Question

For the purposes of this assignment, you are to imagine that you work as Audit Manager for a company called Amazing Accountants. Your new audit client is a listed company in Australian or Singapore Stock Exchange ( ABACUS REAL ESTATE ). The client has asked you to perform their financial report audit for the financial year ended 31 December 2020.

Part 3 Question

Identify or assume TWO (2) high level/detective internal controls and propose a control test for each control in ANY of the following processes.

• Cash receipt and payment
• Sales and accounts receivables
• Purchase and accounts payables
• Inventory and Cost of goods sold
• Payrolls
• Non-current assets and Depreciation

Part 4 Question

Design FIVE (5) substantive procedures for the transactions and balances discussed in question (3) and justify why you select these substantive procedures for the following scenarios:

1. Your proposed tests of controls in question (3) PASSED.
2. Your proposed tests of controls in question (3) FAILED.

Answer 1

Part-3 defectiveness in internal control and test of control

cash receipts and payment

defective internal control	test of control
same clerk or staff doing or having the resposibility of recording , payment & receipts , reconciliation	physically observe whether the seperate staff doing each of these work
company doing the bank reconciliation either yearly or not doing at all	verify that monthly reconciliation has been prepared by reviewing the reconcilation statement

substantive procedure

count cash balances held and agree to petty cashbook or other records

justification: inorder to verify the balances of cash

sales and account receivables

deficiecies	test of control
sales of the company is recorded without considering the approved sales order and shipping document	ensure that company has recorded sales only after verifying with sales order and shipping document
customers statement not sending out regularly or not sending to some customers	obtain a sample of customer statement and ensure it being sendout monthly basis

substantive procedure :

1-trace a sample of shipping documents to sales invoices and into the sales and receivables ledger

justification: inorder to ensure transaction are recorded completely

2-perform a receivables circulation on a samples of the year-end trade receivables

justification: inorder to verify the balances in receivables are correct

purchase and accounts payables

Deficiencies	test of control
purchase orders are placed by the clerk without authorisation from the senior management.	verify the samples of purchase order and ensure that it is authorised by appropriate senior manager
invoices received from the spplier is recorded without considering the mathematical accuracy	review the amount in the invoice and ensure it is mathematically correct

substantive procedures

1-trace selected samples from the trade accounts payables listing to suporting documentation

inorder to ensure the transaction recorded full or completely

2-perform a confirmation on account payables

inorder to ensure balnces is correct

inventory and cost of goods sold

deficiencies	test of control
company not performing the annual inventory count or continuous inventory count.	attend the inventory at the end of the year or continuous inventory dount
there is no physical safeguard in place for the inventory as is could be stole.	physically observe the warehouse and ensure whether there is enough safeguard in place.

substantive procedures

1-vouch a saomle of inventory items to suppliers invoice to ensure it is correctly recorded

inorder to ensure it s correctly recorded

2-observe the physical inventory count

inorder to ensure the inventory balances in the book and physical are correct

payroll

Deficiencies	Test of control
payroll and human resources is not the seperate	verify that hiring an employee and payroll has two seperate department
changes in the details of payroll could be done by clerk or staff without authorisation	review any changes in the payroll and ensure it is authorised by appropriate senior managers

substantive procedure

agree the net pay asper payroll to bank statement or cash book

inorder to verify recorded payroll expenses actually paid to the employess

non current asset and depreciation

Deficiency	test of cntrol
order for the capital asset is made by the staff without authorisation	verify for a sample of purchase of asset and ensure that order has authorised by the appropriate senior manager
company is not physically inspect the asset at the end of the year	inspect the asset physically at the end of the year

substantives

1-compare non-current asset in the general ledger with the non-current asset register

inorder to ensure it is correct recorded in both

2-reperform the calculation of depreciation rates and ensure it correct

inorder to ascertain any changes in the policy of valuation and depreciation