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Question XXXXXXXXXXTopic 5 Internal controls XXXXXXXXXXmarks)
Sweets R Us Pty Ltd. is a large confectionary company that manufactures a range of standard sweet products and some specialty products for the Australian market. Most of the company’s production is in standard chocolate goods and they offer personalised packaging for promotional or fundraising purposes. They also provide uniquely moulded and decorated chocolate items for special events such as grand finals. You have been allocated the role of assessing the controls in the Purchases, Accounts Payable and Payments system, and have obtained the following details:
Raw material ordering process
To maintain and control product quality a limited number of trusted suppliers are used.
The production manager oversees raw material inventory. Orders are placed based on current production orders and quantities of raw material currently on hand with next day delivery where possible.
No formal purchase order system is used.
Raw material warehousing procedures
The warehouse personnel are trusted, long-term employees.
One of the warehousing staff ensures that all goods received, primarily raw materials, are in good order and signs the couriers’ delivery dockets in acknowledgment of materials received.
Movement of in and out of the warehouse is not recorded, but the production manager monitors stock levels and movements daily.
Note: Finished goods are warehoused in a separate secured area that only the production manager and his assistant have access to.
Accounts payable system
Supplier invoices are received in the accounts department via email and printed. The details are entered into the accounts payable system by the accounts payable clerk, who then stamps the invoice as processed. The computer system automatically calculates the payment due date based on the supplier’s credit terms that have been entered into the system.
As there are only a few suppliers each week, the accounts payable clerk validates the outstanding invoices via a phone call with the production manager. The production manager has an excellent memory for what he has ordered, and the deliveries received.
The computer system automatically generates a weekly list of invoices due for payment. The accounts payable clerk flags the invoices for cheques to be processed as direct deposits are not used. The system does allow the user to exclude an invoice from the payment run. The accounts payable ledger and general ledger are automatically updated once the payment runs are complete.
The cheques are forwarded to the financial controller for signature. Supporting documentation is only attached to the cheques for non-major suppliers. The financial controller calls the production manager to verify the review process (step 2) has taken place, and other payments are verified to the attached invoice. If the financial controller is not available the accounts payable clerk usually has the cheques signed by the marketing manager. The payables clerk avoids asking the CEO to sign cheques as he asks too many questions. Any supporting documentation to the cheque is signed to avoid duplicate payment.
Monthly statements are received from the suppliers. However, the accounts payable clerk does not believe statement reconciliations are necessary.
Prepare a report for the audit senior that:
Identifies and explains ten (10) control weaknesses associated with the purchases, accounts payable and payments system outlined above. (15 marks)
Identifies and explains the account balance assertions for raw material inventory and accounts payable that aremostimpacted by control weaknesses. (5 marks)
Recommends and justifies a control improvement foreachof the weaknesses identified in requirement one. (10 marks)
Question 3 Topic 5 & 6 Controls and tests of control XXXXXXXXXXmarks)
You are a trainee auditor and your team leader, Will, provides you with practical personal development challenges. Will has emailed you the following internal controls that were tested in prior audits.
The accounting software automatically reconciles totals in each of the subsidiary master files for accounts receivable, accounts payable, and inventory accounts to the respective general ledger accounts. This control was most recently tested in the prior year. No changes to the software have been made since testing, and there are strong controls over IT security and program changes.
The accounts payable clerk matches vendor invoices with related purchase orders and receiving reports, and investigates any discrepancies noted. This control was tested in the prior year’s audit. No changes in this control or personnel involved have occurred since testing was last performed.
The sales system automatically determines whether a customer’s purchase order and related accounts receivable balance are within the customer’s credit limit. The risk of shipping goods to customers who exceed their credit limit is deemed to be significant. The control was last tested during the audit two years ago.
The perpetual inventory system automatically extends the unit price times quantity for inventory on hand. This control was last tested two years ago. During the current year, the client made changes to the system.
The client’s purchasing system was acquired from a reputable software supplier several years ago. This system contains numerous automated controls. The auditor tested those controls last year. No changes have been made to any of these controls since last tested and the client’s controls over IT security and program changes are excellent.
Evaluate each internal control independently, then send a return email to Will that:
states whether the control must be tested or not in the current year’s audit. (5 marks)
justifies your decision about whether testing is or is not required for each of the controls. (5 marks)
You can use a table format, with the following headers, in the memo to present your answer.
In addition to the marks for questions 1, 2 and 3, up to 15 marks will be given for Professional presentation, including following the presentation requirements set out in assessment, and communication, and referencing in accordance in with theCSU Guide to APA referencingas set out in the marking guidelines.
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This assessment task will assess the following learning outcome/s:
be able to appraise the client’s business environment and apply the risk model.
be able to explain, select and apply procedures involved in the audit process.
Marking criteria and standards
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Q1. Appraisal of the client’s business environment and application to the audit risk model (LO3)
All analytical calculations completed, with only minor errors.
All analytical calculations completed, with only minor errors.
One or two analytical calculations overlooked, all other calculations are correct or contain only minor errors.
A well supported and coherent explanation regarding going concern and the identification of three (3) accounts at risk of misstatement.
Competent explanation regarding going concern and the choice of three (3) accounts at risk of misstatement.
Basic explanation regarding going concern and the choice of three (3) accounts at risk of misstatement.
Response demonstrates an insightful understanding of the relationship between analytical procedures, areas of risk (including going concern) and key assertions.
Response demonstrates a competent understanding of the relationship between analytical procedures, areas of risk (including going concern) and key assertions.
Response demonstrates a limited understanding of the relationship between analytical procedures, areas of risk (including going concern) and key assertions.
Q2. Appraisal of the client’s internal control environment and application to the audit risk model (LO3). Be able to explain, select and apply procedures involved in the audit process. (LO4)(30 marks)
A well-constructed explanation of at least eight (8) control weaknesses.
A competent explanation of at least seven (7) control weaknesses.
A basic explanation of at least five (5) controls.
Well supported and coherent explanation of the two (2) key raw materials inventory and accounts payable assertions impacted by the control weaknesses.
The correct identification of the two (2) key raw materials inventory and accounts payable assertions impacted by the control weaknesses.
The correct identification of at least one (1) key raw materials inventory and accounts payable assertion impacted by the control weaknesses.
Well supported and coherent recommendations for improving the identified control weaknesses.
Competent recommendations for improving the identified control weaknesses.
Basic recommendations for improving the identified control weaknesses.
Q3. Appraisal of the client’s internal control environment (LO3). Explanation of when tests of computerised controls are used. (LO4) (10 marks)
A well-constructed explanation about whether computerised control testing was or was not required for all of the five (5) control scenarios provided.
The correct identification of at least four (4) control testing requirements. A competent explanation whether computerised control testing was or was not required.
The correct identification of at least three (3) control testing requirements. Only a basic explanation of whether computerised control testing was or was not required.
Professional presentation (as per requirements set out in the presentation section) and communication. Referencing in accordance with CSU Guide to APA Referencing. (15 marks)
All presentation requirements met. Consistently clear and concise expression of ideas. No spelling errors and only minor grammatical errors. References presented are appropriate, show evidence of research and are used accurately in accordance with APA (6th ed.) requirements.
All presentation requirements met. Expression of concepts is clear and concise. Very few spelling and or grammatical errors. References presented are appropriate, show evidence of reading outside the subject resources and are used accurately in accordance with APA (6th ed.) requirements.
A couple of presentation requirements overlooked. There is some inconsistency in sentence structure. Some revision could enhance clarity of expression. Some spelling errors and or poor grammar. Appropriate references are included and mostly used in accordance with APA (6th ed.) requirements.
Your assignment will be marked out of 100 which will then be converted to a mark out of 20.
back to topThe following points arekey requirementsfor presenting assessment items, and must be followed or your assignment marks for professional communications and presentation will be reduced.
Assessment item is to be prepared using Word. If the assessment is lodged as PDF you will be asked to resubmit in Word.
Appropriate report format is used for question one and two, and an email format for question three.
Use a standard 12pt font such as Times New Roman, Calibri or Arial.
Use 1.5 spacing between lines, this makes for easier marking.
All pages, except the cover page, are to be numbered, with name and student number included in a header or footer on each page.
Left-justify body text and use appropriate margins at the left and right of your work, and double enter between paragraphs, as markers need space to be able to include their comments.
All in-text references to include a page or if a page number is not available a paragraph number.
In addition this assessment is to be presented in the following format and using respective Word features:
Separate cover page with your name, student number, subject code, assessment number and number of assessment questions.
Each question must start on a new page, however there is no need for the individual requirements of each question to start on a new page.
The header level function in word is to be used for question headings and sub-headings, this is necessary for preparation of a contents page for the reports.
A contents page, using theautofunction of “table of contents” tool is to be included in reports. This tool is located in the reference tab of word.
Always use your spelling and grammar checker, but remember that this does not pick up all errors. You must still manually and carefully edit your work.
Always keep a copy of your assessments. Both a hard copy and an electronic copy
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