179

Assertion at transaction and events for a period

Completeness, occurrence, cut off, allocation, accuracy, existence, AEIOU

1. Obtain ledgers and ascertain monthly donations have been received and they pertain to
Insects4U co - occurrence
2. Obtain the bank statements and match with income statements to verify each donation is
recorded
3. Ensure monthly donations are recorded in the appropriate accounting period
4. Inquiry from the post office that total number of post received have been dispatched to
insects4u co correctly
5. Inspect the post office and observe how mails received are handled, to ensure none goes
missing or sent to the wrong location

Assertion at account balances

Existence, rights & obligation, completeness, AEIOU

1. Obtain a schedule of trade payables and match with ledgers

2. Go through payables and ascertain if account balances have been recorded in the appropriate
accounting period
3. Obtain a schedule of the purchases invoice to ascertain all account balances have been recorded

Assertion at account balances

Existence, rights & obligation, completeness, AEIOU

1. Obtain a schedule of trade receivables and match with the ledgers to ensure all account
balances have been recorded
2. Analyze the trade receivables and compare with the previous period
3. Recalculate allowance for trade receivable
4. Confirm that receivables actually exist and that they pertain to spider spirals co
5. Recalculate trade receivables days and compare with the previous period
180 Elounda

Substantive procedures for revaluation of PPE

1. Obtain a schedule of non-current assets

2. Inspect these assets to verify that they exist
3. Inspect the documents to ensure that Elounda actuall own these asset
4. Re calculate the revaluations on Elounda’s PPE, the auditor can also seek and
independent/external professional to revalue these assets
5. Inspect the books to there are no uncompleted records and all account balances have occurred
and pertain to Elounda
6. Ensure the records are recorded in the appropriate accounting period

Substantive procedures for inventory valuation

1. Obtain a schedule of inventory and re cast the amount

2. Inspect the books to find out if Elounda made provisions for the loss of 320K and it was recorded
in the appropriate accounts/books.
3. Inspect the inventory for obsolete goods
4. Ensure that all transactions are recorded properly and there are no unrecorded transactions
5. Observe how the mixture for compound E243 is done, if the right chemicals are always mixed in
the right amount
6. Rights and obligations: enquire and inspect Elounda books to ascertain ownership of inventories

Substantive procedures for bank loans

1. Obtain a schedule of Elounda’s bank statement

2. Perform recalculations on repayment of loans with interest
3. Enquire from the management the reason for the late repayments
4. Inspect records to find out if the loans were repaid in the right accounting period
5. Inspect to ensure repayments of loans quarterly were the right amount and pertain to Elounda
6. Make sure there are no unrecorded transactions

182 Hawthorn

Four assertions to classes of transactions and events

1. Occurrence: transactions recorded must have occurred and pertain to the entity
2. Completeness: all transactions must be recorded
3. Cut off: transactions should be recorded in the right accounting period
4. Classification: to ensure transactions are recorded in the correct accounts
Substantive procedure for Revenue

1. Obtain a schedule of ledgers

2. Inspect the accounts,/books/documents to ensure transactions recorded actually happened and
pertain to the entity
3. Inspect the accounts/books that all transactions have been recorded
4. Enquire about the credit system for customers to ensure no customer has exceeded the limit
and not owing
5. Inspect goods dispatch notes and invoices
6. Ensure transactions are recorded in the right ledger accounts/book

Substantive procedures for Receivables

1. Obtain a schedule of receivables and cast amount to ledgers

2. Analyze the year-end balance and compare with the precious year
3. Inspect the accounts to ensure Hawthorn own these receivables and that they exist
4. perform a recalculation of receivables
5. employ the services of an external independent accountant to value the receivables
6. there are no unrecorded account balances

Substantive procedures for supplier statement reconciliations

1. obtain a schedule of account payables and cast off with ledger balances
2. obtain monthly statements and match against/with goods received note and invoices
3. enquire from the management reason why invoices have not been reconciled with payables
ledger
4. inspect warehouse or good received with goods received note and requisition form to ascertain
if they belong Hawthron Enterprises Co

183 Rose Leisure Club

Code of conduct and Ethics

1. independence/objectivity: auditor must be free from bias, control and influence from others
2. integrity: the auditor must be honest and straight forward in all dealings
3. confidentiality: auditor should not disclose client’s information or use to personal advantage
4. professional behavior: auditor must adhere to all laws and regulations and must not act in a
way to discredit ACCA
5. professional competence and due care: have relevant skills to execute his job as well as findings
ways to improve
substantive procedures for trade payables and accruals

1. obtain a schedule of trade payables and cast off

2. obtain and inspect a sample of purchase ledger and invoice to ascertain they are recorded in the
right accounting period
3. enquire from Rose’s finance director how the error occurred

substantive procedures for receivables

1. obtain a schedule of Rose’s receivables and cast off

2. enquire of the credit limit given to each company

185 cinnamon

Steps to accepting an audit

1. ensure there is no threat to ACCA code of conduct and ethics

2. professional clearance: both incoming and outgoing audit firms should obtain permission from
the client to communicate, if refused, there is a threat to independence/objectivity
3. client integrity and reputation: obtain reference about the client, is the client honest and
straightforward
4. competence: as the audit firm, do we have the relevant resources, materials and competent
staff to conduct the audit
5. risk assessment: understand the nature of the entity and determine if there are control risks

Preconditions to an Audit

1. determine whether the financial reporting framework to be applied in preparing the financial
statements is acceptable
2. ensure that management acknowledges and understands its responsibilities in the following:
 preparing the financial statements in all material respect using applicable fincial
reporting framework
 implementing and maintaining an effective internal control system
 provide unrestricted access to relevant information needed by the audit firm and assign
an employee to assist the firm
four matters included in an audit engagement letter

1. objective of the Audit

2. audit scope and timing
3. preconditions of accepting an audit engagement
4. responsibilities of audit firm and client

quality control procedures to ensure efficient and effective audit

1. assign a more experienced and competent staff to the audit team

2. delegate audit work to each team member
3. independent review of work done by audit team

ethical threats and safeguards

S/N Threats Safeguard

1 Salt and pepper have not contacted Cinnamon’s previous
auditors
There is a possibility of threat to independence/objectivity
as salt and pepper have not gained professional
handshake/knowledge and permanent audit papers
2 One of salt and pepper existing client has proposed that
this year’s audit fee should be based on a percentage of
their final pre tax profit
Salt and pepper should obtain
permission from cinnamon to
contact the previous audit firm
Salt and pepper should turn down
this offer and should discuss it
with the client’s audit committee

Self interest threat: salt and pepper may not carry out
comprehensive audit and/or turn a blind eye to potential
items that may be material so as not to affect cinnamon’s
pre tax profit
3

1. yes, no, yes, no

2. c
3.
4. C
5. D and E
6. C
7. B
8. B
9. Rule, conceptual, conceptual, rule
 10. A and E
11. A
12. C
13. B
14. Familiarity, self interest
15. C
16. C
17. A
18. False, false, false
19. A
20. C
21. A
22. Deficiency, strength, deficiency
23. 1–D, 2-C
24. False, true, trues
25. D
26. 2-D
27. 2-C
28. Self review, advocacy, advocacy
29. C
30. B

151 prancer construction

A) Preconditions
1. Determine whether the financial statements to be prepared in accordance with relevant
financial framework will be accepted
2. Ensure that the management of prance construction acknowledges and understands its
responsibilities in the following
a. Prepare the financial statements in all material respect free from misstatement due to
fraud and error with applicable financial reporting framework
b. implement and maintain an effective internal control system
c. provide the auditor with unrestricted access to information necessary in performing the
audit and a staff to assist

152 hurling

A. Audit risk is the risk that an audit will give an inappropriate opinion about the subject matter
Inherent risk: is the susceptibility about an assertion of transactions, account balances or
disclose to misstatement that could be material before considerations of related controls
 Control risk: is the risk of a misstatement that could occur and could be material will not be
prevented or detected and corrected on a timely basis by the entity’s internal control system
Detection risk: risk that an auditor will not find a material misstatement in the client’s financial
records

B. Audit risks and responses

S/N Audit risks Responses

1 During the year the finance director has increased Discuss with the management of hurling
the useful lives of fixtures and fittings from 3 to 4 co about the rationale for increasing the
years useful lives of fixtures and fittings

Profit can be overstated An independent valuer should revalue

fixtures and fittings

C. Ethical threats and safeguards

S/N THREATS SAFEGUARDS

1 Intimidation threat Caving & co should discuss with the
management of hurling co that the audit
Hurling co has asked the auditor if the audit could cannot be rushed and the firm will take
be completed in a shorter timescale it’s time to perform the audit

Caving & co should resign from the audit

2 Advocacy threat
Hurling co has enquired if the partners at caving &
co can help in recruiting a new NED
if intimidation continues
Caving & co can only prepare a shortlist
of candidates for the NED position but
cannot select a NED

3 Self-review threat

Caving & co provides taxation service for Hurling co.

this is a self-review threat because caving & co is
also the auditor and will not want to
4 Self-interest threat

The finance director of hurling co has recommended

the audit fee should be based on the company’s
profit before tax and 20% of last year’s audit fee is
still outstanding
 31. A
32. B and E
33.
34. Consistent, not consistent, not consistent
35. 2-A, 3-F, 1-B
36. 34.8days, 31.5days, 21.6days, 2.8
37. A
38. D
39. A and C
40. C
41. A
42. True, true, true, false
43. C
44. B
45. True, false, true, true
46. 44%, 46.7%, 4%, 12.7%
47. 90.5days, 48.7days, 83.4days, 54.8days
48. B, F, E
49. B and C
50. True, false
51. C
52.
53. A
54. ICQ, NN, ICQ, NN
55. SP, TC, SP, TC
56. 4-B, 2-C, 1-A, 3-D
57. A and D
58. D and E
59. B
60. True, false, false, true

153 centipede

1. Ensure there is no threat to ACCA code of ethics

2. Professional clearance: Ant & co should obtain permission from centipede co to communicate
with the outgoing audit requesting for permanent files and ask whether there is threat to
objectivity
The outgoing auditor should also obtain permission from centipede co to communicate with Ant
& co. if permission is not given, Ant & co should not accept the audit
3. risk assessment of centipede co by understanding the nature of the entity and its environment
4. preconditions to accepting an audit
 a. determine whether the financial reporting framework to be used in preparing the financial
statements is acceptable
b. obtain an agreement from centipede co management that it acknowledges and understands
its responsibility in the following
 preparing the financial statements in all material respect with relevant applicable
financial reporting framework
 implements and maintains and effective internal control system to prevent or detect
material misstatement due to fraud or error
 provide auditor with unrestricted access to information relevant in performing the
audit and a personnel to assist the auditor
5. integrity and reputation of centipede co: ensure centipede co is honesty and straightforward
and not involved in money laundering act or financing terrorists
6. professional competence: Ant & co must ensure they have the relevant resources to carry out
the audit ie materials and competent/skilled staffs

B ratios

Gross profit margin: gross profit/revenue * 100%

20x6: 9,390/25,230*100% = 37.2%

20x5: 7,165/21,180*100% = 33.8%

Operating profit margin: operating profit/revenue * 100%

20x6: 4,487/25,230*100% = 17.8%

20x5: 3,920/21,180*100% = 18.5%

Inventory days: inventory/cost of sales * 365days

20x6: 2,360/15,840*365days = 54.3days

20x5: 1,800/14,015*365days = 46.9days

Trade receivables days: trade receivables/revenue * 365days

20x6: 1,590/25,230*365days = 23days

20x5: 1,250/21,180*365days = 21.5days

Trade payables days: trade payables/cost of sales * 365days

20x6: 3,500/15,840*365days = 80.6days

20x5: 2,800/14,015*365days = 72.9days

Quick ratio: current asset – inventory/current liabilities

20x6: 1,590/(3500+580) = 0.4

20x5: (1,250+480)/2,800 = 0.6

Current ratio: current assets/current liabilities

20x6: (2,360+1,590)/(3,500+580) = 0.97

20x5: (1,800+1,250+480)/2800 = 1.3

D safe guards to conflict of interest

1. inform both centipede co and their rival that Ant & co acts on their behalf and seek consent to
continue
2. use separate audit teams
3. confidentiality agreements should be signed by all audit team members
4. limit access to client’s information

C audit risk and responses

S/N Audit risk Auditor’s response

1 Centipede co is a new audit client
This may lead to detection risk as Ant & co may
not understand the financial practices used by
centipede co
2 Inventory records were consistently higher than
the physical inventory in the warehouse
Bring in more experienced staff to the audit
team
Obtain good understanding of centipede co
and its environment and financial
framework or polices

Inventory will be overstated, inventory days,

current and quick ratio will be lower, centipede
co cannot cover it’s current liabilities
3 Audit assistant noted that there were some Ant & co needs to revalue obsolete
lines of inventory that were at least 90days old inventories and inform the management of
centipede co to make proper adjustment
Inventory will be overstated due to Obsolete
 inventory
4 Rather than full year inventory count, company Auditor should discuss with the
undertakes monthly counts covering one- management of centipede co the reason for
twelfth of all lines monthly this decision and advise them to do a full
count every month
This is lead to centipede co having outdated
amount of inventory and losing track of stock
coming in and going out
5 Ant & co did not visit the four additional sites Auditors should inspect all the additional
were accounting records are maintained sites and perform substantive procedures in
gathering and evaluating audit evidences
This will lead to increase in detection risk and
difficult to ascertain if the financial statements
are free from material misstatements
6 One of centipede co customer has commenced Ensure that provision made is in accordance
legal action against centipede co with IAS 37 contingent assets and liabilities

Provisions made by centipede co may

overstate/understate both profit or loss
statement and financial position statement
7 Discuss with the management of centipede
Breach in laws and regulation co that they must adhere to local laws and
regulations, make adjustments and disclose
the names of the directors and amount of
remuneration payable to each director

157 sycamore

A maples & co responsibilities in relation to the prevention and detection of fraud and error

1. maples & co is not responsible for preventing and detection material misstatement due to fraud
or error
2. maples & co should obtain reasonable assurance that the financial statement is free from
material misstatement due to fraud and error
3. maples & co should maintain professional skepticism, always have a questioning mind and
question everything
4. maples & co should perform audit procedures to detect material misstatement due to fraud and
error
B audit risks and auditor’s response
S/N Audit risk
1 Sycamore’s previous finance director had been
claiming fraudulent expenses from the company
for a significant period of time
There is a control risk, this shows Sycamore’s
internal control systems are not effective
This will lead to profits being understated or
misstated
2 a new finance director was appointed
there is a change in senior management of
sycamore
3 The draft financial statements show the full
amount of $1.8m within intangible assets
IAS 16 property plant and equipment: assets must
be recognized at only cost to acquire and prepare
them for economic benefits
Sycamore may have included some costs in the
PPE which should have been expenses
This will cause PPE to be overstated
4 A loan of $2m was borrowed from the bank and
the bank has attached minimum profit targets as
part of the loan covenants
This may cause sycamore to overstate profits to
show the bank that they can repay the loan
5 During the inventory count, movement of goods
in and out the warehouse did not seem well
controlled
There is a control risk and will cause inventory to
be misstated.
There is always a possibility of goods being stolen
by staffs
6 Surplus plant was sold for a profit of $210,000
Response
Observe the controls if there is
segregation od duties
Inspect documents(requisition forms) to
verify authorization and approval of
transactions
Re-Perform procedures for making an
expenses
Revise engagement letter
Obtain and review a breakdown of cost
incurred on these projects
Ensure that costs incurred occurred and
pertain to sycamore and are all recorded
Discuss with the management to make
proper classification of costs
Review the loan agreement
Discuss and advise the management of
sycamore to revise the loan agreement
with the bank for a change of terms
Inspect the goods received and dispatched
notes and compare with inventory list if
they are updated frequently
Observe sycamore control procedures for
moving goods In and out the warehouse
Obtain a list of PPE and ensure assets are
owned by sycamore
Inspect financial statement if the proper
classification of profit was done
 Inspect the invoice
7 Goods worth $0.5m were returned

There can be cut off in revenue

Profits can be overstated

Inventory can be understated

C quality control procedures

1. maples and co should have a senior member of the team to constantly review work done and
report to the audit manager and partner
2. independent review of work done by each member of the audit team

Purpose of a review engagement is to express a negative opinion about a set of financial statements,
less detained audit procedures is done in other to reach a conclusion

Purpose of external audit is to increase the degree of confidence of the financial statements intended
users and gives a positive review

External audits gives a high level of assurance or a reasonable but not absolute assurance ie risk of
material misstatement has been reduced to an acceptably low level.

Review engagements gives a moderate level of assurance

158 recorder communications

A importance of audit planning

1. ensures adequate attention is given to important areas of the audit

2. identifies a suitable audit approach
3. identifies potential problem areas on time
4. enhances communication and understanding between audit team members
5. lays out the scope, timing and direction of the audit
B audit risks and auditor’s response
S/N Audit risks
1 Recorder is a new client
There is detection risk because the audit firm
has no knowledge of accounting policies,
transactions and balances used by Recorder
2 Recorder has a number of older models in
inventory
IAS 2 inventories state that inventory should be
carried at lower of cost or net realizable value
Risk of inventory being overstated as these
older models have to be sold at a significant
discount
3 Revenue has increased by 15% due to bonus
based on sales
Profits may be overstated because some of
these sales may be fictitious or made to
customers with poor credit
There is also a potential risk of revenue cut off
4 Level of receivables is higher than last year and
there are concerns about creditworthiness of
some customers
Increase in receivables indicates more
customers owing recorder which could
potentially lead to a loss of revenue
Profits is overstated and receivables may be
understated
5 Recorder has a policy of revaluing land and
buildings
IAS 16 PPE
Land and buildings may be misstated if
revaluation is not done correctly
6 Separate disclosure of bonus is required by local
legislation
Auditors response
Set out time for audit team members to gain
understanding of the company and its
environment
Discuss with the management of Recorder
and inquire about their accounting policies
Inspect the list of inventories to determine
how many old model phones are in stock
Instruct management of recorder to revalue
them to the discounted price
Obtain the sales report for a breakdown of
credit and cash sales
Discuss with the management if there is an
effective credit department to customers
with bad credit are given products
Compare receivables of the current year
with last year’s receivables
Inquire of management of recorder if there
is credit limit for customers and how often it
is revised
Discuss with the management of recorder
the rationale behind revaluing land and
buildings
Inspect previous PPE disposed or owned to
determine consistency in revaluations
Bring in an independent valuer to value land
and buildings
Review local laws and regulation to
determine of disclosure is necessary
 Breach of laws and regulations which could Inspect the books and records of recorder if
result in a fine relevant financial reporting framework has
been applied
7

C audit procedures to place reliance on continuous counts for year end inventory

1. piano & co should attend the year-end inventory count

2. observe how the inventory count is performed
3. obtain goods dispatch notes and goods received notes, compare with invoice/requisition forms

D substantive procedures to confirm director’s bonus payment

1. re perform a calculation of bonus payments

2. enquiry of management on what the bonus is based on
3. obtain a schedule of salaries, wages and bonuses of the directors
4. inspect the accounts to ensure there are no unrecorded transactions
5. obtain a signed copy of approved directors bonus payment to ensure it was authorized by the
remuneration committee and not the directors

61. C
62. Application, general, general, application
63. A
64. C
65. C
66. C
67. C
68.
69. B and C
70. Completeness, occurrence, occurrence, accuracy
71. A, B, C
72. A
73. B
74. C
75. Test, software, software, test
76. A
77. C and D
78. B and E
 79. Test of control, S.P., S.P.
80. A
81. C
82. C, D, E
83. A
84. 1 and 2
85. 1-B, 3-D, 2-C
86. 1-B, 2-C, 3-C, 4-D
87. C
88. D
89. C, D, E
90. A

159 kangaroo construction

Gross profit margin: gross profit/revenue * 100%

20x3: 5.5/12.5*100% = 44%

20x2: 7.0/15*100% = 46.7%

Operating profit margin: PBIT/revenue * 100%

20x3: 0.5/12.5*100% = 4%

20x2: 1.9/15*100% = 12.7%

Inventory day: inventory/cost of sales * 365days

20x3: 1.9/7*365days = 99.1days

20x2: 1.4/8*365days = 63.9days

Receivable days: receivables/revenue * 365days

20x3: 3.1/12.5*365days = 90.5days

20x2: 2.0/15*365days = 48.7days

Trade payables days: trade payable/cost of sales * 365days

20x3: 1.6/7*365days = 83.4days

20x2: 1.2/8*365days = 54.8days
Current ratio: current assets/current liabilities
20x3: (1.9+3.1+0.8)/(1.6+1) = 2.2 times
20x2: (1.4+2+1.9)/1.2 = 4.4 times
Audit risks
S/N Audit risk
1 Kangaroo specializes in building houses and
provides a 5year building warranty to its
customers
There is a risk of provisions being under or
overstated or no provision made for warranty
2 House prices have fallen and revenue has
dropped
Kangaroo may hold some inventories of buildings
or building materials
Risk of assets being overvalued, kangaroo may
not want to mark to market these assets
3 Management has offered significantly extended
credit terms to their customers
This may lead to increase in receivables, profits
being overstated and receivables under or over
stated
4 Cash flow issues alleviated due to $5000 deposit
Cut off in revenue because it is refunded
Profits can be overstated
5 Directors extended the useful lives of plant and
machinery from 3 years to 5 years
Kangaroo may have done this to show
profitability during the difficult year
Risk of profit being overstated
6 Directors borrowed $1million from the bank
Response
Discuss with management of Kangaroo
about provisions for warranty
Review the financial statements if it was
disclosed
Obtain a schedule of assets, inspect the
financial statements if assets have been
valued in accordance to IAS 2 and 16
Discuss with the management of kangaroo
and financial director on the credit terms
and limits given to each customer
External information on credit worthiness
of kangaroo’s customers
Perform detail cut off testing of cash
flow/revenue
Review post year end cash book journal on
total cash inflow
Discuss with kangaroo management the
rationale behind this decision
Obtain a schedule of PPE, compare with
previous years to determine consistency
of increasing useful lives of PPE
Review the financial statements if
disclosure of increasing useful lives of PPE
is in accordance with IAS 16
Obtain and review the bank balance
 during the year
7 Directors need to meet a target profit before
interest and taxation of $0.5 million in order to
be paid their annual bonus
The directors may do a lot of things to achieve
that result, cut back on expenses, fictitious
revenue, extend payables, wrong accounting
entries, not recording certain transactions
statement if kangaroo is capable of
repaying the loan
Discuss with management of kangaroo the
rationale behind this decision
Engagement team members must
maintain professional skepticism and be
alert to risk of material misstatement

Risk of the financial statements being materially

misstated

164 comet publishing

S/N Deficiency Recommendation Test of control

1 Store managers are responsible
for ordering books for their
shop
Fictitious transactions for
personal gains, could lead to
fraud
2 It is not possible to order books
from any of the other nine
stores
Comet could lose customers
due to delay in getting their
order leading to lose of revenue
3 As the inventory levels fall in a
store, the store manager raises
a purchase requisition form,
which is sent to the central
warehouse
Store managers should a
requisition to head office for
authorization before ordering
books
Comet should design and
implement a control system for
stores to order books from each
other to fulfil customer’s orders
Purchase requisition forms should
be reviewed by a senior staff of
comet or a warehouse house
manager before being approved

4 GRNs are sent to the accounts Comet should sent GRNs more
department every two weeks frequently
for processing

Risk of incomplete records,

 transactions
5 The invoice is then sent to the Invoice should be sent to the
purchase ordering clerk, Oliver, finance director for authorization
who processes it for payment.

Oliver may commit fraud and

use his account to receive some
of these payments

165 Equestrian

S/N Deficiency Recommendation

1 Equestrian co has a small internal audit
department
Lack of oversight and control of the 5 sites and 9
warehouses can lead to employees committing
and concealing fraud
Difficulty in replicating a consistent system of
operating
2 IA started a programme of physically verifying
the company’s assets and comparing the results
to the non-current assets register, as this type of
reconciliation had not occurred for some time.
Management of equestrian co should review
the purpose of its IA department and
consider increasing the size of it IA
department due to the complexity of its
company, having 5 sites and 9 warehouses
Physically inspecting and verifying of
equestrian assets should be done regularly
to confirm existence and ownership and to
avoid theft of asset or obsolete assets

Some assets may be obsolete and no longer of

economic benefit to equestrian co, there could
also be theft of assets
3 The payroll department has assisted by setting
up any new employees who have joined the
company
Equestrian could hire temporary HR staffs or
outsource to an HR firm to ensure vetting
and sensitization is done properly

risk of not vetting or sensitizing new employees

properly

Staffs in payroll department have little or zero

knowledge or experience on handling new
employees
4 The wage rate paid to employees was increased
by the HR director and he notified payroll by
emailing the payroll supervisor.
Wage increase should only be authorized by
finance director after discussing and
approval from management of equestrian co

HR director has no authority to increase wages

Possibility of fraud, including ghost employees
 to payroll

HR director will include any figure or amount he

wants as an increase in wages

5 credit limit is proposed by sales staff and
approved by the sales director and these credit
limits remain static in the sales system
risk of receivables and profit being under or
overstated
Customer credit check should be done by
the finance department and only the finance
director should assess and authorize credit
limit and not the sales team or sales director

sales team and sales director can extend credit

of customers with bad credit and credit check
not done correctly
6 High value items are stored in a secure area in Four digit code should be different for each
each warehouse. Access is via a four digit code, warehouse and should be changed regularly.
which for convenience is the same across all
sites. Access to the codes should be
restricted/limited, only the warehouse
Very easy for these items to be stolen across manager should have access
each warehouse. Bad security control
7 In order to maximize cash balances, the finance Make a list of suppliers in order of
director approves all purchase invoices for importance and discount received
payment 75 days after receipt of the invoice
Discuss with suppliers on extending
Equestrian co could lose its key suppliers as well payables period
as any discount from suppliers due to delay in
payment

Discrepancies between invoices and cash books:

cut off
8

91. C
92. C
93. True, false, true, false
94. Strength, deficiency, strength, deficiency, strength
95. A
96. A, C, D
97. Sampling, not sampling, not sampling
98. B
99. C and E
100. B
101. Valid, not valid
102. D
103. B
104. B, C, D
105. B
106. B and E
107. C
108. C
109. B
110. Always, may be, never, always
111. E, C, F
112. Inconsistent, inconsistent, consistent, consistent
113. A
114. D
115. A
116. C
117. C
118.
119. A and B
120. B and D