QUESTION 1 Marks

a) List and describe the function and the objective of the purchases and payments
cycle, that will assist UJ-Land (Pty) Ltd to ensure that purchases are recorded
and paid.

Please note:
Your answer should include the documentation to be used as well as the overall
risk within this function.
Function: Recording of purchases and accounts payable (purchases 1
cycle)
Objective: To raise/account for purchases and the corresponding liability 2
in the accounting records.
Documents to be used:
 Supplier invoice 1
 Purchase orders (PO’s) 1
 Goods received notes (GRN) 1
 Delivery notes (DN) 1
 Purchases Journal 1
 Credit Notes (Disputed invoices and goods returned) 1
Risk: Purchases and the corresponding liability (if applicable), might not 1
be recorded (stock, purchases, creditors) (completeness) or might not be 1
accurately recorded (valuation).
Available marks 11
Maximum 8
Total for Question 1 Part (a) 8

1
b) With reference to the employee not informing Theo Wessels about accidentally
deleting the emails from Made-in-China Ltd, list and describe the function and
objective within the payroll cycle that will deal with the hiring and dismissal of UJ-
Land (Pty) Ltd employees.

Please note:
Your answer should include what this function is responsible for as well as the
applicable risks thereof.
Function: Human resource 1
Objective: All matters within the personnel (staff) department are properly 1
maintained.
The HR function is responsible for:

 Keeping all employee records. 1

 Hiring and dismissal of staff. 1

 Ensuring pay rates and changes thereto are implemented properly. 1

Risks:

 Unsatisfactory or unnecessary employees may be recruited or 1

retained.
 Dismissal of employees for which the correct procedures were not 1
followed.
 There may be staff that are not necessarily needed but are retained 1
because of inefficiencies in the human resources department.
 Employee details could be fraudulently amended to include fictitious 1
employees, or to change the rates of pay applicable to an employee.
 Any other valid risk that makes sense. 1

Available marks 10
Maximum 8
Total for Question 1 Part (b) 8

2
c) As part of your job description to assist Theo Wessels with internal control related
matters, identify and briefly explain the control objectives that the management
of UJ-Land (Pty) Ltd would need to consider when designing internal controls.

Please note:
Your answer should include each control objective individually as well as a
brief discussion of its meaning thereof
The following control objectives should be considered by the management of
UJ-Land when designing internal controls:
Completeness: 1
All valid transactions are recorded, and no transaction is left out. 2
Accuracy: 1
All transactions are recorded at the correct quantity and price (amount) 2
and arithmetically correct.
Cut-off: 1
All transactions are recorded timeously in the correct financial period to 2
which they relate.
Validity: 1
All recorded transactions are valid (actually occurred) and are supported 2
by sufficient documentation and evidence.
Authorisation: 1
All transactions are authorised according to the general and specific 2
policies of management.
Recording: 1
All transactions are recorded in the correct account. 1
Classification: 1
All transactions are classified correctly (according to the nature thereof). 2
Available marks 20
Maximum 15
Total for Question 1 Part (c) 15

3
d) Write a memorandum, addressed to Theo Wessels in which you briefly discuss
the importance and value of internal controls as well as the limitations that
should be considered when designing internal controls for UJ-Land (Pty) Ltd.

MEMORANDUM
To: Mr. Theo Wessels
From: Student
Date: 26 April2019
Subject: Discussion of internal controls – importance, value and limitations

Dear Mr. Theo Wessels

Thank you for the opportunity to provide you with some insights regarding the design
and implementation of internal controls at UJ-Land.

Please refer to my discussion below and if you have any queries; please feel free to
contact me so that we can discuss it.
The importance and value of internal controls
Internal controls are an important function of any business and could be in 1
the form of manual and/or computerized controls. 1
This is because these controls are designed and implemented to prevent, 1
detect and/or correct possible fraud and/or errors. 1
Although internal controls are important and crucial to any business, there
are some limitations in the design and implementation thereof (link the 1
“good of internal controls” to the “limitations” that exist).
Any other valid point (max 1) 1
These can be briefly summarized as follows (limitations):
 Only cost-effective internal controls can be implemented. 1
 Controls are usually directed at routine transactions rather than 1
non-routine transactions.

4
  Potential existence for human error. 1
 Possibility exists for circumvention of controls through collusion. 2
 Person responsible for exercising (executing) a control could 1
abuse that responsibility. E.g. override of controls 1
 Compliance with procedures may deteriorate. 1
Available marks 14
Maximum 8
Professional skills – memorandum format and clarity of expression 2
Total for Question 1 Part (d) 10

e) Explain the concept “segregation of duties” and briefly discuss the benefits
thereof.
Segregation of duties is a very important concept when dealing with 1
controls and internal controls of a business/entity. 1
The principle is that one individual should not be responsible for carrying 1
out and recording a complete transaction.
Hence, limit the risk of fraud and/or error. 1
This is because the level of revision will increase. 1
Available marks 5
Maximum 5
Total for Question 1 Part (e) 3

5
QUESTION 2 Marks
a) Identify business risk indicators and explain the consequent business risks that
UJ-Land (Pty) Ltd is exposed to, as evident from only the extract provided to you
by Theo Wessels (the Financial Manger of UJ-Land (Pty) Ltd).

Please note:
Your answer should include a ranking allocated to each business risk identified.
The ranking should be allocated on a numeric scale, where 1 is the most likely
business risk with the most significant impact.

Please structure your answer in the tabular format as indicated below:

Risk Indicator Risk Explained Ranking
1. The finance team is Risk that revenue is not correctly 1
not familiar with the accounted/recognised in terms of
latest IFRS IFRS i.e. overstatement of
standards on revenue. (1 mark)
revenue recognition.
(1 mark)

Risk indicator Explaining the applicable risk Risk ranking

1. High debt level. 1  There is the risk that Students
interest rates might 1 rating
increase in South Africa
which will lead to higher
monthly debt 1
repayments.
 There is the risk that UJ-
Land might experience
cash flow
problems/difficulties due to 1
increased debt payments. 1

6
  There is the risk that UJ- 1
Land might not be a going
concern due to the high
debt levels should debt 1
repayments increase (due
to increased interest rates
etc.).
2. The potential of 1  There is a risk that the rapid 1 Students
rapid growth. growth might not realize. rating
 Consequently, UJ-Land
might be challenged with
financial difficulties (i.e. 1
not be a going concern).
 There is the risk that the
expected rapid growth is
not sustainable as a result 1
of the infrastructure not 1
being able to support the
growth.
 There is the risk that the
current high “gearing 1
ratio” might limit sources of
external finance to finance 1
the expected high growth 1
rate.
3. The park might be 1  There is a risk that the Students
overcrowded. capacity of the park might 1 rating
be reached due to being
overcrowded and
consequently loss of 1
income.
 There is a risk that an
overcrowded park, might

7
 lead to reputational 1
damage and consequently
loss of income. 1
 There is a risk that an
overcrowded park might
lead to unsatisfied guests 1
with a loss in
income/market share. 1
 There is a risk that the loss
of income (above) might
have a negative effect on
the going concern of UJ- 1
Land.
4. Employees 1  There is a risk that Students
expected to work employees are ‘unhappy’ 1 rating
overtime without or ‘disgruntled’ due to
compensation. overtime worked without 1
compensation.
 There is a risk that
employees might ‘strike’ or 1
‘protest’ due to overtime
not being remunerated and
consequently cause
reputational damage to 1
the brand of UJ-Land and
loss of income. 1
 There is a risk that UJ-Land
could be fined (or penalties 1
imposed) due to
contravention of the
South African Labour Law
(Basic Conditional of
Employment). 1

8
5. Temporary cash 1  There is a risk that UJ-Land Students
flow constraints. cannot meet its debt rating
covenants/debt 1
repayment
responsibilities due to
cash flow constraints.
 There is a risk that UJ-Land
is not a going concern due 1
to cash flow constraints.
6. UJ-Land is a ‘new’ 1  There is the risk that the Students
business. business of UJ-Land is not 1 rating
sustainable, hence not
profitable/loss of income. 1
7. The Risk 1  There is a risk that poor 1 Students
Management risk management could rating
Committee did not result in UJ-Land not
identify, evaluated meeting its objectives 1
and responded to resulting in financial 1
all UJ-Land’s losses.
business risks.  There is the risk that UJ-
Land does not comply with
the King IV Report on 1
Governance as the Risk
Management Committee
appears to be
incompetent/not
knowledgeable enough. 1
 There is the risk that UJ-
Land has a weak corporate 1
governance environment
which make the integrity of 1
management questionable.

9
  There is the risk that other
policies and procedure of
UJ-Land is not adhered to 1
(procurement etc.).
8. Weak general 1  There is a risk that Students
control deliberate acts of fraud go 1 rating
environment/lack undetected due to the lack
in general control of a general control
environment. environment/controls. 1
 There is a risk that the weak
general control 1
environment leads to
application controls
being void. 1
9. Spare parts 1  There is a risk that UJ-Land Students
imported from is exposed to currency 1 rating
China. fluctuations/risk that might
lead to financial losses 1
that could impact negatively
on the sustainability of the 1
business (i.e. going
concern).
10. High dependency 1  There is a risk that UJ-Land Students
on MIC for spare is too dependent on MIC to 1 rating
parts. provide the spare parts
used in their “Thriller” ride
area.
 There is the risk that MIC
could negotiate
unfavorable/unrealistic 1
terms and conditions with
UJ-Land due to UJ-Land’s

10
 business being dependent
on MIC.
11. Unreliable 1  There is a risk that MIC Students
provider (MIC). does not supply services rating
and products to UJ-Land 1
on time resulting in loss of 1
income (i.e. supply risk).
 There is a risk that the
delay in delivery could
hold the risk of danger to 1
the employees/guests of
the park. This could result in
reputational damages and 1
fine/penalties.
 There is the risk that the
roller-coasters might not be
serviced on a regular 1
basis, leading to fatalities 1
etc. UJ-Land might be
exposed to fines/penalties 1
from law suits.
12. Not adhering to 1  There is the risk of fines 1 Students
legislative and and penalties due to non- rating
regulatory compliance with laws and
practice/inspection regulations (NOCLAR).
are scheduled for  There is the risk that
one month after management’s integrity is 1
opening. questionable due to non-
compliance of laws and 1
regulations (NOCLAR).
Available marks 70
Maximum 25
Rankings allocated (at least 3 rankings provided) 3

11
Professional skills – Tabular format 1
Professional skills – Clarity of expression (tie risk indicator to explaining the
risk) 1
Total for Question 2 Part (a) 30

b) With reference to your ranking of the business risks of UJ-Land (Pty) Ltd in Part
(a) above, briefly explain your considerations used to conclude on your number
one ranked risk.
My number one ranked risk is the fact that UJ-Land does not adhere to 1
legislative and regulatory practice/inspection are scheduled for one month
after opening (student MUST link number one ranked risk in Part (a) to the
discussion in Part (b)).
For me to allocate this as the number one risk in my business risk
assessment I have considered the following:
 The main business of UJ-Land is to provide “fun rides” to the park 1
guests.
 If inspections are not regularly conducted it could result in serious 1
injury of guests and even death.
 This could lead to massive law suites and consequent closure of UJ- 1
Land.
Available marks 4
Maximum 3
Professional skills – Clarity of expression 2
Total for Question 2 Part (b) 5

12
QUESTION 3 Marks
a) Advise the Financial Manager of UJ-Land (Pty) Ltd, on the controls you would
recommend to ensure that the SmartLink system is not subject to unauthorised
access via the internet.
The authorized access was mostly likely gained by hackers/hacking the 1
SmartLink system.
Unauthorized access can be managed/prevented by establishing a sound 1
general control environment applicable the information technology i.e. 1
our SmartLink system. The following are controls that can be implemented
to ensure that unauthorized access is not gained to the SmartLink system
going forward:
 A firewall can be implemented that prevents hackers from 1
accessing the SmartLink system.
 All users to the SmartLink system should be required to enter a
username and password prior to gaining access the system. 1
 The SmartLink system should, after for example 3 unsuccessful
login attempts, log a user out to the system. 1
 The SmartLink system should allow access into the system on a
least privileges basis, where each user has sufficient access to 1
only perform their duties and nothing else. 1
 The SmartLink system should make use of multi-level passwords 1
to ensure that access to the system is as sound as possible.
 The SmartLink system should also have Terminal Identification 1
Numbers (TINS) that validate the terminal attempting to gain 1
access to the system prior to allowing that terminal to process on 1
the system.
 The SmartLink system should log all unsuccessful attempts of entry 1
into the system and record the IP address of the terminal attempting 1
to access the system. This allows for investigation into the 1
attempted system break-in.
 Any other valid control Max 1
Available marks 16
Maximum 10

13
Total for Question 3 Part (a) 15

b) List the general controls that you would expect UJ-Land (Pty) Ltd, to have
implemented in their SmartLink Computer Information Systems.

The following are the general controls that I would expect UJ-Land (Pty) Ltd to
have implemented in their SmartLink Computer Information System:
 System development and implementation controls. 1
 System maintenance controls. 1
 Organisational and management controls. 1
 Access controls to data and programs. 1
 Computer operating controls. 1
 System software controls. 1
 Business continuity controls. 1
Available marks 7
Maximum 5
Total for Question 3 Part (b) 6

*****END*****

14