ACC 3209 Auditing and Ivestigation FT

KCA UNIVERSITY
Auditing and Investigation
Answer all Question
QUESTION ONE
Equ Ltd is a manufactures whose main customers are retailers who then sell to the general public. The
company’s manufacturing is spread across five sites and goods are stored in its nine warehouses located
across the country. You are an audit supervisor and in preparation for the forthcoming audit for the year
ending 30 June 2019, you are reviewing the following notes your audit manager has provided you with in
relation to the company’s internal controls.
Equ ltd has a small internal audit (IA) department. During the year, IA started a programme of physically
verifying the company’s assets and comparing the results to the non-current assets register, as this type of
reconciliation had not occurred for some time. To date only 15% of assets have had their existence
confirmed as IA has experienced significant staff shortages and several members of the current IA team
are new.
During the year, Equ Ltd conducted an extensive reorganisation of its manufacturing process to improve
efficiency. Due to the significant number of employee changes required, the human resources department
(HR) has been very busy and to ease their workload during this period, the payroll department has
assisted by setting up any new employees who have joined the company. In January 2019, the wage rate
paid to employees was increased by the HR director and he notified payroll by emailing the payroll
supervisor.
A new sales ledger system was introduced in May 2019 and will continue to be run in parallel with the
old system until IA has completed its checks between the two systems. New customers obtained by the
sales team are required to undergo a full credit check; on the basis of this, a credit limit is proposed by
sales staff and approved by the sales director and these credit limits remain static in the sales system.
Monthly perpetual inventory counts are undertaken at each of the nine warehouses, as a full year-end
inventory count is too disruptive for the company. High value items are stored in a secure area in each
warehouse. Access is via a four digit code, which for convenience is the same across all sites. Due to the
company’s reorganisation programme, some of the monthly inventory counts were not performed.
Bank reconciliations are undertaken monthly by an accounts clerk and details of all reconciling items are
included.
Where the sum of the reconciling items is significant, the reconciliation is sent to the financial controller
for review. In order to maximise cash balances, the finance director approves all purchase invoices for
payment 75 days after receipt of the invoice. You are engaged to review the systems of internal control.
Required
a) Briefly explain the objectives of internal controls systems (5 marks)
b) Identify and explain EIGHT deficiencies in Equ Ltd internal controls and provide a
recommendation to address each of these deficiencies. (8 marks)
c) Briefly explain the possible fraud likely to be caused by the weakness in the system of internal
control (4 marks)
d) Discuss the role of forensic audit in an organisations (3 marks)
Question Two
In the course of audit work of one of your clients, the following issues are pending as the date of issuing
the audit report.
 The property balance was revalued during the year by an independent expert valuer and an error
was made in relation to the assumptions provided to the valuer. The auditor was denied
permission to consult the valuer.
 Receipts from customers being diverted into employees’ personal accounts and statements issued
to such customer intercepted. A senior manager is involved in the fraud schemes.
 The allowance for credit losses are below the industry average, if adjustment is done the profit
will reverse into losses.
Required:
a) Explain the term fraudulent financial reporting and describe the auditor’s responsibility in
relation to misstatements. (5 marks)
b) Discuss the factors that cause the management to practice fraudulent reporting (9 marks)
c) Briefly explain the type of audit opinion you would issue in each of the above case. (9 marks)
d) Briefly explain whether the above issues would be listed as Key Audit Matters (KAM) (7 marks)

ACC 3209 Auditing and Ivestigation FT

Uploaded by

Copyright:

Available Formats

ACC 3209 Auditing and Ivestigation FT

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACC 3209 Auditing and Ivestigation FT

Uploaded by

Copyright:

Available Formats

KCA UNIVERSITY

Auditing and Investigation

Answer all Question

You might also like