a)

Description Advantage

Simple to record; the

Narrative notes consists of a written
discussions between staff
description of the system. They
members can be written as
Narrative notes detail what occurs in the system at
notes
each stage and include any controls
Can be understand by all
which operate at each stage
members of the audit team,

Questionnaires are quick to

Internal control questionnaires
prepare, which means they are
(ICQs) or internal control evaluation
a timely method for recording
questionnaires (ICEQs) contain a list
the system.
of questions for each major
Ensure that all controls present
Questionnaire transaction cycle
within the system are
- ICQ are used to assess whether
considered and recorded ->
controls exist
missing controls, deficiencies
- ICEQs assess the effectiveness of
are highlighted for the audit
the controls in place
team

b) Deficiencies, controls and TOC

Control deficiency Control recommendation TOC

For a sample of new customer

Customer credit limits are set by Credit limits should be set by a
accepted in the year, review
sales ledger clerks. Which they senior member of the sales
the credit limits and ensure it
are not sufficiently senior and so department and not by sales ledger
was performed by an
may set unappropriate limits clerks. These limits should be
authorised, responsible official
leading to irrecoverable debts or regurlarly reviewed by a responsible
Enquire of sales ledger clerks as
loss of sales official
to who can set credit limit
Sales order number is based in
the sales person's own
identification number. Which
can lead to difficulty for the
Re - perform the control by
company to identify missing Sales orders should be sequentially
undertaking a sequence check
orders and to monitor if all numbered. And it should be checked
of sales orders. Discuss any
orders are being dispatched in on a regular basis to identify any
gaps in the sequence with sales
timely manner as these numbers missing orders
ordering staff
are not sequential. And lead to
loss of customer goodwill if they
fail to dispatch the goods
correctly and on time

The bank transfer receipts are

posted from the bank
statements to the cash book by
Lily Shah, a finance clerk. And
also she has to updates the sales
ledger and performs the bank
reconciliations.
It is lack of segregation of duties
and could lead to errors which
can't be identified on timely
basis. And increased risk of
fraud.
GRNs are only sent to the
finance department. Failing to The GRN shoul be created in 3 parts
send a copy to the purchase with one copy of the GRN being sent
Review the file of copy GRNs
ordering department means to the ordering department. The
held by the purchase ordering
that it is not possible to monitor second copy should be held at the
department and review for
the level of unfulfilled orders. warehouse and the third sent to the
evidence that these are
This could result in a significant finance department.
matched to orders and flagged
level of unfulfilled orders leading A purchase ordering clerk should
as complete. Review the file of
to stock-outs and a consequent agree their copy of the GRN to the
unfulfilled purchase orders for
loss of sales. purchase order status to complete.
any overdue items and discuss
In addition, if the GRN is lost, On a regular basis, a review should
their status with an ordering
then it will not be possible for be undertaken for all unfulfilled
clerk
the finance department to orders and these should be followed
match the invoice being paid up with the relevant supplier
and a loss of supplier goodwill

Camilla Brown, the purchase

ledger clerk, only utilises
The audit team should utilise
document count controls when The purchase ledger clerk should
test data procedures to assess
inputting invoices into the instead input the invoices in batches
whether data can be entered
purchase ledger. and apply application controls, such
without the use of batch
Document count controls can as control totals rather than just
control totals and also whether
confirm the completeness of completeness checks to ensure both
sequence checks are built into
input but can't verify the completeness and accuracy over the
the system.
accuracy or validity of input input of purchase invoices. In
Observe the inputting of
If the invoices are not input addition, sequence checks should be
purchase invoices and identify
correctly, suppliers may not be built into the systems to ensure
what application controls are
paid on time or wrongly paid completeness of input
utilised by the clerk
which lead to an overpayment
or loss supplier goodwill
The company values its
A review of all standard costs
inventory using standard costs,
currently in use should be
and was last reviewed 18
undertaken by a senior manager in
months ago this could lead in
the production department. Actual
misstatment in financial report
costs for materials, labour and Obtain a copy of the standard
and internal management
overheads should be ascertained and costs used for inventory
reporting as there could be
compared to the proposed standard valuation, assess when the
changes in material, labours,
costs to ensure they are a close review was last undertaken and
wages, inflation,…
approximation. inspect for evidence of review
In addition, standard costs can
The revised standard costs should be by the production director
only be used if the it is
reviewed by the production director
approximate to the actual costs,
who should evidence this review. At
which is unlikely if the standard
least annually, a review should be
costs remain unchanged for a
undertaken
long period of time

Overtime worked per employee

is collated and submitted to the
payroll department by just one
production clerk. And overtime
reports are only reviewed by the All overtime should be authorised by Review the overtime report for
production director after each a responsible official prior to the evidence of authorisation and
quarter after the payments have payment being processed by the note the date this occurred to
been made. payroll department. This ensure that this was
This could result in fraud which authorisation should be recorded in undertaken prior to the
unauthorised extra hours writing payment of the overtime
worked by employee could be
miss or amounts of wages paid
are incorrectly lead to increase
in company's payroll cost
The finance director compares
the total to be paid on the list of The finance director, when
automatic payments and that of authorising the payments should on
the payroll records. Which could a sample basis perform checks from Obtain a sample of payments
be fraudulents or error in the HR's records to payment list and lists and review for signature by
payment made as there could vice versa to confirm that payment the finance director as evidence
be employees omitted or are complete and only made to that the control is operating
fictious employees added to the active employees. And sign the correctly
payment list so that the total payment list as evidence that these
payment list match the payroll checks have been undertaken
total

c)
Substansive procedures the auditor should adopt in respect of auditing this accrual:
* Compare the accrual for employment tax payable to the prior year, investigate any significant differences
* Agree the year - end employment tax payable accrual to the payroll records to confirm accuracy
* Re - perform the calculation of the accrual for a sample of employees to confirm the accuracy
* Undertake a proof in total test for the employment tax accrual by multiplying the payroll cost with the appropriate tax then

d)
Deficiency Recommendation

The finance director is a

member of the audit committee
whereas the audit committee The finance director should resign
should be separate and its from the committee to keep the
members are NEDs to keep the committee only comprised of
objectivity while the finance independent NEDs
director is responsible for the
preparation of the FS

The remuneration is set by the

There should be a fair and
finance director. Whereas the
transparent policy on remuneration
remuneration should be
which is agree by the whole board
consider and agree by everyone
and a remuneration committee
on the board and not by only
comprised of independent NEDs
the finance director. This could
should be formed to decide the
lead to excessive levels of pay
remuneration of executives
being set and vice versa
Executive remuneration includes
a significant annual profit
related bonus. Which lead the It should be reconstructed to include
executive to focus on the short- a significant proportion related to
term profit and not the long- long-term company performance.
term maximising shareholder
wealth
cant differences

ost with the appropriate tax then compare this expectation with actual accrual and investigate significant differences
a)
TOC Test objective
A sample of customer