GEAR 371

STUDY UNIT 5
Controls in an IT environment.
Application controls
Question pack
Copyright © 2024 edition.
North-West University
No part of this document may be reproduced in any form or in any way without the written permission of the publishers

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Homework questions:

QUESTION 1: Wise Inc. .............................................................................................. 10 marks

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QUESTION 2: AUD Auditors Inc ................................................................................. 10 marks
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QUESTION 3: Audit Gurus Inc. ..................................................................................... 9 marks
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QUESTION 4: SIBWSA............................................................................................... 17 marks
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QUESTION 5: JNM Auditors ........................................................................................ 9 marks
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QUESTION 6: GEAR .................................................................................................. 21 marks
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QUESTION 1: Wise Inc. 10 marks

Background information
You are an audit manager at Wise Inc. (hereafter Wise), a medium-sized audit firm with
branches throughout South Africa. Eighty percent of Wise’s client base exists of small to
medium sized entities in the mining and construction industry.
Wise has been appointed as the auditors of TimberW for the year ended 31 March 2022
with immediate effect..
TimberW is South Africa’s leading home improvement, DIY and building materials retailer, with
stores across South Africa, Botswana, Mozambique and Zambia. TimberW’s main warehouse
from where inventory is supplied to various stores is situated in the central business district
area of Johannesburg, but TimberW also have smaller warehouses from where inventory can
be obtained by smaller stores that is situated in rural areas. Although all TimberW’s board of
directors are men, their stores are staffed by members of the community, the majority of whom
are woman. TimberW meets the needs of DIY enthusiasts, homeowners, small businesses, or
large contractors and is listed on the Johannesburg Stock Exchange (JSE).
Current year’s audit of TimberW
The audit team has already compiled the following working paper:

Reference Description

B1 Overview of inventory

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Client: Timber Warehouse Limited Year-end: 31 March 2022 B1
1 of 1
Prepared by: Bard Simpson Date: 10 April 2022

Reviewed by: Simone Mofokeng Date: 12 April 2022

Subject: Overview of inventory

1. Background on inventory
Inventory consists of appliances, tools, building materials, paint, tiles, and flooring. All
inventory is locally sourced, except building bricks which are imported from China due to
lack of availability in South Africa. All inventory is kept at TimberW’s central warehouse in
Johannesburg, from where inventory is supplied to various stores by TimberW’s transporting
trucks, if the need arises.
It unfortunately appears that the building bricks being imported from China did not adhere to
the South African National Standards Code of the Building Regulations of South Africa. The
effect of these substandard building bricks resulted in TimberW being unable to sell these
building bricks to their customers. TimberW is currently busy with litigation in this regard, but
the outcome does not appear to be favourable.
TimberW uses the first-in-first-out (FIFO) system and inventory is recorded in terms of IAS2.
Obsolete, redundant, and slow-moving inventory is identified on a regular basis and is
written down to their estimated net realisable values.
2. Masterfile amendments
Although TimberW does conduct a year-end inventory count, they also believe in performing
regular test counts throughout the year. Where a difference is detected when test counts are
performed between theoretical inventory per the Masterfile (quantity on hand) and physical
inventory counted, a quantity adjustment is put through to correct the Masterfile. This is done
after a proper investigation whereafter the details of the required adjustment are
documented onto a “count adjustment form” which is approved by the financial manager, Mr
M Correct. These Masterfile amendments are recorded on a pre-printed sequentially
numbered Masterfile amendment form, whereafter it is captured by the accountant, Mr C
Nerd on the computer system. All Masterfile amendment forms are cross referenced to the
relevant count adjustment forms that are filed in order of date.

SUB-
QUESTION 2 – REQUIRED TOTAL TOTAL

1.1 With specific reference to working paper B1 and limited to 2.

Masterfile amendments:
Describe the additional application controls that should be
implemented by Timber Warehouse Limited to ensure only valid
details of inventory adjustments are accurately and completely
entered onto the inventory Masterfile. 10 10

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QUESTION 2: AUD Auditors Inc 10 marks

You are an audit manager at AUD Auditors Inc. (hereafter AUD), a well-known medium sized
audit firm with offices countrywide. Your firm is renowned for its knowledge of and experience
in auditing companies within the food processing industry. You have been appointed as the
audit manager for one of your firm’s leading food processing clients, Cattle King Beef Products
(hereafter Cattle King). The year-end of Cattle King is 30 September 2021, and AUD need to
report on the annual financial statements by 1 November 2021.
COMPANY BACKGROUND
The company was founded in 1970 by John King, when he started a small cattle-feeding
business in Christiana. Today, Cattle King is an integrated food processing business that is
South Africa’s leading supplier of world-class beef products. Cattle King listed on the
Johannesburg Security Exchange (JSE) in 2012.
Operating divisions
Cattle King’s head office is in Bloemfontein. The company has three (3) operating divisions:
Processing division
All of Cattle King’s primary processing takes place at their state-of-the-art abattoir in
Kimberley. The processing of beef includes the portioning, deboning and custom packaging
thereof. The finished product is transferred to the distribution division from where shipment to
customer take place upon instruction from the sales division.
Accounting function
Patrick Evans, a CA(SA), is the chief financial officer (CFO) of the company. Patrick is assisted
by Tonyando Mustang, the financial manager, and a small team of accounting staff.
Both Patrick and Tonyando work from the Bloemfontein head office. Most accounting functions
are centralised at head office, including debtors, payroll, purchases, creditors and accounting
for property, plant and equipment.
Each operating division has its own accountant responsible for bookkeeping functions
pertaining to the specific division, for example controls relating to expenses and inventory
management (where relevant).
New developments
During the year under review a new integrated general ledger software application, The
Ledger, was implemented. The ledger integrated with the different sub systems like the ERP
system in order to generate a number of reports, including the trial balance used for preparing
the financial statements. A number of problems occurred during the system conversion
process. Transactions were posted to the wrong general ledger accounts which necessitated
numerous journal entries to correct these accounts.Cattle King acquired a 60% shareholding
in Feedlot SA (Pty) Ltd, (hereafter Feedlot), on 1 March 2021. Feedlot is a company that owns
several feedlots in the Northern Cape and Northwest provinces. Most of the cattle that are
slaughtered at Cattle King’s abattoir in Kimberley, are supplied by Feedlot.
On 14 August 2021, during the annual audit committee meeting, the audit committee approved
a decision to grant a loan of R80 million to Feedlot. Feedlot needed the money to increase the
number of cattle at the feedlots.
Audit considerations
During the planning phase of the audit, it was decided that AUD will make use of generalised
audit software (GAS) in order to increase the efficiency of the audit. The computerised
techniques used by AUD’s computer assisted audit techniques (CAAT’s) department are fully
compatible with Cattle King’s computer system.

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The following audit working papers apply:

F06 System description – Recording of invoices from service

providers

Client: Cattle King Year-end: 30 September 2021 F06

1 of 1
Prepared by: T de Jager Date: 10/10/2021

Reviewed by: J N Tolo Date: 11/10/2021

Subject: System description – Recording of invoices from service providers

Background
Service providers are suppliers who render services to Cattle King like advertising, catering,
small repairs, etc. This system description addresses service providers only and not
suppliers of beef.
Cattle King has two types of service providers:
§ Service providers with creditor accounts in the service provider masterfile, who are
authorised to provide Cattle King’s head office and its operating divisions with services.
§ Service providers not in the service provider masterfile, who provide services directly to
the operating divisions, also on credit, for instance, emergency repairs.
Service providers submit invoices to Cattle King’s creditor’s clerk at head office, Julia
Khomo, via email. Invoices submitted by service providers not in the service provider
masterfile are referred to as “ad-hoc invoices”, while invoices submitted by service
providers on the masterfile are referred to as “standard invoices”.
Receiving and recording of invoices from service providers
Julia is responsible for all procedures relating to the receiving and recording of invoices from
service providers. These procedures consist of the following:
§ She prints and files all invoices submitted to her, by email from service providers.
§ She proceeds to log on to the Mr Purchase procurement system with her unique
username and password. She is the only employee who can record invoices.
The following input validation controls are applied to the information entered by
Julia:
For standard invoices
Supplier code: No controls implemented
For ad-hoc invoices
Telephone number of supplier: Numeric test to ensure only numbers are entered
For all invoices
Name of supplier: Field size test limited to 260 characters
Purchase order number: Mandatory field to ensure this field must be completed
Supplier invoice number: No controls implemented

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Supplier invoice date: Range check to ensure date of invoice is within the financial year of
Cattle King
Total amount of invoice: Sign check to ensure the field cannot contain a negative amount
§ The system automatically adds the total amount of standard invoices to the service
provider masterfile, and for ad-hoc invoices, updates the unpaid invoice data file.

SUB-
QUESTION 2 – REQUIRED TOTAL TOTAL

2.1 With reference to working paper F06 – System description

– recording of invoices from service providers:
Evaluate the input validation controls that management
implemented, for the capturing of invoices received from
service providers, and suggest additional and/or improved
input controls, that will ensure valid and accurate input data, is 9x1
captured by the creditors clerk
Your answer should be presented in the following format:

EVALUATION OF CURRENT CONTROLS

Current control implemented Effectiveness of control

implemented – effective or
not effective with reason

(MAX 1 x 3 MARKS)

ADDITIONAL CONTROLS SUGGESTED

1x1
Field on which additional Additional and/or improved
and/or improved control is one (1) control per field and
suggested reason for implementation
thereof

(MAX 1 x 6 MARKS)

Communication skills: Presentation 10

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QUESTION 3: Audit Gurus Inc. 9 marks

Background information
You are an audit partner at Audit Gurus Inc. (hereafter AuditG), a large audit firm located in
Cape Town. You are currently busy with the audit of Creative Spacing (Pty) Ltd (hereafter
CreativeS) for the financial year-end of 30 November 2019.
CreativeS is a company that sells converted, second-hand, eco-friendly containers to
businesses throughout South Africa. All of the containers sold by CreativeS are converted into
offices. The standard unit containers come with pre-installed and fixed furnishing, but
CreativeS can also customise containers based on specific customer needs (these containers
are not re-saleable to other customers). Containers are considered to be cost-effective and
comfortably designed with the necessary durability to last for a long period of time.

use of office containers.

Current year’s audit of Creative Spacing (Pty) Ltd
The audit team has already compiled the following working papers:

Reference Description

B4 System description – Purchasing and receiving of inventory

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Client: Creative Spacing (Pty) Ltd Year-end: 30 November 2019 B4
1 of 1
Prepared by: Third year audit trainee Date: 10/12/2019

Reviewed by: M du Plessis Date: 12/12/2019

Subject: System description – Purchasing and receiving of inventory

Masterfile amendments
When the client accepts and pays the agreed contract amount that was invoiced by
CreativeS, the senior buyer in the purchasing department removes the applicable quotation
from the pending file and reviews the document for items not on the Inventory Masterfile.
(In other words, the outstanding inventory items enquired from suppliers by the production
manager). The senior buyer then records all of the inventory amendments on a pre-
numbered Masterfile Amendment Form (MAF), which is cross referenced to the final
quotation.

The senior buyer thereafter creates a new Inventory item on the Inventory Masterfile by
using a general password. The senior buyer then captures the following data:
• Inventory item code (generated by the system);
• Inventory item description;
• The supplier’s inventory code for the applicable supplier; and
• The item’s proposed purchase price (per unit) according to the enquiry from the
supplier.
Only sound edit checks are in place for this purpose. The ability to update standing data on
the Inventory Masterfile is restricted to the senior buyer ‘s computer terminal.
A sequentially numbered log of the Masterfile amendments is automatically generated by
the Design-IT software programme and the sequence of these logs are reviewed by the
Chief Financial Officer (CFO). The CFO also reviews the logs by agreeing it to the
authorised Masterfile Amendment Forms, to ensure accuracy and if necessary, the CFO
makes changes to the logs.

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 SUB-
QUESTION 3 – REQUIRED TOTAL TOTAL

3.1 With specific reference to working paper B4 – Purchasing 8x1 9

and receiving of inventory - Masterfile amendments:

Identify and briefly explain four (4) weaknesses in the system

used by Creative Spacing (Pty) Ltd, when inventory items are
amended/updated on the Inventory Masterfile.

Your answer should be presented in the following table format.

Identification of weakness Brief explanation of why

this is a weakness

1 mark each (max 4 marks) 1 mark each (max 4 marks)

Communication skills - presentation and layout 1x1

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QUESTION 4: SIBWSA 17 marks

Solar, Inverter and Battery Warehouse South Africa (Pty) Ltd (hereafter referred to as
“SIBWSA”) is a company based in Auckland Park, Johannesburg, South Africa. SIBWSA sells
solar items for both home and business use in store, online, telephonically and via social
media. SIBWSA has warehouses in Johannesburg, Cape Town and Durban wherefrom
backup power and solar power equipment is delivered to customers. SIBWSA’s mission is to
supply South African and regional markets with high-quality, reasonably priced solar products.
You are a senior manager at an advisory and audit firm called Audit3000 Inc. The financial
manager of SIBWSA requested the assistance of your firm in response to the audit and
management findings of the recently completed February 2023 year-end audit conducted by
Ernest and Reid Inc. Your firm gladly accepted the assignment and you have been tasked to
oversee the engagement. In general, the assignment includes evaluating the control
environment of SIBWSA as well as providing recommended improvements.
The financial manager of SIBWSA has identified Information technology (IT) as a critical
component of the modern business landscape. With the rapid advancements in technology,
businesses of all sizes and industries rely on IT to improve their operations, increase
efficiency, and boost productivity. IT allows businesses to streamline their processes,
automate tasks, and analyse data to make better decisions. SIBWSA has therefore employed
the use of a software called AccuBooks. AccuBooks is an integrated software that allows the
capturing, processing and storing of data. In addition, the software allows for the generation
of a multitude of reports for each module related to each business cycle. SIBWSA has
employed the use of the following modules: AccuSales – Used for the sales and receipts cycle,
AccuAcquisitions - Used for the acquisitions and payments cycle, and AccuStock – Used for
the management of Inventory.

Your team has compiled the following working papers:

Reference Client – Description

G01 SIBWSA (Pty) Ltd – Observation: Customer Orders

H01 SIBWSA (Pty) Ltd - System description: Preparation of invoices

J01 SIBWSA (Pty) Ltd - Purchases

Client: SIBWSA (Pty) Ltd Prepared by: A. Singh Date: 05/05/2023

Year-end: N/A Reviewed by: Date: G01

Subject: Observation: Customer Orders

Purpose
The purpose of this working paper is to document observations for the receiving customer
orders.

Results of work performed

The following system description was established through an interview with the credit
manager and observing one of the order clerks, Sophie, for a day. According to the credit

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manager, all customer orders are vetted for approval by the credit manager before an order
can be placed. The ordering system is a manual stand-alone system that is not integrated
with the AccuSales module:

Sophie works as an order clerk. She is responsible for receiving and processing customer
orders. Sophie’s daily activities, as observed, are summarised below:

9:00 AM: Sophie arrives at work and logs in to her computer by entering a unique username
and password. She checks her email and sees that there are several new orders that have
come in overnight. She opens the orders and starts processing them one by one. As she
processes each order, she completes a manual internal sales order (ISO) form for each
customer. The ISO form includes the customer number, customer's name, address, order
details, and payment information. She uses the customer order number quoted on the email
received from the customer as her internal sales order reference number.

9:30 AM: Sophie receives a call from a new customer who wants to place an order over the
phone. She also completes an ISO form for this customer. Because the customer is new
and is still awaiting approval from the credit manager, Sophie left the account number field
blank.

10:45 AM: Sophie receives another call from a different existing customer who has a
question about a product before placing an order. Sophie requests the customer to provide
her with the item required, the quantity required and the expected delivery date. She takes
note of the inquiry on her notepad to address the inquiry later during the day. Because she
was in a rush to go on her lunch break, she promptly ends the call and prepares to go on
lunch.

12:00 PM: Sophie returns from lunch and continues processing orders. She notices that on
one of the ISO forms from an existing customer, the shipping address had been left blank.
She contacts the customer to confirm the correct address and updates the ISO form
accordingly.

1:00 PM: Sophie receives a message from an existing customer on the company's social
media page. The customer wants to place an order but is having trouble with the website.
Sophie assists the customer in placing the order over social media by taking note of the
customers profile name and completes an ISO form for the customer. The customer
indicated that he would provide a customer order number when the items are delivered.

3:00 PM: Sophie finishes processing all the orders that have come in for the day. She
collates all ISO’s for the day and places a tick mark at the bottom of each ISO.

3:30 PM: Sophie then collects all the ISO forms from all the other order clerks and continues
to prepare a batch for all customer orders for the day. She prepares a daily sales report for
her supervisor Richard who reviews the batch. The daily sales report includes a summary
of the day's sales, the number of orders received, and any notable customer interactions or
issues that arose. The batch is then received by Thomas who captures all the ISO’s the
next day on the AccuSales module.

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4:00 PM: Sophie logs off from her computer and heads home.

Client: SIBWSA (Pty) Ltd Prepared by: A. Singh Date: 05/05/2023

H01
Year-end: N/A Reviewed by: Date:

Subject: System description: Preparation of Invoices

Purpose
The purpose of this working paper is to document the system description for the preparation
of invoices.

Results of work performed

Daily, a batch of delivery notes (DN’s) are received from the warehouse. The invoicing clerk
assistant signs and receives the batch and then stores the batch to be accessed by the
invoicing clerk. Once the invoicing clerk is ready to capture the batch, he accesses the
AccuSales module by typing a unique username and password. As soon as he has access
to the invoicing module on AccuSales, he captures the DN’s. The data fields that need to
be completed are as follows:

Data Field Example Field requirements

Customer Number 238425 The customer number is made up of six (6)

characters. The first number indicates the
province. The second number, either 1,2 or 3
indicates the amount of discount applicable.

Once the customer number has been entered, the remaining customer details such as
contact information, contact person, and company address are automatically inserted
from the Masterfile.

Invoice Number 1002158 The invoice number is made up of seven (7)

characters which is automatically generated by
the sales module.

Product Number 2548 The product number is made up of four (4)

characters and consists of numeric characters
only.

Product Description Growatt 5kWh The product description is made up of a

Hybrid Inverter maximum of 30 characters and can contain
alphabetical and numerical characters.

Quantity 1 The quantity of products is made up of a

maximum of 3 characters and can only contain
numerical characters.

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 Unit Price 14 299.00 The unit price of products can only contain
numerical characters and is automatically
retrieved from the Masterfile.

Price 14 299.00 The price field is an automatic calculation of the

unit price multiplied by the quantity field.

VAT 2 144.85 The VAT field is an automatic calculation of the

sum of the PRICE field multiplied by the
applicable VAT percentage, i.e., 15%.

Total 16 443.85 The total field is the sum of the PRICE and VAT
field automatically calculated by the AccuSales
module. This cannot exceed the credit limit of
the customer.

Below is an extract of a sample Invoice:

Solar, Inverter and Battery Warehouse South

Africa Pty (Ltd)
Tel: 011 852 3205
Invoice

25 Crescent Street Invoice Number: 1002158

Auckland Park Customer Number: 238425

Johannesburg Date: 25/03/2023

2006

Billed to:

Alpha Industries

75 Bersgma Street

Lichtenburg

2740

018 632 7029

Product Description Quantity Unit Price Price

Number
(R) (R)

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 2548 Growatt 5kWh Hybrid Inverter 1 14 299.00 14 299.00

VAT: 2 144.85

Total: 16 443.85

Payments are due within 30 days.

Kindly use the invoice number as reference for all payments.

Banking Details:
Solar, Inverter and Battery Warehouse South Africa Pty (Ltd)
Bank: First Trust Bank
Account No: 6234 6826 829
Branch Name: Auckland Park
Branch Code: 250655

Thank you for your business

SUB-
QUESTION 4 – REQUIRED TOTAL TOTAL
4.1
With reference to the working paper “G01 – Customer orders”:
Assuming that the ISO's are referenced with sequential internal
sales order numbers, describe the batch controls that should
have been implemented with regard to internal sales orders.
Where possible provide an example of the control.
Please note: Include all controls from preparation of batches to 8x1
the final input into the system.

4.2
With reference to the working paper “H01 – Preparation of
Invoices”:
Describe the additional programmed / automated input
application (information processing) controls that you would

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expect management to have implemented at SIBWSA to ensure
that the invoice is accurate and complete.
Please provide examples relevant to the information provided
where possible. 8x1
Communication mark: Layout and structure

1x1 9

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QUESTION 5: JNM Auditors 9 marks

Background information
JNM Auditors Incorporated (hereafter JNM Auditors) is a medium-size audit firm providing
assurance services to its client base across all South African provinces. Ms. Kitso is an
engagement partner at JNM Auditors. She is a Registered Auditor who mostly performs audits
of clients in the renewable energy sector, and Renew Energy South Africa Ltd is one of her
clients. You are a trainee on Ms. Kitso’s audit team.

Company background - Renew Energy South Africa Ltd

For the past 12 years, JNM Auditors has been responsible for auditing the annual financial
statements of Renew Energy South Africa Ltd (hereafter Renew Energy). Ms. Kitso has been
the engagement partner for Renew Energy’s audit for the last two (2) years. The year-end of
Renew Energy is 30 September 2023.
Renew Energy supplies “green energy” to the South African market through its solar plants.
Renew Energy is one of South Africa’s leading specialists in renewable energy, which is sold
to Eskom and other business entities via its solar plants. Mr Watts is the Chief Executive
Officer (CEO) and major shareholder of Renew Energy. He uses his autocratic leadership
style to manage the employees to work together to achieve the company’s objectives. Most of
Renew Energy’s success is attributed to Mr Watts’s well-maintained business relationships
with senior executives at Eskom. Mr Watts goes to great lengths to ensure these executives
are well looked after by paying for their overseas holidays, luxury parties, etc.
Since incorporation in 2008, the company has grown at a steady rate of approximately 8% per
year. The growth of the company can in part be contributed to the fact that performance
bonuses which are based on growth targets met are paid to the senior management of the
company. The company’s long-term strategy, communicated to its shareholders, indicates that
management intends to list the company on the Johannesburg Stock Exchange (JSE) within
the next year.
The accounting department of Renew Energy comprises a small complement of qualified
bookkeepers, supervised by Ms. Leane, a qualified management accountant. Ms. Leane was
appointed to supervise the finance department due to her excellent IT skills. She is, however,
lacking IFRS experience. During the year under review, Renew Energy migrated its operations
and accounting system to a highly sophisticated, real-time processing computerised system,
to enhance management reporting.
The drastic increase in interest rates during the last couple of months negatively impacted
Renew Energy’s cash flow resources, as the company extensively uses interest-bearing loans
to finance capital expenditure. As such, Mr Watts (CEO) requested that the audit of the
financial statements for the 2023 year-end be completed within four (4) weeks after year-end.
Renew Energy will use these audited financial statements to apply for a substantial loan from
the bank.
During the year under review, Renew Energy acquired the majority shareholding in G-Energy
(Pty) Ltd (hereafter G-Energy).

Company background – G-Energy (Pty) Ltd

G-Energy sells and installs diesel generators to the public in the Gauteng and Cape Town
areas. The year-end of G-Energy is 30 September 2023.
Although G-Energy is a private company, the Public Interest (PI) score is 429 points and thus
requires a statutory audit. The company has an audit committee that complies with King IV

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Report's requirements on corporate governance. The current auditors of G-Energy is
Affordable Auditors, a partnership consisting of three partners.
However, on 1 July 2023, Ms. Kitso secured the external audit of G-Energy, after Affordable
Auditors were fired by Mr. Watts, the CEO of Renew Energy (majority shareholder in G-
Energy). The audit appointment of G-Energy was offered to Ms. Kitso on the condition that the
audit fee should be 20% lower than the prior year. In return, G-Energy is prepared to give a
generator to the value of R20 000 to each audit team member.
G-Energy received some negative publicity in the media during March 2023. An article
published in the local newspaper alleged that G-Energy bribed several officials at the
Department of Public Works to obtain a lucrative contract for supplying generators to local
municipalities.

Inventory held by G-Energy (Pty) Ltd

The inventory of G-Energy comprises mainly of diesel generators. All the diesel generators
are imported from China and stored at the company's central warehouse, which is situated
adjacent to the head office in Midrand. Generators are hugely influenced by technology
changes, which revolves mostly around noise level reduction and fuel-saving and therefore
older generation generators become outdated in a short period of time. The inventory value at
year-end was R86,5 million, which is material to the company's financial statements. At year-
end a large number of generators were in transit from China to G-Energy. The inventory is
pledged as security for the overdraft facilities of G-Energy.

As part of your risk assessment procedures, you enquired from Ms. Joan, the financial
manager of G-Energy, about the procedures that are followed for Masterfile amendments
relating to inventory.

Below is an appendix you compiled regarding an e-mail received from Ms. Joan.

Appendix A

To: trainee@jnmauditors.co.za

From: Joann@g-energy.co.za

Subject: Inventory – Masterfile amendments: G-Energy

Date: 12 October 2023

Good day

I trust you are well,

As requested, please refer to the listed procedures that are followed for inventory Masterfile
amendments:

• To add new diesel generators to the inventory Masterfile the chief buyer completes a Masterfile
amendment form (MAF). The MAF is cross-referenced to the minutes of the management
meeting where the decision was taken to add the specific diesel generator to the product range.
• The senior buyer thereafter creates a new inventory item on the inventory Masterfile using a
general password.

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• The senior buyer then captures the following data:
− Inventory item description;
− The supplier’s inventory code; and
− The item’s purchase price (per unit).
• The system automatically generates the inventory code.
• Sound edit checks and screen aids are in place to capture information. The ability to update
standing data on the Inventory Masterfile is restricted to the senior buyer‘s computer terminal.
• The system automatically generates a sequentially numbered log of the Masterfile amendments
and the sequence of these logs are reviewed by myself.
• I also review the logs by agreeing it to the authorised Masterfile Amendment Forms (MAFs), to
ensure the accuracy thereof.

Hope this clarifies the process.

Kind regards
Ms. Joan

SUB-
QUESTION 5 – REQUIRED TOTAL TOTAL
With reference to only the information contained in Appendix
5.1
A:

i) Identify four (4) weaknesses in the Inventory

Masterfile amendment process of G-Energy (Pty)
Ltd, based on the e-mail received from the financial
manager, Ms. Joan; and 4
ii) For each of the weaknesses that you have identified,
suggest an appropriate recommendation to improve
the Inventory Masterfile amendment process in the
inventory cycle of G-Energy (Pty) Ltd

4
Your answer must be presented in the following format:

Weakness Recommendation

(1 Mark each – Max 4) (1 Mark each – Max 4)

Communication skills – presentation 1 9

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QUESTION 6: GEAR 21 marks

You are an audit manager at GEAR Incorporated (“GEAR”), an international medium-size

audit firm. GEAR is the auditor of Tile-SA Limited (“Tile”), a large South African retailer of tiles,
bathroom fittings and accessories. The yearend of Tile is 28 February 2023.
Company background
Tile was founded in 1990 by Lionel Jacobs, a handyman with a passion for perfection. He
grew the business into the successful company it is today.
Location and products
Tile’s head office is in Midrand. The company has 12 retail branches located throughout South
Africa, from where its products are sold to the public. The company’s strategy is to ensure that
all branches are located on high-visibility sites that are easily accessible to customers by road.
The public, including building contractors, can buy from the branches’ extensive offerings. The
company buys its products exclusively from local suppliers. All products purchased from
suppliers are delivered to a central distribution centre, also situated in Midrand, from where all
retail branches are supplied.
Computer system
The accounting software system of Tile is Fastbooks, an off-the-shelf accounting package.
Current year audit
The following working papers have been provided to you:

Working paper reference Description

D10 Purchase system description – extract

C20 Implementation of new accounting package

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Client: Tile-SA Limited Year-end: 28 February 2023 D10
1 of 2
Prepared by: Bright Spark Date: 7 March 2023

Reviewed by: Date:

Subject: Purchase system description – extract

Part A - Ordering of goods:

The inventory manager sets pre-order levels monthly. These pre-order levels are based on
things such as supplier lead times, sales forecasts, average sales over preceding months,
etc. A report of pre-ordered levels is regularly printed out by the financial manager to review,
whereafter the report is signed as proof of authorisation.
Every Tuesday morning, a meeting is scheduled between the inventory controller and chief
buyer. The sequentially numbered purchase requisition report (“PR-report”) is then
generated from the inventory Masterfile for items that have reached their re-order levels.
The inventory controller accesses the PR-report by logging onto the inventory Masterfile by
using his username. Both parties view the PR-report online and agree that items on the PR-
report are necessary to be ordered. Any urgent or large tile or other accessories orders that
require immediate attention from the buying clerk are clearly indicated in the comment
section on the PR-report. Both parties approve the PR-report by ticking the “approval boxes”
at the end of the PR-report.
Access to the “create purchase order” module is restricted to the purchase order (“PO”)
clerk by using his unique username and password. There are good password controls in
place and to ensure the password is changed on a regular basis, the system automatically
requests a password change each year.
On accessing the module, the system will generate a pre-numbered PO and the screen will
be formatted in that manner. The PO clerk will then key-in the inventory item code taken
from the authorised PR-report, as well as a description of goods. If the item code is not valid,
the order clerk will not be able to proceed. When the item code is entered, details of the
suppliers of the item, as listed in the creditors Masterfile, will appear. The system will not
allow the order clerk to enter any supplier who is not approved.
To complete the PO entry, the PO clerk will enter the quantity ordered as part of a mandatory
field check in the designated field. The order clerk will also allocate the PO to the correct
account e.g., cost of sales. The order clerk will also contact suppliers to confirm price and
availability of goods to be purchased.
Once the order clerk has compiled the file of POs, it will be available on the system to be
accessed by the chief buyer for approval. The chief buyer will access the file of POs (read
only) and:
- Check each order against the approved PR-report for quantity and anything unusual.
- Confirm that there is an order for all the items on the approved PR-report and that no
additional goods were ordered.
Once these procedures are done, the chief buyer will send a message to the order clerk’s
terminal alerting him that the PO can be executed by either phoning the supplier, emailing,
or faxing the order.

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Client: Tile-SA Limited Year-end: 28 February 2023 D10
2 of 2
Prepared by: Bright Spark Date: 7 March 2023

Reviewed by: Date:

Subject: Purchase system description – extract

Part C – Adding new suppliers to suppliers Masterfile:

New suppliers of Tile are sourced by the chief buyer of the company. Once sourced, a
new supplier application form is completed by the supplier.
The completed new supplier application form, which also serves as Masterfile amendment
form, is reviewed and signed by the chief buyer. A designated creditor’s clerk is
responsible for the capturing of the new supplier application form to the supplier’s
Masterfile. Sufficient edit checks are in place for the capturing of the new supplier
application forms.

SUB-
QUESTION 6 – REQUIRED TOTAL TOTAL

6.1 With reference to Working paper D10 - subheading Part A

– Ordering of goods:
i.) Identify and describe the weaknesses in the input
programmed controls of Tile-SA Limited’s internal controls
as evident from the information provided; and
ii.) For each weakness identified, provide a recommendation 5x1
for the improvement of the weakness.
Your answer should be presented in the following table
format:

Identify weakness Recommendation

5x1
1 mark each 1 mark each 1x1 11
Communication skills – Presentation

6.2 With reference to Working paper D10 - subheading Part C

– Adding new suppliers to supplier’s Masterfile:
Describe the additional controls that should be implemented
by Tile-SA Limited, to ensure that only valid suppliers, are
accurately and completely added to the suppliers Masterfile. 10 x 1 10

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