AUE301P/AUI301A/101/3/2008

DEPARTMENT OF AUDITING AUDITING 300 DEGREE BCom/BCompt BCom Internal Auditing

MODULE AUE301P AUI301A

SEMESTER 1 and 2 1 and 2

TUTORIAL LETTER 101/3/2008 AND ASSIGNMENTS 01 AND 02 FOR 2008 Dear Student 1. 2. 3. 4. 5. 6. 7. 8.

INTRODUCTION THE DEPARTMENT OF AUDITING LECTURER STUDY MATERIAL TUITION METHODOLOGY AND STUDENTS ASSIGNMENTS HOW TO ATTEMPT THIS MODULE CONCLUDING REMARKS

REQUIREMENTS

Appendix 1 - Assignment 01 for 2008 - Assignment 02 for 2008 - Order form – prescribed textbooks

OF

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INTRODUCTION We have pleasure in welcoming you as a student in Auditing 300, module AUE301P/AUI301A Aspects of internal control of importance to an auditor. This module is presented in the first and second semesters. In this first tutorial letter we focus your attention on our tuition methods, important information and instructions. We trust that you will find your studies both enjoyable and stimulating and that you will succeed in the examination.

2.

THE DEPARTMENT OF AUDITING The Department of Auditing is situated on the 2nd level of the AJH van der Walt Building on the main campus in Pretoria and our telephone number is (012) 429-4707. Professor E Sadler is the head of the department and Professor EM Odendaal is the Auditing 300 course co-ordinator.

3.

LECTURER The lecturer responsible for this module and to whom you should direct your enquiries is: Ms CC Kunz Tel: (012) 429-4010 E-mail: [email protected] Appointments must be arranged in advance with your lecturer. Any problems that you cannot solve with your lecturer should be taken up with the course co-ordinator or the head of the department through the departmental secretary. Please note: All administrative enquiries should be directed to the Unisa Contact Centre at: Calls - RSA only: 0861 670 411 International Calls: +27 11 670 9000 Fax Number: (012) 429 4150 / +27 12 429 4150

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Email:[email protected] STUDY MATERIAL

4.1

Inventory letter

AUE301P/AUI301A/101

When you register, you will receive an inventory letter containing information about your tutorial matter. See also the brochure UNISA: SERVICES AND PROCEDURES (which you received with your tutorial matter). The inventory letter lists only those items that are available at the Department of Despatch in Pretoria or at the University's regional offices on the date of your registration. Students who register at a regional office will receive the remainder of the available tutorial matter by registered post from Pretoria. Check the tutorial matter you have received against this inventory letter. Unless otherwise indicated on the inventory letter (eg out of stock), you ought to have received all the items listed in the letter. Should any of the items be missing, please proceed immediately according to the instructions on the reverse side of the inventory letter. The Department of Despatch should supply you with the following tutorial matter for this module: • •

Tutorial letters A Study guide Note:

Some of this tutorial matter may not necessarily be available when you register. Tutorial matter that is not available when you register will be posted to you as soon as possible.

To contact the Department of Despatch regarding tutorial matter that you have not received, use only the telephone number on the inventory letter.

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Study guide We supply you with one study guide. The main objective of the study guide is to give you guidance with your studies of the prescribed study material for the module, and to direct your reading and study of the textbooks. The study guide is therefore not exhaustive enough for you to master the module, and you will only gain sufficient knowledge once you have worked through the textbooks as well.

4.3

Prescribed textbooks The following textbooks are prescribed for this module: 1.

Jackson, R.D.C. & Stent, W.J. 2007. Auditing notes for South African students. (6th or latest edition). Durban: Audit Education.

2.

Marx, B., et al. 2006. Dynamic Auditing. (8 edition). Durban: LexisNexis Butterworths.

3.

South African Institute of Chartered Accountants (SAICA). SAICA Handbook. 2007/2008. Volume 1 to 4. Durban: LexisNexis Butterworths.

4.

Gowar, H. & Jackson, R.D.C. Graded Questions on Auditing 2008. Durban: Audit Education.

th

or latest

The names and addresses of booksellers with whom the University has an agreement appear in the brochure UNISA: SERVICES AND PROCEDURES. If a particular bookseller does not have a specific title in stock, please try the others. If you are not able to obtain a book at the University’s official booksellers, please contact the Unisa Contact Centre. For more information please refer to: UNISA: SERVICES AND PROCEDURES.

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Tutorial letters Tutorial letters are divided into three series and form an important part of your tuition material. For more detail regarding the contents of the topics dealt with in the various series of tutorial letters, you are referred to the brochure, UNISA: SERVICES AND PROCEDURES, issued to all students during registration. Please pay particular attention to these tutorial letters; they form an integral part of our methods of establishing interaction with students. In the course of a semester, it will be necessary for you to refer to the contents of this particular tutorial letter. In addition to this tutorial letter, general correspondence applicable to a specific module, is always issued in the 100 series tutorial letters. In tutorial letter 102 a number of questions are set. The solutions to these questions are given in tutorial letter 103. The keys to assignments one and two are issued in the 200 series tutorial letters whilst aspects concerning the whole course are brought to your attention in the 300 series tutorial letters. Also note that the tutorial letters are available from certain dates on the Internet at the following address: https://my.unisa.ac.za

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TUITION METHODOLOGY STUDENTS

5.1

Method of tuition

AUE301P/AUI301A/101 AND

REQUIREMENTS

OF

Auditing 300 consists of four modules presented during both semesters. In most of our study guides you will find a study program which requires you to work through the study material of a particular module in approximately 12 to 15 weeks. During the semester you should: -

work through your study material, make summaries and complete certain “do activities”;

-

answer the questions contained in tutorial letter 102 and compare your answers with the key given in tutorial letter 103. Pay particular attention to the comments given to some solutions;

-

complete two assignments, the first one being compulsory for admission to the examinations, and which will determine your semester mark, and the second one for self evaluation purposes;

-

prepare yourself for the examination and

-

write one two-hour examination paper.

All students will receive a solution to the self evaluation assignment. Please compare your answers with this solution and consider the marks that you have allocated to your attempt as a good indication of the level of your knowledge of the contents of the module. Prepare yourself for the examination by: -

reviewing the summaries of your study material;

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-

again superficially working through the “do activities” in your study guide;

-

again doing a few of the questions in tutorial letter 102;

-

again reviewing your assignments.

You should now be prepared for the examination. 5.2

Requirements for admission to the examination You are required to submit the compulsory assignment (assignment 01) to obtain admission to the examination. Admission will be obtained by submitting the compulsory assignment timeously (that is on or before the due date) regardless of the marks obtained. Please ensure that this assignment reaches the University before the due date. Late submission of the assignment will result in your non-admittance to the examination.

5.3

Semester mark Once admitted to the examination, the marks obtained for the compulsory first assignment will contribute towards the final mark for the module, if the examination mark is 40% or more.

5.4

Requirements to pass the module You have to obtain a final mark of at least 50% in the examination and from the compulsory assignment in order to pass the module. Your semester mark contributes 10% towards the final examination mark if the latter is 40% or more. The final mark is calculated as follows: (10% x mark obtained for compulsory assignment) + (90% x mark obtained in the examination)

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Requirements to pass the module with distinction You have to obtain at least 75% in the examination in order to pass the module with distinction.

5.6

Candidates who are admitted to the supplementary examination You require a mark of 50% in order to pass a module in Auditing. Candidates who are not successful, but obtain at least 45% during the examination are allowed to be reexamined during the next semester’s examination without it being necessary to re-register for this module. An examination fee is, however, payable. Candidates who write a supplementary examination must please take note that they will be examined on the same study material that was applicable to the examination when the supplementary was obtained.

6.

ASSIGNMENTS

6.1

Compulsory assignment for admission to the examination You are required to submit the compulsory assignment (assignment 01 which is included in Appendix 1 to this tutorial letter) before 21 March 2008 (first semester) and 22 August 2008 (second semester) to obtain admission to the examination. Admission will be obtained by submitting the compulsory assignment regardless of the marks you obtained. The marks obtained will however contribute 10% towards your final examination mark, only if you obtained 40% or more in the examination. Please ensure that this assignment reaches the University before the due date. Late submission of the assignment will result in your non-admittance to the examination.

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Enquiries relating to assignment 01 (eg whether it has been received by the University, the mark obtained, when it was returned, etc) should be addressed to the Unisa Contact Centre. The solution/key to this assignment will be provided to you in tutorial letter 201 which will only be distributed after the due date of assignment 01. 6.2

Self evaluation assignment Assignment 02 which is also included in Appendix 1 to this tutorial letter need not be handed in for marking as it is a self evaluation assignment. The solution/key to this assignment will be provided to you in tutorial letter 201 which will only be distributed after the due date of assignment 01.

6.3

Submission of assignments For detailed information and requirements as far as assignments are concerned, see UNISA: SERVICES AND PROCEDURES, which you received with your tutorial matter. To submit an assignment via myUnisa: • Go to myUnisa. • Log in with your student number and password. • Select the module from the orange bar. • Click on assignments in the left menu. • Click on the assignment number you want to submit. • Follow the instructions.

7.

HOW TO ATTEMPT THIS MODULE This module, as set out in the title, deals with the aspects of internal control which are of importance to an auditor. Getting started 1. Obtain the prescribed books.

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2.

Page through the study guide to get a broad overview of the contents of this module.

3.

Start with the first topic. Read the assessment criteria to determine what you wish to accomplish.

4.

Study the prescribed material as indicated in the study guide.

5.

Complete the “do” activities in the study guide and answer the questions contained in tutorial letter 102.

6.

Compare your answers with the solutions in tutorial letter 103 (usually 1½ marks for each correctly formulated answer are allocated).

7.

Move on to the next study unit until you reach the end of the study guide.

8.

Submit the compulsory assignment before the due date.

9.

Complete the self evaluation assignment at the end of this tutorial letter. Compare your answers with the suggested solutions as the marks allocated is a good indication of the level of your knowledge of the contents of the module.

10.

Revise.

CONCLUDING REMARKS Auditing is a specialised subject which requires that high standards be maintained. Avail yourself of all the opportunities created for you and should your studies present any problem or difficulty, please do not hesitate to write to us or pay us a personal visit. Best wishes for success. Yours faithfully LECTURER: AUE301P/AUI301A

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APPENDIX 1: ASSIGNMENTS FOR 2008 1.

ASSIGNMENT 01 - COMPULSORY ASSIGNMENT

1.1

DUE DATES AND UNIQUE ASSIGNMENT NUMBERS 20 multiple choice questions to be marked by the computer. Due dates: 1st Semester : 2nd Semester:

21 March 2008 22 August 2008

Unique assignment numbers Semester 1 Module Code: AUE301P AUI301A 1.2

638545 638640

Semester 2 638553 638650

SPECIAL INSTRUCTIONS REGARDING THE ANSWERING OF THIS ASSIGNMENT 1.2.1 This assignment consists of 20 multiple choice questions and must be answered on a mark-reading card. The mark-reading card can be accessed electronically on the myUnisa system. As alternative you can use the markreading cards provided to you during registration. 1.2.2 Instructions for the completion of mark-reading cards are given in section 4 of the brochure, UNISA: SERVICES AND PROCEDURES.

1.3

STUDY MATERIAL FOR THIS ASSIGNMENT This assignment covers topics 1 to 4 of the study guide as well as the relevant prescribed textbooks.

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PURPOSE OF THIS ASSIGNMENT The purposes of this assignment are, firstly, to obtain admission to the examination. Admission will be obtained by submitting the assignment and not by the marks you obtain for the assignment. Secondly, the assignment is to help you to master the prescribed study material. Finally, the mark you obtain for the assignment will determine your semester mark which contributes towards your final examination result. Please ensure that this assignment reaches the University before the due date. Late submission of the assignment will result in your non-admittance the examination.

REQUIRED Select for each question only ONE alternative that you consider to be appropriate and then mark on the mark-reading card the digit that corresponds to the digit of the alternative which you have selected as your answer. QUESTION 1 1.1

Topic 3 Select the appropriate alternative to complete the following sentence: Tests which are designed to test the processing logic of the programs and to test the validity of its logic during the systems development phase are known as ... 1

program tests.

2

systems tests.

3

pilot tests.

4

logic tests.

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Topic 3 Which one of the following descriptions describes an echo check?

1.3

1

This occurs when extra bits, derived from the relevant data and which bear a logical relationship to the data, are attached to a data character, word or block of data. When an operation is performed on the data the computer recalculates the redundant characters and compares the recalculation with the original.

2

This occurs when an operation is performed twice and the results of the two operations are compared. Any difference will indicate a hardware-induced error.

3

This occurs when the computer checks to ensure that its commands are obeyed by requiring that printers and other equipment return a signal verifying that the command has been received and complied with.

4

This occurs when the results obtained from an operation are compared with a set of valid results. Any result not fitting into the set is incorrect.

Topic 2 During the planning phase of an audit, the performing of which one of the following activities does not change when a computer is used to process accounting data? 1

Obtaining knowledge of the business.

2

Determining materiality levels.

3

The estimation of inherent and control risk.

4

The formulation of an audit approach.

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Topic 3 Select the most appropriate alternative to complete the following sentence: The danger of unauthorised modifications to systems and application software through the use of utility programs, can be reduced through the use of ...

1.5

1

a protection ring.

2

a utility usage log.

3

a validity test.

4

fragmentation.

Topic 4 Select the most appropriate alternative to complete the following sentence: Summary totals of field amounts for all the records in a batch that are only computed for control purposes by an EDPdepartment, are known as ...

1.6

1

financial totals.

2

hash totals.

3

record counts.

4

subtotals.

Topic 3 Which one of the following operational controls will best enhance the efficiency of computer hardware controls?

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1

Equipment checks.

2

Validity checks.

3

Preventive and corrective maintenance procedures.

4

Boundary protection.

Topic 2 Select the alternative which is most appropriate to complete the following sentence: Programs that are designed to solve specific data processing needs, such as a payroll programs, are known as...

1.8

1

application software.

2

systems software.

3

hardware.

4

generalised audit software.

Topic 4 Which one of the following logic tests is used to test if a character or field is positive or negative?

1.9

1

Data classification tests.

2

Sign tests.

3

Value tests.

4

Limit tests.

Topic 3 Select the alternative which is most appropriate to complete the following sentence:

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A magnetic tape header label is used to warn the computer operator that ... 1

the next processing step is about to begin.

2

a wrong input tape has been mounted.

3

an incorrect number of records have been processed.

4

a different type of input or output device must be used.

1.10 Topic 4 The weekly wages of a company are calculated by the computer. Which one of the following controls would prevent a worker from receiving more than R200,00 per week? 1

A control total.

2

An echo check.

3

An equipment check.

4

A limit test.

1.11 Topic 2 Select the appropriate alternative to complete the following statement: A collection of data fields that relate to a specific data object, e.g. a customer, is known as a ... 1

file.

2

data base.

3

cluster.

4

record.

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1.12 Topic 2 Select the appropriate alternative to complete the following sentence: Instances where the computer and its programs are treated as the "target" of the audit are referred to as auditing ... 1

"with" the computer.

2

"around" the computer.

3

"through" the computer.

4

"without" the computer.

1.13 Topic 2 Which one of the following statements is not appropriate? 1

Data is more consistent in a data base system than in computer systems where data is not organised in a data base.

2

When compared to computer systems in which data is not organised in a data base, data base systems require more time for file update and maintenance.

3

Control over access to data is better in a data base system where all data is stored in a central location than is the case in computer systems where data is not organised in a data base.

4

A data base system is more complex than a computer system where data is not organised in a data base.

1.14 Topic 3 Which one of the following duties is not a duty of the librarian in an EDP environment?

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1

Testing and control of files.

2

Storage of files and documentation.

3

Keeping an inventory of files and documentation.

4

The updating of the debtors master file.

1.15 Topic 3 Which one of the following controls is not normally seen as a general control? 1

System security controls.

2

Hardware controls.

3

System software controls.

4

Processing controls.

1.16 Topic 3 Select the appropriate alternative to complete the following statement: Tests that are applied to a number of logically related programs during the system development phase are known as ... 1

program tests.

2

string tests.

3

system tests.

4

pilot tests.

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1.17 Topic 3 Select the appropriate alternative to complete the following statement: In an EDP system "boundary protection" is protection considered to be protection ... 1

provided by a protection ring.

2

provided by one file from another when the files are stored on a common medium.

3

of source documents on which an input file is based.

4

where use is made of the son-father-grandfather concept.

1.18 Topic 2 Select the appropriate alternative to complete the following statement: A set of programs (instructions) that co-ordinate and control the use of hardware and support the execution of user programs is known as ... 1

application software.

2

system software.

3

modems.

4

compilers.

1.19 Topic 4 Select the appropriate alternative to complete the following statement:

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The electronic data processing technique that assembles data into groups to ensure convenient and efficient processing is known as ... 1

direct processing.

2

multiprogramming.

3

batch processing.

4

real-time processing.

1.20 Topic 3 The magnetic tape containing the accounts receivable information for September 20XX could not be located. According to a data processing supervisor it could have been misplaced amongst the tapes available for use in processing. The best control procedure for the prevention of this type of error would be a ... 1

trailer label.

2

header label.

3

file protection ring.

4

external tape label.

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2

ASSIGNMENT 02 – SELF EVALUATION ASSIGNMENT

2.1

SPECIAL INSTRUCTIONS AND REMARKS REGARDING THE ANSWERING OF THIS ASSIGNMENT 2.1.1 You are required to complete this assignment under examination conditions within two hours without consulting your study material. 2.1.2 After having completed this assignment, you should compare your answers with the key in tutorial letter 201. This assignment must not be sent to the University.

2.2

TUTORIAL MATERIAL FOR THIS ASSIGNMENT This assignment deals with the entire content of this module. This assignment consists of a previous semester’s examination paper.

2.3

PURPOSE OF THIS ASSIGNMENT The purpose of this assignment is to serve as a revision of the study material as a whole and at the same time as an indication of the standard which can be expected in the examination. Please note that the self evaluation assignment must not be submitted to the University.

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QUESTION 1

15 marks

REQUIRED Select for each sub-section of this question only one alternative that you consider to be the most appropriate and then write down as your answer the number of the sub-section and the letter that precedes the selected alternative. Answer the sub-sections of this question in numerical sequence, for example 1.1 A 1.2 B 1.1

1.2

Which one of the following tests would be performed by an auditor who plans to accept a low level of risk on system testing? A

Review the reconciliations of output produced during parallel testing.

B

Trace recorded data from the original files to the new files.

C

Review the programming standards section of the systems and procedures manual.

D

Review the systems development standards manual.

Select the alternative which is most appropriate to complete the following sentence: Automated equipment controls in an electronic data processing system are designed to detect errors arising from ... A

the operation equipment.

of

the

electronic

B

the lack of human alertness.

C

the incorrect input and output of data.

data

processing

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poor management of the electronic data processing installation.

Select the alternative which is most appropriate to complete the following sentence: A computer file which is the output of the most recent updating operation, is referred to as the ...

1.4

A

grandparent file.

B

parent file.

C

child file.

D

hash file.

Select the alternative which is most appropriate to complete the following paragraph: Data fields such as identification numbers or vendor numbers are not usually added for accounting purposes. They may be added for control purposes, however, and the resulting totals are called ...

1.5

A

hash totals.

B

record counts.

C

financial totals.

D

cross footing totals.

Which one of the following errors would be detected as a result of a company using self-checking numbers (check digits) in its electronic data processing system?

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B

Assigning a valid identification code to the wrong customer. Recording an invalid customer’s charge account number.

C

Losing data between processing functions.

D

Processing data arranged in the wrong sequence.

Select the alternative which is most appropriate to complete the following sentence: A comparison of two independent calculations of unemployment insurance fund contributions in a payroll program is known as a ...

1.7

A

data echo check.

B

dual field input.

C

double arithmetic check.

D

before and after look.

Select the alternative which is most appropriate to complete the following paragraph: A weekly payroll cheque was issued to an hourly paid employee based on 98 hours worked instead of 38 hours. The time card was slightly illegible and the number looked somewhat like 98. The best control to prevent an error of this nature would be ... A

a hash total.

B

a code check.

C

desk checking.

D

a limit test.

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Select the alternative which is most appropriate to complete the following paragraph: An expense report was prepared by a computer center. A senior executive questioned one of the amounts and asked for the source documents supporting the amount. The data processing department was not able to routinely respond to the request. The best control to make source documents available immediately would be ...

1.9

A

an error listing.

B

an audit trail.

C

transmittal control.

D

documentation.

Which one of the following points should an auditor recommend as the most economical point to correct input errors in an online system? A

At the point where input data is balanced with computerproduced control totals.

B

At the point where output data is delivered to the user.

C

At the point where data is entered into each field of a computer record.

D

At the point where output data is balanced with computer-produced control totals.

1.10 The data processing department of an auditee was not able to easily determine whether or not an apparent error in input data, had been processed by the computer. Which one of the following alternatives is the best control to determine whether or not such processing took place?

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A

Input edit checks.

B

Missing data validity checks.

C

Transmittal controls.

D

An error log printed after input but before processing.

QUESTION 2

18 marks

You are the auditor of Macrohard (Pty) Limited. Macrohard (Pty) Limited is a manufacturing company which specialises in sporting equipment. The company sells its products to wholesalers and a few retailers. Mr William Fence, the managing director of the company, is concerned with the sales and receipt system in operation at the company and has asked for assistance in this regard. The following description describes the company’s sales and receipt system: Mrs Venter, the receptionist, is responsible for opening the mail every day. All the orders that are received by mail are sent directly to the sales department while all cheques and monies received are sent to Mrs Collect, the debtors clerk. Mrs Collect then updates the debtors accounts with the payments and deposits the money and cheques into the company bank account. The sales department makes out a sales order in triplicate from the order received via the mail and telephone. The sales orders are checked by the sales manager and approved before being sent out. The first copy of the sales order is sent to the credit controller, who authorises the order after the client’s creditworthiness and credit limit have been checked. The second and third copies are sent to the finished goods store for the inventory to be withdrawn. The finished goods store prepares the inventory for delivery and if any changes are required (certain goods not in inventory), the head storeman makes the necessary changes on both the copies of the sales orders. The goods, together with the third copy of the sales order, are then sent to the despatch department. The second copy of the sales order is retained by the finished goods store for their records.

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The despatch department physically checks the goods that are received from the finished goods store and compares the quantities to the third copy of the sales order. The despatch department then prepares the sales invoice in duplicate. The first copy is sent together with the goods to the customer. The second copy is sent to Mrs Collect, the debtors clerk. Mrs Collect checks all the calculations on the sales invoice and compares the prices charged to the latest price list. Mrs Collect then posts the sales invoice to the debtor’s account. At the end of every month, after reconciling the debtors ledger to the debtors control account, Mrs Collect prepares the debtors’ monthly statements and mails them to the debtors. Any queries that are originated by the debtors are referred to Mrs Collect for following up and if adjustments are necessary, she puts them through. After the debtors statements have been mailed the final debtors summaries are sent to the accountant, Mr Number, for updating of the general ledger. REQUIRED Identify the weaknesses in the above system and describe the controls that would prevent the identified weaknesses. Set out your answer as follows: Weakness

Control

1

1

QUESTION 3

18 marks

You are the auditor of Make-a-Deal (Pty) Limited. The company trades in scrap metal and promotes itself as the only company in the country where everything is negotiable. The managing director of the company is Mr Steel. During the interim audit Mr Steel calls you into his office for a discussion. During the discussion he informs you that Make-a-Deal

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(Pty) Limited has just purchased a large number of new computers and system software packages. He tells you that the supplier of the computer hardware informed him that these computers were state of the art and that they were very reliable because they had hardware controls built-in to them. Mr Steel also shows you the system software packages which state in bold letters “Includes self-protection controls to safeguard against unauthorised use and modification of system software”. Mr Steel does not understand the concepts of hardware and selfprotection system software controls and has asked you for assistance in this regard. REQUIRED 3.1

Identify and describe to Mr Steel six (6) hardware controls. (9)

3.2

Identify and describe to Mr Steel six (6) self-protection system software controls. (9)

QUESTION 4

12 marks

Cells R Us (Pty) Limited is a company that sells cellular phones, airtime and other cellular accessories to the public. The company only sells on a cash basis and for this purpose two sales personnel are employed by the company. The company has only one till and therefore each sales person has a different sales code to operate the till. As the company was experiencing rapid growth, a third sales person was employed by the company. The following procedures for selling merchandise were verbally explained to the employee: For each sale an invoice is made out in duplicate on a company letter head. Unused letter heads are placed on top of the counter, next to the till. The customers place all the items that they wish to purchase on the counter and the first available sales person records the sale. The company has not yet had invoices designed as they believe this will take up a lot of their time and they would rather expand the business first. The sales person writes down the item, the quantity and the total to be paid (including VAT). As these letter heads are not numbered each sales person also writes the next invoice number

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down on the letter head after asking the other two sales persons what the last number was that they had used. The sales person initials the invoice next to the number to indicate which sales person had made the sale. Each sales person receives the cash for the specific sale and rings it up on the till. At the end of the day the cash received and the copy of the invoices that were made out are collected by the accountant. The accountant banks the cash the following day and enters the invoices onto the computer. All the invoices for the previous day are entered as a batch and the system is updated. REQUIRED Identify eight (8) control weaknesses that exist before and during data capturing in the sales system of Cells R Us (Pty) Limited, and list a control for each identified weakness that would prevent or detect errors resulting from the weakness in the sales system (only one control per error is required), and indicate for each control listed, if it will prevent or detect the errors resulting from the identified weakness. Present your answer in the following format: Weakness 1 Control Prevent/detect

......................... ......................... .........................

Weakness 2 Control Prevent/detect

......................... ......................... .........................

QUESTION 5

25 marks

Rugby Memos (Pty) Limited is a company that markets and sells a range of rugby memorabilia in the Gauteng area through sales agents. The company was started recently. Each of the products that the company sells is distinguished by a product code (6 characters).

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The company currently has 45 sales agents who market and sell the products of the company. The company operates out of a warehouse situated in Woodmead, Johannesburg. The office comprises of an accountant, 2 sales personnel, 2 debtors personnel, 2 creditors personnel, 3 data processing personnel, 6 storemen and 4 delivery personnel. The following is a brief description of the credit sales system in operation at Rugby Memos (Pty) Limited: The company keeps the sales of each agent separate by issuing each sales agent with an alpha-numerical sales agent’s code (4 characters). Each customer is assigned a unique debtors code (5 characters) to facilitate invoicing and record keeping. When products are sold by the agents, the details of the transaction are recorded by the sales agent on a manual credit sales order. At the end of every week each sales agent submits their credit sales orders to the sales department of Rugby Memos (Pty) Limited. The sales personnel check the sales order and ensure that the correct selling prices have been charged and that the sales orders have all the required information filled in on them. The sales personnel then group the sales orders into batches and submit these batches to the data processing personnel for processing. The data processing personnel then convert the batches into machine-readable format (batch data preparation) and process the sales orders (batch data input). The debtors master file, the inventory master file as well as the sales records are all simultaneously updated. The data processing personnel then print out invoices and delivery notes for the goods that need to be delivered to the customers. The delivery notes are then handed to the storemen to prepare the orders for delivery. Once the orders are prepared they are given to the delivery personnel, together with the delivery notes for delivery. REQUIRED Describe the application controls that you would expect to find in the company’s internal control system that will ensure the validity, accuracy and completeness of the input of the credit sales orders within the EDP department of Rugby Memos (Pty) Limited.

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AUE301P/AUI301A/101

QUESTION 6

12 marks

You are the auditor of Liquid Asset (Pty) Limited. Liquid Asset (Pty) Limited is the third largest Tequila producer and distributer in South Africa and operates throughout the country. The company uses a large number of computer programs, all of which have been developed internally and are maintained by company personnel. During the performance of the interim audit, at the company, you were handed a detailed description of the company’s system for program changes. The following extract comes from that description: Requests for changes to the current system are originated by either the users or development personnel. The requests are made via telephone to the data processing manager, Mr Cuervo. Once Mr Cuervo has received the request, he holds a meeting in his office, with the person who originated the request and verbally approves the changes. During the project development, development personnel are encouraged to report back to Mr Cuervo about the progress of the project. After the changes are completed, they are checked by Mr Cuervo and he gives his final approval for the changes. The changes are tested and implemented by the development personnel over a weekend so as not to disrupt personnel working on the programs. Mr Cuervo reviews the test results and if he is satisfied he personally updates the system documentation and informs the personnel of the changes. He does so by preparing a short description of the changes and forwards this via e-mail to all the relevant personnel, the users and the internal audit department. A copy of the description is printed and filed in the library together with the rest of the system documentation. After this has been done the personnel may continue normal processing on the program. REQUIRED List the shortcomings in the development of the system described above and describe the controls which would have improved the development of the system.

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AUE301P/AUI301A/101

Present your answer in the following format:

Weakness

Control that will lead to an improvement in the development of the system

1

1

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