RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

QUESTION 1 SUGGESTED SOLUTION

Deficiencies with the audit documentation

1. The name of Bazaars Ltd does not appear on the work paper. (1)
2. There is no space for the name or initials of the person who prepared the work paper.
(1)
3. The financial year end, 30 April 2018 does not appear on the work paper. (1)
4. There is no space for you, as audit manager to indicate that you have reviewed the
document or the date on which you reviewed the document. (2)

Deficiencies with the planning of the audit evidence to be gathered (content)

1. The planning as documented will not result in the accumulation of sufficient, appropriate
audit evidence. (1)

2. Neither the timing nor the extent of audit procedures was considered. (2)

3. The sufficiency of the audit evidence will be affected by the fact that:
3.1. Only tests of controls have been planned for. The auditing standards require that even
when the controls of a company are relied upon, some substantive testing still has to
be performed. (2)
3.2. The sufficiency of testing also depends largely on the risk of material misstatement,
and the planning seems to have been done without any consideration of the risk of
material misstatement. (1)
3.3. In this regard, materiality does not appear to be considered at all in the work paper.
(1)

4. The appropriateness of the audit evidence will also be affected by the fact that:
4.1. It has been decided to test controls but no reference has been made or assessment
made on the whether the system of internal controls on which they intend to rely is
suitably designed or whether it is expected that that they operate effectively, as is
required by ISA315. (2)

Available (14)
Maximum (6)
Communication skills - clarity of expression (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

QUESTION 2 SUGGESTED SOLUTION

Ordering

1. Weakness
Sales representatives do not have a discount ‘ceiling’ beyond which discounts cannot be offered.
(1)

Explanation
Excessive discounts may be granted by the sales reps; resulting in a loss of revenue / profits to
the corporation. (1)

2. Weakness
No check is performed on whether the customer is an approved customer or whether the
customer remains within his/her credit terms/credit limit prior to acceptance of the order or delivery
thereof. (1)

Explanation
Orders may be accepted from customers who are unable to pay. This would result in bad debts
(losses) being incurred by the corporation. (1)

3. Weakness
The sales reps keep no record of orders taken; (there is only one copy of the order). (1)

Explanation
Therefore no one can follow up on the processing of the orders i.e. ensuring that they are
timeously delivered which would result in dissatisfied customers and potential future loss of
revenue. (1)

4. Weakness
Customers are not given an opportunity to verify the details of the order. (1)

Explanation
Inaccurate orders may be delivered to the customers or orders may be delivered to the wrong
address. (1)

5. Weakness
Orders are accepted without any consideration being given to whether the inventory required is
on hand. (1)

Explanation
This may result in extra costs having to be incurred in order to source the inventory or delays in
filling the customer orders. (1)

Dispatch
6. Weakness
There is no picking slip. (1)

Explanation
The storeman may not know where to find the goods in the warehouse. (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

7. Weakness
No independent check that the goods packed agrees to delivery note or to the order. (1)

Explanation
This may result in the wrong goods being delivered to the customer, and dissatisfied customers.
(1)

8. Weakness
There is no gate control procedure. Goods may be delivered without a delivery note being
prepared. (1)

Explanation
Goods delivered may never be invoiced and therefore the subsequent receipt due for the delivery
never collected resulting in unrecorded sales and diminished cash inflows for the company. (1)
Invoicing
9. Weakness
Controls ensuring the completeness of invoicing are poor, i.e. there is no independent check to
ensure that all delivery notes initiated are in fact invoiced (1)
There is no possibility of tracking what is out on delivery all delivery notes go with the driver). (1)

Explanation
This may result in losses should the goods be delivered but never invoiced / recorded. (1)

10. Weakness
There is no independent check on the accuracy of the invoices once they are prepared i.e. the
sales prices agree to the order and the quantities invoiced agree to that of the signed customer
delivery note. (1)

Explanation
Invoices may contain clerical errors resulting in dissatisfied customers or loss of profits. (1)

Recording

11. Weakness
There is no independent check on the validity, accuracy or completeness of invoices recorded in
the sales journal. (1)

Explanation
There may be invoices that are never recorded or are recorded but at the incorrect amounts
resulting in inaccurate financial records. (1)

12. Weakness
No debtors statements are sent to debtors (1)

Explanation
This may undermine the collection of outstanding debts and delay the detection of errors in the
corporation’s financial records. (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

13. Weakness
The reconciliation of the debtors control account to the subsidiary ledger is not reviewed by an
independent official (1)

Explanation
This means that errors may not be detected and corrected in a timely manner. (1)

Credit Control
14. Weakness
The debtors’ age analysis is prepared, but not reviewed by a senior official (1)

Explanation
The usefulness of this document is negated in that no one senior is ensuring the timely follow up
of outstanding debtors which could negatively affect the cash flows of the company. (1)

General
15. Weakness
No supervisory/management checks appear to be carried out which weakens the control
environment. (1)

Explanation
Without management being committed to a strong control environment, employees may not apply
diligence and conscientiousness to the tasks at hand resulting in inaccurate or incomplete
information or it may create an environment in which it is easy to perpetrate fraud. (1)
16. Weakness

There is no evidence that employees are held accountable for their duties, i.e. no isolation of
responsibility in respect of e.g.
16.1.The sales representatives may not follow up on orders delivered. (1)
16.2.The storeman and the deliveryman do not sign as acknowledgement of custody on the
transfer of goods. (1)

Explanation
This further increases the risk that employees will not perform their allocated tasks appropriately
and increases the risk of fraud and error. (1)

Available (34)
Maximum (20)

Communication skills - clarity of expression (1)

Layout (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

QUESTION 3 SUGGESTED SOLUTION

1. Sequentially numbered, delivery notes can be filed sequentially and then matched
to/ cross referenced to an authorised internal sales order; it facilitates the control
whereby an independent check can be performed, by checking the sequence of the
delivery notes and ensuring that for each delivery note there is a valid order. (1)
1.1. If any delivery notes were found not to have an order or not to have an authorised
order, it would mean that the deliveries could have been made to unauthorised
customers. (1)
1.2. Therefore this control helps prevent deliveries for which non collection of
payment might occur, which in turn could have a detrimental result on the
company’s cash flow and ultimately on its going concern. (1)

2. Sequentially numbered, delivery notes can be filed sequentially and then matched
to/ cross referenced to a sales invoice; it facilitates the control whereby an
independent check can be performed, by checking the sequence of the delivery notes
and ensuring that for each delivery note there is an invoice. (1)
2.1. If any delivery notes were found not to have an invoice, it could mean that the
deliveries were not invoiced. (1)
2.2. If the deliveries are not invoiced, the customers will not pay, (1)
2.3. Nor will the company be able to follow up on non-payment resulting in poor cash
flow and possible future going concern problems. (1)

Available (7)
Maximum (5)
Communication skills – logic of argument (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

QUESTION 4 SUGGESTED SOLUTION

W = Weakness; E= Explanation

1. W1: The control environment appears weak. (1)

W2: Carter Clean does not appear to be participating to an appropriate degree in the
governance and management of Ewasi. (1)
E1: The lack of management overview may result in employees not performing their tasks
diligently or controls not being appropriately applied with the possibility of the theft of cash
and other resources. (1)

2. W: There is no formal procedure for the queuing of customers, and the valet supervisor
simply shouts “NEXT” relying on the customers themselves to supervise the order of
“delivery”. (1)
E: Customers may become dissatisfied when other customers jump the queue and then
may fail to return in the future. (1)

3. W: The valet supervisor does not check that the customer who drives into the wash bay
has a ticket; (1)
W: Nor is the ticket checked before the vacuuming and polishing procedure takes place.
(1)
E: Customers could have their cars washed without having paid fully for the service
rendered. (1)

4. W: The tickets are not handed in or marked or torn in any way once the car valet service
begins. (1)
E: Customers could return with a ticket and get their car rewashed for free or pass the
“used” ticket onto a friend to re-use. (1)

5. W: On payment, customers are not provided with a till slip , only with a pre-numbered
ticket, in addition; (1)
W: There is no reconciliation of the tickets issued during the day to the cash sales received
in the cash register roll. (1)
E1: Cash may be stolen by the teller and never recorded on the cash register (till); (1)
E2: Tickets could be given out to friends or family for free or; (1)
E3: R200 tickets could have been sold for R100 in error or on purpose. (1)

6. W: There is no independent check that all the cash receipts, i.e. each day’s cash takings
are recorded in the cash receipts journal. (1)
E: Recorded sales may be understated. (1)

7. The ultimate consequence of all the above weaknesses is the possible understatement of
sales, the loss of cash sales, loss of profits, and depleted cash resources. (1)

8. W: Banking is not done regularly. (1)

E: Ewasi exposes itself to being held up with the consequential risk to employee’s lives
and the theft of cash. (1)

9. W1: The bank reconciliation is performed by the bookkeeper who also posts entries to the
cash receipts journal and; (1)
RGOV 301 – TIC Inc, Newsa Sports CC, Second-year,

W2: This reconciliation is not reviewed by any senior personnel. (1)

E: Errors and reconciling items may not be investigated and followed up on resulting in
invalid, inaccurate or incomplete recorded transactions never being identified and rectified.

(1)

Available (23)
Maximum (16)
Communication skills – clarity of expression (1)
logic of answer (1)