UNIVERSITY OF LIMPOPO

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY

DEGREE AND DIPLOMA EXAMINATIONS

MODULE: CAUC031 TEST 2 :2021

TIME: 2 HOURS MARKS : 80

INTERNAL EXAMINER: MS T KOZA

THIS MEMORANDUM CONSISTS OF 10 PAGES INCLUDING COVER PAGE

1|Page
QUESTION 1
YOU ARE REQUIRED TO:
1.1 . Describe the internal controls that can be implemented to minimise the risks listed 15
above
And
List the internal control objective(s) for financial reporting affected by each of the
risks listed above.

You are required to present your answer in the tabular format below:
Risk Internal Control Control Objective(s)
1
Presentation Skills: Structure and Layout

Risk internal control Control objective

R1 Supervisory checks should be carried out by the 1 Validity 1
warehouse foreman to ensure that all goods
picked are supported by picking slips and should
1
sign the picking slips

R2 On receipt of the goods, picking slip and delivery 1 Validity 1

notes from the warehouse, the despatch clerk Accuracy 1
should check quantities and descriptions of
1
goods against the authorised picking slip and
delivery note.
Despatch clerk does not accept any of the goods
that are not indicated on the picking slip and; 1
Follows up on any missing items/goods. 1

A despatch bay exists, consisting of well-defined, 1

separate area of the warehouse fenced off with
physical access controls.

There should be segregation of duties between 1

the person picking the goods and the one
dispatching the goods.
R3 The invoice clerk should prepare a numerically 1 Completeness 1
sequenced invoice and cross-reference it to the
delivery note/customer order.

The file of delivery notes matched against sales 1

invoices should be sequence tested and gaps in
sequence investigated.

2
R4 Prior to entry in the sales journal, invoices should 1 Accuracy and 1
be added to obtain a control total. validity 1
This control total should then be compared to the 1
total in the sales journal after entry of individual
invoices.

R5 Completeness 1

All payments received in the post should be

recorded in a remittance register and a pre- 1
numbered receipt should be made out for each 1
payment received.

1
All amounts received should be banked daily.
Available 22
Maximum 15
Presentation Skills: Structure and Layout 1

YOU ARE REQUIRED TO:

1.2 Why is it important to restrict access to a bank account in a computerised system? 4

Destruction of data: The internet bank account itself or account details could be deleted. 1
“Theft” of data: Bank account details could be stolen and abused. 1
Improper changes to data: Payment beneficiaries’ details could be changed in order to 1
channel payments to unauthorised accounts.
Recording of unauthorised or nonexistent transactions: 1
Unauthorised transfers of money could be done. 1
Available 5
Maximum 4

1.3 Describe the access controls that should be implemented to ensure good control 4
over a bank account.

The terminal onto which the bank’s software is loaded should be in the debtors’ section, 1
usually the terminal of the senior debtors’ clerk.
1
Access to the bank’s site should be gained in the normal manner, but to access the 1
company’s bank account, the senior debtors’ clerk should be required to enter a 1
username and a password.
The system should automatically shut down after several failed attempts to login e.g. 1
system should be configured to shut down after 3 unsuccessful attempts.
System should shut down if inactive for a certain period of time. 1
Available 6
Maximum 4

3
4
1.4 Provide a list of good password controls which can form part of access controls over 5
a bank account.

Password should be minimum length e.g. at least five character. 1

Password should be unique. 1
Password should be changed regularly. 1
Passwords should not be displayed on the computer or elsewhere. 1
Employees should be prohibited from disclosing password and disciplinary measures 1
should be taken if not comply
Cancelled on dismissal/resignation 1
New employee that accesses the system for the first time should be prompted to change 1
password
With a combination of alphanumeric and other characters (&*#@) 1
Password files should be subject to strict access controls 1
Available 10
Maximum 5

QUESTION 2

YOU ARE REQUIRED TO:

2. Identify the weaknesses in the payments system described in the memorandum 25
above by John Jonas.
And
Describe the risk (what can go wrong) for each identified weakness.

NOTE: You are NOT required to make recommendation.

You are required to present your answer in the tabular format below:
Weakness (10 Marks) Risk (16 Marks)

Adapted: Graded Questions on Auditing

Weakness Risk
The invoices received from suppliers are 1 Mega Bricks Mankweng (Pty) Ltd could
not matched to any other documents be paying for goods which were:
e.g. internal order, supplier delivery note 1.1 Never ordered or never delivered 1
or goods received note.
1.2 Incorrect in terms of description, 1
quantity or price.
Invoices received from suppliers are not
1 Some invoices received may remain 1
recorded on a register.
unpaid.
No recalculation of the invoice is 1 This may result in inaccurate payments 1
performed before the amount/invoice is and under recovery of VAT.
recorded.
(e.g casts, extensions, calculations and
VAT)
The quantities of the goods per the invoice 1 1
5
is not compared to the GRN.
The unit prices on the invoice is not
compared to the purchase order.
Before the invoice/statement amount is
paid (goods paid for) there is no check to
confirm that the purchase was authorised.
Or even that the goods purchased are of a
type used by Mega Bricks Mankweng (Pty)
Ltd.
The full amount as reflected on the
statement is paid, even where no invoice
has been received.
This may result in inaccurate recording in
1 the accounting records.
1 If nobody checks the above, the risk that 1
employees are purchasing goods for
themselves and having the company pay,
is significantly increased
1
1 Mega Bricks Mankweng (Pty) Ltd may be 1
paying for goods incorrectly charged to
them.

This problem is increased by the fact that 1

nobody seems to follow up on whether an
invoice was subsequently received
No supplier statement reconciliation is 1 Payment to fictitious 1
prepared before the payment is made to creditors.
ensure the correct amount is paid. Payment of incorrect 1
Also following on this is that nobody amounts.
reviews and approves this reconciliation 1 Unauthorised payments.
and the amount paid to suppliers. 1
Discounts lost due to late payments. 1
Unusual items will not be identified or
followed up resulting in payments made 1
for goods not delivered to us or goods
sent back by us.

Mega Bricks Mankweng (Pty) Ltd could 1

be paying for goods which were ordered
or never delivered.
No creditor’s ledger appears to be 1 No reconciliations can be 1
maintained. performed (creditors
reconciliation or creditors
statement reconciliation)
since we do not have an
accurate record of
purchases and payments
(and related adjustments).
Mary Mahlangu does not agree the 1 This substantially 1
amounts to be paid to creditors to any increases the risk of invalid
supporting documentation. payments to creditors as
Cameron Mkhize could
easily add a fictitious
creditor to the list from
6
 which Mary Mahlangu
writes out cheques.
She may also simply make 1
errors in the amounts to be
paid.

As Mary Mahlangu does 1

not see the supporting
documentation, she is
unable to stamp it
“cancelled” or “paid”,
making is easier for
Cameron Mkhize to extract
invalid payments.

There is insufficient control over 1 Fictitious payments can be 1

payments made by EFT. made by Mary Mahlangu.

(In effect there is only one “signature” 1 Making fictitious payments 1

required to access the company’s bank is made even easier for
account and transfer funds, i.e. Mary Mary Mahlangu because
Mahlangu.)
she creates and maintains
bank details etc for
EFTs are made without supporting 1 payees.
documentation and can be made by Mary
Mahlangu at any time and for any
payment.

1
The fact that Cameron Mkhize carries out
on screen random tests is no control at
all.
Furthermore, nobody at any stage (before 1
or after the payment) checks
whether payments to creditors or others
are valid.

There appears to be no review of the 1 Dean Twala is “solely” 1

cashbook carried out by “management” responsible for
e.g. reviewed for missing cheque maintaining the cashbook:
7
numbers, unusual payments. With no independent
review of his work, he has 1
the opportunity to cover up
misappropriation,
particularly if he is
colluding with another
member(s) of the
accounting department.

1
Payments may be
intentionally misstated to
hide fraud.

Payments may be 1
recorded inaccurately
(errors).

1
Payments may not be
recorded at all.
No segregation of duties between 1 There is a risk that 1
employees employees are purchasing
goods for themselves and
having the company pay.
Payments can be made to 1
fictitious creditors.

Payments of incorrect amounts can 1

be made.

Unauthorised payments may take place. 1

Cheques may be
incorrectly made out (e.g.
wrong payee, amount).

None of the accounting employees 1 This results in a lack of 1

appear to acknowledge (by signing) any
control procedures they carry out.
isolation of responsibilities
e.g. by not signing the
creditors list, Cameron
Mkhize can claim that any

8
 alterations to it, were not
authorised or made by her.
Almost total lack of involvement of senior 1 The lack of this 1
personnel/owner. involvement weakens the
control environment
considerably and
facilitates fraud and
collusion
Available 20 Available 29
Maximum 10 Maximum 16

QUESTION 3

YOU ARE REQUIRED TO:

3.1 Identify the weaknesses in the year-end inventory count, based on all the 16
information given above.

Communication Skills: Clarity of Expression 1

Preparation and planning of the count was inadequate (no count planning meeting held). 1

Segregation of duties: Staff members were not assigned to the different functions that has 1
to be performed (i.e. inventory count controller, supervisor and counters.)

Detailed instructions for the different functions were not communicated to all staff 1
members involved in the inventory count.

The timing of the count was not appropriate. During trading hours 1

The method of counting was inadequate; no tag system or double count. 1

Floor area is not sketched as to plan the way the count was to be conducted. 1

Amendments were done without authority or investigation. 1

There is no evidence that the warehouse was prepared for the count; although it is “tidy”, a 1
number of procedures should have taken place.
 Marking damaged, slow moving obsolete goods. 1
 Preparing a secure area for deliveries to be received during the count. 1
 Areas are not numbered according to the prepared plan/sketch. 1
Count stationery was inadequately designed and incomplete. 1

No inventory control sheet or register to record the number of sheet issued and to whom it 1
9
was issued.
There is no mention of whether the inventory sheets have been made in pen (permanent 1
ink).
The inventory sheets does not have columns for second count and discrepancies. 1

There are no inventory adjustment forms on which count differences/adjustments/results of 1

investigation can be entered for authorization before the inventory records are adjusted.
Abovementioned adjustments have not been authorised prior to being made. 1

Open spaces on the inventory sheets should have been cancelled. 1

Inventory only counted once. 1

No recount by another counter when a discrepancy identified. 1

No identification and recording of slow moving, expired, damaged or consignment inventory. 1

No count controller, so no walk through of the warehouse once the count is complete, and 1
no method of determining whether all inventory has been counted.
No procedures conducted to ensure that goods received or dispatched during the count 1
were properly accounted for.
The numerical sequence of the inventory sheets were not inspected after the count had 1
taken place to ensure that all sheets have been returned.
Inventory sheets were not signed by the staff members after the count was conducted. 1

Available 25
Maximum 16
Communication Skills: Clarity of Expression 1

3.2 8
List and explain four types of test of controls that auditors can use when testing
internal controls.
Present your answer in a tabular format as follows:

Type of Test of Control Explanation

4 Marks 4 Marks

Type of Audit Procedure Explanation

Inspection 1 Inspection consists of examining records, 1

documents (physical or electronic files), or
tangible physical assets.

Observation 1 Observation consists of looking at a process or 1

procedure being performed by the client's
staff.

Inquiry 1 Inquiry consists of seeking information of 1

10
 knowledgeable persons inside or outside the
entity.

Enquiries may range from formal written 1

enquiries addressed to third parties, to
informal oral inquiries addressed to persons
inside the entity.

Reperformance 1 Reperformance involves the auditor 1

independently executing (carrying out)
procedures and controls which were originally
performed as part of the entity’s internal
controls.

Recalculation 1 Recalculation consists of checking manually or 1

electronically the arithmetical accuracy of
documents or records to confirm that the
control is working effectively.

Available 5 Available 6
Maximum Maximum
4 4

11