Assessors

Mr. R Everts
Mrs. E Swanepoel

SCHOOL OF ACCOUNTANCY

AUDITING 288/388

ASSESSMENT 2 SEMESTER 1 (A2S1)

8 JUNE 2020

MARKS: 80
DURATION: 160 MINUTES
NUMBER OF QUESTIONS: 3
NUMBER OF PAGES: 11

INSTRUCTIONS TO CANDIDATES
(SEE REVERSE SIDE)

By submitting an answer on SUNLearn, you acknowledge and agree to the

assessment conditions of the University, the Faculty of Economic and Management
Science, as well as any guidelines from the School of Accountancy contained in this
assessment and other documents available on SUNLearn, including but not limited
to the Module Framework and the Take Home Assessment process and requirements,
and that the work submitted is your own, unaided, work. Any student found to
contravene these conditions is subject to disciplinary action.

1
INSTRUCTIONS TO CANDIDATES
1. ANSWER ALL QUESTIONS.
2. READING TIME
• 5 minutes of reading time is given after the question papers have been released
on SUNLearn, prior to the commencement of writing time, unless instructions are
given to the contrary. During this time students are not allowed to write or highlight
on the paper at all. Reading time is not adjusted proportionately from students with
extra writing time or based on the allocated marks.
3. DOWNLOAD AND UPLOAD TIME OF ASSESSMENT / REQUIREMENTS
• We give you additional time on the day for the up- & download of the assessment.
• We give you an additional 30 minutes grace period to convert and upload your
PDF answers onto SUNLearn at the end of the writing time. Late submissions after
this time will not be accepted. No exceptions
• When your writing time is finished, immediately upload your answer to the
Assignment tool (note there are separate Assignments depending on whether you
have extra writing time or not). If you answered in hard copy (handwritten), then take
photos of these answers, integrate the template, and upload the file in PDF.
• Upload one PDF document containing all your answers to all the questions.
Structure your answers as per the required using the MS Word-template as
reference, with photos embedded if applicable. Start each new question on a new
page.
4. YOUR FORMAL ANSWER SHOULD COMPLY WITH THE FOLLOWING
REQUIREMENTS:
• If you answer be handwritten, write in clear, readable handwriting, alternatively type
your answer in MS Word and use understandable logical Afrikaans or English. If
you use terms in another language, it should be shown between quotation marks.
• Present your answer in point form where applicable.
• Each sentence must begin on a new line and should only contain one fact or
statement.
• If your answer is handwritten, leave a line open between each paragraph or loose-
standing sentence.
• Also ensure that all images (including writing there-on) are legible. Illegible writing
or photos will not be marked.
• Where abbreviations are used, you should only use recognised and grammatically
correct abbreviations. Abbreviations not recognised can only be used in
calculations that does not form part of the formal answer.
5. BEFORE THE SUBMISSION OF ANSWER SCRIPTS
• Write/Type the word “END” on the last page of your submission.
• Clearly complete the template to show your student number at the top of each
page, along with the question number. Also ensure all your pages are in
chronological order.
• Before uploading your submission, inspect the content to ensure that the contents
of the file are legible, and is a fair representation of your attempt (i.e. the content is
valid, accurate and complete).
6. ONLY ACCEPTED CALCULATORS (OR SOFTWARE) MAY BE USED.
CALCULATIONS SHOULD MEET THE FOLLOWING REQUIREMENTS:
• All calculations must be shown and set out in an orderly and neat manner.
• Calculations must be shown under the heading “calculations” and cross-references
should be given between calculations and your formal answer.
2
 • MS Excel or any other spreadsheet software may not be used.
7. RESOURCE AIDS (Including study material, books, writings and electronic devices)
are not allowed to be used during the assessment unless the use of specific items are
expressly permitted or prescribed.
8. WHEN USING AN ELECTRONIC DEVICE TO COMPLETE AN ASSESSMENT the
following extract from the SU Communique: Academic integrity in Online Assessment
Take Home Assessment for Stellenbosch University is applicable:
• No student is allowed to copy the assessment (e.g. taking screenshots) or work
with any other student during the assessment.
• No student is allowed to open/have any documents other than this
assessment/answer template.
• No student is allowed to have any electronic equipment (including mobile phones)
(sic) in their possession during this assessment, other than equipment of software
necessary to complete and upload this assessment.
• No student may communicate with any other person or via any other platform
during the assessment.
9. INTERNET CAPABILITIES AND OTHER PLATFORMS AND SOFTWARE MAY NOT
BE USED WHILE COMPLETING THE ASSESSMENT.
10. DIGITAL WRISTWATCHES MUST BE TAKEN OFF AND PLACED FACE DOWN ON
THE DESK.

INDEMNITY CLAUSE

All names of persons, places and business entities mentioned in this test paper are purely fictitious
in nature and any resemblance to real persons, living or dead, places and business entities is purely
coincidental.

3
QUESTION 1 25 marks

Fast Way Couriers Limited (‘FWC’) renders a cost effective, reliable, timetabled transport
services. They specialise in transport of high-risk items for overnight delivery, a service few
transport companies are willing to render. FWC grants large discounts to clients when
consignments are delivered late. FWC has depots nationwide from where transport
services are rendered, with all deliveries being coordinated, and all support services being
rendered from the head office in Cape Town.

FWC has approximately 200 permanent employees that are involved in the transport of
goods and employed at the depots. An additional 30 employees provide support services
at head office, including the accounting and human resources divisions. T Selepe has been
the Chief Executive Officer (CEO) of FWC for the past 10 years and recently appointed Z
Modise as the Head of Human Resources. Z Modise is still busy finding his feet and he is
uncertain about the internal controls required for the appointment of new employees. He
mentioned to T Selepe that they need to ask for advice to manage this function, as well as
the payment of salary process, effectively. Since all the employees at FWC are
permanently employed and work fixed hours, all employees are paid salaries. T Selepe
realised the risk of cash payments for both FWC and their employees and therefore all
salaries are paid to employees via an Electronic Funds Transfer (EFT).

FWC operates as follows:

Appointment

All appointments are based on a needs assessment that is prepared by J Prinsloo, the
Financial Manager, using the information obtained from the available personnel budget
that has been reviewed and approved by T Selepe. An advertisement is then placed on
the necessary media and online platforms. All applicants are subject to an initial screening
by Z Modise, who ensures that only candidates who have the necessary qualifications are
invited for an interview. Z Modise then conducts interviews and approves the appointment
of the successful candidates who meet the criteria.

A Macdonald, a human resources assistant, prepares the appointment letters based on

the information received from Z Modise, and allocates a unique sequential employee
number to each employee. The appointment letter includes all the necessary information
regarding the employee, the starting salary, deductions and leave.

Senior management meets annually to review and approve salary increases. The minutes
of the meeting, as well as the approved salary increase list are given to A Macdonald.
Z Modise and the employee then sign the appointment letter as evidence of agreeing to
the terms and conditions stated therein. The employee receives a copy and the original is
filed in the personnel files within human resources.

4
Calculation and recording of salaries

J Abrahams is the salary clerk responsible for preparing the monthly calculations of
employees’ salaries. He completes a salary journal containing the date, employee name
and number, gross salary, deductions and net salary. This journal is based on the following:
• A salary report from human resources, which contains all the current salary
information, is used to compile the salary journal.
• A report of employees who already resigned and new appointments is obtained from
human resources and compared with the salary journal to ensure that these
employees were removed.

As soon as the salary journal is finished, T Esau, the Payroll manager compares the salary
journal with the budget. He investigates significant differences (if any) and signs, the salary
journal as evidence of his review. Once the salary journal is compiled, pre-numbered,
individual salary slips for each employee are prepared based on the salary journal. Two
copies are made of each slip. One copy is placed in the personnel files and the other is
given to the employee. J Abrahams indicates the employee’s name and number, the basic
salary, allowances and deductions, as well as the net salary paid on the salary slip. T Esau
reviews the salary slip for accuracy, compares it with the salary journal and signs as
evidence of this. G Van Zyl, the accountant posts the salary journal to the general ledger
each month in order to ensure that the salary expense is complete when the financial
statements are compiled.

Payment of salaries

K Ribeiro is the payment clerk responsible for paying the salaries. He realises that this role
carries a high-risk exposure and therefore ensures that the necessary access controls to
his computer and office are in place. When the salary payments are loaded, he starts by
selecting a few employees to check their details before he continues loading of payments.
He uses a separate suspense bank account to pay salaries and he checks the bank
balance before and after the transfer to ensure that the correct amount was paid over to
FWC employees. He also compares the amount of the transfer to the suspense account
with the total of the net salaries as indicated in the salary journal. As soon as K Ribeiro is
satisfied that the payment was accurately loaded, it is authorised by J Prinsloo to ensure
no delays in payment to the employees.

Refer to next page for required ….

5
REQUIRED

Identify the weakness(es) in the system description of Fast Way Couriers Limited's human
resources cycle using the headings and table format below and make recommendation(s)
to address each weakness. Also describe the consequence(s) of each identified
weakness(es) should it not be addressed. You are ONLY required to address
weakness(es) evident from the information included above.

Present your answer in table format, as indicated below:

Weakness(es) Consequence(s) Recommendation(s)

1. Appointment (9)
2. Calculation and recording of salaries (7)
3. Payment of salaries (8)

Communication skills: Proper formulation of weaknesses (1)

6
QUESTION 2 35 marks

Mr Davids Jnr approached you, as an internal control specialist, to assist him in evaluating
the internal controls at his company. Mr Davids Jnr has taken over as senior manager and
owner of Superbuy (Proprietary) Limited (‘Superbuy’) in Grabouw from his father, Mr
Davids Snr. The Superbuy supermarket has been in the Davids’ family for over 15 years.

Customers pay for all sales at the cash registers counters at the exit of the general store
area. Cash register slips are issued for all the sales. Customers can only pay with cash or
a credit card. Mr Davids Jnr is concerned about the internal controls relating to the petty
cash system and the daily cash-up procedures of the cash registers at the end of the
cashiers’ shifts.

Mr Davids Jnr provided you with the following list of employees who are currently employed
by Superbuy and informed you that the store cannot afford any additional staff.

Name Position
Mr Davids Snr Previous owner that still helps where needed.
Mr Davids Jnr Current owner and senior manager.
Ms September General store manager, also oversees cashiers.
Ms Graham General store assistant.
Mr Jones Senior accountant.
Mr Clarck Junior accountant.
Mr Malan Cashier.
Mrs Malan Cashier.

He further explains how the petty cash system works, as well as the process in place
around the daily cash-up of the cash registers.

Petty cash system

The petty cash is kept in a standard plastic Tupperware™ container in the managers’ office.
The managers’ office is shared by Mr Davids Snr, Mr Davids Jnr and Ms September. A
fixed amount of R2 000 is used as an advance and is topped up at the end of every week.
If the R2 000 float is not enough to cover any expenses at the end of the week, Ms
September will take the needed amount from one of the cash registers and replace it as
soon as the cash from the top-up cheque is received. The money is normally returned to
the cashier on the same day.

Petty cash can only be used to pay expenses less than R200 and only for purchasing
general office supplies and cleaning materials that are not stocked by Superbuy. When
any of these items are needed, Ms Graham will request an advance from Ms September
to purchase the items. Ms September will then take the money requested from the petty
cash container and hand it to Ms Graham, who will then use this advance to purchase the
necessary items. If Ms September is either busy, or not available, Ms Graham will ask
either Mr Davids Jnr or Mr Davids Snr for the money needed. They will then also take
money from the petty cash container and hand it to Ms Graham.

7
Once the purchase has been made, Ms Graham will give the invoice for the items
purchased and any change to the person who she received the advance from. The person
receiving the invoice and the change will check that the change is correct and sign the
invoice to indicate that the expense was authorised and has been paid. He or she will then
place both the signed invoice and the change into the petty cash container.

At the end of each week, Ms September counts the cash in the petty cash container to
determine what the amount of the top-up cheque should be. She then hands a payment
request (that is completed correctly and approved in accordance with the policy of the
company in all aspects) and the invoices to Mr Jones to prepare the top-up cheque.

Daily cash-up procedures at the end of the cashiers’ shifts

At the end of their shifts, Mr and Mrs Malan count the cash in the drawers of their respective
cash registers. Once the cash is counted, they prepare a daily cash-up reconciliation that
reconciles the total cash counted in their respective drawers to the float they received at
the beginning of their shifts and the total of the cash register slips for which cash was
received during their shifts. They attach copies of all the cash register slips to the cash-up
reconciliations and sign the daily cash-up reconciliation he or she prepared. Immediately
after the cash-up reconciliation is finalised, Mr and Mrs Malan place the cash as well as
the daily cash-up reconciliations in a sealable moneybag and hands it over to Ms
September.

Upon receipt of the moneybag, Ms September prepares, based on these two cash-up
reconciliations in the moneybag, a deposit slip in triplicate in the deposit book. Once the
deposit slip is completed, she files the two cash-up reconciliations and the attached cash
register slips in date sequence. She signs the completed deposit slip and then removes
two of the completed copies from the deposit book and places them in the moneybag. Ms
September then seals the moneybag again and places it in a drop safe that is installed in
the accountants’ office. The moneybag is collected from the drop safe and taken to the
bank by a security company on a daily basis. They return the banked-stamped deposit slip
of the previous day’s deposit and hands it to either Mr Jones or Mr Clarck, who then
attaches this returned banked-stamped deposit slip to the previous day’s filed cash-up
reconciliation.

Surprise count

During the course of the past couple of months Superbuy has experienced some cash
shortages. Mr Davids Jnr also asked you to assist him in determining whether the petty
cash or the cash registers are the most probable source of cash being misappropriated.
On your recommendation, Mr Davids Jnr decided to conduct surprise cash counts. He
immediately performed the first of these surprise cash counts of all the cash present at the
Superbuy premises. The following information was obtained and documented during the
count:
• In the general store area, the only cash was the cash in the cash registers. Mr Davids
Jnr pooled all the cash in the cash registers of Mr and Mrs Malan together and counted
it in the presence of both Mr and Mrs Malan. The pooled notes and coins amounted to
R7 010. Mr Davids Jnr calculated (by adding the amounts of all the copies of the cash
register slips kept by the cashiers) that the recorded total of all sales (paid by cash or
credit card) since the start of Mr and Mrs Malan’s shifts amounted to R4 890. Mr Davids
Jnr then added all the amounts of all the copies of the credit card slips issued from the

8
 start of Mr and Mrs Malan’s shifts, which amounted to R2 880. The cashiers each
receive a cash float of R2 500 at the beginning of their shifts.
• In the managers’ office, only the petty cash container contained cash. Mr Davids Jnr
counted the cash in the presence of Ms September. The container contained R294 in
notes and coins. Mr Davids Jnr then calculated the total of all the invoices in the
container that pertained to the period since the last top-up payment was received. This
amounted to R1 456.
• There was no cash in the accountants’ office at the time of the surprise count, since
the security company has already collected the cash in the drop-safe for the daily
deposit.

Mr Davids Jnr asked you to assist him in calculating if all the cash that should be on the
premises was indeed there (as counted) and how he could determine from the information
whether either the petty cash or the cash registers had any cash shortages.

REQUIRED

a) Identify the internal control weakness(es) in the petty cash system and the daily cash-
up procedures at the end of the cashiers’ shifts of Superbuy (Proprietary) Limited. For
each weakness(es), also make recommendations regarding how to address the
identified weakness. Limit your answer to risks relating to the bank and cash cycle.

Use the following table format to answer the question:

Weakness(es) Recommendation(s)

1. Petty cash system (16)

2. Daily cash-up procedures at the end of the cashiers’ shifts (10)

NOTE: You are ONLY required to address weaknesses evident from the
information included above. You DO NOT have to address:
• any internal controls regarding the recording of the petty cash
transactions in the accounting records; and
• any internal controls related to the depositing of cash; thus, you may
assume that all the internal controls related to the deposit slip and those
needed after the moneybag was placed in the drop-safe are adequate; and
• any internal controls related to any surprise counts by management.

Communication skills: Formulation of weaknesses and recommendations (2)

b) Calculate the amount of the total cash shortage identified in the surprise cash count
that Mr Davids Jnr performed and documented. Clearly indicate how much (if any) of
the shortage is attributable to the cash registers and to petty cash, separately. (7)

9
QUESTION 3 20 marks

You have recently been appointed at Pierre Consulting, a firm that specialises in systems
of internal control and organisational risk management. One of Pierre Consulting’s existing
clients is Masks4Us Proprietary Limited (‘Masks4Us’) and you have been asked to assist
one of your colleagues. Your first task is to address concerns raised by Mrs Rona Covid,
the Financial Director, regarding the inventory and production process. Masks4Us, situated
in the Western Cape, manufactures surgical and other masks for sale to wholesalers
across South Africa.

They have recently received a contract to manufacture superhero face masks for children.
This is the first time that Masks4Us is branching out to manufacture mask for children since
their target market was historically adults. The introduction of these masks to the product
range boosted revenue to record levels in the last couple of months since the
announcement of the lockdown period. This means an increase in production and as a
result, additional manufacturing equipment had to be acquired. The directors of Masks4Us
decided to finance the capital acquisition through the issue of one million ordinary shares
at a subscription price of R100 per ordinary share.

The new product and increased sales have resulted in an increase in production and
expansion to the inventory and production process and stores. The raw material needed
in the production of masks includes mainly fabric, filters, and cotton. Masks4Us noted that
there has been a noticeable increase in the number of returns from customers, specifically
of the superhero face mask for children range. Senior management conducted a detailed
investigation into the increased returns and noted the following:

A new storeman, factory workers and a manufacturing manager, Shaun Sanitiser, were
appointed to work in the mask raw material store and manufacturing process. They had
very limited manufacturing and stores experience when they were appointed. It appears
that they are not following the correct procedures.

As a first step in understanding the inventory and production cycle, you obtained the
following extract system description from Mrs Rona Covid:

Inventory and Production Cycle

All raw materials used for manufacture are held in the raw materials store, an access
controlled separate warehouse, adjoining the factory. Based on the approved production
schedule, one of the manufacturing clerks prepares a pre-printed, pre-numbered, raw
material requisition for the raw materials required from the raw material store to
manufacture the masks. The raw material requisition includes the date of request, quantity,
description of the raw materials needed and the authorised signature of the manufacturing
manager, Shaun Sanitiser, after he compared the details with that of the approved
production schedule.

10
The raw material requisition is distributed as follows:
• One copy is sent to the raw material store for the store to prepare the correct
quantity and type of raw materials for dispatching and to update their records
regarding the movement of the raw materials; and
• One copy is held by the manufacturing division as evidence of quantity and type of
raw materials requested.
Shaun Sanitiser, checks the number sequence of the raw material requisitions and
investigate any missing requisitions on a regular basis.

Two storemen in the raw material store, pick and prepare the raw materials for issue to the
manufacturing division and prepare a raw material issue note for the raw materials, which
must be issued and sign as evidence. The raw material issue note includes the despatching
date, quantity, and description of the raw material despatched. The head raw material
storeman only signs the raw material issue note after he compared the approved
production plan, approved raw material requisition note and the raw material issue note
before the raw material is transferred. Any differences, if any, are followed up by the head
raw material storeman before the raw material is transferred.
The raw material issue note is distributed as follows:
• One copy is sent to the manufacturing division for the division to be sure of the
quantity and type of raw materials issued to them by the raw material store;
• One copy is retained in the raw material store as proof of quantity and type of raw
materials issued to the manufacturing division; and
• One copy is sent to the accounting department for updating of the inventory records.

REQUIRED
1. List the internal controls you would expect to be in place around the proposed share
issue used to fund the acquisition of the new equipment. NOTE: You are not
required to address the recording of the share issue or the fixed asset
acquisition in the accounting records. (5)

2. Mrs Rona Covid has requested that you consult on certain aspects of internal control
and assist Masks4Us Proprietary Limited in identifying the weakness(es) in the
extract of the inventory and production cycle. Make recommendation(s) to address
each identified weakness(es) and identify the consequence(s) should each of these
identified weakness(es) not be addressed.

Present your answer in tabular format as indicated below:

Weakness(es) Consequence(s) Recommendation(s)

Inventory and Production cycle (14)

Communication skills: Proper formulation of weaknesses. (1)

11