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ADNG300 Auditing 3 Assignment 1

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING & LAW

1ST ASSESSMENT – ASSIGNMENT 1

Subject and Level

Auditing III

Subject Code

ADNG300/AUDI300

AUDA030/ERAU030/PAUD030

Venue

Number of Pages

(including front page)

5

Time

Duration

2 Hours

Full Marks

60

Total Marks

100%

Instructions

  • The written component must a minimum of 6 pages and Microsoft Word must be utilised.
  • Answer all questions
  • Font: Arial, Size: 11, Line spacing: 1.5
  • Do NOT COPY verbatim from sources, write in your own words
  • This is an individual attempt, do not work in groups
  • Plagiarism in any form will not be tolerated
  • Reference all your work and be detailed as possible
  • The project is due on the 13 August 2021, to be submitted to the lecturer’s, no later than 10am (collection will be from 10am to 11am), you will be required to sign against the register when you are handing in, if you do not sign the register when handing in, your assignment will not be marked.
  • No projects will be accepted after the due date
  • Marking will be done by using a Ruberic
  • Marks will be awarded for presentation and layout to your solution, please pay careful attention to this

Question 1 (30 marks, 60 minutes)

Super Threads (Pty) Ltd sells tyres to garages and fitment centres on credit. They accept phone orders only, as their main marketing strategy is quick delivery. Garry Gallant, the financial accountant, has approached you for advice regarding the company’s credit sales system (which was developed in-house some years ago), as a number of problems have been experienced lately in the “receiving of orders” section. This has resulted in customer dissatisfaction, excessive bad debts and numerous problems with invoices and delivery notes that are either incomplete or incorrect with regard to customer details.

Your observation and enquiry of Danny DeVito, the order clerk, revealed the following:

1. When a customer telephones, Danny DeVito asks for the customer’s account number and enters it.

2. If the account number is accepted, the customer’s details then appear on the screen.

3. If any part of the customer’s account is more than 60 days in arrears, an “in arrears” field appears on the screen indicating the amount which is in arrears.

4. Whenever this “in arrears” field appears, a programme control prevents Danny DeVito from proceeding with taking the order. Occasionally a customer’s account will be in arrears because a credit note has not been passed by Super Threads (Pty) Ltd. In these situations Danny DeVito will override the “in arrears”, take the order and later process a credit note.

5. On discussion with the customer about the amount in arrears, Danny DeVito may decide to override the “in arrears” control, depending on the information provided by the customer.

6. Every time the “in arrears” field is overridden, the amendment (override) together with a brief reason for the override (which is keyed in by Danny DeVito) is logged by the computer.

Note: If a customer order is not to be accepted, Danny DeVito does not proceed with the order but refers the customer to Jenney Jean, the credit controller.

7. Should Danny DeVito or Jenney Jean wish to follow up on the log of overrides of the “in arrears” control, they may do so as they both have read/write access.

No other accounting personnel has access to this file.

8. Once Danny DeVito has entered a valid customer account number (see 1 above) and, if necessary, resolved any problems relating to amounts in arrears, he can proceed with the order.

9. Using Super Threads (Pty) Ltd.’s product catalogue, the customer informs Danny DeVito of the tyre code and a description of the tyres required. Danny DeVito keys these in and the telephone conversation is terminated.

10. The order details are written to a “daily order file” and a multipart, sequenced internal sales order form/picking slip is printed.

11. If a potential customer (one with no account number) wishes to place an order, he is referred to Jenney Jean who emails a credit application form to the customer. This must be completed by the potential customer and emailed back to the customer.

12. Once this is returned, Jenney Jean confirms that the names of two credit references have been given, checks that all information requested on the form has been provided, and, if satisfied, signs the credit application form, and prints a hard copy.

13. The hard copy is then passed to Danny DeVito who:

  • accesses the master file amendment module of the revenue application Ø adds the new customer to the debtors master file, and
  • phones the customer informing him of his account number.

14. Additions to the master file are written to a log. Logs are sequenced by the computer. Danny DeVito prints a copy of the log from time to time and files it in case there is a query.

Note:  The software has suitable programme and screen aid checks to enhance the accuracy and completeness of data keyed in.

REQUIRED:

Draw the following table across:

Weakness Identification

Explanation

Identify and explain the weaknesses in the “receiving/authorising of orders” procedures at

Super Threads (Pty) Ltd as described above.  (30)

Question 2 (30 marks, 60 minutes)

Answer both Part A and Part B.

Part A (20 marks, 40 minutes)

Construction World Solution (Pty) Ltd, (CWL), operates as a building construction company and a general hardware store. The company was started by Deon Neod a few years ago. The company has experienced phenomenal growth. In keeping with the current economic climate and the use of technology, Mr Deon would like to implement a fully integrated and automated accounting system.

Mr Deon is very concerned with regards to changes that can be made to the customer system. Mr Deon knows that you have recently graduated from MUT with a diploma in accounting and has asked for your assistance.

Required

Prepare a memorandum for Mr Deon where you advise him as to how he can ensure that any changes made to the revenue system relating to his customers are valid, accurate and complete.

Part B (10 marks, 20 minutes)

You have recently been appointed as the audit senior on the audit of Construction World Solution (Pty) Ltd, (CWL), operates as a building construction company and general hardware store. The company deals with cash and has an electronic point of sale machine.

CWL has experienced phenomenal growth. With the recent implementation of a fully integrated accounting system there has been concerns raised by the directors with regards to cash transactions. The directors are concerned that there might not be adequate controls in place with regards to the handling of all cash transactions. This then has an effect on the bank account and working capital management of CWL.

Required

The lead audit partner would like you to prepare an audit programme wherein you detail the audit procedures that will be required to be followed by the audit team relating to bank and cash.

NB: Do not concern yourself with Presentation and Disclosure Procedures

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