectiveness of operations at Exclusive Evening Wear $($Pty$)$ Ltd$.$ Include practical

examples applicable to the company in the explanation.

$(20$ Marks$)$

$2\mathrm{.}3$ Differentiate between system software and application software and explain the importance of

auditing each at Exclusive Evening Wear $($Pty$)$ Ltd$.$

$(20$ Marks$)$

$2\mathrm{.}4$ Explain to the Chief Executive Officer the factors that affects the auditor$$s consideration of the use of

CAATS during the external audit of the financial statements of Exclusive Evening Wear $($Pty$)$ Ltd$.$

$(15$ Marks